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POSCO is growing even at this moment. Our ultimate goal is to become a leading steel
manufacturer in the world’s steel industry, an enterprise pursuing constant changes and
reforms, and a citizens’ partner in creating a enjoyful and pleasant society. As POSCO grows,
the world will become a different place. POSCO will open your future-full of hope and promise.
Contents
Financial Highlights
02 CEO’s Message
06 Board of Directors
08 2004 Overview
09 POSCO On the Move
27 Review of Operations
28 Global Leadership
34 Growth Engine
40 Innovation
46 Trust & Sharing
52 Executive Officers
54 Global Network
56 Milestones
57 Financial Statements
Shareholder Demographics
Foreign Shareholders
69.25
Other DomesticShareholders
19.8
Treasury Stock
7.66
InvestmentTrusts
3.29
unit: %
unit: %
2004
2003
Foreign Shareholders
66.47
Other DomesticShareholders
19.56
Treasury Stock
9.28
InvestmentTrusts
4.69
Operating Margin
30
20
10
2001
12.9
2002
15.6
2003
21.3
2004
25.5
unit: %
ROE
30
20
10
2001
8.4
2002
10.2
2003
16.2
2004
26.3
unit: %
EPS
50,000
40,000
30,000
20,000
10,000
2001
10,043
2002
13,442
2003
24,306
2004
47,331
unit: KRW
Dividend Per Share
10,000
8,000
6,000
4,000
2,000
2001
2,500
2002
3,500
2003
6,000
2004
8,000
unit: KRW
Income & Balance Sheet Data
Sales
Operating Income
Net Income
Total Assets
Total Liabilities
Shareholders’ Equity
KRW in billions
Non-Consolidated Basis
Key Figures
Operating Margin
Debt to Total Assets
Number of Shares Outstanding
Earnings per Share (KRW)
Year End Stock Price (KRW)
25.5%
11.7%
87,186,835
47,331
187,000
2003200220012000 2004
Last year’s financial performance was stellar, but 2004 was
even better. In 2004, POSCO benefited from a superior sales
mix towards higher value-added products, multiple prices
hikes across main product categories, and management’s
relentless reform effort. As a result, topline jumped 37.8% to
KRW 19,792 billion over last year. Leveraging our low cost
structure, we achieved record profitability with operating
margin of 25.5% and net income of KRW 3,826 billion. Our ROE
grew to 26.3% from 16.2%. Furthermore our balance sheet
continues to be one of the strongest amongst our global peers
with a debt to total assets ratio of 11.7%.
Achieving Record-High Performance For Two Consecutive Years
Financial Highlights
14,359
3,058
1,981
18,407
5,449
12,958
19,792
5,054
3,826
21,367
5,257
16,110
11,729
1,834
1,101
17,245
5,678
11,567
11,086
1,429
819
17,616
7,419
10,197
11,692
2,099
1,637
17,767
8,337
9,430
KRW in billions
2004 3,826
Net Income
2003 1,9812002 1,101
KRW in billions
2004 6,500
EBITDA
2003 4,5192002 3,160
KRW in billions
2004 19,792
Sales
2003 14,3592002 11,729
18.0%
29.0%
96,480,625
19,161
76,500
12.9%
29.5%
93,589,485
10,043
122,000
15.6%
24.4%
90,781,795
13,442
118,000
21.3%
19.4%
88,966,155
24,306
163,000
CEO’s Message
To Our Valued Shareholders and Customers
In 2004, We achieved our goal of annual production capacity of
30 million tons under the strategy of 'Growth and Innovation'.
We continued to show outstanding performances following
2003, despite challenging conditions at home and abroad. At
the same time, we enhanced our core competitive edge and
secured a growth engine. To this end, we expanded production
facilities and overseas businesses, developed innovative tech-
nologies, secured a stable amount of raw materials and
improved sales mix. In addition, we laid a foundation for a fresh
leap forward by integrating Six Sigma into our operations.
2004 Overview
Despite the war in Iraq and the continuing threat of terrorism,
along with sharp increases in oil prices and raw material
costs, the global economy experienced an overall recovery,
centered on the U.S., Japan and other economic powers, while
the Chinese market continued to grow. However, The Korean
market suffered in spite of healthy export figures, with a
continued sluggishness in the domestic demand. It was a
challenging year for many domestic corporations. Due to a
sudden increase in raw materials and overheated competition
among the world's steel manufacturers, the domestic steel
industry faced uncertainties. In this environment, the entire
POSCO family pulled together and worked tirelessly towards
growth and innovation, resulting in sales of KRW 19.8 trillion
and net income of KRW 3.8 trillion breaking the company's
records for the second year in a row.
Foundations for Continual Growth
Commercialization of POSCO's innovative ironmaking
processes, increased manufacturing of high value-added
products, and aggressive investment in developing new tech-
nology are all essential elements in our formula for continual
growth. First of all, we broke ground on the first commercial
FINEX plant with a 1.5 million-ton capacity. Utilizing POSCO's
proprietary next-generation ironmaking technology, FINEX
drastically reduces environmental pollutants and production
costs. In addition, a 600,000-ton capacity strip casting demo
plant was commissioned, paving the way to commercializing
the latest technology in steel sheet production that casts steel
sheets directly from molten steel. In concert with these
efforts, our fifth and sixth continuous galvanizing lines devoted
to high value-added automotive steel products were
completed in addition to a tailor-welded blank plant, while
construction commenced on a hydroforming plant.
To boost stainless steel production, we have undertaken an
expansion project at Zhangjiagang's stainless steelmaking
and hot-rolling mill in China to increase its capacity to 800,000
tons. In Qingdao, China, we commissioned a stainless cold-
rolling mill with an 180,000 ton-capacity. Furthermore, we are
reviewing the possibility of building an integrated mill to build
a mutually beneficial relationship with the Chinese steel
industry. POSCO is also exploring areas such as India and
Brazil for possible manufacturing sites and material sourcing.
We believe that effective R&D is an integral part to solidify our
leadership position in the global steel technology. We have
increased investment in developing the latest technologies
and high value-added products. Innovative processes such as
FINEX and strip casting raise the bar on technological
competitiveness.
Securing Key Inputs
In response to the worldwide shortage of raw materials, we
have actively expanded long-term contracts and investments
03
in overseas mines to secure a stable, long-term supply. In
addition to our fruitful joint venture in Australia's POSMAC
mine and supply contract for regular pellet and iron ore from
Brazil's KOBRASCO, we have increased long-term contracts
with iron ore suppliers from the two countries that guarantee
a total of 25 million tons of iron ore annually for the next ten
years. For coal, we are currently participating in joint mining
development projects and have acquired shares in a number
of Australian and Canadian coal mines for an even more
stable and long-term procurement.
The Power of Process Innovations
Our continuing Process Innovation initiatives with Six Sigma at
their core have been met with tangible success. To bolster our
competitive edge, POSCO is dedicated to ongoing PI efforts,
redefining the way we work and our corporate culture with Six
Sigma's Process Innovations as our model framework. In 2004
alone, a total of 1,800 projects were completed, translating to
an estimated financial value of KRW 490 billion. At our Pohang
and Gwangyang Works, we have implemented a web-enabled
manufacturing network project that maximizes operational
efficiency. Dubbed MES (Manufacturing Execution System), it
effectively integrates and standardizes all of the separate
processes at both our steelworks, seamlessly linking about
eighty facilities to operate as though they were one. The scope
of our Six Sigma initiatives continued to expand, including
projects completed with supply-chain partners outside the
company. In addition to improving cooperation, our new
benefit sharing system allows both parties to reap the
rewards of a successful initiative. Recognizing the needs of
small and medium-sized vendors, we began remitting
payments in cash since last December, strengthening our
business relationships in the process.
Global Management Standards
POSCO is working hard to achieve an ever more transparent
and independent corporate governance. The presence of inde-
pendent outside directors on our Board of Directors has been
increased to 60%, while the Audit Committee, Evaluation and
Compensation Committee, and the Insider Trading Committee
are now all comprised of outside directors. In addition, to
guarantee fairness in the Board election process, the outside
director nominees are selected by an independent group of
prominent social figures, and new cumulative and write-in
voting systems were instituted to protect the rights of minority
shareholders. Our new sustainable development policy
broadens and articulates the scope of our dedication to being
a responsible corporate citizen, preserving the environment
and fulfilling our social duties. We remain dedicated to estab-
lishing corporate ethics as a permanent part of our culture
and to our ongoing community service.
Looking Ahead: Goals and Strategies for 2005
With a global downturn in economic growth on the forecast,
we expect a sluggish domestic market due to low domestic
demand and export growth. We also expect the U.S. to inten-
sify pressure for Asian currency devaluation to relieve its
trade deficit, while a rise in energy consumption and fear of
supply shortages are likely to keep oil prices high. Worldwide
demand for steel is expected to exceed one billion tons in
2005, but China's apparently insatiable demand for consump-
tion of raw materials will likely drive up prices significantly.
Following the emergence of Arcelor in 2002, Mittal Steel's
inauguration as the largest steel corporation in the world is
slated for the first quarter of 2005, boasting a 63 million-ton
annual capacity. This trend toward consolidations and
conglomerates signals intensifying competition within the
global steel industry. In response to such economic conditions
and market uncertainty, POSCO is building upon the twin foun-
dations of growth and innovation to attain our goals for 2005.
We are aiming for 31 million tons of crude steel output, an
increase of 870,000 tons from last year, and for revenues of
KRW 23 trillion, or 16% more than last year.
Investments for Expansion
To expand our manufacturing capability, POSCO will be
investing in building a domestic production network with a 34
million-ton capacity by 2008. Anticipating a shortage in
domestic steel supply, we will continue to focus on refur-
bishing and building new facilities, as well as investing in
quality improvements and eliminating manufacturing bottle-
necks at Pohang and Gwangyang Works to maximize the
balance of supply and demand. Overseas, we will actively
explore markets with rich natural resources, such as India and
Brazil, and we will step up domestic and foreign investments
in a drive to become the world’s third largest stainless steel
producer. Furthermore, we will build a sales network linking
our overseas production sites and aggressively pursue new
markets with strong growth potential, such as the BRICs
nations. Increased investments in developing iron ore and coal
sources and long-term sales contracts will alleviate concerns
about materials supply.
Continual Innovations = Increased Competitiveness
Staying ahead of the technological curve, POSCO will commer-
cialize our proprietary process technologies FINEX and strip
casting, as well as developing fundamental new technologies.
To this end, we will also broaden our global R&D network
through joint research projects and technological partner-
ships. We will focus on increasing sales of strategic products
by securing mass-production technology for these high value-
added products, such as automotive steel, and improve prof-
itability with through product refinement. By instituting a
system of accountability in cost control, we will also
strengthen our cost competitiveness. Our overall corporate
culture will be greatly strengthened by fully adopting a Six
Sigma mentality, not only through operational innovations, but
also by enriching our employees' professional capability on a
global scale. We remain dedicated to sustainable development
and will expand our proactive environmental protection
measures and community services.
To POSCO’s customers, shareholders, and everyone who
wishes us well, each and every one of POSCO's employees is
constantly aware that your interest and affection are vital to
the company's wellbeing and growth. We pledge our best
efforts and complete commitment to attain our goals in the
coming year. We hope that you will continue to encourage and
support POSCO.
With heartfelt thanks,
Ku-Taek Lee
Chairman & CEO
CEO’s Message
0504
In 2004, POSCO focused on corporate governance, establishing an advanced
model through reforms. These and other activities effectively maximized
shareholder value and strengthened our capacity as a global corporation. The
proportion of outside directors on the Board of Directors was increased to
nine directors out of fifteen, heightening the body's independence. Outside
Director-only meetings may be held to hear opinions on BOD agendas, which
is stated on Operational Regulations for Board of Directors. Turning our
attention to stockholders, we instituted cumulative and write-in voting
systems and eliminated a clause in the articles of incorporation regarding
convertible preferred share issuance. Moreover, we established an Insider
Trading Committee to oversee transparency in dealing with affiliated
companies and affiliate persons and issued a formal corporate governance
policy that outlined our vision and principles on the this fundamental issue.
POSCO’s Board of Directors is the company's highest decision-making body,
deliberating on not only the company's medium to long-term strategies, but
on many important business decisions. The Board convened seven times
during 2004 with an average attendance rate of 97%. Among the items on the
agenda were: the construction of Gwangyang's sixth continuous galvanizing
line, increasing Gwangyang's PCM capacity and refurbishing Gwangyang's
LNG Terminal.
Notably, on July 23, 2004, the Board approved the construction of the first
commercial FINEX plant at Pohang Works utilizing an innovative
next-generation iron making process. Board Meeting in October was held
for the first time in China where all board members attended to make
long-term strategy concrete and feel more about company's work place.
The Director Candidate Recommendation and Evaluation Committee met
four times last year; its agenda of eight items included evaluation and
recommendation for outside director candidates.
The Evaluation and Compensation Committee convened four times to
deliberate on five items, including POSCO'S overall financial performance.
The Finance and Operation Committee met six times during the year to
resolve nineteen items, including capital increase of POSCO-China.
The Executive Management Committee convened thirteen times to
deliberate on forty-seven items, including rationalization of Gwangyang's
first continuous galvanizing line.
The Insider Trading committee, comprised of four outside directors, met
four times to resolve support plans for the POSCO Scholarship Fund and five
other items.
The Audit Committee met six times to review the 2003 and 2004 year audit.
Committee
Director Candidate Recommendation Committee
Kwang-Woo Jun Chair
Wook Sun
Charles Ahn
Seok-Man Yoon
Finance and Operation Committee
Young-Ju Park Chair
Kwang-Woo Jun
Charles Ahn
Seok-Man Yoon
Youn Lee
Insider Trading Committee
E. Han Kim Chair
Jeffrey D. Jones
Yoon-Suk Suh
Wook Sun
Evaluation and Compensation Committee
Yoon-Suk Suh Chair
Samuel F. Chevalier
Young-Ju Park
Won-Soon Park
Audit Committee
E. Han Kim Chair
Jeffrey D. Jones
Yoon-Suk Suh
Wook Sun
Executive Management Committee
Ku-Taek Lee Chair
Chang-Oh Kang
Kyeong-Ryul Ryoo
Seok-Man Yoon
Youn Lee
Joon-Yang Chung
1
2
3
5
6
4 7
8
9
10 13
11
12
14
15
Directors
As of March 2005
Board of Directors
1. Ku-Taek Lee
·Chairman of
the Board and CEO
·Executive
Management
Committee Chair
2. Chang-Oh Kang
·President
·Executive
Management
Committee
3. Kyeong-Ryul Ryoo
·Senior Executive
Vice President
·Executive
Management
Committee
4. Seok-Man Yoon
·Senior Executive
Vice President
·Director Candidate
Recommendation Committee
·Executive Management
Committee
·Finance and Operation
Committee
5. Youn Lee
·Senior Executive Vice
President
·Executive
Management
Committee
·Finance and
Operation
Committee
6. Joon-Yang Chung
·Executive Vice President
·Executive Management
Committee
7. E. Han Kim
·Audit Committee Chair
·Insider Trading
Committee Chair
8. Samuel F. Chevalier
·Evaluation and
Compensation
Committee
9. Young-Ju Park
·Finance and Operation
Committee Chair
·Evaluation and
Compensation
Committee
10. Kwang-Woo Jun
·Director Candidate
Recommendation
committee Chair
·Finance and
Operation
Committee
11. Won-Soon Park
·Evaluation and
Compensation
Committee
12. Jeffrey D. Jones
·Audit Committee
·Insider Trading
Committee
13. Yoon-Suk Suh
·Evaluation and
Compensation
Committee Chair
·Audit Committee
·Insider Trading
Committee
14. Wook Sun
·Director Candidate
Recommendation
Committee
·Audit Committee
·Insider Trading
Committee
15. Charles Ahn
·Director Candidate
Recommendation
Committee
·Finance and
Operation Committee
0706
POSCO ON THE MOVE
Jan. 20As a caring corporate citizen, POSCO issued the
Environmental Policy, which shows our commit-
ment towards social responsibilities and the envi-
ronment. The policy is a revised version of our
1995 environmental guidelines and emphasizes
eco-friendliness as a top corporate priority, which
is an essential part of our operations. The policy
demonstrates the strong will of POSCO to secure
a competitive edge by giving back to society.
May 15The 8th Annual Meeting and Conference of the
International Stainless Steel Forum (ISSF) was
held on May 15th at POSCO Center in Seoul.
During this four-day meeting, sponsored by
POSCO, stainless steel manufacturers all across
the world gathered and discussed the industrial
status of the stainless steel industry in China as
well as the supply and demand conditions of raw
materials in steel production.
Jun. 4POSCO started building a Strip Casting demo
plant with a 600,000-ton capacity that utilizes
strip casting, a new steel casting technology, to
learn how to commercialize the process. Strip
casting process is an innovative steel production
technology which skips the heating and hot rolling
processes that reduce energy consumption, envi-
ronmental emissions, manufacturing turnaround,
and raw material costs.
Jun. 23For the third consecutive year, World Steel
Dynamics, a renowned industry consulting orga-
nization based in the U.S, selected POSCO as the
most competitive steel corporation in the world.
We placed first in six of the twenty categories by
which companies were evaluated, including prof-
itability, market share, quality, and employee pro-
ficiency, and won high marks in other areas such
as financial structure, technological innovations,
eco-friendliness, and safety.
Aug. 10Sponsored by the Seoul Economic Daily, the
Ministry of Commerce, Industry and Energy, and
the Ministry of Finance and Economy, the Korea
Social Contributions Awards recognized POSCO's
exemplary community services with a special
recognition. POSCO founded its thriving "POSCO
Volunteers" in 2003, and the third Saturday of
every month has been designated as "Saturdays
for Sharing" since 2004, on which an average of
2,700 employees participate in volunteer activities.
Aug. 17Eco-friendly FINEX technology is considered the
next generation of iron making technology that
will make the traditional blast furnace a thing of
the past. With investments totaling KRW 1.3 tril-
lion, the plant with an annual capacity of 1.5 mil-
lion tons is scheduled for completion in 2006.
Commercializing FINEX, POSCO's proprietary
technology, now provides a significant opportunity
to differentiate ourselves in the global steel
industry and sharpen our competitive edge.
Sep. 6POSCO began construction of a sixth CGL, exclu-
sively for automotive coated steel sheets, in the
Gwangyang Works. As of 2004, POSCO's galva-
nized steel sheet production capacity was 1.4
million tons. When the fifth (construction
commenced in February) and the sixth lines are
completed in 2006, POSCO will secure a total
capacity of up to 2.3 million tons per year.
Sep. 14POSCO acquired an 8.94% stake in Australia-
based Foxleigh Mining from CAML. This acquisi-
tion allows POSCO to get an annual supply of one
million high-grade PCI coals, thereby securing a
stable source of raw materials in response to
shortages caused by China’s growth.
Nov. 24Manufacturing Execution System (MES) was fully
introduced at Gwangyang Works on November 24,
2004. Through MES, POSCO is now able to maxi-
mize manufacturing competitiveness by identify-
ing the best practices. The Pohang Works also
instituted the system in January 2005.
2004 Overview
08
SUSTAINED INCREASE IN SALES AND PROFITSIn 2004, POSCO achieved record-high performance for two consecutive years. We posted KRW 19,792 billion in sales, a 37.8% increase year-on-year and KRW 3,826 billion in netincome, up 93.2% from the previous year. This outstanding operating performance was made possible due to superior sales mix, steel price hikes, and continuous management reform efforts.
2001 2002
Sales|KRW in billions
20042003
14,359
11,729
11,086
19,792
20,000
16,000
14,000
18,000
12,000
10,000
DNA OF POSCO'S INNOVATION, SIX SIGMA As a result of the active implementation of the Six Sigma Process Initiative in 2004, POSCO completed a total of 1,800 projects, including 693 Black Belt and 1,120 Green Belt projects.The estimated financial gain of these successful initiatives totaled KRW 490 billion. POSCO stepped up its efforts to nurture talented workers and in turn, certified an additional 39 Master Black Belts, 90 Black Belts, and 1,250 Green Belts, totaling 63 Master Black Belts, 240 Black Belts, and 2,054 Green Belts.
Wave3
Actual Implementation of Six Sigma Project
Wave5 Wave6Wave4
543
840
973
1,336
1,600
1,200
800
400
EXCEEDS ANNUAL STEEL PRODUCTION OF 30 MILLION TONSFor the first time ever since the founding of the company, POSCO reached an annual steel production of 30.20 million tons in 2004, crossing the 30 million mark. POSCO has increased itsannual steel production by 30 times in 30 years since it started steel production of one million tonsin 1974. By 2008, POSCO plans to expand the domestic production capacity up to 34 million tons-15 million at Pohang Works and 19 million tons at Gwangyang Works by expanding production facilities as well as investing in quality improvements.
2001 2002
Annual Steel Production|in million tons
20042003
28.1
28.9
27.8
30.2
26
24
32
30
28
COMMERCIALIZATION OF NEXT-GENERATION FINEX IRON MAKINGAs a result of R&D activities from 1992, POSCO developed a next-generation iron-making process,FINEX. In June 2003, POSCO successfully built and commissioned a 600,000-ton-per-year FINEXdemo plant. Since August 2004, POSCO has been building a commercial 1.5-million-ton capacityplant, which is scheduled for the completion in December 2006.
1998
Lab Scale Testfundamentals of Fluidizing Reduction
Pilot Plant(150T per day)Development of Overall Plant ConceptHCI Marking & Coal Briquetting Test
Jannuary 2007
Start Up
June Demo Plant Operations 0.6 MTpa Verification of Process & Plant Feasibility
2004
2007
2002
2003
1992
Model Plant TestDevelopment of Fluidizing Process Concept
1995
FINEX Key Milestones
August1.5MTpa FINEX Plant Construction Verification of Commercial Feasibility
MAXIMIZING SHAREHOLDER VALUE THROUGH HIGHER SHARE PRICESOn the back of steel price hikes, a strong won against the US dollar, and a lack of steel supplies,POSCO’s share posted record-high performance in 2004. In addition, an enhanced corporate image,solid operating performance in 2004, a shareholder-oriented management philosophy, and ethicalmanagement, all added to the record-high share price of the company. After recording the highs in March, POSCO consecutively broke new highs in Sep., Oct., and Nov. strengthening its position as a leading blue chip stock in Korea.
Stock Price|KRW
225,500
177,000181,000
187,000195,500
250,000
200,000
150,000
2004. 1 2004. 32004. 2 2004. 4 2004. 5 2004. 6 2004. 7 2004. 8 2004. 9 2004. 10 2004. 11 2004. 12 2005. 1 2005. 2 2005. 3
INCREASE IN SALES OF EIGHT STRATEGIC PRODUCTSPOSCO's eight strategic products include automotive steel, STS 400 series, high-quality API steel,high-grade electrical steel, high carbon steel, TMCP steel for ships, tire-cord wire rod and Cr-Free coated steel. In 2004, sales of these eight products accounted for 19.2% out of total sales,up 5.2% from the previous year. POSCO plans to expand this share of sales up to 31% by 2008.
2003 2008(F)2004 2005(F)2002
14.0
9.9
19.2
31
Sales of Eight Strategic Products|%
35
30
25
20
15
10
5
············
ENHANCING LONG-TERM CONTRACTS ON CORE RAW MATERIALS POSCO has secured a stable supply of raw materials including iron ore and coal with existingsuppliers by forming joint ventures with major suppliers of raw materials in places like Australiaand Brazil. In 2004, the long-term contract-based procurement ratio stood at 80% and POSCOplans to improve it to 88% by 2009. 2003
75%
70%
80%
85%
90%
Procurement Ratio Based on Long-term Contracts|%
Procurement Ratio of major raw materials (iron ore, coal) based on 5 to 10 year-term contracts
2005 2009(F)·························2004
78.8
80.1
81.7
87.6
ACTIVE INVESTMENT FOR SUSTAINABLE DEVELOPMENT POSCO announced 'Environmental Policy' in 2004 and has strived not only to pursue economic benefits, but to achieve environmental soundness and to meet social responsibility. In order to build a steel plant without air pollution, POSCO spent KRW 145 billion.At the same time, POSCO has reduced discharge of pollutant materials, and has made efforts todevelop environment-friendly technologies and products.
2001
POSEPI (POSCO Environmental Performance Index)
POSEPI evaluates operational performance, management performance and environmental condition over a specified period time to arrive at a single index. It is computed relative to those of a three-year average from 1997 to 1999, which is set at 100 points.
2003 20042002
121
128
130131
130
125
120
135
GROWTH
INNOVATION
SHARING
Key words that describe POSCO in 2004 are “growth”, “innovation”, and “sharing”. Through aggressive growth, continuous management innovation and a managerial philosophy of sharing, POSCO has boosted its image as a leading steel manufacturer in the world.
Every innovation at POSCO starts from Six Sigma. A Six Sigma process unique only to POSCO is a powerful management innovation tool to solve problems and management issues. In 2004, Six Sigma enabled POSCO to achieve superb financial results and nurtured talented workers by reforming work procedures and corporate culture. Six Sigma has become an integral part of POSCO.
Based on a solid foundation, POSCO implemented active growth strategies by financial soundness,securing technological leadership, developing management innovation tools, and venturing intoBRICs improving corporate governance. In 2004, POSCO continued to achieve outstanding performances, thereby laying a stable groundwork for future growth. At POSCO, the march towardsbecoming a world leading steel manufacturer, unsurpassed by any, will continue.
In 2004, POSCO introduced 'Sustainable Management' to implement its sharing philosophy in a more systematic and far reaching way. To this end, POSCO strengthened POSCO Volunteers activities by adopting a volunteer mileage system, a matching grant system, and designating a 'Neighbor Love Day'. POSCO also carried out a variety of social contributions activities such as education and health promotion campaigns, and the Mecenat activities as a member of the Korean Business Council for the Arts (KOBCA), to foster mutual benefits between businessesand the arts communities. As such, POSCO is creating a enjoyful and pleasant society.
REVIEW OFOPERATIONS
GLOBAL LEADERSHIP To solidify its position as a leading steelmanufacturer in the world, POSCO implemented multi-faceted strategies.POSCO strengthened its fundamental competitiveness by securing a stablebacklog of raw materials on a long-term basis, improving the efficiency offacilities and cost competitiveness, and by reducing the use of energy. At thesame time, POSCO increased R&D spending to develop new technologies tosecure a global technological leadership position.
Securing Raw Materials
As mill capacity continues to rise in China and the rest of the
world, procurement of raw materials will become an even
greater priority in the years to come. POSCO has been particu-
larly attentive to the need of a stable supply, aggressively pur-
suing joint investments and long-term contracts with major
suppliers around the globe. For iron ore, in addition to the joint
venture projects POSMAC in Australia and KOBRASCO in
Brazil, we finalized ten-year contracts with Brazil's Companhia
Vale do Rio Doce (CVRD) and Mineracoes Brasileiras Reunidas,
and Australia's BHP Billiton. For coal, we extended our con-
tract with Canada's Green Hills Coal Mine in addition to acquir-
ing interest in Canada's Elk View Coal Corporation, and
Australia's Foxleigh Mining, Carborough Downs, and Glennies
Creek mines that will ensure sufficient raw materials for
POSCO well into the future.
Since 1983, we have retained a fleet of dedicated bulk carriers
to transport our raw materials and products. 70% of raw mate-
rial transportation is covered by these dedicated bulk carriers.
Out of the remaining 30%, POSCO lowered the proportion of
SPOT contracts and increased COA contracts so as to reduce
transportation costs and maintain its competitive edge in the
transportation sector, compared to overseas premier steel
makers.
Maintaining Efficiency
Maximo, POSCO's cutting-edge computerized maintenance
system, continues to improve our efficiency in facility mainte-
nance. Since its implementation, the proportion of scheduled
maintenance work has grown rapidly, reaching 89.8% at
Pohang Works and 87.7% at Gwangyang Works in 2004. Such
regularly scheduled maintenance and inspections are more
efficient on many levels, reducing overall time spent on repairs
and the need for facility shutdowns. As a result, POSCO was
able to increase production and concentrate on quality assur-
ance. While maintenance costs rose by 24% at Pohang and by
16% at Gwangyang over last year, they represented just 6.17%
of total revenues for Pohang and 6.71% at Gwangyang-figures
that are superior to Japanese industry averages from 2002.
Detailed inspections, furnace refreshes, and ongoing upgrades
of maturing infrastructure all enhanced the reliability of our
facilities.
Reducing Energy Consumption
POSCO requires a staggering amount of energy each year and
the reduction of energy consumption has been a key element to
improve cost-competitiveness. In 2004, we instituted a cross-
functional management system throughout the entire com-
pany in a dramatic step to reduce energy use. An expert
taskforce team identified new ways to reduce energy con-
sumption and provided technical support for production lines.
Its Six Sigma "Mega Y" project identified areas with great
energy reduction potential and complexity, proposed system-
atic solutions, and tracked the results. It also formed an energy
diagnostic team that inspected each facility to find new possi-
bilities for reducing energy consumption and evaluated its con-
servation activities. These efforts were met with tremendous
success, far surpassing our initial 2004 goal of reducing
172,000 tons of oil equivalent energy(TOE) to save a total of
230,000 TOE. Furthermore, energy consumption per ton of
crude steel was reduced from 5,215 Mcal/t in 2003 to 5,136
Mcal/t in 2004.
29
“
Leading Globally
Automotive Steel|In pursuit of high-value added automotive steel production, we
achieved production capability of galvanized automotive steel sheets that is compara-
ble to the more common cold-rolled steel. Furthermore, we developed an advanced
high-speed galvanized steel manufacturing process, applied 490 MPa-grade dual
phase steel to automotive steel products, and created twenty-one varieties of high-
strength, high-grade steel-effectively launching ourselves as a world-class automo-
tive steelmaker. Our active early vendor involvement efforts have led to close working
relationships with seven domestic and foreign carmakers. In December 2004, our sec-
ond cutting-edge tailor-welded blank plant was completed, boosting our annual output
to 3.6 million blanks. Advanced tailor-welded blanking technology uses lasers to fuse
steel sheets of varying thickness, strength, and composition to produce tailor-made
auto components parts
API Steel|To deal with increasing environmental harshness at oil wells and long-dis-
tance petroleum transports, POSCO has been developing high-grade, high-strength
API-specification linepipe steel. In 2004, we began commercial production of hot-rolled
X70-grade API steel with sulfides for linepipes that have low-temperature toughness
and high corrosion-resistance. We provided a total of 236,000 tons of high-quality API-spec-
ification linepipe steel for China's West-East Gas Pipeline and other projects around the
world. To acquire mass production capability for high-strength API-specification linepipe
steel, POSCO is participating in joint research with international institutions like Russia's
Bardin Institute and China's Xian Institute of Technology, in addition to fortifying technologi-
cal alliances with international pipe makers.
Ferritic Stainless Steel|POSCO successfully achieved normal production levels at
Pohang's new No. 3 Stainless Steelmaking Plant, increasing our annual capacity to 2 million
tons. In addition, we have developed a mold powder specifically for high-chrome titanium
stainless steel, along with essential stainless steelmaking and hot-rolling technology. Our
lineup of products utilizing a low-cost process was expanded to six, and we added ferritic
stainless steel products for the IT sector and high-chrome ferritic stainless steel for auto-
motive exhaust manifolds in response to recent changes in domestic demand.
High-Grade Electrical Steel|POSCO is dedicated to supporting
the Korean government's energy conservation policies. One of
our recent achievements in this field is our world-class, high-
grade, grain-oriented electrical steel, for which we have
secured mass production capability. Moreover, we developed an
ultra-thin gauge, high-grade, grain-oriented electrical steel just
0.23mm thick and the finest quality of laser-treated, grain-ori-
ented electrical steel. Having commissioned facilities for con-
trolling impurities in steelmaking, we have laid the foundations
to produce high-grade, 2.1-watt, non-oriented electrical steel
that will be in growing demand for electric hybrid vehicles.
High-Carbon Steel|High-carbon steel is used for automotive
parts or industrial machinery requiring high-strength and
high-grade materials. In preparation of entering the high-car-
bon steel arena, POSCO examined European and Japanese
steelmakers and conducted a thorough market evaluation of
China and Southeast Asia, formulating a solid entry strategy. In
anticipation of the continuing trend toward high-grade prod-
ucts, we developed a way to utilize related technologies such as
soft reduction continuous casting, hot and cold rolling, and
taper rolling.
11 Strategic TasksWe, as a global player, sustain healthy growth with our competence in steel business.
Review of Operations Global Leadership
Growth
·Achieve 50 million ton production capacity (by 2010)
·Reinforce global marketing
·Secure stable and economical procurement of raw material
·Elevate the value of affilates and foster new businesses.
Innovation
·Promote strategic products
·Secure global leadership of our technologies
·Enhance cost competitveness
·Absorb 6 Sigma culture
· Strengthen global business capability
·Establish new paradigm of employee relations
· Diffuse Corporate Sustainability Management(CSM)
As of 2004, in thousand tons
10,092 Hot rolled steel
Sales by Product
2,014 Wire rods3,438 Plates
9,844 Cold rolled steel701 Electrical steel
1,937 Stainless Steel
1,176 Others
3130
FINEX ProcessThe innovative FINEX process is recognized as aneco-friendly alternative that uses low-cost rawmaterials such as iron ore fines and non-cokingcoals, forgoing the sintering and coking processes,which translates to lower production costs andreduced environmental pollutants.
TMCP Steel for Ships|As ships' size and the demand for higher-strength steel grows,
the shipbuilding industry's use of Thermo Mechanical Control Process (TMCP) high-
strength steel is escalating. Instead of adding alloying elements for greater strength,
this process produces higher-strength steel by controlled rolling and water-cooling for
refined grain and creating low-temperature transformation of martensite and bainite.
In 2004, we focused on establishing a mass production system of high-strength steel,
stabilizing operations at No. 3 accelerated slab cooling facility which was completed in
December 2003 and focusing on further technological developments.
Tire-Cord Wire Rod|Tire cords are steel wire rods inserted into rubber during the tire
making process that helps neutralize external pressure and impact, prolonging the
tire's life span and increasing safety at high speeds. Our customers require tire cords
to be about 0.15 to 0.38 mm in width, requiring the latest production technology that
eliminates contaminants for an extremely high grade of purity. We re-established our
tire cord manufacturing process in 2004 and have been applying new quality assurance
methods and other enhancements.
Cr-Free Coated Steel|Regulations limiting the use of environmentally hazardous
heavy metals such as lead, mercury, cadmium, and hexavalent chromium are being
becoming increasingly stringent. In particular, the need to find a viable, more eco-
friendly replacement for chrome became imperative. Widely used in treating surfaces
for steel used in automotive parts and household appliances, POSCO has been concentrating
its technological resources to find an alternative to chrome. In 2004, 32% of our electro-gal-
vanized and continuous-galvanized steel was chrome-free, and we are aiming to reach 100%
by the end of 2005 as we search for new products and secure fundamental technologies.
FINEX Ironmaking|The innovative FINEX process is recognized as an eco-friendly alterna-
tive that uses low-cost raw materials, eliminating the sintering and coking processes, which
translates to lower production costs and reduced environmental pollutants.
POSCO has been carefully reviewing the performance of the FINEX demo plant, completed
in May 2003, in preparation of full-fledged commercialization. In August 2004, we began
construction of our first commercial 1.5-million-ton capacity FINEX Plant. We fully expect
FINEX technology to emerge as a leading ironmaking technology that will help keep steel
sustainably growing in the 21st century.
Strip Casting|Strip casting is a technological advancement in
the steelmaking process, eliminating most of the existing forg-
ing and rolling processes to cast strips of 1-6mm in thickness
directly from molten steel. Not only does strip casting lower
investment and operational costs, but it also dramatically
reduces energy consumption and pollutants. POSCO has been
developing this technology since 1989 and began to construc-
tion of a 600,000-ton capacity "poStrip" demo plant within
Pohang Works. When production commences at the plant in
June 2006, we will be able to divert the surplus hot-rolling
capacity from high-strength stainless steels to carbon steels.
Strip casting represents a major head start on POSCO's future
competitiveness and enhances our reputation for technological
prowess.
Hydroforming Production Line|In response to an increasing
demand for automotive steels and a growing need to secure a
stable source of supply, POSCO completed the construction of a
hydroforming production line at the Gwangyang Works. Using
high water pressure, this state-of-the-art hydroforming
process produces car parts with uniform strength and width. In
addition, the method bypasses the welding process so that
costs and product weights can be significantly reduced. As of
March 2005, KRW 45 billion has been invested and when com-
pleted, POSCO will have a total capacity of up to one million
parts per year.
Review of Operations Global Leadership
Iron Ore Fines
CirculatingFluidized-BedReactor Non-Coking Coals
Coal Briquettes
Hot Compacted iron Melter-Gasifier
3332
Hydroforming TechnologyHydroforming technology ensures reduced number of parts, weight-lightening, cost reduction,parts rigidity, and enhanced impact characteristics. To this end, high-pressure fluids are injectedto a side of steel tubes to form car frames. POSCO started constructing a hydroforming with theannual production capacity of one million parts at Gwangyang Works in June 2004 and is scheduled to produce from March 2005.
12 billion ton
조강생산량
Rear Axle
Engine Cradle
Suspension Member
GROWTH ENGINE POSCO continued to lay a foundation for sus-tained growth in 2004. With the establishment of a holding company inChina, POSCO stepped up its localization efforts by tapping new markets, secur-ing production bases, integrating and realigning sales networks, and pursuingraw material development projects. Centering on BRICs with high demandpotential and rich steel resources, POSCO expanded its overseas investment.
China: Growing Together
China is an integral component for our strategic growth and we
continue to build upon our solid presence in this market.
POSCO-China was the first holding company to enter into a
mutually beneficial relationship with the local steel industry.
Our investment strategy in China continues to evolve, and we
are identifying additional investment opportunities that are
appropriate for POSCO and advantageous for the Chinese steel
industry. In an effort to offset the global shortage of raw mate-
rials, we are also participating in joint development projects in
Hubei and Heilongjiang.
In April 2004, POSCO China's operations merged with trading
subsidiary POSCO Asia, securing seven marketing bases
including Beijing, Shanghai, Hong Kong, Chongqing, and
Guangzhou. By eliminating redundancies, organizations within
the POSCO group are maximizing marketing synergy.
With the holding company in place, POSCO's long-standing
commitment to localization has been solidified and a merged
sales network has expanded the subsidiaries' previously lim-
ited operational reach. In 2004, we provided major support to
local subsidiaries, resulting in our first third-party export from
Dalian POSCO-CFM Coated Steel and easing Shunde POSCO
Coated Steel's entry into the southern region.
Consistent with our overall strategy in China, POSCO imple-
mented a revised human resources policy appropriate for
China in each subsidiary, beginning with Zhangjiagang Pohang
Stainless Steel. We are also devising training programs tai-
lored to the needs of each business, while ongoing visits to
impart POSCO's innovative management approach and exem-
plary corporate culture continue to reinforce our relationships.
Expanding Momentum
Since the early 1990s, POSCO has been expanding its local
market base and manufacturing presence in China, focusing on
creating "win-win" relationships with not only the local steel
industry but the economy as a whole. As of 2004, there were 24
Chinese subsidiaries in which POSCO had direct or indirect
interest, with investments totaling US$2.4 billion.
In 2004, both the Dalian POSCO-CFM Coated Steel Company
and the Shunde POSCO Coated Steel Company posted profits, a
decisive improvement over 2003's negative balance. Dalian
POSCO-CFM Coated Steel's 2004 sales reached US$101 million
with US$1.4 million in net income, and Shunde POSCO Coated
Steel's sales totaled US$88 million with US$4.9 million in net
income.
35
Investing Abroad: Laying BRICs
POSCO continues to vault itself even higher on the global stage, expanding overseas invest-
ments. In addition to China, we are focusing on the nations that have rich natural resources
and huge growth potential. By increasing investments in these regions, we will be gaining
an early foothold in a growth market, simultaneously diversifying our sources for stable and
cost-effective raw materials. In India's iron-rich Orissa province, POSCO is engaged in the
procurement of iron ore and an integrated mill investment project. In conformity with
China's steel policies, POSCO has carefully proceeded with acquiring shares in existing
steel companies and establishing an integrated mill. Elsewhere on the globe, POSCO is
exploring the potential for a new steelmaking facility with Brazil's CVRD, the world's largest
iron ore supplier, in the country's northeastern Sao Luis area. POSCO is also aggressively
pursuing opportunities in joint development projects for iron ore and other raw materials in
Australia, Canada, and Indonesia. These projects are just some of the ways in which we are
maintaining focus on our strong and diversified overseas investment strategy.
Exchanging Information Globally
To realize our vision of a truly global POSCO, we continue to
broaden our global exchange with renowned institutions in all
corners of the world. POSCO has been engaged in technologi-
cal exchanges with Nippon Steel Corporation, Arcelor, and U.S.
Steel. In terms of R&D exchanges, POSCO has maintained rela-
tions with four European companies including Salzgitter and
Dillinger. Regular conferences with major raw materials sup-
pliers provide forums for a fertile exchange of knowledge, and
similar events on other subjects occur on an as-needed basis.
Our close relationships with the two leading Japanese steel-
makers, Nippon Steel and JFE Steel, help us prepare for
increasing consolidations in the arena of world steel industry.
Multiplying Strategic Products
POSCO's guiding philosophy has been to identify and nurture
products that will increase our profitability, order stability and
future competitiveness. Our strategic high-grade steel prod-
ucts require an intense aggregation of technology, posing a for-
midable challenge to companies with a delayed market entry.
Based on our technological capabilities and projected future
demand, we have selected products such as ferritic stainless
steel, high-grade API steel, high-grade electrical steel, high-
grade high-carbon steel, TMCP steel for ships, tire cords, and
chrome-free products as our current strategic lineup. We have
constructed continuous galvanizing lines for automotive steel
and upgraded and augmented other high-grade steel produc-
tion facilities for greater manufacturing capacity and quality
control to reach our objectives. Increasing sales of strategic
products improve sales mix, profitablity and future competi-
tiveness. In 2004, sales of our strategic products made up
19.2% of our total sales by 5.2 % higher than the previous year.
Sales for Zhangjiagang Pohang Stainless Steel were US$865 million, with a net income
of US$18.4 million. Operations at the POSCO Suzhou Automotive Processing Center
began in October 2004. 100% funded by POSCO, the automotive steelmaking facility is
located in Jiangsu province with an annual capacity of 200,000 tons.
In addition, production commenced at Qingdao Pohang Stainless Steel, a joint venture
with Qingdao Steel of Shandong province, with a 150,000-ton capacity for producing
cold-rolled stainless steel products. Our network in China continues to grow in size and
substance: an expansion project that entails the construction of a 600,000-ton capacity
hot-rolling and stainless steelmaking plant at Zhangjiagang Pohang Stainless Steel is
underway, while a joint venture with Benxi Iron & Steel in Liaoning province will culmi-
nate in BX Steel POSCO Cold Rolled Sheet Co.'s 1.8 million-ton capacity for cold-rolled
steel coil and galvanized steel sheet facility.
Going forward, POSCO's strategic product exports and ongoing investment explo-
rations will increase in the BRICs nations, building on our existing foundation.
3736
Review of Operations Growth Engine
Sales in China in 2004
in USD millions
2,214Sales
2,551Total Sales of Eight Strategic Products
POSCO continually strive to achive the highst level
of technical exellence, that will give us a superior
competitive edge.
2002
unit: in thousand tons
3,8512003
5,4802004
“
Furthermore, we are creating a cooperative network with renowned universities and
research institutes both domestically and abroad to bolster new business R&D. In particu-
lar, we are looking forward to taking advantage of the outstanding technological and human
resources of Pohang University of Science and Technology and the Research Institute of
Industrial Science & Technology (RIST) as strategic base for this new business R&D, result-
ing in a "win-win" formula for all parties involved, creating synergy between technological
research and POSCO's new business development.
Phenomenal Growth of the Stainless Business
The vision of becoming the world’s No. 3 stainless steel manufacturer by 2008, POSCO has
been proceeding with active investment and growth strategies at home and abroad.
Followed by the cold-rolling mill project of Zhangjiagang Pohang Stainless Steel in China,
POSCO commissioned a stainless cold-rolling mill with an annual production capacity of
150,000 tons in Qingdao, China. Operation began in December 2004, and since then we have
established a stainless cold-rolling production system with a capacity of 500,000 tons. To
ensure our business base there and to self-supply hot-rolled steels in the local market, we
started building stainless steel-making and hot-rolling mills with the capacity of 600,000
tons at Zhangjiagang Pohang Stainless Steel in December 2004 and are scheduled to go into
operation in the second half of 2006.
As for the Korean market, we are preparing to introduce stain-
less continuous cold-rolling plant with the capacity of 400,000
tons at Pohang Works in response to the increasing demand for
cold-rolled stainless steels and to the growing need to boost
our global competitiveness. By 2008, POSCO will be equipped
with an annual crude steel production capacity of 2.8 million
tons and cold-rolled steel production capacity of 1.2 million
tons, emerging as the world's third largest STS manufacturer
after ThyssenKrupp and Arcelor. Along with external growth,
POSCO reorganized its management system into Stainless
Steel Devision in March 2004 in order to secure an advanta-
geous position in growing markets such as China and to rapidly
respond to global competition.
POSCO is also considering investing in development of raw
materials to secure stable supplies of nickel, chrome, and
other stainless steel raw materials.
STS Hot-Rolled Coils
Rolling Mill
Continuous Caster
Electric Arc Furnace
Stainless Scrap
Nickel, Ferrochrome
Argon-OxygenDecarburizationConverter
STS Cold-Rolled Coils
STS Cold-Rolled Steel sheets
Pioneering New Businesses
POSCO strives to be prepared for all contingencies, including market uncertainty and
changes in the economic environment. As such, we are exploring diversification oppor-
tunities that will fuel our growth in the future and launch us onto a whole new level in
the global arena. In our carefully measured search for next-generation businesses, we
considered three major criteria: current status and future growth potential, global
product and market potential, and our existing capabilities. We are currently exploring
three main new business areas: renewable energy sources, new materials, and
biotechnology. In the renewable energy field, we are focusing on electrical batteries
and wind power as possible core businesses in the future. We plan on marketing a pru-
dent entry into the electrical battery market, forming technical alliances with estab-
lished corporations and conducting extensive research. For wind-generated power, we
intend to minimize our risk as a late starter while pioneering the domestic industry
through partnerships with technologically advanced companies. In the new materials
field, we will be able to utilize steel rolling and strip casting technologies that we
already possess while cultivating additional technology for competitive products of out-
standing value and quality. We expect to see tangible results in the near future.
We have a head start in biotechnology, with network foundations already in place:
POSCO BioVentures Management in the U.S. and the Pohang University of Science &
Technology's (POSTECH) Biotech Center. We are taking advantage of such assets to
formulate an efficient and effective entry strategy into the field.
3938
Review of Operations Growth Engine
Stainless Steel One-Stop Production SystemPOSCO has equipped Pohang Works with state-of-the-art productions systems to producecompetitive stainless steel products throughquality improvement and cost saving efforts.
Strip Casting TechnologyStrip casting is on the edge of becoming a commercial technology now. This process is the most recentinnovative steel casting technology that integrates casting and rolling. The major advantage of strip cast-ing is that the capital expenditure for producing hot rolled coils will be considerably lower than for a con-ventional casting and rolling mill due to much less expenditure in rolling mill area. In order tocommercialize the strip casting technology, POSCO started building a ‘poStrip’ demo plant with the annualproduction capacity of 600,000 tons at Pohang Works in June 2004.
In - Line Rolling Process
Twin Roll
Six Sigma: Innovating DNA
For POSCO, Six Sigma is not merely a series of tasks to be com-
pleted, but a potent way of thinking designed to help reach
business objectives, change corporate culture, and present the
most ideal solutions for every business issue. In 2004, POSCO's
Six Sigma Process Initiative concluded its introductory period
after two-and-a-half years. It marked the start of an exciting
new period of substantial expansions, our focus on the innova-
tion of our corporate culture and the way we work.
Process Initiative's Wave 4, begun in January 2004, was fol-
lowed by Wave 5 in July. In sum, we completed over 1,800 pro-
jects last year, including 693 Black Belt and 1,120 Green Belt
projects. The majority of the Black Belt initiatives were related
to POSCO'S strategic objectives, including producing 5 million
tons of automotive steel and overhauling small lot production.
The estimated financial gain of these successful initiatives
totaled KRW 490 billion.
Our Six Sigma talent pool swelled significantly in 2004, certify-
ing an additional 23 Master Black Belts, 50 Black Belts, and 802
Green Belts, boosting our overall totals to 47 Master Black
Belts, 200 Black Belts, and 1,606 Green Belts. POSCO's
Champions, Master Black Belt candidates, and all executive
officers completed the global leadership training program at
Arizona State University's Mikel Harry Six Sigma Management
Institute in the U.S., immersing in Six-Sigma methodologies at
the source and nurturing an innovative Six Sigma mentality.
In November, we established a Six Sigma Leadership center
within POSCO's Human Resources Development Center. This
provides consistency in all Six Sigma-related training and a
more systematic approach to developing advanced Six Sigma
programs and supervising certification tests.
Our new benefit-sharing system was launched in July to foster
cooperation within the supply chain, allowing POSCO and its
partners to share the profits from joint Six Sigma projects.
Together with 12 suppliers, we undertook 36 reform projects.
In the process, we provided the employees of those suppliers
the same Six Sigma training that POSCO employees receive.
In 2005, we will operate a progressive, reorganized Innovation
Strategy Planning Department to inject Six Sigma methodolo-
gies into the very DNA of POSCO. The department will be the
strategic core for POSCO's business and sustainable develop-
ment activities, integrating all projects from different depart-
ments under one “central command."
INNOVATION Every innovation at POSCO starts with the widely knownbusiness methodology "Six Sigma". By reinforcing its existing Six Sigmaprojects, POSCO has reformed the way it does business and its corporate cul-ture. Along with human resource programs, 1,800 tasks in total were carriedout and the estimated financial gain of these successful initiatives totaled KRW490 billion in 2004. And various reform measures were put in place through-out a number of fields including the activation of a consolidated operation sys-tem and Knowledge Management System(KMS). In an effort to secure tal-ented workers, we have improved our human resources operation efficien-cy, strengthened our performance-based promotion system, and focused onnurturing professional and talented workers. Plus, we have introduced a life-long learning system to help our employees balance work, life, and educa-tion. Even at this moment, POSCO is evolving for a better future.
41
perspective, maximizes competitiveness by minimizing delays in business operations and
boosts the efficiency of the decision making process through Process improvement and
real-time information exchange.
Refueling Human Resources
Linking Six Sigma and Human Resources |To accelerate the dissemination of Six Sigma
culture, we have solidified the relationship between Six Sigma activities and human
resources and broadened the scope of support. First of all, to transform premier workers
BBs, we have consolidated all Black Belt candidate recommendations from the departmen-
tal level to the central human resources office, unifying standards and the certification
process. We have also selected the most outstanding top 10% of team leaders from each
Wave (about 50 employees) and designated them as Black Belt candidates. Employees with
excellent Six Sigma performance have been given more promotion opportunities and con-
sideration for Black Belt certifications was increased in management-level promotions. In
addition, Black Belts were given priority in the selection of e-Leader Academy participants.
Streamlining and Resuffling of Human Resources|To increase
efficiency in the human resources department, we reduced the
proportion of support staff from 6.8% to 6.5%, and integrated main-
tenance operations and other worksites.
As for sectors whose unit operation could be specialized and devel-
oped into professional companies, we created spin-offs after
securing the agreement of employees and employment protec-
tion. The surplus workforce that was resulted from such efforts
was transferred to new departments such as FINEX, the No. 5 con-
tinuous galvanizing line, and the continuing education training cen-
ter, strategically boosting the competitiveness of our workforce
in all parts of the company.
Dynamic POSCO|POSCO has taken significant steps to pro-
mote advancement and morale within the organization,
expanding early promotion opportunities for outstanding
employees. In addition, the job re-training program was effec-
tively revised, laying the foundation for successfully supporting
high-level, low-performance employee transfers.
Overall human resources policies, including salary scales,
reflect a heightened emphasis on merit and performance
rather than on rank.
Sector Council:Select sector projects,supervise implementationprocess and results
Process Owner:Advise and support BB(Black Belt)/ GB(Green Belt)
Champion
BB
MBB
BB(Black Belt):Advise Executives/Champions, train BB/GB on projects and develop Six Sigma methodologies
GB(Green Belt): Participate in BB projects, small-scale projects
MBB(Master Black Belt):Carry out project implementation, GB training and education
Enterprise Council:Establish Six Sigma actionplans, strategies and systems
Champion: Manage and support department projects
Sector CouncilSector Council
Enterprise Council
GB
ProcessOwner
Successful Operation of Consolidated Process System
When facilities are enlarged and plants are built, processes and systems are also
developed. The Manufacturing Execution System (MES) integrates and standardizes all
of those disparate processes and systems of each plant and then integrates them into
web-enabled systems. After establishing a master MES plan in January 2002, POSCO
started designing the system in May 2002, commenced building the system in earnest
in May 2003, and then initiated operation of the system at the Gwangyang Works in
November 2004 and at the Pohang Works in January 2005.
Thanks to the MES project, processes and systems at 81 factories were integrated and
standardized so that the plants are now able to exchange information on a real-time
basis as if they were one single factory. In addition, through benchmarking between
plants and steelworks, MES laid a foundation for advancing operating processes on
their own. Among the processes of steelworks, we identified the 57 best practice pat-
terns and applied them to 277 processes to upgrade the overall process levels of the all
the steelworks. For the first time as a steel maker, POSCO now provides clients with
specific product information regarding the quality such as width, breadth, and faults,
thereby allowing clients to significantly improve productivity and efficiency for clients.
By standardizing processes and completely eliminating manual jobs and unnecessary
processes, MES transfers the affected workers to high value-added positions and pro-
vides a system for those workers to make contributions to process development. With
the operation of MES, POSCO is perfecting 'POSPIA' , POSCO’s own innovative infra-
structure. We provided a genuine Real Time Enterprise (RTE) system, which, from any
Review of Operations Innovation
Six Sigma Slogan: Pleasant and Happy ChangesFor POSCO, Six Sigma is not merely a series of projects to be completed, but a potent tool for management reform designed to helpreach business objectives, change corporate culture, and present themost ideal solutions for every business issue.
Six Sigma Operation SystemAt POSCO, Six Sigma projects are currentlyunderway and are deeper and more systematicthan ever before. Six Sigma refers to all activitygoing within the company to bring about innovativechanges and integrate them into POSCO’s corporate culture.
4342
Life-Long Learning with the Combination of Work, Life, and Education
In September 2003 when POSCO introduced the 40 hour-workweek system, it also adopted
the “life-long learning system”. The life-long learning system consist of: cultural
education that includes 7Habits, business etiquette, and cultural activities, and value-
sharing education such as business management briefings and Six Sigma mindset
cultivation and job training courses such as new technology education and intensive
technical training.
Global Core |In our ongoing progress towards a truly global POSCO, we have
augmented our workforce competitiveness by aggressively recruiting experts in
global management and strategic technical fields. Our educational programs for
employees also underwent a substantial overhaul for more effective advanced
training. In 2004, we welcomed 26 foreign management experts, 23 researchers with
Master's or Ph.D. degrees, and 148 management and technical employees into the
POSCO family. We also hired 223 field workers to revitalize manufacturing
organization and performance. New systematic hiring standards were applied to
improve clarity and reliability in the hiring process, and online applications were
redesigned for enhanced user-friendliness, with English language support and other
upgrades. A select group of sixty-nine POSCO employees received advance training in
key fields domestically and abroad to strengthen our expertise in strategic
management and steel technology areas. Six regional experts in international
investment and strategic export bases were produced, and we posted thirty-two
Chinese investment and thirty-eight automotive steel experts. Our e-Leader Academy
is another component of this larger objective and serves to nurture global business
leadership and management skills. Under its auspices, twenty-five of four employees
completed Pohang University of Science & Technology's "Techno-M.B.A." program
and twenty more candidates were selected, in addition to a recently enlarged and
reorganized Executive M.B.A program.
Review of Operations Innovation
Actual Project Implementation by WaveThrough a step-by-step reform, POSCO is strivingto meet the various needs of customers and toupgrade its corporate value.
Number of Employees by Region
Pohang10,304
Gwangyang7,440
Seoul1,229
Wave 1 | May. 2002 ~ Oct. 2002
92Wave 2 | Nov. 2002 ~ Apr. 2003
353Wave 3 | Jun. 2003 ~ NOV. 2003
543Wave 4 | Jan. 2004 ~ Jun. 2004
840Wave 5| Jul. 2004 ~ Dec. 2004
973Wave 6| Jan. 2005 ~ Jun. 2006
1,336BB: 82 | GB: 10 BB: 175 | GB: 178 BB: 236 | GB: 307 BB: 353 | GB: 487 BB: 340 | GB: 633 BB: 439| GB: 897
4544
To maximize operational performance and efficiently carry out
core management strategies, including Six Sigma, through
systemic management and utilization of its knowledge assets,
POSCO has been using KMS (Knowledge Management System)
since 2003. The goal of KMS is to help us solidify our presence
as a global company by enhancing the capacity and perfor-
mance of our employees through the sharing, utilizing, and
creation of our company's knowledge assets, thereby nurturing
knowledgeable workers. KMS was activated in 2003 and inte-
grated into the everyday lives of employees in 2004. Out of a
total of 20,000 employees, 8,000 to 9,000 connect to the system
on a daily basis to take advantage of all of the useful knowledge
posted on the system; around 300 documents are uploaded
everyday. There were 50 knowledge-finding competitions dur-
ing the year and a total of 336,901 people participated.
Recognized for its successful operation of KMS, POSCO won
the 'Knowledge Management Award’, sponsored by Maeil
Business Newspaper.
Knowledge Management to Nurture Knowledgeable Workers
Overseas261
As of 2004, number of employees
413
Recruitment
334463
As of Mar. 2005
2004
2003
2002
Total: 19,234
Advancing Corporate Governance
POSCO has undertaken major reforms to ensure the indepen-
dence of the Board of Directors and to protect the rights of
shareholders, resulting in a much more transparent corporate
governance. The presence of independent outside directors on
our Board has been increased to nine, in addition to six execu-
tive directors. Outside Director-only meetings may be held to
hear opinions on BOD agendas, which is stated on Operational
Regulations for Board of Directors.
Turning our attention to shareholders, we instituted cumulative
and write-in voting systems and eliminated a clause in the arti-
cles of incorporation regarding convertible preferred share
issuance. Moreover, we established an Insider Trading
Committee to oversee transparency in dealing with affiliated
companies and affiliated persons and issued a formal corpo-
rate governance policy that outlined our vision and principles
on the this fundamental issue.
Our extensive reforms and improved transparency were recog-
nized with the Korea Corporate Governance Service's Best
Corporate Governance Award in 2004.
The Ethos of Success
Sound corporate ethics is emerging as the cornerstone of com-
petitiveness in the global marketplace. At POSCO, we aspire to
earn the respect and trust of our stakeholders by embracing
the highest ethical standards in every aspect of our business.
On June 2, 2003, we culminated an extensive review and analy-
sis of ethical norms from home and abroad with the unveiling of
the updated POSCO Code of Conduct. Today, the challenge is to
live up to its principles in all our relationships, both internal
and external. The POSCO Code of Conduct unveiled on June 2,
2003, was a solid manifestation of our commitment as a global
corporate citizen. We endeavor daily to embody these princi-
ples as an organic part of our corporate culture and positively
impact each and every employee’s ethical behavior and men-
tality. The updated POSCO Code of Conduct has five sections
outlining our fundamental responsibilities as well as our ethi-
cal commitments to each of our stakeholder groups. It is aug-
mented by rules of conduct providing general guidance on
ethical behavior in seven specific areas as well as compliance
guidelines offering concrete advice concerning gifts, entertain-
ment, and other common issues. We have compiled all these
materials into a handy pocket-sized handbook and printed a
five-point integrity self-test on the back of each employee ID
card to assist our employees in making ethical decisions in
their daily work.
The upgraded code required an upgrade to the organizational
unit tasked with supporting it. Formerly a team-level group, the
new Corporate Ethics Department provides employees with
walk-in access to counselors to discuss ethical issues and per-
sonal concerns. Employees can also seek guidance from
department heads or ethics leaders, or directly phone or e-mail
their questions or violation reports to the department.
TRUST & SHARING POSCO has made various efforts to become awell-respected and recognized company. We have made our Board ofDirectors more independent to establish advanced corporate governance,and we have also reinforced ethical management by integrating corporateethics into our corporate culture. To protect the environment and meetour social responsibilities, POSCO launched Corporate SustainabilityManagement and invested KRW 145.5 billion into protecting the air andwater as well as recycling by-products. In addition, we have achievedsignificant advances in developing environment-friendly technologiesincluding FINEX and Strip Casting. POSCO has demonstrated its sharingphilosophy through volunteer activities, social contributions, educationand scholarship programs.
47
with an annual production capacity of 600,000-tons in June 2004. Strip Casting is another
innovation that dramatically reduces energy consumption and harmful emissions. In accor-
dance with the move by North America and the European Union to limit the use of chrome in
products and in the workplace, POSCO has identified six major priorities including the
development of chrome-free steel product manufacturing technology. Chrome-free coated
steel has long been on our list of top priorities, and we plan to develop twelve additional
chrome-free products in the future.
Sharing the Love: POSCO Volunteers
The level of enthusiasm and dedication in POSCO's community service has always been
remarkable and heartwarming. At the end of 2004, there were 249 active community service
groups at POSCO with 22,914 registered participants, reflecting an astonishing 117.7% par-
ticipation rate (including multiple memberships). A total of 73,783 people participated in a
diverse array of community services. The third Saturday of every month brought out an
average of 2,700 volunteers from the POSCO family to reach out to local communities on
"Saturdays for Sharing." In support of our active volunteerism, POSCO provides uniforms,
backpacks, and accident insurance. We also track and post results in a real-time commu-
nity service information support system. Our community service "mileage system" encour-
ages flexible volunteering, while our matching grants policy contributes the corporate
funds equal to every employee donation, effectively doubling each gift.
Creating Eco-Friendly Steel Works
We continue to develop and implement cleaner production processes by installing
more pollution control equipment and upgrading our facilities. POSCO's facility invest-
ments at Pohang and Gwangyang Works totaled KRW 145.5 billion in 2004, a substantial
increase from KRW 93.2 billion spent in 2003. Broken down, KRW 107.2 billion was
invested in air quality, 23.2 billion into water quality, and 15 billion into the by product
recycling area.
Among our 2004 projects were flue gas cleaning system facilities at sintering plant
Nos. 3 and 4, a roof dust collector at the steel-making plant No. 2 at Pohang Works and
the installation of a system to transfer the condensation resulting from by-produced
gas at Gwangyang works. The new flue gas cleaning system at Pohang Works drasti-
cally decreases the level of SOx, NOx, and dioxin emissions and it will be also installed
at Gwangyang Works.
Developing, Environment Friendly Technology and Products
FINEX, POSCO's environmentally friendly ironmaking technology, was built in May 2003
and is currently in operation with a 600,000-ton capacity. Construction work on a 1.5
million-ton capacity full-scale FINEX plant began in August 2004 and will be completed
at the end of 2006. POSCO completed the construction of a Strip Casting demo plant
Review of Operations Trust
Expenditures on the EnvironmentPOSCO is improving environmental friendliness as well as economic profits by investing KRW 145.5 billion to build a pollution-free steel factory.
unit: KRW in billions
1772002
932003
1462004
By-Product Recycling Ratio
98.3 %
Pohang Works99.2%
Gwangyang Works
4948
In 2004, we put a lot of effort into upgrading the supporting
infrastructure and quality of our investor services. On the infra-
structure side, we created a database with key information on major
fund managers, analysts, and potential investors. On the quali-
ty side, we began actively utilizing our corporate knowledge
management system and data warehouse as a communications
resource as we applied Six Sigma methods to improve service qual-
ity, resulting in more timely and accurate business information
for both analysts and investors.
Starting with Seoul in January, we held our annual CEO Investor
Forum meetings in New York and Boston to review our 2003 cor-
porate performance and preview our 2004 plans and prospects.
Our busy year on the road also saw us participate in eight major
investor conferences as well as hold over 300 one-on-one meet-
ings with fund managers and buy- and sell-side analysts.
Many Korean and international organizations as well as Asia's top
analysts regonized us as one of the best IR practicing companies
in 2004. Going forward, we will be working even harder to expand
our shareholder base as we make building trust with the interna-
tional investment community through timely and fair disclosure
a top priority.
In 2005, we will be working even harder to expand our shareholder
base as we make building trust with the international investment
community through timely and fair disclosure a top priority.
Enhancing Credibility
Enriching the Community
Education is of the utmost importance to POSCO. We support about 14 institutions in the
Pohang and Gwangyang areas through the POSCO Educational Foundation, the POSCO
Scholarship Fund, and the Pohang University of Science and Technology. We also sponsor
a Children's Steel Camp and support a variety of academic projects and events. In
addition, we recently allocated KRW 1.5 billion for a five-year grant to Seoul National
University's Professor Woo-Suk Hwang, a world authority in biotechnology, to help finance
his important research in the interest of public welfare.
POSCO believes in a healthy body as well as a strong mind. Not only do we sponsor
professional soccer teams-the Pohang Steelers and the Jeonnam Dragons-but we also
promote youth sports with soccer classes and regional sporting events. POSCO is also a
strong proponent of arts and culture and recognizes the special role that they play in
building human relations and feeding basic human needs. We provide funding for a
number of cultural institutions in Pohang, Gwangyang, and Seoul, in addition to financing
quality concerts and exhibitions to liven up the community and enrich our lives. Among our
many financial contributions, POSCO has donated a total of KRW 7 billion to Community
Chest of Korea's annual year-end charity drive with our affiliates and we also responded to
North Korea's Yongcheon railway explosion tragedy with a gift of KRW 500 million.
Corporate Sustainability ManagementPOSCO implements Corporate Sustainability Management
(CSM) as a momentum for integrating its economic prof-
itability, environmental soundness, and social responsibility
into our business. These efforts are clearly reflected in our
mission, policy and activities. Concerning with the environ-
ment and the world in which we live, POSCO will join global
efforts for sustainable development and cooperate with share-
holders including customers, shareholders and investors,
employees, suppliers, outsourcing partners, and communi-
ties. As a part of CSM, POSCO published its first sustainability
report replacing existing environmental report. It was
prepared under guidelines including the Global Reporting
Initiative (GRI) and received independent assurance from a
third party.
Growing with the Community
One of our more prominent community service programs, Village Alliances, connects
POSCO with 223 towns, schools and other organizations in the Pohang and
Gwangyang areas. Since the program's inception in 1991, our exceptional, dedicated
volunteers have been involved in many different activities, such as repairing farming
equipment, helping crop sales, traveling health clinics, and raising funds for children
with terminal diseases.
POSCO was the first corporation in Korea to operate meal kitchens, one each in
Pohang and Gwangyang, with a great positive impact on the local community. Our
employees, their families, and local residents all pitch in to provide free meals to the
needy and foster a strong community rapport in the process.
POSCO donates to 220 households in the Pohang and Gwangyang areas and about
KRW 200,000 to 300,000 per month to each family, totaling KRW 700 million, to
support them in their quest for self-sufficiency. Our mentoring program is another
rewarding program activity for the mentors and mentored alike, bringing together our
employees in Pohang with disadvantaged teens to offer financial and emotional
support. We also held two large drives collecting household goods in 2004, delivering
about 136,000 items for sale at the POSCO center and 26 stores throughout the
country, promoting recycling and donating the proceeds to charity. In addition, our
two blood drives in 2004 drew 3,912 participants, or 19% of our workforce.
Review of Operations Trust & Sharing
POSCO VolunteersSince 1991, POSCO has provided volunteer services through strong community ties withregions in Pohang and Gwangyang. For more systematic and efficient operation, we founded "POSCO Volunteers" in May 2003.
Number of GroupsParticipating in Volunteering Services
Number of Volunteers Social Contributions unit: KRW in billions
186 > 2492003 2004
18,366 > 22,914 73 > 140
In 2004, POSCO continued to increase shareholder value by repurchasing and
retiring treasury shares for the fourth straight year. We repurchased and retired
2% of the total issued and outstanding shares 1,779,320 shares
valued at KRW 304.7 billion amounting to 8% of the net income of 2004.
The outstanding shares reduced this time totaled KRW 93 billion,
accounting for 10% of the total outstanding shares. In 2005, we will repurchase
and retire 9.7% of the total outstanding shares to upgrade our shareholder value.
1,779,320 Shares
5150
Organization
CEO
President
Corporate Ethics Dept.
As of March 2005
Secretariat Dept.
Corporate StrategicPlanning Dept.I
Corporate StrategicPlanning Dept.II
Innovation StrategyPlanning Dept.
Auditing Dept.
Process Stanardization Dept.
Information System Dept.
Corporate Communication Dept.
Iron & SteelmakingFacilities InvestmentPlanning Dept.
Rolling FacilitiesInvestment Planning Dept.
Investment Management Dept.
Strategic BusinessDevelopment Dept.
General Administration Dept.
Legal Affairs Dept.
Human Resources Dept.
Labor & Welfare Dept.
Finance Dept.
Finance Management Dept.
MRO Procurement
Plant & EquipmentProcurement Dept.
Outside Services Dept.
Coal Procurement Dept.
Iron Ore Procurement Dept.
Steelmaking Raw MaterialsProcurement Dept.
Stainless Steel Raw MaterialsProcurement Dept.
Marketing Strategy Dept.
Sales & ProductionPlanning Dept.
Market Development Dept.
Production Order & Process Dept.
Hot Rolled Steel Sales Dept.
Plate & Wire Rod Sales Dept.
Cold Rolled Steel Sales Dept.
Automotive Flat ProductsSales Dept.
Coated Steel Sales Dept.
Product Technology Dept.
Technology Development Dept.
Knowlegde Asset Dept.
Environment & Energy Dept.
HRD Center
Pohang Works
Technical Research Laboratories Offices
Administration & Support Dept.
Public Relations Dept.
Labor & Safety Dept.
Production & DeliveryControl Dept.
Quality Control Dept.
Ironmaking Dept.
Coke Making Dept.
Steelmaking Dept.
Hot Rolling Dept.
Plate Rolling Dept.
Wire Rod Rolling Dept.
Cold Rolling Dept.
Electrical Steel Dept.
Environment & Energy Dept.
Maintenance Technology Dept.
Mechanical Maintenance Dept.
Electric & ControlMaintenanceDept.
Administration & Support Dept.
Labor & Safety Dept.
Production & DeliveryControl Dept.
Quality Control Dept.
Ironmaking Dept.
Coke Making Dept.
Steelmaking Dept.
Hot Rolling Dept.
Cold Rolling Dept.
Mini Mill Dept.
Environment & Energy Dept.
Maintenance Technology Dept.
Mechanical Maintenance Dept.
Electric & Control Maintenance Dept.
Domestic Office
Seoul Office
Overseas Offices
EU Office
Hanoi Office
Rio De Janeiro Office
Bangkok Office
Mexico Office
Washington Office
New Delhi Office
Gwangyang Works
Dong-Jin KimSenior Executive Vice President.President, POSCO-China
Soung-Sik ChoExecutive Vice President.Corporate Strategic Planning Dept. I, II ,Investment Management Dept.,India Project Dept.
Jong-Tae Choi Executive Vice President.Human Resources Dept., Labor Welfare Dept., MRO / Plant & EquipmentProcurement Dept., General Administration Dept., Outside Services Dept.
Sang-Ho KimExecutive Vice President.Legal Affairs Dept.
Jong-Doo ChoiExecutive Vice President.CR Steel Sales Dept., Automotive Flat Products Sales Dept.,Coated Steel Sales Dept.
Nam-Suk HurExecutive Vice President.General Superintendent, Technology Research Center, FINEX Research&DevelopmentProject Dept..Technology Development Dept.,Knowledge Asset Dept.,Environment & Energy Dept.
Chang-Ho Kim Senior Vice President.General Superintendent,Human Resources DevelopmentCenter
Chang-Kwan Oh Senior Vice President.Marketing Strategy Dept., Sales & Production Planning Dept.,Market Development Dept. (Sector Manager, Plate Sector)
Jeon-Young LeeSenior Vice President.Strategic Business Development Dept.
Young-Tae KwonSenior Vice President.Ironmaking Raw MaterialsProcurement Dept.,Steelmaking Raw MaterialsProcurement Dept.,Stainless Steel Raw MaterialsProcurement Dept.
Hyun-Shik ChangSenior Vice President.Department Manager,LNG Project Dept.
Oh-Joon KwonSenior Vice President.General Manager, EU Office
Dong-Hwa ChungSenior Vice President.Deputy General Superintendent,Gwangyang Works(Facility & Maintenance)
Jin-Il KimSenior Vice President.Innovation Strategy Planning Dept.,Process Standardization Dept.,Information System Dept.
Dong-Hee LeeSenior Vice President.Finance Dept.,Finance Management Dept.
Sang-Young LeeSenior Vice President.Deputy General Superintendent,Gwangyang Works(Ironmaking & Steelmaking)
Hyun-Uck SungSenior Vice President.Deputy General Superintendent,Pohang Works(Facility & Maintenance)
Han-Yong ParkSenior Vice President.Audit Dept., Corporate Ethics Dept.
Keel-Sou ChungSenior Vice President.President, Zhangjiagang POSCOStainless Steel Co., Ltd.
Sang-Wook HaSenior Vice President.Department Manager, TechnologyDevelopment Dept.,Knowledge Asset Dept.,Environment & Energy Dept.
Sang-Young KimSenior Vice President.Department Manager, Corporate Communications
Young-Suk LeeSenior Vice President.Department Manager, Stainless Steel Sales Dept.,Stainless Strategic Planning Dept.
Sang-Myun KimSenior Vice President.Deputy General Superintendent, Gwangyang Works (General Administration)
Kun-Soo LeeSenior Vice President.Deputy General Superintendent,Pohang Works(General Administration)
Kee-Yeoung ParkSenior Vice President.HR Sales Dept., Plate & Wire Rod Sales Dept. (Sector Manager, Wire Rod Sector)
Kyu-Jeong LeeSenior Vice President.Production Order & Process Dept.,Product Technology Dept.,Small Lot Improvement Mega YProject Dept.
Byung-Ki JangSenior Vice President.MRO Procurement Dept.,Plant & Equipment Procurement Dept.
Jong-Hai Won Vice President.President, Qingdao Pohang Stainless Steel Co., Ltd.
Tae-Man Kim Vice President. Human Resources Dept., Labor & Welfare Dept.
Jun-Gil ChoVice President.Deputy General Superintendent,Pohang Works (Rolling)(Sector Manager, Electrical SteelSector)
Kwang-Jae YooVice President. Stainless Steel Production &Technology
Yong-Chul YoonVice President.Deputy General Superintendent,Pohang Works(Ironmaking & Steelmaking)
Noi-Ha Cho Vice President.Deputy General Superintendent,Gwangyang Works (Rolling),TWB Project Dept., Automotive SteelMega Y Project Dept.(Sector Manager, Cold Rolling Sector)
Yong-Won Yoon Vice President.Iron & Steelmaking FacilitiesInvestment Planning Dept.,Rolling Facilities Investment Planning Dept.
Executive Officers
As of March 2005
Headquarters
5352
Stainless Steel Strategy Dept.
Stainless Steel Sales Dept.
Stainless Steel Production Dept.
Stainless Steel Division
POSINVEST(POSCO Investment Co., Ltd.)Rm 5607, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong Tel: 852-2802-7188Fax: 852-2845-7737
Guangzhou Jindo Container Manufacturing Co., Ltd.Fuliangang, Lianhuashan Pangu City, Guangdong, China Tel: 86-20-3877-1900~3Fax: 86-20-3877-1905
VINAPIPEPhuoc Long Village Thu Duc Dist., Hochiminh City, VietnamTel: 84-31-850126~7Fax: 84-31-850114
SUS(The Siam United Steel(1995) Co., Ltd.)9, Soi G5, Eastern Industrial Estate, PakornSongkrohraj Road, Muang, Rayong 21150, ThailandTel: 66-3868-7290Fax: 68-3868-5133
POSCHROME (PTY) Ltd.Billiton PLC, Room 803A, No 6 Hollard StreetJohannesburg, South AfricaTel: 27-11-376-3019Fax: 27-11-376-3043
Bx Steel POSCO Cold Rolled Sheet Co., Ltd.Bx Steel POSCO Cold Rolled Office, Zhagang Road,Pingshan District, Benxi City, Liaoning, P.R. ChinaTel: 86-414-782-2877Fax: 86-414-782-2770
POSMMIT Steel Centre SDN. BHDLot 1298, Rawang Industrial Estate 16 1/2 Miles,Jalan Ipoh, 48000 Rawang, Selangor Darul Ehsan,MalaysiaTel: 603-60925200Fax: 603-60925240
POSTEEL Hochiminh OfficeDiamond Plaza Bldg., 7FL, RM 706, 34 Le Duan Blvd., Dist.1, Hochiminh City,VietnamTel: 84-8-822-6862~3Fax: 84-8-822-6864
POSTEEL Jakarta Office17th FL.#1701, Jakarta Stock Exchange Tower 2, JL. Jend. Sudirman Kav. 52-53Jakarta 12190, IndonesiaTel: 62-21-515-7670~1Fax: 62-21-515-7665
POSTEEL Kuala Lumpur OfficeCEO SUITE No.9 at Level 36, Menara Maxis, Kuala Lumpur City Center 50088,Kuala Lumpur, MalaysiaTel: 60-3-2615-0040~1Fax: 60-3-2615-0042
POSMETAL INC.8F Daiichi Seimei Bldg. 1-4-1 Hakataekimae,Hakataku Fukuoka 8120011, JapanTel: 81-92-412-0539Fax: 81-92-452-2788 (Works)85-7 Hibikimachi 1-Chome WakamatukuKitakyushu-Shi Fukuoka-Ken 808, JapanTel: 81-93-751-6641Fax: 81-93-751-6644
POS-Tianjin Coil Center Co., Ltd.168 Huanghai St., 5Th Avenue, Tianjin Economic-Technological Development Area(TEDA),Tianjin300457, ChinaTel: 86-22-2532-3016~20Fax: 86-22-2532-3015
POS-Qingdao Coil Center Co., Ltd.HuaXianLu, DanShan Industrial Park, ChengYangQu, Qingdao City,Shandong Province, ChinaTel: 86-532-608-9926Fax: 86-532-608-9929
Suzhou Dongshin Color Metal Sheet Co., Ltd.(SDC)Wujiang Fenhu Economic and TechnologicalDevelopment Zone, Jiangsu Province 215211, ChinaTel: 86-512-6327-0041Fax: 86-512-6327-0042
Guangdong Xingpu Steel Center Co., Ltd. No2, Lim Gang South Road, Industrial Park BeijiaoTown, Shunde City, Guangdong Province 528311, ChinaTel: 86-757-633-0408~9Fax: 86-765-2666-1109
Zhangjiagang Xiaosha Coil Service Co., Ltd. North of Yanjiang Rd, Jinfeng Town, Zhangjiagang City, Jiangsu Province 215625, ChinaTel: 86-512-5856-5179~80Fax: 86-512-5855-3411
CSC Electronic (Qingdao) Co., Ltd.HuaxianLu, Dansan Industrial Park, ChengYangQu, Qingdao, Shandong, ChinaTel: 86-532-608-9001Fax: 86-532-608-9005
POS-Thai Steel Service Center Co., Ltd. 700/453 Moo 7, Bangpakong Industrial Park 2, T.Donhuaroh A.Muang, Chonburi, 20000 ThailandTel: 66-38-45-4200~2Fax: 66-38-45-4207
PT. POSMI STEEL INDONESIAKawasan Industry MM2100 JL, SULAWESI 1 Blok H-4-1, Cibitung, Bekasi 17520, IndonesiaTel: 62-21-898-2842 Fax: 62-21-898-0775
POS-Hyundai Steel Mfg (I) Pvt. Ltd.F-70, Sipcot Industrial Park, NH-4, BangaloreHighway, Irungattukottai, Sripaumhudur,Kanchipurampt, 602105, Tamilnadu, IndiaTel: 91-4111-256-457/460Fax: 91-4111-256-458
Assan Celik Urunleri Sanayi Ve Ticaret A.S. Merkez Ofis E-5 Karayolu 32. Km Tulza,Istanbul, TurkeyTel: 90-216-581-1803~4Fax: 90-216-395-7769
POSCAN(POSCO Canada Ltd.)(P.O. Box 11617) #2350-650 West Georgia St., Vancouver, B.C. V6B 4N9, CanadaTel: 1-604-688-9174/6Fax: 1-604-669-5805
Hanoi Office Rosegarden Tower, 4th Floor, No. 6 Ngoc KhanhStreet, Hanoi City, VietnamTel: 84-4-831-4181Fax: 84-4-831-4183
Beijing Office Room 1119, Tower2, Beijing Bright, Beijing P.R.C.China Chang An Building No. 7, Jianguomen Nei Ave,Dong Cheng District Tel: 86-10-6518-0267Fax: 86-10-6518-0270
Shanghai POS-PlazaPOS-PLAZA B/D 480, B 1F, Pudian Road Pudong,Shanghai, ChinaTel: 86-21-6875-9999Fax: 86-21-6875-1690
POSCO E&C (Zhangjiagang) Engineering &Consulting Co., Ltd.Sanxing Riverside Development Zone, Zhangjiagang City,Jiangsu Province, ChinaTel: 86-512-5853-6091Fax: 86-512-5853-6077
POSLILAMAPOSLILAMA Steel Structure Co., Ltd Industrial Zone B, Tuy ha, Nhon Trach-Dong Nai, VietnamTel: 84-61-84-8633Fax: 84-61-84-8634
IBC Corp. DIAMOND PLAZA 6F 605, 34 Le Duan St., Dist. 1, Hochiminh, VietnamTel: 84-8-822-1922Fax: 84-8-822-8562
POSEC-HAWAII1001 Bishop St., ASB Tower Suite 1560, Honolulu, Hawaii 96813Tel: 1-808-599-1990Fax: 1-808-599-1993
POSTEEL
POSCO E&C
Global Network
Headquarters1, Goedong-dong, Nam-guPohang, Gyeongsangbuk-do790-785, KoreaTel: 82-54-220-0114Fax: 82-54-220-6000www.posco.co.kr.
Seoul OfficePOSCO Center892, Daechi-4-dong, Gangnam-guSeoul 135-777, KoreaTel: 82-2-3457-0114Fax: 82-2-3457-6000
Pohang Works5, Dongchon-dong, Nam-guPohang, Gyeongsangbuk-do 790-360, KoreaTel: 82-54-220-0114Fax: 82-54-220-6000
Gwangyang Works700, Geumho-dong, GwangyangJeollanam-do 540-090, KoreaTel: 82-61-790-0114Fax: 82-61-790-7000
POSCO-China Holding CorpRoom 1210, Office Tower1, Henderson Center No.18jianguomennei Avenue Beijing, China (100005)Tel: 86-10-5166-6677Fax: 86-10-6518-2509 / 2510
(Shanghai Representative)32Fl., POSPLAZA, No.480 Pudian Road, Pudong,Shanghai, 200122 ChinaTel: 86-21-5820-0080Fax: 86-21-5820-0081
(Guangzhou Representative)Rm 1606, Citic Plaza, No.223Tianhe N. Road, Guangzou, ChinaTel: 86-20-3891-1631~3Fax: 86-20-3891-1610
(Foshan Representative)No.13 Block 1, Tangtou Huahui Metal Market, No.325national highway, Foshan City Guangdong, ChinaTel: 86-0757-8387-1389Fax: 86-0757-8387-1384
(Chongqing Representative)Unit2909, 29/F., Metropolitan Tower, No.68 Zourong Road,Central District, Chongqing China (400010)Tel: 86-23-8903-6558Fax: 86-23-8903-6556
(Wuhan Representative)Rm 1206, Building B#, Ruitong Plaza 847Jianshe Avenue, Hankou, Wuhan Hubei, China (430015)Tel: 86-27-8548-7737Fax: 86-27-8576-5535
(Shenyang Representative)Rm 1802, Tower C, President Building, No. 69 HepingNorth Avenue, Heping District, Shenyang,P.R.China(110003)Tel: 86-24-2281-5810Fax: 86-24-2281-5860
(Hongkong Representative)POA (POSCO Asia Co., Ltd.)Rm. 5508, Central Plaza, 18 Harbour Road, Wanchai,Hongkong/6006 Tel: 852-2827-8787/1437Fax: 852-2827-5005
Zhangjiagang POSCO Stainless Steel Co., Ltd.North of Yan Jiang Road, Lian Xing Cun, JinfengTown, Zhiangjiagang, Jinasu Province, ChinaTel: 86-512-5856-9211Fax: 86-512-5855-3680
Zhangjiagang Posha Steel Port Co., Ltd.North of Yan Jiang Road, Lian Xing Cun, JinfengTown, Zhiangjiagang, Jinasu Province, ChinaTel: 86-520-855-4971-3
Dalian POSCO-CFM Coated Steel Co., Ltd.1-4-5 Zhenpeng Industrial CityDalian Economic & Technical Development Zone, ChinaTel: 86-411-8751-5003Fax: 86-411-8751-4710
Shunde POSCO Coated Steel Co., Ltd.Wei-Ye Road No.1 Beijiao Industrial Zone Beijiao Town, Shunde City, Guangdong, ChinaTel: 86-757-2665-7705Fax: 86-757-2665-7760
Qingdao Pohang Stainless Steel Co., Ltd.200 Kunlunshan Road, Qingdao Economic andTechnological Development Zone, Shan DongProvince, China PRC (266510)Tel: 86-532-683-7030Fax: 86-532-683-7011
POSCO Suzhou Automotive Processing Center Co., Ltd.Pengqing Road, Cao’an Development Zone,Huaqiao, Kunshan, Jiangsu, ChinaTel: 86-512-5760-5951~3Fax: 86-512-5760-5950
POSVINA Co., Ltd.Phuoc Long A Ward District 9Hochiminh City, VietnamTel: 84-8-731-3037Fax: 84-8-731-3619
VPSVSC-POSCO Steel Corp.Anhung Village, Hongbang Dist., Haiphong, VietnamTel: 84-31-850124, 125Fax: 84-31-850123
Myanmar-POSCO Steel Co., Ltd.No.3 Trunk Road, Pyinmabin Industrial ComplexMingaladon Township, Yangon, MyanmarTel: 95-1-635-367Fax: 95-1-635-418
POSAM(POSCO America Corp.)2 Executive Dr., Suite #805 Fort Lee, NJ 07024 U.S.ATel: 1-201-585-3060Fax: 1-201-585-6001
UPI(USS-POSCO Industries)(P.O.BOX 471) 900 Loveridge Road, Pittsburg, CA 94565, U.S.A Tel: 1-925-439-6382Fax: 1-925-439-6741
POSCO Japan(Tokyo)POSCO Tokyo Bldg., 5Fl, 11-14, Ginza 5-Chome,Chuoku, Tokyo 104-0061, JapanTel: 81-3-3546-1212Fax: 81-3-3546-1215
(Osaka)POSCO Osaka Bldg., 2~3Fl, 3-7, Nanba 2-Chome,Chouku, Osaka 542-0076, JapanTel: 81-6-6214-0970Fax: 81-6-6214-0971~2
(Nagoya)460-0002 POSCO JAPAN Co., Ltd. 18F, Marunouchi KS Bldg., 2-18-25, Marunouchi,Naka-Ku Nagoya, Japan Tel: 81-52-219-9230Fax: 81-52-221-9221
Fujiura Butsuryu Center Co., Ltd.116-3 Shiomi-Cho Izumiotsu Osaka 595-0054, JapanTel: 81-725-31-4577Fax: 81-725-31-4578
POSAPOS-ORE Ltd.POSCO Australia Pty. Ltd.Suite C, Level 49, Governor Phillip Tower, 1 Farrer Place, Sydney, N.S.W. 2000, AustraliaTel: 61-2-9241-2345Fax: 61-2-9241-2001
KOBRASCOCompanhia Coreano-Brasileira de Pelotizacao Av. Dante Michelini No.5500, Jardim Camburi, -Ponta do Tubarao-Vitoria-E.S-BrasilTel: 55-27-3333-5984, 4864Fax: 55-27-3333-4762
POSCO
5554
FINANCIALSTATEMENTS58 Report Of Independent Accountants
59 Financial Statements
67 Notes To Consolidated Financial Statements
141 Investor Information
1960Apr. 1968 Pohang Iron and Steel Company,
Limited (POSCO) established
1970Apr. 1970 Pohang Works Phase 1 begun
Jul. 1973 Pohang Works Phase 1 completed (Annual crude steel capacity: 1.03 million tons)
May 1976 Pohang Works Phase 2 completed (Annual crude steel capacity: 2.6 million tons)
Dec. 1978 Pohang Works Phase 3 completed (Annual crude steel capacity: 5.5 million tons)
1980Feb. 1981 Pohang Works Phase 4-1 completed
(Annual crude steel capacity: 8.5 million tons)
May 1983 Pohang Works Phase 4-2 completed (Annual crude steel capacity: 9.1 million tons)
May 1985 Gwangyang Works Phase 1 begun
Apr. 1986 USS-POSCO Industries (UPI) established
Jun. 1988 POSCO stock listed on the Korea Stock Exchange
Jul. 1988 Gwangyang Works Phase 2 completed (Annual crude steel capacity: 14.5 million tons)
1990Dec. 1990 Gwangyang Works Phase 3 completed
(Annual crude steel capacity: 17.5 million tons)
Oct. 1992 Gwangyang Works Phase 4 completed (Annual crude steel capacity: 20.8 million tons)
Dec. 1993 ISO 9002 certification acquired
Sep. 1997 Pohang Works No. 3 Plate Mill completed
Jul. 1998 Government announces POSCO privatization plan
Dec. 1998 Process Innovation initiative launched
Mar.1999 Gwangyang Works No. 5 Blast Furnace completed
2000Oct. 2000 Privatization completed
Jul. 2001 POSPIA integrated information system launched
Mar. 2002 Legal corporate name changed to POSCO
Jun. 2003 New POSCO Code of Conduct announced
Jul. 2003 The POSCO Museum opened
Jan. 2004 Environmental Policy Declared
Aug. 2004 Construction of 1st FINEX Plant commenced
Milestones
We have audited the accompanying consolidated balance sheets of POSCO and its subsidiaries (the "Company") as of December 31,
2004 and 2003, and the related consolidated statements of income, of changes in shareholders' equity, and of cash flows for each of
the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company's man-
agement. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2004 and 2003, and the results of their operations and their cash flows for the three years in the
period ended December 31, 2004, in conformity with accounting principles generally accepted in the Republic of Korea.
Accounting principles generally accepted in the Republic of Korea vary in certain significant respects from accounting principles
generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in
Note 33 to the consolidated financial statements.
To the Board of Directors and Shareholders of POSCO Consolidated Balance SheetsDecember 31, 2004 and 2003
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM POSCO AND SUBSIDIARIES
Samil PricewaterhouseCoopers is the Korean member firm of PricewaterhouseCoopers. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers
International Limited, each of which is a separate and independent legal entity.
Seoul, Republic of Korea
March 5, 2005
Samil PricewaterhouseCoopers
Kukje Center Building
191 Hankangro 2 ga, Yongsanku
Seoul 140-702, KOREA
(Yongsan P.O. Box 266, 140-600)
5958
AssetsCurrent assets
Cash and cash equivalents, net of government grants (Notes 3 and 27) ₩ 486,370 ₩ 592,602 $ 469,877 Short-term financial instruments (Notes 3 and 27) 640,988 695,169 619,253 Trading securities (Note 4) 2,689,593 1,321,301 2,598,390 Current portion of held-to-maturity securities (Note 7) 13,769 250,481 13,302 Current portion of available-for-sales securities (Note 7) 141,573 - 136,773 Trade accounts and notes receivable, net of allowance for 3,093,511 2,308,445 2,988,611 doubtful accounts and present value discount (Notes 5, 13, 27 and 28)
Other accounts and notes receivable, net of allowance 163,118 95,564 157,587 for doubtful accounts and present value discount (Notes 5, 27 and 28)
Inventories (Notes 6 and 29) 3,065,521 2,068,371 2,961,570 Other current assets, net of allowance for doubtful accounts (Note 11) 193,373 289,665 186,813 Total current assets 10,487,816 7,621,598 10,132,176
Property, plant and equipment, net (Notes 8, 13, 14 and 29) 10,440,291 9,845,777 10,086,263 Investment securities (Notes 7, 27 and 29) 2,345,076 2,318,830 2,265,556 Intangible assets, net (Notes 9 and 29) 496,315 474,496 479,485 Long-term loans, net of allowance for doubtful accounts and 81,496 82,877 78,732 present value discount (Notes 5, 27, 28 and 29)
Long-term trade accounts and notes receivable, net of allowance for 36,094 43,665 34,870 doubtful accounts and present value discount (Notes 5, 27 and 29)
Deferred income tax assets (Notes 25 and 29) 54,157 43,324 52,320 Guarantee deposits (Notes 27 and 29) 41,424 31,067 40,019 Long-term financial instruments (Notes 3, 27 and 29) 1,706 18,002 1,648 Other long-term assets, net of allowance for doubtful accounts 144,585 288,913 139,683and present value discount (Notes 11 and 29)
Total assets 24,128,960 20,768,549 $23,310,752
(Note 2)2004 2003 2004
in millions of Korean won and thousands of US dollar
61
Financial Statements
60
Liabilities and Shareholders' EquityCurrent liabilities
Trade accounts and notes payable (Notes 27 and 28) ₩ 1,082,299 ₩ 917,495 $ 1,045,598 Short-term borrowings (Notes 12, 27 and 28) 657,541 731,781 635,244 Current portion of long-term debt, net of discount on 1,046,699 1,020,865 1,011,205 debentures issued (Notes 12, 13 and 27)
Accrued expenses (Note 27) 391,900 346,186 378,611 Other accounts and notes payable (Notes 27 and 28) 225,680 190,115 218,027 Withholdings (Note 27) 94,285 82,770 91,088 Income tax payable 1,086,971 572,860 1,050,112 Other current liabilities (Note 16) 409,643 309,846 395,754 Total current liabilities 4,995,018 4,171,918 4,825,639
Long-term debt, net of current portion and discount on 2,050,801 2,952,384 1,981,259 debentures issued (Notes 13, 27 and 28)Accrued severance benefits, net (Note 15) 230,367 162,662 222,555 Deferred income tax liabilities (Note 25) 270,641 119,979 261,463 Other long-term liabilities (Note 16) 196,077 112,039 189,428 Total liabilities 7,742,904 7,518,982 7,480,344
Commitments and contingencies (Note 17)Shareholders' equity
Common stock, ₩5,000 par value, authorized 200 million shares: 482,403 482,403 466,045 issued and outstanding 87,186,835 shares in 2004 and 88,966,155 shares in 2003 (Note 1)
Capital surplus (Note 18) 3,895,378 3,828,773 3,763,286 Retained earnings (Note 19) 12,851,118 9,875,080 12,415,339 (Net income: ₩3,814,225 million in 2004 and (1,150,734) (1,229,988) (1,111,713)₩1,995,983 million in 2003 and ₩1,089,288 million in 2002Losses in excess of minority interest: ₩13,205 million in 2004 and ₩3,163 million in 2003 and ₩2,495 million in 2002)Capital adjustments, net (Note 20)
16,078,165 12,956,268 15,532,957 Minority interest
Common stock 147,917 142,678 142,901 Capital surplus and retained earnings 159,974 150,621 154,550
307,891 293,299 297,451 Total shareholders' equity 16,386,056 13,249,567 15,830,408
Total liabilities and shareholders' equity ₩24,128,960 ₩ 20,768,549 $23,310,752
(Note 2)2004 2003 2004
in millions of Korean won and thousands of US dollar
Consolidated Statements of IncomeYears Ended December 31, 2004, 2003 and 2002
Sales (Notes 28 and 29) ₩ 23,973,053 ₩ 17,789,237 ₩ 14,354,918 $ 23,160,133 Cost of goods sold (Note 28) 17,360,706 13,450,786 11,338,260 16,772,008Gross profit 6,612,347 4,338,451 3,016,658 6,388,125 Selling and administrative expenses (Note 23) 1,292,927 1,075,470 966,791 1,249,086Operating income 5,319,420 3,262,981 2,049,867 5,139,039 Non-operating income
Interest and dividend income (Note 28) 141,054 97,233 72,792 136,271 Gain on foreign currency transactions 130,915 84,459 132,276 126,476 Gain on foreign currency translation 177,889 6,415 128,844 171,857 Gain on valuation of trading securities 22,497 6,387 6,366 21,734 Gain on disposal of trading securities 43,012 35,993 49,938 41,553 Gain on valuation of equity method investments (Note 7) 3,505 - - 3,386 Gain on disposal of property, plant and equipment 13,769 8,061 22,361 13,302 Gain on derivatives transaction (Note 22) 12,452 2,481 13,160 12,030 Gain on valuation of derivatives (Note 22) 9,594 2,849 569 9,269 Gain on recovery of allowance for doubtful accounts 126,861 12,798 - 122,559 Gain on disposal of investments 7,304 11,099 6,454 7,057 Others 139,967 91,602 110,684 135,220
828,819 359,377 543,444 800,714Non-operating expenses
Interest expense (Note 28) 192,030 250,319 331,776 185,518 Other bad debt expense 16,229 - 178,476 15,679 Loss on foreign currency transactions 112,343 77,979 96,976 108,533 Loss on foreign currency translation 17,407 118,231 28,768 16,817 Loss on valuation of equity method investments (Note 7) - 4,523 128,769 - Donations (Note 24) 169,546 103,191 50,147 163,797 Loss on disposal of property, plant and equipment 29,086 43,217 38,215 28,100 Loss on derivatives transaction (Note 22) 9,332 1,660 3,376 9,015 Loss on valuation of derivatives (Note 22) 2,646 30,781 11,775 2,556 Loss on impairment of investments (Note 7) 94,824 11,516 30,379 91,609 Loss on impairment of property, plant 72,692 150,750 139,833 70,227 and equipment (Note 8)
Loss on valuation of inventories - 4,580 1,178 - Others 92,581 78,341 46,206 89,442
808,716 875,088 1,085,874 781,293 Extraordinary income 3,387 - - 3,273Net income before income tax expense and minority interest 5,342,910 2,747,270 1,507,437 5,161,733 Income tax expense (Note 25) 1,501,646 730,270 398,305 1,450,726Net income before minority interest 3,841,264 2,017,000 1,109,132 3,711,007 Minority interest in income of consolidated subsidiaries 27,039 21,017 19,844 26,122 Net income (Note 26) ₩ 3,814,225 ₩ 1,995,983 ₩ 1,089,288 $ 3,684,885 Per Share Data (Note 26) (in Korean won and US dollar)Basic and diluted ordinary income per share ₩ 47,155 ₩ 24,496 ₩ 13,295 $ 45.56 Basic and diluted earnings per share 47,185 24,496 13,295 45.58
(Note 2)2004 2003 2002 2004
in millions of Korean won and thousands of US dollar, except per share amounts
6362
Financial Statements
Consolidated Statements of Changes in Shareholders’ EquityYears Ended December 31, 2004, 2003 and 2002
Balance as of January 1, 2002 93,589,485 ₩ 482,403 ₩ 3,859,029 ₩ 7,129,436 ₩(1,125,004) ₩ 168,171 ₩10,514,035 Net income for 2002 - - - 1,089,288 - - 1,089,288 Cumulative effect of - - - 717,510 - - 717,510 accounting policy change
Effect of change in percentage of - - (70,419) 13,572 - 106,833 49,986 ownership of investees
Dividends - - - (204,089) - (13,751) (217,840)Change in losses in excess - - - (458) - 458 - of minority interest
Retirement of treasury stock (2,807,690) - - (281,698) 281,698 - - Change in treasury stock - - - - (12,289) - (12,289)Overseas operations translation - - - - (40,952) (999) (41,951)adjustment
Valuation loss on - - - - (307,175) (612) (307,787)investment securities
Minority interest in income of - - - - - 19,844 19,844 consolidated subsidiaries
Others - - 9,127 1,154 (652) (779) 8,850Balance as of December 31, 2002 90,781,795 ₩ 482,403 ₩3,797,737 ₩8,464,715 ₩(1,204,374) ₩ 279,165 ₩11,819,646
Common stock Capital Retained Capital MinorityShares Amount surplus earnings adjustments interest Total
in millions of Korean wonYears Ended December 31, 2004, 2003 and 2002
Balance as of January 1, 2003 90,781,795 ₩ 482,403 ₩ 3,797,737 ₩8,464,715 ₩(1,204,374) ₩ 279,165 ₩11,819,646 Net income for 2003 - - - 1,995,983 - - 1,995,983 Effect of change in percentage of - - (7,345) - - 3,248 (4,097)ownership of investees
Dividends - - - (326,865) - (7,538) (334,403)Loss on prior period unadjusted - - - (16,124) - - (16,124)equity method
Change in losses in excess - - - (668) - 668 - of minority interest
Retirement of treasury stock (1,815,640) - - (253,381) 253,381 - - Change in treasury stock - - 21,635 - (175,555) - (153,920)Overseas operations - - - - 44,496 (1,006) 43,490 translation adjustment
Valuation loss on - - - - (152,089) (5,157) (157,246)investment securities
Minority interest in income - - - - - 21,017 21,017 consolidated subsidiaries
Others - - 16,746 11,420 4,153 2,902 35,221 Balance as of December 31, 2003 88,966,155 ₩ 482,403 ₩3,828,773 ₩9,875,080 ₩(1,229,988) ₩ 293,299 ₩13,249,567
Common stock Capital Retained Capital MinorityShares Amount surplus earnings adjustments interest Total
in millions of Korean won
Financial Statements
6564
Years Ended December 31, 2004, 2003 and 2002
Balance as of January 1, 2004 88,966,155 ₩ 482,403 ₩ 3,828,773 ₩ 9,875,080 ₩(1,229,988) ₩ 293,299 ₩13,249,567 Net income for 2004 - - - 3,814,225 - - 3,814,225 Effect of change in percentage of - - 1,527 1,167 - (3,316) (622)ownership of investees
Dividends - - - (524,602) - (7,107) (531,709)Change in losses in excess - - - (10,042) - 10,042 -of minority interest
Retirement of treasury stock (1,779,320) - - (304,711) - - (304,711)Change in treasury stock - - 63,695 - 158,025 - 221,720 Overseas operations - - - - (126,552) (11,905) (138,457)translation adjustment
Valuation gain on - - - - 51,933 97 52,030investment securities
Minority interest in income - - - - - 27,039 27,039 consolidated subsidiaries
Others - - 1,383 1 (4,152) (258) (3,026)Balance as of December 31, 2004 87,186,835 ₩ 482,403 ₩3,895,378 ₩12,851,118 ₩(1,150,734) ₩ 307,891 ₩16,386,056
Balance as of January 1, 2004 88,966,155 $ 466,045 $ 3,698,940 $ 9,540,219 $ (1,188,279) $ 283,353 $ 12,800,278 Net income for 2004 - - - 3,684,885 - - 3,684,885 Effect of change in percentage of - - 1,476 1,127 - (3,204) (601)ownership of investees
Dividends - - - (506,813) - (6,866) (513,679)Change in losses in excess - - - (9,701) - 9,701 - of minority interest
Retirement of treasury stock (1,779,320) - - (294,379) - - (294,379)Change in treasury stock - - 61,535 - 152,667 - 214,202 Overseas operations - - - - (122,260) (11,501) (133,761)translation adjustment
Valuation gain on - - - - 50,172 93 50,265investment securities
Minority interest in income - - - - - 26,122 26,122 consolidated subsidiaries
Others - - 1,335 1 (4,013) (247) (2,924)Balance as of December 31, 2004 87,186,835 $ 466,045 $ 3,763,286 $ 12,415,339 $ (1,111,713) $ 297,451 $ 15,830,408
Common stock Capital Retained Capital MinorityShares Amount surplus earnings adjustments interest Total
in millions of Korean won and thousands of US dollar
Consolidated Statements of Cash Flows Years Ended December 31, 2004, 2003 and 2002
Cash flows from operating activitiesNet income ₩ 3,814,225 ₩ 1,995,983 ₩ 1,089,288 $ 3,684,885 Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 1,567,032 1,568,057 1,453,253 1,513,894 Accrual of severance benefits 192,648 165,018 119,091 186,115 Provision (reversal of allowance) for doubtful accounts (56,961) (3,843) 184,887 (55,029)Unrealized foreign exchange loss (gain) (165,136) 111,736 (105,716) (159,536)Loss (gain) on valuation of trading securities (22,497) (5,756) (6,366) (21,734)Loss (gain) on valuation of derivatives, net (6,948) 27,932 11,206 (6,713)Loss (gain) on derivatives transaction, net (3,120) (821) (9,784) (3,015)Gain on disposal of trading securities and investments, net (41,594) (39,738) (52,713) (40,184)Loss on disposal of property, plant and equipment, net 15,317 35,156 15,854 14,798 Loss on valuation of inventories - 4,580 1,178 - Loss on impairment of investment securities 72,692 150,750 166,874 70,227and property, plant and equipment
Loss on impairment of assets held for sale 94,824 11,516 3,338 91,609 Loss (gain) on valuation of equity method investments, net (3,505) 4,523 128,769 (3,386)Minority interest in income of consolidated subsidiaries 27,039 21,017 19,844 26,122 Stock compensation expense 24,785 18,894 6,497 23,945 Loss on contribution of treasury stock 159,897 74,687 - 154,475to the association of employee stock ownership
Others 27,610 15,862 (2,666) 26,676 1,882,083 2,159,570 1,933,546 1,818,264
Changes in operating assets and liabilitiesIncrease in trade accounts and notes receivable (869,353) (502,944) (151,351) (839,874)Decrease (increase) in inventories (903,532) (392,255) 69,950 (872,894)Increase in trade accounts and notes payable 317,983 89,220 151,699 307,200 Decrease (increase) in other accounts and notes receivable (63,329) (23,233) 28,938 (61,181)Increase in other accounts and notes payable 73,813 83,506 11,588 71,310 Increase (decrease) in accrued expenses 52,874 120,087 (61,507) 51,081 Increase in income tax payable 486,198 149,376 271,347 469,711 Deferred income tax, net 137,986 (2,164) (137,771) 133,307 Payment of severance benefits (28,346) (25,045) (14,469) (27,385)Others 45,292 (153,504) 22,081 43,754
(750,414) (656,956) 190,505 (724,971)Net cash provided by operating activities 4,945,894 3,498,597 3,213,339 4,778,178
(Note 2)2004 2003 2002 2004
in millions of Korean won and thousands of US dollar
Financial Statements
6766
General descriptions of POSCO, the controlling company, and its controlled subsidiaries (the "Company"), including POSCO
Engineering & Construction Co., Ltd. (POSCO E & C) and thirteen other domestic subsidiaries and twenty-three overseas sub-
sidiaries, whose accounts are included in the consolidated financial statements, and sixteen equity method investees, which are
excluded from the consolidation, are as follows:
The Controlling Company
POSCO, the controlling company, was incorporated on April 1, 1968, under the Commercial Code of the Republic of Korea, to manu-
facture and distribute steel rolled products and plates in the domestic and overseas markets. Annual production capacity is 30,000
thousand tons; 13,300 thousand tons at the Pohang mill and 16,700 thousand tons at the Gwangyang mill. The shares of POSCO
have been listed on the Korea Stock Exchange since 1988. POSCO operates two plants and one office in Korea, and seven liaison
offices overseas. The principal market for POSCO's products is the domestic market in Korea, while export and overseas sales are
concentrated in Japan, China and other countries in the Asia Pacific region.
Under its Articles of Incorporation, the Company is authorized to issue 200 million shares of common stock with a par value of
₩5,000 per share. The Company retired 2,891,140; 2,807,690; and 1,815,640 shares of treasury stock with the approval of the Board
of Directors on August 25, 2001, November 20, 2002 and July 22, 2003, respectively. In addition, the Company retired 1,779,320
shares of treasury stock on October 19, 2004 in accordance with the resolution of the Board of Directors on July 23, 2004.
Accordingly, total issued shares were reduced to 87,186,835 from 88,966,155 as of December 31, 2004.
As of December 31, 2004, POSCO's shareholders are as follows:
As of December 31, 2004 and 2003, the shares of POSCO are listed on the Korea Stock Exchange, and its depository receipts are
listed on the New York and London Stock Exchanges.
1. Consolidated Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2004 and 2003
Number of shares Percentage of shares (%)
National Pension Corporation 3,084,186 3.54
SK Telecom Co., Ltd. 2,481,310 2.85
Pohang University of Science and Technology 2,475,000 2.84
Others 79,146,339 90.77
87,186,835 100.00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
Years Ended December 31, 2004, 2003 and 2002
Cash flows from investing activitiesDisposal of trading securities ₩ 10,482,755 ₩ 10,800,373 ₩ 11,547,221 $ 10,127,287 Acquisition of trading securities (10,546,422) (10,881,694) (12,150,384) (10,188,795)Disposal of short-term financial instruments 1,416,087 1,940,605 1,317,099 1,368,067 Acquisition of short-term financial instruments (1,348,102) (2,365,200) (1,140,400) (1,302,388)Acquisition of property, plant and equipment (2,265,074) (1,298,848) (1,688,840) (2,188,265)Disposal of property, plant and equipment 74,041 69,886 91,238 71,530 Acquisition of available-for-sales securities (194,344) (726,766) (117,790) (187,754)Disposal of available-for-sales securities 27,558 234,038 109,523 26,624 Acquisition of other investments (1,083,445) (50,986) (15,051) (1,046,705)Proceeds from short-term loans 100,983 45,512 147,650 97,559 Short-term loans provided (39,864) (52,401) (56,910) (38,512)Long-term loans provided (4,665) (30,192) (46,162) (4,507)Acquisition of intangible assets (89,739) (103,828) (96,676) (86,696)Others 90,329 284,232 (46,082) 87,265Net cash used in investing activities (3,379,902) (2,135,269) (2,145,564) (3,265,290)
Cash flows from financing activitiesPayment of cash dividends (524,570) (325,961) (214,277) (506,782)Proceeds from (payment of) short-term borrowings (13,938) 102,131 (85,565) (13,464)Proceeds from long-term debt 280,038 656,071 646,848 270,543 Repayment of current portion of long-term debt (1,018,064) (1,314,762) (1,299,970) (983,542)Repayment of long-term debt (106,558) (2,129) (278,086) (102,944)Proceeds from sale of minority interest 8,948 4,033 54,107 8,644 Acquisition of treasury stock (304,712) (263,351) (91,143) (294,379)Disposal of treasury stock 81,724 43,885 95,187 78,953 Others (52,589) 53,919 (5,351) (50,807)Net cash used in financing activities (1,649,721) (1,046,164) (1,178,250) (1,593,778)
Effect of exchange rate changes on cash and cash equivalents (22,267) 9,107 (12,862) (21,512)Net decrease in cash and cash equivalents from changes in 381 - (16,097) 368consolidated subsidiaries
Net increase (decrease) in cash and cash equivalents (105,615) 326,271 (139,434) (102,034)Cash and cash equivalents at the beginning of the year 593,946 267,675 407,109 573,806 Cash and cash equivalents at the end of the year ₩ 488,331 ₩ 593,946 ₩ 267,675 $ 471,772
Supplemental disclosure of cash flow information:Cash paid during the year for interest ₩ 214,845 ₩ 255,762 ₩ 327,575 $ 207,560 Cash paid during the year for income tax 854,899 ₩ 589,052 ₩ 264,729 $ 825,910
(Note 2)2004 2003 2002 2004
in millions of Korean won and thousands of US dollar
6968
Consolidated Subsidiaries
The consolidated financial statements include the accounts of POSCO and its controlled subsidiaries. The following table sets forth
certain information with regard to consolidated subsidiaries as of December 31, 2004.
Capital Number of Percentage Percentage of Primary (in millions of outstanding Number of shares of owner- ownership of
Subsidiaries business Korean won)1 shares POSCO Subsidiaries Total ship(%) Location subsidiaries (%)
Domestic:
POSCO E & C Engineering and ₩ 788,126 30,000,000 27,281,080 - 27,281,080 90.94 Pohang -(POSEC) construction
Posteel Co., Ltd. Steel sales and 274,282 18,000,000 17,155,000 - 17,155,000 95.31 Pohang -service
POSCON Co., Ltd. Electronic 83,228 3,519,740 3,098,610 - 3,098,610 88.04 Pohang -control devicesmanufacturing
Pohang Coated Coated steel 280,599 6,000,000 4,000,000 - 4,000,000 66.67 Pohang -Steel Co., Ltd. manufacturing
POSCO Machinery Steel work 34,632 1,700,000 1,700,000 - 1,700,000 100.00 Pohang -& Engineering maintenanceCo., Ltd.
POSDATA Co., Computer 111,806 6,155,160 4,000,000 - 4,000,000 64.99 Sungnam -Ltd. hardware and
softwaredistribution
POSCO Research Economic 22,645 3,800,000 3,800,000 - 3,800,000 100.00 Seoul -Institute research and
consulting
Seung Kwang Co., Athletic facilities 42,529 4,145,000 2,737,000 1,208,000 3,945,000 95.17 Suncheon POSCO E&CLtd. operation (29.14)
POS-AC Co., Ltd. Architecture and 10,187 130,000 130,000 - 130,000 100.00 Seoul -consulting
Changwon Specialty steel 388,899 30,000,000 26,000,000 4,000,000 30,000,000 100.00 Changwon Posteel (6.67),Specialty Steel manufacturing POSCON (6.67)Co., Ltd.
POSCO Machinery Machinery 27,131 1,000,000 1,000,000 - 1,000,000 100.00 Gwangyang -Co., Ltd. installation
POSTECH Investment in 34,433 6,000,000 5,700,000 - 5,700,000 95.00 Pohang -Venture Capital ventureCo., Ltd. companies
Capital Number of Percentage Percentage of Primary (in millions of outstanding Number of shares of owner- ownership of
Subsidiaries business Korean won)1 shares POSCO Subsidiaries Total ship(%) Location subsidiaries (%)
POSCO Refractories Manufacturing ₩ 98,439 5,907,000 3,544,200 - 3,544,200 60.00 Pohang -& Environment(POSREC)
SEO MUEUN Real estate, rental (17,386) 30,000 - - - -2 Busan -Development Inc. and construction
Foreign:
POSCO America Steel trading 136,073 308,610 306,855 1,755 308,610 100.00 U.S.A. POSCAN (0.57)Corp. (POSAM)
POSCO Australia Steel trading 43,629 761,775 761,775 - 761,775 100.00 Australia -Pty. Ltd. (POSA)
POSCO Canada Coal trading 45,736 1,099,885 - 1,099,885 1,099,885 100.00 Canada PosteelLtd. (POSCAN) (100.00)
POSCO Asia Co., Steel trading 17,788 9,360,000 9,360,000 - 9,360,000 100.00 Hongkong -Ltd. (POA)
VSC POSCO Steel Steel 15,229 N/A N/A N/A N/A 40.00 Vietnam PosteelCorporation (VPS) manufacturing (5.00)
DALIAN Coated steel 33,203 N/A N/A N/A N/A 55.00 China PosteelPOSCO-CFM manufacturing (15.00)Coated Steel Co., Ltd.
POS-Tianjin Coil Steel service 12,471 N/A N/A N/A N/A 70.00 China PosteelCenter Co., Ltd. center (60.00)
POSMETAL Co., Steel service 7,282 6,000 - 3,000 3,000 50.00 Japan PosteelLtd. center (50.00)
Shanghai Real Real estate rental 66,743 N/A N/A N/A N/A 100.00 China POSCO E & C Estate (100.00)Development Co., Ltd.
IBC Corporation Real estate rental 15,677 N/A N/A N/A N/A 60.00 Vietnam POSCO E & C (60.00)
POSLILAMA Steel Steel structure (6,895) N/A N/A N/A N/A 70.00 Vietnam POSCO E & C Structure Co., Ltd. fabrication and (60.00),
sales Posteel (10.00)
Zhangjiagang Stainless steel 262,468 N/A N/A N/A N/A 87.08 China POSCO-China Pohang Stainless manufacturing Holding Corp.Steel Co., Ltd. (13.79)
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Financial Statements
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Capital Number of Percentage Percentage of Primary (in millions of outstanding Number of shares of owner- ownership of
Subsidiaries business Korean won)1 shares POSCO Subsidiaries Total ship(%) Location subsidiaries (%)
SHUNDE Pohang Coated steel ₩ 32,428 N/A N/A N/A N/A 93.80 China POSCO-China Coated Steel Co., Ltd. manufacturing Holding Corp.
(10.00)
POS-THAI Service Steel service 8,209 4,091,570 477,288 2,136,208 2,613,496 63.87 Thailand Posteel (52.21)Steel Center Co., Ltd. center
Qingdao Pohang Stainless steel 60,581 N/A N/A N/A N/A 80.00 China POSCO-China Stainless Steel manufacturing Holding Corp.Co., Ltd. (10.00)
Myanmar-POSCO Steel 6,216 19,200 13,440 - 13,440 70.00 Myanmar -Co., Ltd. manufacturing
Zhangjiagang Depot service 9,938 N/A N/A N/A N/A 90.00 China POSCO E & C POSHA Steel (25.00),Port Co., Ltd. Zhangjiagang
Pohang Stainless Steel (65.00)
POSCO Finance 34,415 2,000,000 2,000,000 - 2,000,000 100.00 Hongkong -Investment Co.,Ltd.
POSCO (SUZHOU) Steel service 20,778 N/A N/A N/A N/A 100.00 China POSCO-China Automotive center Holding Processing Corp.(10.00)Center Co., Ltd.
POS-Qingdao Coil Steel service 8,871 N/A N/A N/A N/A 69.08 China Posteel (69.08)Center Co., Ltd. center
POSCO-China Investment 53,675 N/A N/A N/A N/A 100.00 China -Holding Corp.
POS-ORE Pty. Ltd. Soft coal 20,953 17,500,001 - 17,500,001 17,500,001 100.00 Australia POSA (100.00)
POSCO-JAPAN Steel trading 49,212 88,038 88,038 - 88,038 100.00 Japan -Co., Ltd.
1 Capital of the Company's overseas subsidiaries are translated at the exchange rate as of the balance sheet date.
2 The Company does not have any equity interest in SEO MUEUN Development Inc. However, in accordance with the contract terms, the Company has the power to control or to direct
the operations and management. In addition, all the members of SEO MUEUN Development Inc.'s Board of Directors are composed of employees of POSCO E & C.
3 No shares have been issued in accordance with the local laws and regulations.
4 During the year ended December 31, 2004, the Company incorporated POSCO-Japan Co., Ltd. by contributing building and a piece of land with a total book value of ₩44,808 million and
additional cash amounting to ₩1,058 million after closing down the Japanese branch.
Equity Method Investees
The following table sets forth certain information with regard to equity method investees as of December 31, 2004.
Capital Percentage Percentage of Primary (in millions of Number of shares of owner- ownership of
Investees business Korean won)1 POSCO Subsidiaries Total ship(%) Location subsidiaries (%)
Domestic:
eNtoB Corporation E-business ₩ 17,393 560,000 180,000 740,000 23.13 Seoul POSDATA and others (5.00)
MIDUS Information Engineering 10,211 - 866,190 866,190 25.92 Seoul POSCO E & C Technologies Co., (25.92)Ltd.
SONGDO New City Real estate (44,800) - 78,338 78,338 29.90 Seoul POSCO E&CDevelopment Inc. rental (29.90)
Seoul Subway Metro Railway 7,322 - 430,534 430,534 29.40 Seoul POSCON(14.7)Railway 9 management PODATA(14.7)
Foreign:
KOBRASCO Pellet 26,481 2,010,719,185 - 2,010,719,185 50.00 Brazil -
Fujiura Butsuryu Warehousing 2,201 - 600 600 30.00 Japan PIO (30.00)Center Co., Ltd.
USS - POSCO Material 179,248 N/A N/A N/A 50.00 U.S.A. POSAM (50.00)Industries (UPI) processing
Suzhou Dongshin Coloring 11,465 N/A N/A N/A 30.00 China Posteel (30.00)Color Metal SheetCo., Ltd.
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Financial Statements
7372
Capital Percentage Percentage of Primary (in millions of Number of shares of owner- ownership of
Investees business Korean won)1 POSCO Subsidiaries Total ship(%) Location subsidiaries (%)
POSCHROME Fe-Cr ₩ 31,762 21,675 - 21,675 25.00 Republic of -South Africa
Shunde Xingpu Steel Metal 14,901 N/A N/A N/A 21.00 China PosteelCenter Co., Ltd. processing (10.50)
POS-HYUNDAI Metal 7,715 2,345,558 4,573,838 6,919,396 29.50 India PosteelSTEEL processing (19.50)
POSCO Bioventures LP. Investment in 33,221 N/A N/A N/A 100.00 U.S.A. POSAMcompanies in the (80.00)bio-tech industry
PT POSMI STEEL Steel service 3,504 743 2,229 2,972 36.69 Indonesia PosteelIndonesia (POSMI) center (27.52)
Posmmit Steel Steel service 10,559 4,200,000 - 4,200,000 30.00 Malaysia -Centre SDN BHD center(POSMMIT)POSVINA Co., Ltd. Steel 6,954 N/A N/A N/A 50.00 Vietnam -
manufacturing
POSVEN Steel - 4,480 2,240 6,720 60.00 Venezuela POSCO E&Cmanufacturing (10.00)
POSTEEL(10.00)
Shareholders' Percentage Percentage of Primary equity Number of shares of owner- ownership of
Investees business (in millions of Korean won)1 POSCO Subsidiaries Total ship(%) Location subsidiaries (%)
Foreign:
PT. POSNESIA STS/CR - 29,610,000 - 29,610,000 70.00 Indonesia -Stainless Steel Industry
POSEC-HAWAII Inc. Construction 5,343 - 18,100 18,100 100.00 U.S.A. POSCO E & C (100.00)
POSCO E&C Facilities (229) - N/A N/A 100.00 China POSCO E & C(ZHANGJIAGANG) manufacturing (100.00)Engineering & Consulting Co., Ltd.
Dalian Poscondongbang Electronic use 1,177 - 100,000 100,000 70.00 China POSCONAutomatic Co., LTd. facilities (70.00)
manufacturing
Qingdao Posco Steel Steel service center 4,175 - N/A N/A 100.00 China POAProcessing Co.,Ltd (100.00)
POSCO-FOSHAN Steel Steel service center 887 - N/A N/A 100.00 China POA (40.00)Processing Center POSCO-CHINACo., Ltd (60.00)
Shareholders' Percentage Percentage of Primary equity Number of shares of owner- ownership of
Investees business (in millions of Korean won)1 POSCO Subsidiaries Total ship(%) Location subsidiaries (%)
Domestic:
POSCO Terminal Co., Ltd. Distribution and ₩ 14,738 51,000 - 51,000 51.00 Kwangyang -warehousing
Metapolis Co., Ltd. Construction 2,063 - 320,400 320,400 40.05 Hwasung POSCO E & C(40.05)
1 Capital of the Company's overseas subsidiaries are translated at the exchange rate as of the balance sheet date.
2 The Company owns over 30 % of equity interest in KOBRASCO, UPI, PT POSMI STEEL Indonesia and POSVINA Co., Ltd. However, the Company is not the major shareholder of these compa-
nies. Therefore, these companies were excluded from consolidation. As of December 31, 2004, POSVEN is in the process of liquidation and is accordingly excluded from consolidation.
3 No shares have been issued in accordance with the local laws and regulations.
4 The Company owns 100 % of equity interest in POSCO Bioventures LP. However, due to an agreement with POSCO Bioventures LP., which prohibits the Company to engage in management
activities, POSCO Bioventures LP. was excluded from consolidation.
Subsidiaries Excluded from the Consolidated Financial Statements
1 Capital of the Company's overseas subsidiaries is translated at the exchange rate as of the balance sheet date.
2 Capital investment was less than ₩7,000 million as of December 31, 2004.
3 As of December 31, 2004, the company is in the process of the liquidation.
4 As of December 31, 2004, the company's operations have been suspended for more than one year.
Change in Scope of Consolidation
The consolidated financial statements include the accounts of POS-ORE Pty. Ltd., which was excluded from consolidation as of
December 31, 2003, due to the increase in its total assets to exceed ₩7,000 million as of December 31, 2004. Also, the consolidated
financial statements include the accounts of SEO MUEUN Development Inc., POSCO-China Holding Corp. and POSCO-Japan Co.,
Ltd., which were newly incorporated, since POSCO has obtained a controlling financial interest in such companies. POSCO does not
have any equity interest in SEO MUEUN Development Inc., however, in accordance with the contract terms, POSCO has the power to
control or to direct its operations and management. In addition, all the members of SEO MUEUN Development Inc.'s Board of
Directors are composed of employees of POSCO E & C, which is a controlled subsidiary of POSCO. POSCO International Osaka, Inc.
was excluded from consolidation as of December 31, 2004 since POSCO International Osaka, Inc. was acquired by POSCO-Japan
Co., Ltd. As a result of such change in scope of consolidation, the total assets, sales, net income and the shareholders' equity of the
consolidated financial statements as of and for the year ended December 31, 2004 increased by ₩482,413 million, ₩165,354 mil-
lion, ₩350 million and ₩102,943 million, respectively.
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Financial Statements
7574
The significant accounting policies followed by the Company in the preparation of its consolidated financial statements are summa-
rized below:
Basis of Consolidated Financial Statements Presentation
POSCO and its domestic subsidiaries maintain their accounting records in Korean won and prepare statutory financial statements
in the Korean language (Hangul) in conformity with accounting principles generally accepted in the Republic of Korea. Certain
accounting principles 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 consoli-
dated financial statements are intended for use by those who are informed about Korean accounting principles and practices. The
accompanying consolidated financial statements have been condensed, restructured and translated into English from the Korean
language consolidated financial statements. Certain information attached to the Korean language consolidated financial state-
ments, but not required for a fair presentation of POSCO and its domestic subsidiaries' financial position, results of operations or
cash flows, is not presented in the accompanying consolidated financial statements.
Application of the Statements of Korean Financial Accounting Standards
The Korean Accounting Standards Board ("KASB") has published a series of Statements of Korean Financial Accounting Standards
("SKFAS"), which will gradually replace the existing financial accounting standards, established by the Korean Financial
Supervisory Commission. As SKFAS No.2 through No.9 became applicable to the Company on January 1, 2003, the Company
adopted these standards in its financial statements covering periods beginning on or after this date. And as SKFAS Nos.10, 12 and
13 became applicable to the Company on January 1, 2004, the Company adopted these statements in its financial statements, as of
and for the year ended December 31, 2004.
Accounting Estimates
The preparation of the non-consolidated financial statements requires management to make estimates and assumptions that
affect amounts reported therein. Although these estimates are based on management's best knowledge of current events and
actions that the Company may undertake in the future, actual results may differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of POSCO and its controlled subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
The Company records differences between the investment account and corresponding capital account of subsidiaries as a goodwill
or a negative goodwill, and such differences are amortized over the estimated useful lives using the straight-line method. However,
differences which occur from additional investments acquired in consolidated subsidiaries are reported in a separate component of
shareholders' equity, and are not included in the determination of the results of operations. In accordance with accounting princi-
ples generally accepted in the Republic of Korea, minority interest in consolidated subsidiaries is presented as a component of
shareholders' equity in the consolidated balance sheet.
Cash, Cash Equivalent and Financial Instruments
Cash and cash equivalents include cash on hand, cash in banks, and highly liquid temporary cash investments with original maturities
of three months or less. Investments which are readily convertible into cash within four months or more of purchase are classified in
the balance sheet as financial instruments. The carrying amount of short-term financial instruments is approximate fair value.
Revenue Recognition
Revenue from sale of products is generally recognized when significant risks and rewards are transferred to the buyer. Revenue
from construction and machinery installation is recognized using the percentage-of-completion method based on the ratio of actual
costs incurred to the total estimated cost to complete. Adjustments to cost estimates are made periodically, and losses expected to
be incurred on contracts in-progress are charged to current operations, in the period such losses are determined. The aggregate of
costs incurred and income recognized on uncompleted contracts in excess of related billings is shown as a current asset, and the
aggregate of billings on uncompleted contracts in excess of related costs incurred and income recognized is shown as a current lia-
bility. Revenue from consulting and other services are generally recognized when the service is provided to the customer. Revenue
from long-term service contracts is deferred and recognized over the life of the contract.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based on management's estimate of the collectibility of individual
accounts and historical collection experience.
Inventories
The quantity of inventory on hand is verified using the perpetual inventory system, which continuously updates the quantity of the
inventory during the period, and by physical count as of the balance sheet date. Inventories are stated at the lower of cost or market,
with cost being determined using the moving-average method, except for materials-in-transit, which are stated at actual cost using
the specific identification method. If the net realizable (replacement cost for raw materials) value of inventories is lower than its
cost, the carrying amount is reduced to the net realizable value (replacement cost for raw materials) and the difference between the
cost and revalued amount is charged to current operations. If, however, the circumstances which caused the valuation loss ceased
to exist, causing the market value to rise above the carrying amount, the valuation loss is reversed limited to the original carrying
amount before valuation. The said reversal is a deduction from cost of sales.
For certain other subsidiaries, inventories are stated at the lower of cost or market, with cost being determined using the gross
average method or FIFO method. Individual accounting policies on inventories of POSCO and each subsidiary are enumerated on
page 25 and 26.
Investments in Securities
The Company accounts for equity and debt securities under the provision of SKFAS No. 8, Investments in Securities. This statement
requires investments in equity and debt securities to be classified into one of three categories: trading, available-for-sale and held-
to-maturity.
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Financial Statements
2. Summary of Significant Accounting Policies
7776
Securities that are bought and held principally for sale in the near-term to generate profits from short-term price differences are
classified into Trading. Trading generally involves active and frequent buying and selling. Debt securities that have fixed or deter-
minable payments and fixed maturity shall be classified as held-to-maturity only if the reporting entity has both the positive intent
and ability to hold those securities to maturity. Securities that are not classified as either held-to-maturity securities or trading
securities are classified into available-for-sale.
Securities are initially carried at cost, including incidental expenses, with cost being determined using the gross average method or
moving-average method. Debt securities, which the Company has the intent and ability to hold to maturity, are generally carried at
cost, adjusted for the amortization of discounts or premiums. Premiums and discounts on debt securities are amortized over the
term of the debt using the effective interest rate method. Trading and available-for-sale securities are carried at fair value, except
for non-marketable securities classified as available-for-sale securities, which are carried at cost. Non-marketable debt securi-
ties are carried at a value using the present value of future cash flows, discounted at a reasonable interest rate determined consid-
ering the credit ratings by the independent credit rating agencies.
Unrealized valuation gains or losses on trading securities are charged to current operations, and those resulting from available-
for-sale securities are recorded as a capital adjustment, the accumulated amount of which shall be charged to current operations
when the related securities are sold, or when an impairment loss on the securities is recognized. Impairment losses of available-
for sale and held-to-maturity securities are recognized in the statement of income when the recoverable amounts are less than the
acquisition costs of securities or adjusted costs of debt securities for the amortization of discounts or premiums.
Investments in Affiliates
Investments in equity securities of companies, over which the Company exercises significant influence are recorded using the
equity method of accounting. Under the equity method, the Company records changes in its proportionate ownership of 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. The Company discontinues the equity method of accounting for invest-
ments in equity method investees when the Company's share in the accumulated losses equals the cost of the investments, and
until the subsequent cumulative changes in its proportionate net income of the investees equals its cumulative proportionate net
losses not recognized during the periods when the equity method was suspended.
Differences between the initial purchase price and the Company's initial proportionate ownership of the net book value of the
investee are amortized over five years using the straight-line method.
Unrealized profit arising from sales by the Company to equity method investees is fully eliminated. The Company's proportionate
unrealized profit arising from sales by the equity method investees to the Company or sales between equity method investees is
also eliminated.
Foreign currency financial statements of equity method investees are translated into Korean won using the current exchange rate
in effect as of the balance sheet date for assets and liabilities, and annual average exchange rates for income and expenses. Any
resulting translation gain or loss is included in the capital adjustments account, a component of shareholders' equity.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation, except for certain assets subject to upward
revaluations in accordance with the Asset Revaluation Law. Individual depreciation methods for property, plant and equipment of
POSCO and each subsidiary are enumerated on page 25 and 26. Depreciation is computed using the straight-line method or declin-
ing-balance method over the estimated useful lives of the assets, as follows:
The acquisition cost of an asset is comprised of its purchase price and any directly attributable cost of bringing the asset to working
condition for its intended use. When the estimated cost of dismantling and removing the asset and restoring the site, after the ter-
mination of the asset's useful life, meets the criteria for the recognition of provisions, the present value of the estimated expendi-
ture shall be included in the cost of the asset.
Subsequent expenditure on property, plant and equipment shall be capitalized only when it increases future economic benefits
beyond its most recently assessed standard of performance; all other subsequent expenditures shall be recognized as an expense
in the period in which they are incurred.
Buildings and structures 5 ~ 60 years
Machinery and equipment 3 ~ 25 years
Tools 4 ~ 20 years
Vehicles 4 ~ 10 years
Furniture and fixtures 3 ~ 20 years
Estimated useful lives
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Financial Statements
7978
The government grants, contributed to compensate for specific expenses, are offset against the related expenses. Other govern-
ment grants, for which the use or purpose is not specified, are recorded as gains from assets contributed, and are recognized in
current operations.
Valuation of Assets and Liabilities at Present Value
POSCO and domestic subsidiaries value long-term loans receivable and long-term trade accounts and notes receivable at their
present value as discounted at an appropriate discount rate. Discounts are amortized using the effective interest rate method and
recognized as an interest income over the life of the related assets.
Income Taxes
Income taxes are accounted for under the asset and liability method. In accordance with the applicable tax laws, POSCO and POSCO
E & C and 13 other domestic subsidiaries, and POSA and four other overseas subsidiaries, recognize the temporary differences
between the amount reported for financial reporting and income tax purposes as deferred income tax assets and liabilities. POSAM
and 17 other overseas subsidiaries record taxes payable as income tax expense in accordance with the applicable tax laws.
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, 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 as of the bal-
ance sheet date. In addition, in accordance with the applicable laws and regulations, POSAM and 22 other overseas subsidiaries
recorded the amount, which would be payable to employees at the time of termination, as accrued severance benefits.
POSCO and domestic subsidiaries have partially funded the accrued severance benefits through group severance insurance
deposits with Samsung Life Insurance Company and others. The amounts funded under these insurance deposits are classified as
a deduction from the accrued severance benefits liability. Subsequent accruals are to be funded at the discretion of the companies.
The Company made deposits to the National Pension Fund in accordance with the National Pension Act of the Republic of Korea.
The use of the deposit is restricted to the payment of severance benefits. Accordingly, accrued severance benefits in the accompa-
nying balance sheet are presented net of this deposit.
Derivative Instruments
The Company enters into derivative transactions to hedge against financial risks. Derivatives are required to be recorded on the bal-
ance sheets at fair value and classified into: cash flow hedges, fair market value hedges and transactions entered into for nontrad-
ing purposes that do not qualify for hedge accounting treatment or otherwise hedge accounting treatment is not applied. When
derivatives qualify for cash flow hedges, unrealized holding gains and losses of the derivatives are recorded as capital adjustments
in the balance sheet and recognized in the statement of earnings when the hedged item affects earnings. When derivatives qualify
for fair market value hedge, unrealized holding gains and losses of the derivatives as well as the changes in the fair value of the
hedged items are recorded in the statement of earnings. If the contract expires, the gains and losses from fair value hedge transac-
tions are charged to earnings and the gains and losses from cash flow hedged are offset against the purchasing price of inventories.
Intangible Assets
Intangible assets are stated at acquisition cost, including incidental expenses, net of accumulated amortization. Amortization is
computed using the straight-line method over the estimated useful lives as described below.
1 The costs incurred in relation to the development of new products and new technologies, including the development cost of internally used software and related costs, are recognized
and recorded as development costs only if it is probable that future economic benefits that are attributable to the asset will flow into the entity and the cost of the asset can be mea-
sured reliably. The useful life of development costs is based on its estimated useful life, not to exceed 20 years from the date when the asset is available for use.
2 Port facilities usage rights and land usage rights, which represent right to use certain port facilities and land, are amortized over the term of exclusive rights.
Port facilities usage rights are related to the quay and inventory yard donated by POSCO since April 1987 to the local bureaus of the
Maritime Affairs and Fisheries in Kwangyang, Pohang, Pyoungtaek and Masan. The related amortization expense amounted to
₩22,602 million for the year ended December 31, 2004.
Impairment of Assets
The Company assesses the potential impairment of assets which are not recorded at fair value when there is evidence that events or
changes in circumstances have made the recovery of an asset's carrying value to be unlikely. The carrying value of the assets is
reduced to the estimated realizable value, and an impairment loss is recorded as a reduction in the carrying value of the related
asset and charged to current operations. However, the recovery of the impaired assets would be recorded in current operations up
to the cost of the asset, net of accumulated depreciation or amortization, if any, before impairment, when the estimated value of the
assets exceeds the carrying value after impairment.
Discounts on Debentures
Discounts on debentures are amortized over the term of the debenture using the effective interest rate method. The discount is
reported on the balance sheet as a direct deduction from the face amount of the debenture. Amortization of the discount is treated
as an interest expense.
Government Grants
POSCO and domestic subsidiaries accounted for the government grants intended to be used for the acquisition of certain assets as
deduction from the cost of the acquired assets. Before the acquisition of the assets specified by the grant, the amounts are recog-
nized as a deduction from the account under which the asset to be acquired is to be recorded, or from the other assets acquired as
a temporary investment of the grant received.
Goodwill 5 ~ 10 years
Negative goodwill 5 years
Intellectual property rights 5 ~ 50 years
Port facilities usage rights 2 ~ 33 years 2
Land usage rights 25 ~ 50 years 2
Deferred development expenses 1
Other intangible assets 2 ~ 50 years
Estimated useful lives
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Financial Statements
8180
Basic and Diluted Earnings Per Share and Basic and Diluted Ordinary Income Per Share
Basic earnings per share is computed by dividing net income allocated to common stock by the weighted average number of com-
mon shares outstanding during the year. Basic ordinary income per share is computed by dividing ordinary income allocated to
common stock as adjusted by extraordinary gains or losses and net of related income taxes, by the weighted average number of
common shares outstanding during the year.
Cash Flow Statement
The cash flow statements are prepared under the basis of accounting used in the primary financial statements complies with U.S.
generally accepted accounting principles. Cash flows from forward contracts and swap contracts accounted for as hedges are
classified in the same category as the item being hedged.
United States Dollar Amounts
The Company operates primarily in Korean won and its accounting records are maintained in Korean won. The U.S. dollars
amounts, provided herein, represent supplementary information, solely for the convenience of the reader. All won amounts are
expressed in U.S. dollars at US$1:₩1,035.10, the US Federal Reserve Bank of New York noon buying exchange rate in effect on
December 31, 2004. The U.S. dollar amounts are unaudited and are not presented in accordance with accounting principles gener-
ally accepted in either the Republic of Korea or the United States, and should not be construed as a representation that the won
amounts shown could be readily converted, realized or settled in U.S. dollars at this or any other rate.
Lease Transactions
The Company accounts for lease transactions as either operating leases or capital leases, depending on the terms of the underlying
lease agreement. Machinery and equipment, acquired under capital lease agreements, are recorded at cost as property, plant and
equipment, and depreciated using the straight-line method over their estimated useful lives. In addition, the aggregate lease pay-
ments are recorded as obligations under capital leases, net of accrued interest. Accrued interest is amortized over the lease period
using the effective interest rate method.
Machinery and equipment acquired under operating lease agreements are not included in property, plant and equipment. The
related lease rentals are charged to expense when incurred.
Foreign Currency Translation
Monetary assets and liabilities denominated in foreign currencies are translated into Korean won at the current rates in effect at the
balance sheet date, and resulting translation gains and losses are recognized in current operations.
Translation of Foreign Operations
Foreign currency assets and liabilities of the Company's overseas business branches and offices are translated at the exchange
rate as of the balance sheet date, and income and expenses are translated at the weighted-average exchange rate of the reporting
period. Gains or losses on translation are offsetted, and the net amount is recognized as an overseas operations translation debit or
credit in the capital adjustments account. Overseas operations translation credit or debit is treated as an extraordinary gain or loss
upon closing the foreign branch or office. Since the Japanese branch was closed, the foreign-based operations translation amount-
ing to ₩29,538 million from the Japanese branch was reclassified as extraordinary income amounting to ₩3,387 million and gain
on valuation of equity method investments amounting to ₩26,151 million.
Stock Appreciation Rights
Compensation expenses for stock appreciation rights, either partially or fully vested, is recorded based on the difference between
the base unit price at the date of grant and the moving weighted average of quoted market price at the end of the period proportion-
ally recognized over the vesting period and adjusted for pervious recognized expense (Note 21).
Capitalization of Financing Expenses
Financing expense on borrowing associated with certain qualifying assets during the construction period that meet certain criteria
for capitalization can be either capitalized or expensed as incurred. The Company has chosen to expense as a financing expense the
cost of manufacturing, acquisition, and construction of property, plant, and equipment that require more than one year from the ini-
tial date of manufacture, acquisition, and construction to the date of the estimated completion of the manufacture, acquisition and
construction.
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Financial Statements
8382
Accounting Policies on Inventories and Depreciation of property, plant and equipment of POSCO and its Controlled Subsidiaries are
as follows:
POSCO Moving-average method Straight-line methodPOSCO E & C Moving-average method Straight-line methodPosteel Co., Ltd. Moving-average method Straight-line methodPOSCON Co., Ltd. Moving-average method Straight-line method,Declining-balance methodPohang Coated Steel Co.,Ltd. Gross average method Straight-line methodPOSCO Machinery & Engineering Co., Ltd. Moving-average method Straight-line methodPOSDATA Co., Ltd. Moving-average method Straight-line methodPOSCO Research Institute N/A Straight-line methodSeung Kwang Co., Ltd. Gross average method Straight-line method, Declining-balance methodPOS-AC Co., Ltd. N/A Straight-line method, Declining-balance methodChangwon Specialty Steel Co., Ltd. Moving-average method Straight-line methodPOSCO Machinery Co., Ltd. Moving-average method Straight-line methodPOSTECH Venture Capital Co., Ltd. N/A Declining-balance methodPOSCO Refractories & Environment First-in, First-out Method; Straight-line method, Declining-balance method(POSREC) Moving-average method
SEO MUEUN Development Inc. Specific identification method Straight-line methodPOSCO America Corp. (POSAM) Moving-average method Straight-line methodPOSCO Australia Pty. Ltd. (POSA) Gross average method Straight-line methodPOSCO Canada Ltd. (POSCAN) Gross average method Straight-line method, unit of production methodPOSCO Asia Co., Ltd.(POA) N/A Declining-balance methodVSC POSCO Steel Corporation (VPS) Moving-average method Straight-line methodDALIAN POSCO - CFM Coated Steel Co., Ltd. Moving-average method Straight-line method
Depreciation of property, Company Inventories1 plant and equipment POS-Tianjin Coil Center Co.,Ltd. Moving-average method Straight-line method
POSMETAL Co., Ltd. Moving-average method Straight-line methodShanghai Real Estate Development Co., Ltd. N/A Straight-line methodIBC Corporation Specific identification method Straight-line methodPOSLILAMA Steel Structure Co., Ltd. Moving-average method Straight-line methodZhangjiagang Pohang Moving-average method Straight-line methodStainless Steel Co., Ltd.
SHUNDE Pohang Coated Steel Co., Ltd. Moving-average method Straight-line methodPOS-THAI Service Steel Center Co., Ltd. Moving-average method Straight-line methodQingdao Pohang Stainless Steel Co., Ltd. Moving-average method Straight-line methodMyanmar-POSCO Co.,Ltd. Moving-average method Straight-line methodZhangjiagang POSHA Steel Port Co., Ltd. Moving-average method Straight-line methodPOSCO Investment Co., Ltd. N/A Straight-line methodPOSCO (SUZHOU) Automotive Moving-average method Straight-line methodProcessing Center Co., Ltd.
POS-Qingdao Coil Center Co., Ltd. Moving-average method Straight-line methodPOSCO-China Holding Corp. N/A Straight-line methodPOS-ORE Pty. Ltd. N/A Straight-line methodPOSCO-Japan Co., Ltd. Gross average method Straight-line method
Depreciation of property, Company Inventories1 plant and equipment
1 Specific identification method is used for materials-in-transit.
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Financial Statements
8584
Cash and cash equivalents and short-term and long-term financial instruments as of December 31, 2004 and 2003 consist of thefollowing:
As of December 31, 2004, the Company's financial assets amounting to ₩7,649 million are pledged as collateral and, accordingly, withdrawal
of such financial assets is restricted. The financial assets pledged as collateral include short-term financial instruments and long-term finan-
cial instruments amounting to ₩7,000 million and ₩541 million, respectively, in relation to performance guarantee deposits, and long-term
financial instruments amounting to ₩108 million in relation to collateral deposits for opening checking accounts and others (Note 13).
As of December 31, 2003, the Company's financial assets amounting to ₩8,255 million are pledged as collateral and, accordingly, withdrawal
of such financial assets is restricted. The financial assets pledged as collateral include short-term financial instruments and long-term
financial instruments amounting to ₩8,000 million and ₩142 million, respectively, in relation to performance guarantee deposits, and long-
term financial instruments amounting to ₩113 million in relation to collateral deposits for opening checking accounts and others (Note 13).
4. Trading Securities
Trading securities as of December 31, 2004 and 2003 are as follows:
1 Beneficiary certificates mainly consist of money market fund.
5. Accounts and Notes Receivable and Others
Accounts and notes receivable and their allowance for doubtful accounts and others as of December 31, 2004 and 2003 are as follows:
Cash and cash equivalentsCash on hand and bank deposits 0.00 ~ 3.00 ₩ 16,106 ₩ 9,732Corporate bank deposits 0.10 ~ 5.00 20,655 37,874Checking accounts - 2,927 4,704Time deposits in foreign currency and others 0.00 ~ 2.00 246,891 351,430Maintained by overseas affiliates 1.00 ~ 5.00 201,752 190,206
488,331 593,946Government grants (1,961) (1,344)
₩ 486,370 ₩ 592,602Short-term financial instrumentsTime deposits 3.00 ~ 6.00 ₩ 113,000 ₩ 285,850Installment accounts 4.00 656 77,276Time deposits in foreign currency - - 2,463Money in trust - 2,140 2,121Negotiable certificates of deposit 4.00 ~ 5.00 185,000 259,000Commercial Paper 3.50 ~ 5.00 43,893 42,109Trust type savings accounts 3.70 ~ 4.80 270,000 -Others 3.00 9,909 10,322Maintained by overseas affiliates 2.50 ~ 3.31 16,390 16,028
₩ 640,988 ₩ 695,169Long-term financial instrumentsInstallment accounts 1.00 ~ 5.00 ₩ 1,307 ₩ 498Guarantee deposits for opening accounts - 108 113Time deposits in foreign currency and others 0.00 ~ 4.00 291 17,391
₩ 1,706 ₩ 18,002
Annual interest rates (%) as of December 31, 2004 2004 2003
3. Cash and Cash Equivalents and Financial Instruments
(in millions of Korean won) (in millions of Korean won)
(in millions of Korean won)
Beneficiary certificates1 ₩ 2,658,756 ₩ 1,147,219Mutual funds 30,837 174,082
₩ 2,689,593 ₩ 1,321,301
2004 2003
Trade accounts and notes receivable ₩ 3,163,644 ₩ 2,332,737Less: Allowance for doubtful accounts (69,509) (23,327)
Present value discount (624) (965)₩ 3,093,511 ₩ 2,308,445
Other accounts and notes receivable ₩ 226,236 ₩ 152,053Less: Allowance for doubtful accounts (63,032) (56,489)
Present value discount (86) -₩ 163,118 ₩ 95,564
Long-term trade accounts and notes receivable ₩ 50,266 ₩ 61,734Less: Allowance for doubtful accounts (2,081) (2,090)
Present value discount (12,091) (15,979)₩ 36,094 ₩ 43,665
Long-term loans ₩ 82,296 ₩ 83,346Less: Allowance for doubtful accounts (746) (384)
Present value discount (54) (85)₩ 81,496 ₩ 82,877
2004 2003
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Financial Statements
8786
Accounts stated at present value under rescheduled payment and long-term deferred payment included as part of accounts and
notes receivable and others are as follows:
The Company recorded discounts on accounts receivable using the Company's weighted-average borrowing rate incurred as of the nearest
date of the Company's period-end.
Valuation and qualifying accounts for allowance for doubtful accounts for the years ended December 31, 2004, 2003 and 2002 are as follows:
Long-term deferred payment:Long-term loans Employees ₩ 159 ₩ 19 ₩ 140 2017 7.54
Others 260 35 225 2006 7.54419 54 365
Other long-term assets Cointop Software Corp. 201 38 163 2008 6.50softpark Corp. 198 46 152 2009 6.32
399 84 315818 138 680
Rescheduled payment:Long-term trade accounts BNG Steel Co., Ltd. ₩ 53,259 ₩ 12,212 ₩ 41,047 2005 ~ 2009 8.00 ~ 8.62and notes receivable
Hanbo Iron and Steel 2,114 503 1,611 2010 ~ 2014 4.97 ~ 7.54Co., Ltd. and Others
55,373 12,715 42,658Less: Current portion (8,569) (624) (7,945)
46,804 12,091 34,713Other long-term assets Dong Sung Construction 16,157 375 15,782 2005 ~ 2018 5.09 ~ 8.00
Co., Ltd. and Others
Less: Current portion (3,504) (86) (3,418)₩ 59,457 ₩ 12,380 ₩ 47,077
Present value Maturity Discount rateAccounts Company Face value discount Book value (year) (%)
(in millions of Korean won)
Year ended December 31, 2004: ₩ 325,187 ₩(56,961) ₩ - ₩ 121,444 ₩ 146,782Reserves deducted in the balance sheetfrom the assets to which the apply:Allowance for doubtful accounts
AdditionsBalance at beginning of Charged to costs and Charged to other Balance at the
Description period expenses accounts2 Deductions 1 end of period
(in millions of Korean won)
Year ended December 31, 2003: 321,534 (3,843) - (7,496) 325,18Reserves deducted in the balance sheetfrom the assets to which the apply:Allowance for doubtful accounts
Year ended December 31, 2002: 44,047 184,886 103,954 11,353 321,534Reserves deducted in the balance sheetfrom the assets to which the apply:Allowance for doubtful accounts
AdditionsBalance at beginning of Charged to costs and Charged to other Balance at the
Description period expenses accounts2 Deductions 1 end of period
(in millions of Korean won)
1 Deduction for allowance for doubtful accounts includes amount written off as uncollectible and others.
2 Includes ₩104 billion related to the consolidation adjustment resulting from the change in scope of consolidation.
6. Inventories
Inventories as of December 31, 2004 and 2003 consist of the following:
(in millions of Korean won)
Finished goods ₩ 448,659 ₩ 340,814By-products 2,842 3,226Semi-finished goods 640,672 457,954Raw materials 1,215,136 699,970Materials in-transit 563,470 513,645Others 194,742 52,762
₩ 3,065,521 ₩ 2,068,371
2004 2003
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Financial Statements
8988
Investment securities as of December 31, 2004 and 2003 consist of the following:
7. Investment Securities
1 Marketable equity securities are stated at fair market value and the difference between the acquisition cost and the fair market value is accounted for in the capital adjustments account.
2 1,735,799 SK Telecom Co., Ltd. shares classified as available-for-sale securities have been placed as a collateral for exchangeable bonds (Note 13).
Investments in non-marketable equity securities as of December 31, 2004 and 2003 are as follows:
1 The net asset value of the non-marketable equity securities is determined based on the investee companies' most recent available December 31, 2004 financial information, which has
not been reviewed or audited. However, the net asset value of Keo Yang Shipping Co., Ltd. and Seoul Daily News are based on their unaudited financial statements as of September 30,
2004. And the net asset value of POSCO Terminal is based on its audited financial statements as of December 31, 2004. The net asset value of Incheon Airport Train Co., Ltd. and BX
Steel Posco Cold Rolled Sheet Co., Ltd are not available, therefore, book value is estimated based on acquisition costs. In addition, Powercomm shares were valued based on the dis-
counted cash flow method, and the difference between the acquisition cost and the value based on the discounted cash flow was accounted for as a capital adjustment amounting to
₩169,875 million. Except for Powercomm, shares without an objective market value were based on acquisition costs.
Available-For-Sale Securities
Investments in marketable equity securities as of December 31, 2004 and 2003 are as follows:
(in millions of Korean won)
Available-for-sale securities ₩ 2,164,129 ₩ 2,147,013Held-to-maturity securities 38,741 17,481Equity method investments 142,206 154,336
₩ 2,345,076 ₩ 2,318,830
2004 2003
(in millions of Korean won)
Current portion of debt security investments ₩ 141,573 ₩ -Marketable equity securities 1,682,772 1,647,038Non-marketable equity securities 321,000 226,793Debt security investments 145,640 243,691Other investments 14,717 29,491
2,164,129 2,147,013₩ 2,305,702 ₩ 2,147,013
2004 2003
Hanil Iron Steel Co., Ltd. 206,798 10.14 ₩ 2,412 ₩ 3,102 ₩ 2,337HISTEEL Co., Ltd. 123,052 9.95 1,608 1,747 1,053MunBae Steel Co., Ltd. 1,849,380 9.02 3,588 2,367 1,840Chohung Bank - - - - 529Hana Bank 4,617,600 2.34 29,998 119,134 101,587Korea Investment Corporation 588,000 0.76 588 135 185SK Telecom Co., Ltd.2 5,834,296 7.09 1,665,249 1,170,222 1,153,190Samjung P&A Co., Ltd. 270,000 9.00 2,714 1,944 1,866DongYang Steel Pipe Co., Ltd. 1,564,250 2.46 3,911 501 508Nippon Steel Corporation 147,876,000 2.17 285,103 375,649 380,794
Percentage of Number of ownership (%) as 2004 2003
shares of December 31, 2004 Acquisition cost Book value 1 Book value
(in millions of Korean won)
Korea Line Corporation 217,373 2.17 8,067 7,695 -Others - - 266 276 3,149
₩2,003,504 ₩1,682,772 ₩1,647,038
Percentage of Number of ownership (%) as 2004 2003
shares of December 31, 2004 Acquisition cost Book value 1 Book value
(in millions of Korean won)
Dae Kyeong Special Steel Co., Ltd. 1,786,000 19.00 ₩ 8,930 ₩ 5,365 ₩ 8,930 ₩ 8,930Kihyup Corporation 600,000 10.34 3,000 3,425 3,000 3,000Keo Yang Shipping Co., Ltd. 150,000 0.88 780 1,555 780 780Korea Economic Daily 57,456 0.46 309 169 309 308Daewoo Commercial Vehicle Co., Ltd. - - - - - 51The Siam United Steel 9,000,000 10.00 26,640 13,486 26,640 26,640PT-POSNESIA Stainless Steel 29,610,000 70.00 9,474 1,567 1,567 2,537Industry 2
Global Unity Ltd. 70,649 10.00 710 1,141 710 710Seoul Daily News 1,614,000 19.40 17,317 6,926 9,551 9,551POSCO Terminal Co., Ltd.2 1,183,200 51.00 5,916 7,517 5,916 1,020Incheon Airport Train Co., Ltd. 14,865,988 12.00 74,330 74,330 74,330 44,892POS-Ore Pty Ltd. 3 - - - - - 15,697POSEC-HAWAII Inc.2 18,100 100.00 10,132 5,343 5,343 8,260BX Steel Posco Cold Rolled - 10.00 26,803 26,803 26,803 -Sheet Co., Ltd.
Powercomm 7,500,000 5.00 246,000 76,125 76,125 68,407Others - - 101,251 69,25 80,996 36,010
₩531,592 ₩293,008 ₩321,000 ₩226,793
Number of Percentage of shares ownership (%) as 2004 2003
of December 31, 2004 Acquisition cost Net asset value 1 Book value Book value
(in millions of Korean won)
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Financial Statements
9190
2 As of December 31, 2004, PT-POSNESIA Stainless Steel Industry is in the process of liquidation and the operation of POSEC-HAWAII Inc. has been suspended for more than a year.
Accordingly, they were no longer included as part of equity method investments. POSCO Terminal Co., Ltd., having total assets of less than ₩7,000 million since December 31, 2003,
was not included as part of equity method investments.
3 As of December 31, 2004, due to the increase in its total assets exceeding ₩7,000 million, POS-ORE Pty. Ltd., was included in the consolidation.
Available-for-sale debt security investments as of December 31, 2004 and 2003 are as follows:
Details of valuation gains and losses on available-for-sale securities for the year ended December 31, 2004 are as follows:
Other investments as of December 31, 2004 and 2003 are as follows:
1 As of December 31, 2004, other investments with no readily determinable fair value are carried at cost.
Government and municipal bonds Within one year ₩ 130,467 ₩ 132,478 ₩ -1 ~ 5 89,734 92,807 211,503
5 ~ 10 8 8 124Other bonds 1 ~ 5 62,855 61,920 32,064
283,064 287,213 243,691Less: Current portion (139,467) (141,573) -
₩ 143,597 ₩ 145,640 ₩ 243,691
Maturity 2004 2003(year) Acquisition cost Book value Book value
(in millions of Korean won)
Investments in capitalStock Market Stabilization Fund ₩ - ₩ - ₩ 3,542 Contractor Financial Fund 12,589 12,589 12,167 Software Financial Fund and Others 2,128 2,128 13,782
₩ 14,717 ₩ 14,717 ₩ 29,491
2004 2003Acquisition cost Book value1 Book value
(in millions of Korean won)
Marketable equity securities:Hanil Iron & Steel Co., Ltd. ₩ (75) ₩ 764 ₩ 689HISTEEL Co., Ltd. (555) 694 139MunBae Steel Co., Ltd. (1,748) 527 (1,221)Chohung Bank (3,228) 3,228 -Hana Bank 71,589 17,547 89,136Korea Investment Corporation (403) (50) (453)SK Telecom Co., Ltd. (504,158) 9,131 (495,027)Samjung P&A Co., Ltd. (848) 78 (770)DongYang Steel Pipe Co., Ltd. (3,403) (7) (3,410)Nippon Steel Corporation 95,692 (5,145) 90,547Daehan Line Corporation - (372) (372)Others 364 (354) 10
(346,773) 26,041 (320,732)Non-marketable equity securities:
Powercomm (177,593) 7,718 (169,875)Others (5,411) 13,513 8,102
(183,004) 21,231 (161,773)Total ₩ (529,777) ₩ 47,272 ₩ (482,505)
Beginning balance Increase (decrease) Ending balance
(in millions of Korean won)
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Financial Statements
9392
Details of valuation gains and losses on available-for-sale securities for the year ended December 31, 2003 are as follows: For the years ended December 31, 2004, 2003 and 2002, proceeds from sales of available-for-sale securities amounted to ₩27,558
million, ₩234,038 million and ₩109,523 million, respectively. Gross realized gains and losses amounted to ₩1,730 million and
₩3,506 million, respectively, for the year ended December 31, 2004.
Held-To-Maturity Securities
Held-to-maturity securities as of December 31, 2004 and 2003 are as follows:
The Company provided national treasury bonds, amounting to ₩29,460 million, and certain government and municipal bonds,
amounting to ₩1,688 million, to the Gyeongsangbuk-do provincial office as a performance guarantee in relation to the development
of a waste disposal area (Note 13).
Details of gross unrealized gains and losses on available-for-sale securities for the years ended December 31, 2004 and 2003 are as follows:
Marketable equity securities:Hanil Iron & Steel Co., Ltd. ₩ (197) ₩ 122 ₩ (75)HISTEEL Co., Ltd. (131) (424) (555)MunBae Steel Co., Ltd. (2,369) 621 (1,748)Chohung Bank (3,202) (26) (3,228)Hana Bank 45,269 26,320 71,589Korea Investment Corporation (461) 58 (403)SK Telecom Co., Ltd. (330,311) (173,847) (504,158)Samjung P&A Co., Ltd. (419) (429) (848)DongYang Steel Pipe Co., Ltd. (3,332) (71) (3,403)Nippon Steel Corporation (76,909) 172,601 95,692Others 129 235 364
(371,933) 25,160 (346,773)Non-marketable equity securities:
Powercomm - (177,593) (177,593)Others (2) (5,409) (5,411)
(371,935) (183,002) (183,004)Total ₩ (371,935) ₩ (157,842) ₩ (529,777)
Beginning balance Increase (decrease) Ending balance
(in millions of Korean won)
Government and ₩ 220,150 ₩ 5,146 ₩ 3 ₩ 225,293 ₩ 210,509 ₩ 1,120 ₩ 2 ₩ 211,627 municipal bonds
Other bonds 61,034 886 61,920 32,064 32,064 281,184 6,032 3 287,213 242,573 1,120 2 243,691
Marketable equity 1,659,684 28,747 5,659 1,682,772 1,621,878 199,957 174,797 1,647,038securities
Non-marketable 304,621 16,379 - 321,000 410,913 - 184,120 226,793equity securities
₩2,245,489 ₩51,158 ₩ 5,662 ₩2,290,985 ₩2,275,364 ₩201,077 ₩358,919 ₩2,117,522
2004 2003Amortized Gross Unrealized Gross Unrealized Amortized Gross Unrealized Gross Unrealized
Cost Gains Losses Fair Value Cost Gains Losses Fair Value
(in millions of Korean won)
Current portion of held-to-maturity securities:Government and municipal bonds Within one ₩ 12,721 ₩ 12,721 ₩ 239,129Corporate bond denominated in US$ year 1,321 1,048 11,352
₩ 14,042 13,769 250,481Government and municipal bonds 1 ~ 5 ₩ 6,814 ₩ 6,814 ₩ 15,232Corporate bond denominated in US$ 1 ~ 5 - - 1,207Government and municipal bonds 5 ~ 10 ₩ 31,870 31,927 1,042
₩ 38,684 38,741 17,481₩ 52,726 ₩ 52,510 ₩ 267,962
Maturity 2004 2003(year) Acquisition cost Book value Book value
(in millions of Korean won)
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Financial Statements
9594
Equity Method Investments
Details of equity method investees as of December 31, 2004 and 2003 are as follows:
1 Due to the delay in the closing of December 31, 2004 accounts and the settlement of closing differences, the equity method of accounting is applied based on the most recent available
December 31, 2004 financial information, which has not been audited or reviewed.
2 No shares have been issued in accordance with the local laws and regulations. Percentage of ownership has been calculated using proportionate ownership and rights based on ini-
tial investments and contracts.
3 The application of the equity method has been suspended due to its negative book value.
Details of equity method valuation for the years ended December 31, 2004 and 2003 are as follows:
1 Other increase or decrease represents the fluctuation of investment securities due to acquisitions (disposals) in the current period, dividends received, valuation gain or loss on
investment securities, changes in retained earnings and others.
2 In November 2003, the Company donated 3% of its Seoul Shinmun Co., Ltd. holdings to Kumho Culture Center, resulting in the loss of its significant influence over The Seoul Shinmun
Co., Ltd. As a result, this investment was accounted as part of available-for-sale securities.
KOBRASCO 2,010,719,185 50.00 ₩ 32,950 ₩ 13,240 ₩ 11,203 ₩ 562Fujiura Butsuryu Center Co., Ltd. 600 30.00 632 660 648 538USS-POSCO Industries2 - 50.00 234,293 89,624 65,084 98,653Suzhou Dongshin Color Metal - 30.00 2,547 3,439 3,361 4,066Sheet Co., Ltd.2
POSCHROME 21,675 25.00 4,859 7,941 7,000 6,711Shunde Xingpu Steel Center - 21.00 1,852 3,129 3,094 3,291Co., Ltd.2
POS-HYUNDAI STEEL 6,919,396 29.50 3,136 2,276 2,276 1,883eNtoB Corporation 740,000 23.13 3,700 4,023 3,762 3,295POSVINA Co., Ltd. 2 - 50.00 1,527 3,477 3,145 3,970POS-MMIT 4,200,000 30.00 2,308 3,168 3,015 2,625PT POSMI STEEL Indonesia 2,972 36.69 1,467 1,286 1,599 1,572MIDUS Information 866,190 25.92 433 2,647 2,646 2,281Technologies Co., Ltd.
POSCO Bioventures LP. 2 - 100.00 38,157 33,221 33,221 24,889POSVEN 3 6,720 60.00 66,876 - - -SONGDO New City 78,338 29.90 404 - - -Development Inc.3
Seoul Subway Metro 430,534 29.40 2,152 2,152 2,152 -Railway 9
₩397,293 ₩170,283 ₩142,206 ₩154,336
Percentage of Number of ownership (%) as 2004 2003
shares of December 31, 2004 Acquisition cost Net asset value1 Book value Book value
(in millions of Korean won)
KOBRASCO ₩ - ₩ 21,447 ₩(20,885) ₩ 562 ₩ 10,539 ₩ 102 ₩ 11,203Fujiura Butsuryu 553 (102) 87 538 207 (97) 648Center Co., Ltd.
USS-POSCO 119,979 (28,350) 7,024 98,653 (8,011) (25,558) 65,084Industries
Suzhou Dongshin 3,606 413 47 4,066 86 (791) 3,361Color Metal Sheet Co., Ltd.
POSCHROME 4,379 695 1,637 6,711 766 (477) 7,000Shunde Xingpu 2,992 137 162 3,291 248 (445) 3,094Steel Center Co.,Ltd.
POS-HYUNDAI STEEL 1,379 377 127 1,883 746 (353) 2,276eNtoB Corporation 2,579 812 (96) 3,295 467 - 3,762POSVINA Co.,Ltd. - 2,263 1,707 3,970 485 (1,310) 3,145POS-MMIT 2,308 322 (5) 2,625 808 (418) 3,015PT POSMI STEEL Indonesia 1,467 817 (712) 1,572 191 (164) 1,599MIDUS Information - 1,706 575 2,281 433 (68) 2,646Technologies Co., Ltd.
POSCO Bioventures LP. 10,020 (2,186) 17,055 24,889 (3,056) 11,388 33,221SONGDO New - - - - (404) 404 -City Development Inc.
Seoul Subway - - - - - 2,152 2,152Metro Railway 9
Seoul Shinmun Co., Ltd.2 13,750 (2,874) (10,876) - - - -Total ₩163,012 ₩ (4,523) ₩ (4,153) ₩154,336 ₩ 3,505 ₩(15,635) ₩142,206
Valuation2003 Valuation gain Other 2003 gain or loss Other 2004
Beginning or loss using increase or Ending using equity increase or Ending balance equity method decrease1 balance method decrease1 balance
(in millions of Korean won)
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Financial Statements
9796
Details on the elimination of unrealized gain or loss for the years ended December 31, 2004 and 2003 are as follows:
The value of land based on the posted price issued by the Korean tax authority amounted to ₩2,860,565 million as of December 31,
2004 (2003: ₩2,796,338 million).
As of December 31, 2004, property, plant and equipment are insured against fire and other casualty losses up to ₩4,755,080 million
(2003: ₩4,568,357 million). In addition, the Company carries general insurance for vehicles and accident compensation insurance
for its employees.
Construction-in-progress includes capital investments in Gwangyang No. 2 Minimill. By a resolution of the Board of Directors in
May 1998, the construction on the Minimill has been temporarily suspended due to the economic situation in the Republic of Korea
and the Asia Pacific region. The continuing unstable economic condition and related decrease in the selling price of products,
resulting in the deterioration in profitability, drove the management's operation committee's decision in April 2002 to cease the
construction on the No. 2 Minimill, and instead use the buildings for the Tailor Welded Blank ("TWB") project designed to manufac-
ture custom-made automobile body panels. The Company previously recognized impairment losses on the construction-in-
progress in Gwangyang No. 2 Minimill amounting to ₩390,764 million and reclassified related machinery held to be disposed in the
future as other investment assets as of December 31, 2003. In addition, the Company has recognized an additional impairment loss
amounting to ₩78,817 million on related machinery recorded as other investment assets based on the estimated net selling price
which amounted to ₩54,309 million as of December 31, 2004.
Due to the decrease of fair value, the Company recognized impairment losses on the building and land of the Japanese branch for
the year ended December 31, 2004 amounting to ₩11,875 million and ₩50,680 million, respectively.
8. Property, Plant and Equipment
Property, plant and equipment as of December 31, 2004 and 2003 consist of the following:
KOBRASCO ₩ 1,358 ₩ - ₩ 1,358 ₩ 655 ₩ - ₩ 655Fujiura Butsuryu Center Co., Ltd. 12 - 12 - - -USS-POSCO Industries 18,303 - 18,303 6,237 - 6,237Suzhou Dongshin Color Metal 79 - 79 - - -Sheet Co., Ltd.
POSCHROME 908 - 908 - - -Shunde Xingpu Steel Center Co., Ltd. 39 - 39 - - -eNtoB Corporation 213 22 235 10 15 25POSVINA Co.,Ltd. 332 - 332 - - -POS-MMIT 211 - 211 - - -PT POSMI STEEL Indonesia 182 - 182 - - -
₩ 21,637 ₩ 22 ₩ 21,659 ₩ 6,902 ₩ 15 ₩ 6,917
2004 2003Property, plant, Property, plant,
Current equipment and Current equipment and assets intangible assets Total assets intangible assets Total
(in millions of Korean won)
(in millions of Korean won)
Buildings and structures ₩ 5,096,042 ₩ 5,040,909Machinery and equipment 19,544,990 18,995,021Tools 380,744 347,664Vehicles 173,847 166,062Furniture and fixtures 207,288 195,602
25,402,911 24,745,258Less: Accumulated depreciation (18,268,530) (17,147,340)Less: Accumulated impairment (2,786) (2,786)
7,131,595 7,595,132
2004 2003
(in millions of Korean won)
Land 1,109,382 1,212,850Less: Accumulated impairment (565) (566)
1,108,817 1,212,284Construction in-progress 2,283,496 1,121,978Less: Accumulated impairment (83,617) (83,617)
2,199,879 1,038,361₩ 10,440,291 ₩ 9,845,777
2004 2003
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Financial Statements
9998
The changes in the carrying value of property, plant and equipment for the year ended December 31, 2004 are as follows: The estimated aggregated amortization expenses for each of the next five fiscal years are as follows:
10. Research and Development Costs and Others
The changes in the carrying value of development costs, internally used software and other intangible assets for the years ended
December 31, 2004 and 2003 are as follows:
1 Decrease consists of amortization and dispositions.
The Company expensed research and development costs amounting to ₩277,149 million and for the year ended December 31, 2004
(2003: ₩255,696 million). For the year ended December 31, 2004, the Company charged research and development costs to cost of
goods sold amounting to ₩206,200 million (2003: ₩198,871 million) and selling and administrative expenses amounting to
₩70,949 million (2003: ₩56,825 million).
1 Includes foreign currency translation adjustments, asset transfers and adjustments resulting from the effect of changes in the scope of consolidation.
9. Intangible Assets
Intangible assets, net of accumulated amortization, as of December 31, 2004 and 2003 consist of the following:
Port facilities usage rights is related to the quay and inventory yard contributed by the Company, since April 1987, to the local
bureaus of the Maritime Affairs and Fisheries in Gwangyang, Pohang, Pyoungtaek and Masan. The related amortization expense
amounted to ₩22,602 million for the year ended December 31, 2004.
As of December 31, 2004, accumulated amortization of intangible assets amounted to ₩557,933 million (2003: ₩433,138 million).
Land ₩1,212,284 ₩ 7,723 ₩ 73,091 ₩ - ₩ (38,044) ₩ (55) ₩ 1,108,817Buildings 2,314,058 91,189 29,597 152,276 106,106 (130,172) 2,199,308Structures 913,564 58,499 4,401 78,759 53,107 (52,573) 889,437Machinery and equipment 4,178,717 894,562 22,435 1,209,030 265,772 (255,717) 3,851,869Vehicles 33,867 15,194 865 12,098 (137) (337) 35,624Tools 101,172 49,483 868 51,317 67 (243) 98,294Furniture and equipment 53,754 25,928 2,491 20,921 4,808 (4,015) 57,063Construction-in-progress 1,038,361 2,206,870 145,758 - (777,172) (122,422) 2,199,879
₩9,845,777 ₩3,349,448 ₩ 279,506 ₩1,524,401 ₩ (385,493) ₩ (565,534) ₩10,440,291
As of Elimination of As of December 31, intercompany December 31,
2003 Acquisition Disposal Depreciation Others 1 transactions 2004
(in millions of Korean won)
(in millions of Korean won)
Goodwill ₩ - ₩ 234Negative goodwill (457) (914)Intellectual property rights 485 523Port facilities usage rights 146,396 129,698Development costs 22,060 18,272Internally used software 230,758 233,000Land usage rights 32,416 12,750Others 64,657 80,933
₩ 496,315 ₩ 474,496
2004 2003
(in millions of Korean won)
Beginning balance ₩ 332,205 ₩ 294,395Increase 95,211 125,069Decrease 1 101,256 78,087Foreign exchange (8,685) (9,172)Ending balance ₩ 317,475 ₩ 332,205
2004 2003
(in millions of Korean won)
2005 ₩ 117,2782006 87,3002007 64,9512008 49,0062009 13,766
₩ 332,301
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Financial Statements
101100
Current portion of long-term debt as of December 31, 2004 and 2003 consist of the following:
13. Long-Term Debt
Long-term borrowings as of December 31, 2004 and 2003 are as follows:
11. Other Assets
Other assets as of December 31, 2004 and 2003 consist of the following:
12. Short-Term Borrowings and Current Portion of Long-Term Debt
Short-term borrowings as of December 31, 2004 and 2003 consist of the following:
(in millions of Korean won)
Other current assetsShort-term loans (Notes 27 and 28) ₩ 23,622 ₩ 85,027Accrued income 25,032 60,440Advance payments 120,374 125,754Prepaid expenses 15,121 10,498Others 19,903 13,059Less: Allowance for doubtful accounts (10,679) (5,113)
₩ 193,373 ₩ 289,665Other long-term assets
Other investment assets (Notes 5, 8, 17 and 29) ₩ 145,691 ₩ 526,784Less: Allowance for doubtful accounts (733) (237,782)
Present value discount (373) (89)₩ 144,585 ₩ 288,913
2004 2003
(in millions of Korean won)
Won currency borrowings:Korea Development Bank and others 4.00 ₩ 121,374 ₩ 164,931
Foreign currency borrowings:Bank of America and others 1.00 ~ 3.00 29,575 10,221Chohung Bank and others 1.00 ~ 3.80, LIBOR + 1.80 506,592 556,629
536,167 566,850₩ 657,541 ₩ 731,781
Annual interest rate (%) Financial institutions as of December 31, 2004 2004 2003
(in millions of Korean won)
Debentures:Domestic and foreign debentures 6.00 ~ 8.00 ₩ 961,607 ₩ 789,405Less: Discount on debentures issued (1,347) (1,958)
960,260 787,447Won currency borrowings:
Korea Development Bank and others 3.00 31,511 1,618Foreign currency borrowings:
Development Bank of Japan and others 1.00 ~ 8.30 52,808 230,49384,319 232,111
Lease obligations:HP Financial Services 5.00 2,103 1,307
Unearned revenue:Unearned revenue 17 -
₩1,046,699 ₩1,020,865
Annual interest rate (%) Financial institutions as of December 31, 2004 2004 2003
(in millions of Korean won)
Won currency borrowings:Korea Development Bank and others 1.0 ~ 6.00 ₩ 170,715 ₩ 11,953Less: Current portion (31,511) (1,618)
139,204 10,335Foreign currency borrowings:
Development bank of Japan and others 1.00 ~ 5.00, LIBOR + 0.8 349,269 504,863Less: Current portion (52,808) (230,493)
296,461 274,370
Annual interest rate (%) Financial institutions as of December 31, 2004 2004 2003
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Financial Statements
103102
(in millions of Korean won)
Debentures:Domestic debentures 4.00 ~ 8.00 1,276,060 1,796,060Foreign bonds 1 0.00 ~ 7.40 1,308,010 1,676,291
2,584,070 3,472,351Less: Current portion (961,607) (789,405)
Discount on debentures issued 6.00 ~ 8.00 (7,327) (15,267)1,615,136 2,667,679
₩ 2,050,801 ₩ 2,952,384
Annual interest rate (%) Financial institutions as of December 31, 2004 2004 2003
Certain current assets, investments and property, plant and equipment are pledged as collateral for the above borrowings.1 POSCO issued exchangeable bonds on August 20, 2003. It is exchangeable with 15,267,837 SK Telecom Co., Ltd. American Depository Shares (ADSs).
Details of exchangeable bonds as of December 31, 2004 are as follows:
Contractual maturities of long-term debt outstanding as of December 31, 2004 are as follows:
Details of assets pledged as collateral for short-term borrowings and long-term debt as of December 31, 2004 and 2003 are as follows:
1 The Company provided certain national treasury bonds and government municipal bonds, amounting to ₩31,148 million, to the Gyeongsangbuk-do provincial office as a performance
guarantee in relation to the development of a waste disposal area (Note 7).
On August 20, 2003, POSCO sold its 15,267,837 SK Telecom Co., Ltd. ADRs to Zeus (Cayman), a tax-exempted subsidiary formed
under the laws of Cayman Islands. Zeus then issued zero-coupon, guaranteed and exchangeable bonds amounting to JPY51,622
million which are due in 2008, and are fully and unconditionally guaranteed by POSCO. POSCO may elect to pay the holder cash in
lieu of delivering SK Telecom Co., Ltd. ADSs (the "Cash Settlement Option"). The number of ADSs such holder is entitled to receive
will be calculated by dividing the aggregate principal amount of the Notes to be exchanged by the exchangeable price. Under the
Cash Settlement Option, such holder is entitled to receive the cash equivalent of the market value of ADSs upon the exercise. These
bonds are non-interest bearing and are exchangeable with SK Telecom Co., Ltd. ADRs at the option of the bondholder. The transac-
tions between the POSCO and Zeus is deemed a borrowing transaction under the Korean generally accepted accounting principles.
In 2004, in compliance with the terms of the exchangeable bonds, the dividends earned by Zeus from the SK Telecom Co., Ltd. ADRs
were used to purchase additional 354,350 ADRs which brought down the exchangeable bond price to JPY3,304/ADR.
Issuance date: August 20, 2003Maturity date: August 20, 2008 (full amount of principal is repaid if not exercised)Rate: Interest rate of zero percentFace value: JPY 51,622,000,000Issuance price: JPY 51,880,110,000Exchangeable price: JPY 3,304/ADRExercise call period: Commencing ten business days following the issuance date until ten business days prior to maturity dateExercise put period: Exactly three years following the payment date
(in millions of Korean won)
2006 ₩ 1,040,012 ₩ 49,308 ₩ 96,273 ₩ 1,185,5932007 30,000 43,120 60,737 133,8572008 552,451 42,675 69,087 664,2132009 - 2,099 25,065 27,164Thereafter - 2,002 45,299 47,301
₩ 1,622,463 ₩ 139,204 ₩ 296,461 ₩ 2,058,128
Local currency Foreign currency Year Debentures borrowings borrowings Total
(in millions of Korean won)
Land Shinhan Bank and others ₩ 35,541 ₩ 52,851Buildings and structures Kookmin Bank and others 55,120 46,540Machinery and equipment Industrial and Commercial 54,918 8,583
Bank of China and others
Cash and cash equivalents Kyongnam Bank and others 6,555 8,142Trade accounts and notes receivable Comerica Bank and others 62,900 70,574Available-for-sale securities Exchangeable Bond Creditor 362,818 337,589Others1 Pusan municipal 32,000 36,050
government and others
₩ 609,852 ₩ 560,329
Financial institutions 2004 2003
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Financial Statements
105104
Details of loans from foreign financial institutions covered by guarantees provided by financial institutions as of December 31, 2004
and 2003 are as follows:
14. Capital Lease and Operating Lease Agreement
Capital Lease
As of December 31, 2004, the Company acquired certain tools and vehicles under capital lease agreements, with acquisition cost
amounting to ₩6,324 million. The assets and liabilities under the capital leases are recognized at the present value of the minimum
lease payments over the lease terms. The Company's depreciation expense, with respect to the above lease agreements, for the
year ended December 31, 2004 amounted to ₩1,347 million.
Future minimum lease payments under capital lease agreements are as follows:
Operating Lease
As of December 31, 2004, the Company acquired certain tools and equipment under operating lease agreements from Macquarie
Capital Korea Co., Ltd. The Company's rent expenses, with respect to the above lease agreements, amounted to ₩17,521 million
for the year ended December 31, 2004. Future lease payments under the above lease agreements are as follows:
(in millions of Korean won and in foreign currencies)
Korea Development Bank EUR 7,255,009 ₩ 10,324 EUR 7,900,852 ₩ 11,872
2004 2003Financial institution Foreign currency Won equivalent Foreign currency Won equivalent
(in millions of Korean won)
2005 ₩ 2,103 ₩ 165 ₩ 2,2682006 1,949 62 2,0112007 331 4 335
₩ 4,383 ₩ 231 ₩ 4,614
Principal Interest Total
(in millions of Korean won)
2005 ₩ 13,1932006 3,5502007 1,2122008 2052009 17
₩ 18,177
(in millions of Korean won)
2005 ₩ 3,7712006 6,9282007 9,1072008 13,7992009 15,1992010-2014 85,928
₩ 134,732
15. Accrued Severance Benefits
The changes in the carrying value of accrued severance benefits for the year ended December 31, 2004 are as follows:
The Company expects to pay the following future benefits to its employees upon their normal retirement age:
The above amounts were determined based on the employee' current salary rates and the number of service years that will be
accumulated upon their retirement date. These amounts do not include amounts that might be paid to employees that will cease
working with the Company before their normal retirement age.
(in millions of Korean won)
Beginning balance ₩ 397,430 ₩ (1,989) ₩ (232,779) ₩ 162,662Increase 196,853 (99) (110,970) 85,784Decrease 32,247 (263) (13,961) 18,023Foreign currency (56) - - (56)adjustment and others
Ending balance ₩ 561,980 ₩ (1,825) ₩ (329,788) ₩ 230,367
Accrued severance National Pension Group severance benefits Fund insurance deposits Total
Financial Statements
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35
(in millions of Korean won)
Other current liabilitiesAdvances received ₩ 316,778 ₩ 215,489Unearned revenue 2,397 2,082Others 90,468 92,275
₩ 409,643 ₩ 309,846Other long-term liabilities
Reserve for allowance ₩ 10,667 ₩ 16,553Others 185,410 95,486
₩ 196,077 ₩ 112,039
2004 2003
107106
16. Other Liabilities
Other liabilities as of December 31, 2004 and 2003 consist of the following:
17. Commitments and Contingencies
As of December 31, 2004, contingent liabilities for outstanding guarantees provided for the repayment of loans of affiliated compa-
nies are as follows:1 Currencies other than US$ or JPY are translated into US$ amount.
As of December 31, 2003, contingent liabilities for outstanding guarantees provided for the payment of loans of affiliated companies
amount to ₩425,317 million.
As of December 31, 2004, contingent liabilities for outstanding guarantees provided to non-affiliated companies for the repayment
of loans are as follows:
(in millions of Korean won)
POSCO POSAM Bank of America US$ 13,600,000 ₩ 14,196VPS Credit Lyonnais 821,052 857POS-HYUNDAI STEEL Infrastructure Leasing and 11,463 12
Financial Services Limited
POSCO InvestmentCo., Ltd. Industrial & Commercial 122,845,411 128,226Bank of China and others
Zhangjiagang Pohang Bank of China 76,660,000 80,018Stainless Steel Co., Ltd.
PT POSMI STEEL Indonesia Korea Exchange Bank 1,800,000 1,879POSCO IBC Corporation The Export-Import Bank of 61,780,000 64,486E & C Korea and others
Shanghai Real Estate Korea Exchange Bank 29,500,000 30,792Development Co., Ltd. Shanghai branch and others
POSLILAMA Steel The Export-Import Bank of 15,000,000 15,657Structure Co., Ltd. Korea and others
Posteel POS-THAI Service Sumitomo Bank and others 6,554,000 6,841Co., Ltd. Steel Center Co., Ltd
POS-Qingdao Coil Center Co., Ltd. Industrial Bank of Korea and others 4,000,000 4,175
Grantors Entity being guaranteed Financial institutions Amount guaranteed1 Won equivalent
(in millions of Korean won)
POS-Tianjin Coil Center Co., Ltd. Shinhan Bank 3,300,000 3,445PT POSMI STEEL Indonesia Korea Exchange Bank 5,400,000 5,637POS-HYUNDAI STEEL Infrastructure Leasing and 22,353 23
Financial Services LimitedPOSCO Qingdao Pohang Stainless Bank of Tokyo-Mitsubishi 56,000,000 58,453Investment Steel Co., Ltd.Co., Ltd
.SHUNDE Pohang Coated Bank of Tokyo-Mitsubishi 15,000,000 15,657Steel Co., Ltd
POSVINA Co., Ltd. Shinhan Bank 1,500,000 1,566
POSCO- Fujiura Butsuryu Center Co., Ltd. Korea Exchange Bank JPY 500,000,000 5,060Japan Co., Fujiura Butsuryu Center Co., Ltd. POSINVEST 610,000,000 6,174Ltd.
US$ 413,794,279 ₩ 443,154JPY 1,110,000,000
Grantors Entity being guaranteed Financial institutions Amount guaranteed1 Won equivalent
(in millions of Korean won)
POSCO Dae Kyeong Special Steel Co., Ltd. Korea Development Bank ₩ 3,454 ₩ 3,454 US$ 2,598,400 2,712
DC Chemical Co., Ltd. E1 Corporation ₩ 1,601 1,601The Siam United Steel J-BIC US$ 8,006,478 8,357Zeus (Cayman) Related creditors JPY 51,622,000,000 522,451
POSCO Zenith Woori Bank ₩ 107,429 107,429E & C Humanrex Woori Bank 49,232 49,232
Others Others 25,125 25,125₩ 186,841 ₩ 720,361US$ 10,604,878JPY 51,622,000,000
Grantors Entity being guaranteed Financial institutions Amount guaranteed Won equivalent
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Financial Statements
109108
As of December 31, 2003, contingent liabilities for outstanding guarantees provided to non-affiliated companies for the repayment
of loans are as follows:
The Company entered into long-term contracts to purchase iron ore, coal, nickel, chrome and stainless steel scrap. These con-
tracts generally have terms of three to ten years and provide for periodic price adjustments to the market price. As of December 31,
2004, 147 million tons of iron ore and 112 million tons of coal remained to be purchased under such long-term contracts.
The Company paid US$159,600,000 on behalf of POSVEN on June 21, 2002, an affiliate which is 60.00 % owned by the Company. On
July 20, 2001, an additional payment of US$53,200,000 was due, representing a long-term debt guaranteed by Raytheon Company
("Raytheon"), a shareholder of POSVEN and a joint venture partner with the Company in the construction of a facility in Venezuela.
Both companies agreed that each would pay half of the amount. The Company, therefore, made a payment of US$26,600,000. As of
December 31, 2003, the payment amounting to ₩236,858 million made on behalf of POSVEN, recorded as other investment assets
was fully provided with an allowance for doubtful accounts of the same amount.
During the year ended December 31, 2004, due to the settlement of liquidation dividends from POSVEN, the Company recorded
recovery of allowance for doubtful accounts amounting to ₩108 billion and expecting liquidation dividend receivables amounting to
₩15.8 billion as other investment assets and other account receivables (Note 5).
POSCO entered into a contract on the usage of bulk carriers with Keo Yang Shipping Co., Ltd. in order to ensure the transportation of
raw materials through 2011.
On July 1, 2004, the Company updated its August 14, 2003 agreement with Tangguh Liquefied Natural Gas (LNG) Consortium in
Indonesia regarding the commitment to purchase 550 thousand tons of LNG annually for 20 years commencing in 2005.
As of December 31,2004, POSCO has a bank overdraft agreement with Woori Bank and other six banks amounting to ₩200,000 mil-
lion as of December 31, 2004. In addition, POSCO entered into a credit purchase loan agreement with Industrial bank of Korea and
other nine banks for credit lines up to ₩300,000 million. POSCO has 46 promissory notes, including a blank promissory note, with
the Korea Development Bank, as collaterals for loans from foreign financial institutions. POSCO has entered into an agreement
with Woori Bank amounting to US$700 million for opening letter of credit and document against acceptance and document against
payment transactions in relation to trade as of December 31, 2004.
POSCO E & C has a bank overdraft agreement with Woori Bank and other banks amounting to ₩35,000 million as of December 31,
2004. POSCO E &C has provided nine blank promissory notes and 21 other notes, with amounts equivalent to approximately
₩437,013 million, to other financial institutions as collateral for agreements and outstanding loans. In addition, POSCO E&C has
provided five blank check and other checks, with amounts equivalent to approximately ₩2,500 million as collateral for agreements
and outstanding loans. POSCO E & C has provided performance guarantee to Samsung Corporation amounting to ₩1,209,310 million.
As of December 31, 2004, Posteel Co., Ltd. has an unsettled document against acceptance and JPY 629 million and US$59 million.
In addition, an unsettled document against payment balances in relation to exports amounting to JPY48 million and US$164 thou-
sand. Posteel Co., Ltd. has entered into local credit agreements, up to ₩421,247 million with Hana Bank of which ₩280,744 million
remains unused as of December 31, 2004.
As of December 31, 2004, POSCON Co., Ltd. has a credit purchase loan agreement with Shinhan Bank and other banks for credit line
up to ₩6,000 million. POSCON Co., Ltd. has entered into an agreement with Shinhan Bank and other banks amounting to US$15
million for opening letter of credit in relation to trade.
As of December 31, 2004, Pohang Coated Steel Co., Ltd. has provided a blank promissory note to Korea Zinc Company Ltd. as a
guarantee for the repayment of loan, and has an outstanding balance of discounted notes amounting to ₩7,893 million.
As of December 31, 2004, POSCO Machinery & Engineering Co., Ltd. has entered into an agreement with Shinhan Bank amounting
to US$3 million for opening letter of credit in relation to trade.
POSDATA Co., Ltd. has an outstanding balance of discounted notes amounting to ₩362 million and two outstanding balance of
endorsed notes amounting to ₩822 million as of December 31, 2004. In addition, POSDATA Co., Ltd. has provided one note to
Hewlett-Packard Korea for an outstanding lease agreement. POSDATA Co., Ltd. entered into a credit purchase loan agreement
with Woori Bank for credit lines up to ₩30,000 million.
As of December 31, 2004, Changwon Specialty Steel Co., Ltd. has entered into loan agreement, secured by trade accounts receiv-
ables, with Woori Bank amounting to ₩30,000 million. Changwon Sepcialty Steel Co., Ltd. has entered into an agreement with
Korea First Bank and four other banks amounting to US$55 million and ₩10,000 million for opening letter of credit, and ₩10,000
million in relation to trade as of December 31, 2004.
(in millions of Korean won)
POSCO S U S J-BIC US$ 10,000 ₩ 11,978Dae Kyeong Special Steel Co., Ltd. Korea Development Bank 3,249 3,892
₩ 4,318 4,318DC Chemical Co., Ltd. LG-Caltex Gas 1,921 1,921Zeus Related creditors JPY 51,622,000 577,960
POSCO Zenith Woori Bank ₩ 94,500 94,500E&C Keumseki DistributionCo., Ltd. Hansol Mutual Savings 45,000 45,000
Bank and others
Humanrex Woori Bank 44,290 44,290Iron City Co., Ltd. and Others Samsung Life 28,365 28,365
Insurance Companyand others
WorldView Co., Ltd. Hana Bank 12,337 12,337US$ 13,249 ₩ 824,561JPY 51,622,000₩ 230,731
Grantors Entity being guaranteed Financial institutions Amount guaranteed Won equivalent
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Financial Statements
111110
(in millions of Korean won)
Additional paid-in capital ₩ 463,825 ₩ 463,825Revaluation surplus 3,213,414 3,213,414Others 218,139 151,534
₩ 3,895,378 ₩ 3,828,773
2004 2003
(in millions of Korean won)
AppropriatedLegal reserve ₩ 241,201 ₩ 241,201Appropriated retained earnings for business stabilization 918,300 918,300Other legal reserve 880,000 746,667Voluntary reserve 7,341,899 6,263,545
Unappropriated 3,469,718 1,705,367₩ 12,851,118 ₩ 9,875,080
2004 2003
18. Capital Surplus
Capital surplus as of December 31, 2004 and 2003 consist of the following:
19. Retained Earnings
Retained earnings as of December 31, 2004 and 2003 consist of the following:
Legal Reserve
The Commercial Code of the Republic of Korea requires the Company to appropriate, as a legal reserve, an amount equal to a mini-
mum of 10% of cash dividends paid, until such reserve equals 50% of its issued capital stock. The reserve is not available for the
payment of cash dividends, but may be transferred to capital stock, or used to reduce accumulated deficit, if any, through an appro-
priate resolution by the Company's shareholders.
Other Legal Reserve
Pursuant to the Special Tax Treatment Control Law, the Company appropriates retained earnings as a reserve for overseas invest-
ment loss and research and human resource development. These reserves are not available for dividends, but may be transferred
to capital stock, or used to reduce accumulated deficit, if any, through an appropriate resolution by the Company's shareholders.
Voluntary Reserve
The Company appropriates a certain portion of retained earnings, such as reserve for business rationalization, reserve for business
expansion and appropriated retained earnings for dividends, pursuant to a shareholder resolution, as a voluntary reserve. This
reserve may be transferred to unappropriated retained earnings by the resolution of shareholders, and may be distributed as divi-
dends after its reversal.
Additional Losses of Minority Interest
Accumulated deficit of SEO MUEUN Development Inc. and POSLILAMA Steel Structure Co., Ltd., an affiliates included in the consol-
idated financial statements, resulted in losses in excess of minority interest amounting to ₩13,205 million for the year ended
December 31, 2004 (2003: ₩3,164 million). The additional losses are deducted from the consolidated retained earnings to be
charged to the controlling company. The Company plans to add any profits resulting from SEO MUEUN Development Inc. and
POSLILAMA Steel Structure Co., Ltd. to the controlling company's equity until they recover the amount of losses in excess of minor-
ity interest.
Dividends
The Company declared interim dividends, which were approved through a resolution of the Board of Directors on July 23, 2004.
Details of interim and year-end dividends for the years ended December 31, 2004, 2003 and 2002 are as follows:
Interim cash dividends:
Year-end cash dividends:
Details of the dividend payout ratio and dividend yield ratio for the years ended December 31, 2004 and 2003 are as follows:
(in millions of Korean won)
Number of shares 80,707,945 81,648,519 81,683,875Dividend ratio 30% 20% 10%Dividend amount ₩ 121,062 ₩ 81,649 ₩ 40,842
2004 2003 2002
(in millions of Korean won)
Number of shares 80,503,664 80,707,945 81,738,519Dividend ratio 130% 100% 60%Dividend amount ₩ 523,274 ₩ 403,540 ₩ 245,216
2004 2003 2002
Common shares 16.89% 4.28% 24.31% 3.68% 26.26% 2.85%
2004 2003 2002Dividend Dividend Dividend Dividend Dividend Dividend
payout ratio yield ratio payout ratio yield ratio payout ratio yield ratio
(in millions of Korean Won)
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Financial Statements
113112
(in millions of Korean won)
2004 2003
(in millions of Korean won)
Treasury stock ₩ (680,144) ₩ (838,169)Valuation loss on investment securities (486,502) (538,435)Cumulative foreign currency translation adjustment 15,912 142,463Others - 4,153
₩ (1,150,734) ₩ (1,229,988)
2004 2003
20. Capital Adjustments
Capital adjustments as of December 31, 2004 and 2003 consist of the following:
21. Stock Appreciation Rights
POSCO granted stock appreciation rights to its executive officers in accordance with the stock appreciation rights plan approved by
the Board of Directors. The details of the stock appreciation rights granted are as follows:
1 The company changed the number of shares granted and the exercise price as presented above, in accordance with the resolution of the Board of Directors on April 26, 2003, October
17, 2003 and October 22, 2004.
POSCO applied the intrinsic value method to calculate the compensation cost related to the stock appreciation rights, and such
compensation costs are accounted as other long-term liabilities and amortized over the vesting period of the stock grants.
The compensation costs for stock appreciation rights granted to employees and executives recognized for the year ended
December 31, 2004 and for the future periods are as follows:
For the stabilization of the stock price, retirement of stock and completion of privatization, POSCO repurchased 5,771,161 shares of
its own common stock amounting to ₩579,030 million and 912,010 shares of specified money in trust amounting to ₩101,114 mil-
lion as of December 31, 2004. The treasury stock is carried at acquisition cost.
POSCO restricts the voting rights of treasury stock in accordance with the Korean Commercial Code. In addition, in accordance with
the law on welfare for the laborers, POSCO decided to contribute 1,557,211 and 17,828 shares of its treasury stock to the association
of employee stock ownership on July 26, 2004 and December 21, 2004 according to the resolution of the Board of Directors on July
23, 2004 and December 17, 2004, respectively, with the differences between the fair value and the proceeds being charged to wel-
fare expenses.
Details of treasury stock for the years ended December 31, 2004, 2003 and 2002 are as follows:
Beginning balance 8,258 ₩ 838,169 9,043 ₩ 915,995 11,966 ₩1,185,404Decrease, net (1,575) (158,025) (785) (77,826) (2,923) (269,409)Ending balance 6,683 ₩ 680,144 8,258 ₩ 838,169 9,043 ₩ 915,995
2004 2003 2002Shares Amount Shares Amount Shares Amount
(in millions of Korean won)
(in millions of Korean won)
Before the modifications1
Number of shares 498,000 shares 60,000 shares 22,000 shares 141,500 shares 218,600 sharesExercise price ₩98,400 per share ₩135,800 per share ₩115,600 per share ₩102,900 per share ₩151,700 per share
After the modifications1
Grant date July 23, 2001 April 27, 2002 September 18, 2002 April 26, 2003 July 23, 2004Exercise price ₩98,900 per share ₩136,400 per share ₩116,100 per share ₩102,900 per share ₩151,700 per shareNumber of shares 453,576 shares 55,896 shares 20,495 shares 135,897 shares 214,228 sharesgranted
Number of shares 19,409 shares - - - -cancelled
Number of shares 138,676 shares - - - -exercised
Number of shares 295,491 shares 55,896 shares 20,495 shares 135,897 shares 214,228 sharesoutstanding
Exercise period July 24, 2003 April 28, 2004 Sept. 19, 2004 April 27, 2005 July 24, 2006~ July 23, 2008 ~ April 27, 2009 ~ Sept. 18, 2009 ~ April 26, 2010 ~ July 23, 2011
Settlement method Cash or stock compensation for the difference between the exercise price and fair market value of the option
1st Grant 2nd Grant 3rd Grant 4th Grant 5th Grant
Prior periods ₩ 13,428 ₩ 770 ₩ 489 ₩ 2,349 ₩ - ₩ 17,036Current period 12,723 2,080 973 7,314 1,695 24,785Future periods - - - 1,820 5,953 7,773
₩ 26,151 ₩ 2,850 ₩ 1,462 ₩ 11,483 ₩ 7,648 ₩ 49,594
1st Grant 2nd Grant 3rd Grant 4th Grant 5th Grant Total
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Financial Statements
115114
The following table summarizes information about appreciation rights granted and expense recognized at the award date:
The following table summarizes information about stock appreciation rights outstanding at December 31, 2004:
22. Derivatives
The Company has entered into cross currency swap agreements to reduce interest rates and currency risks and currency forward
contracts with financial institutions to economically hedge the fluctuation risk of future cash flows. The gains and losses on cur-
rency swap and currency forward contracts for the year ended December 31, 2004 and related contracts outstanding as of
December 31, 2004 are as follows:
The gains and losses on currency swap and currency forward contracts for the year ended December 31, 2003 and related contracts
outstanding as of December 31, 2003 are as follows:
(in Korean won)
Beginning of year 638,598 ₩ 103,681 570,000 ₩ 103,001Granted 218,600 151,700 141,500 102,900Exercised (119,888) 98,900 (18,788) 98,900Canceled - - (9,221) 98,900Forfeited (15,303) 117,973 (44,893) 95,565Stock appreciation rights 722,007 ₩ 118,711 638,598 ₩ 103,681outstanding, end of year
Exercisable at the year end 456,885 ₩ 104,865 421,979 ₩ 98,900Weighted-average fair value at ₩ 110,179 ₩ 95,641grant date
2004 2003Number of stock Weighted-average Number of stock Weighted-average
Stock appreciation rights outstanding appreciation rights exercise price per share appreciation rights exercise price per share
(in millions of Korean won)
98,900 295,491 3.56 years ₩ 98,900136,400 55,896 4.32 years 136,400116,100 20,495 4.72 years 116,100102,900 135,897 5.32 years 102,900151,700 214,228 6.56 years 151,700
722,007 4.87 years ₩ 118,711
Appreciation rights outstandingWeighted-average Weighted-average exercise
Exercise prices Shares remaining contractual Life price per share
(in millions of Korean won)
POSCO Currency swap Trading Citibank and others ₩ - ₩ - ₩ 683 ₩ -Nickel forward Trading Sempra Metals., Ltd. - - 2,800 5,980
Futureexchange Trading CALYON 6 - 597 1,092POSCO E & C Currency forward Trading Citibank and others 9,588 2,646 4,900 1,499Posteel Co., Ltd. Currency forward Trading KorAm Bank - - 328 694Pohang Coated Currency forward Trading Shinhan Bank - - 3,106 67Steel Co., Ltd.
Changwon Currency forward Trading Korea First Bank - - 38 -Specialty SteelCo., Ltd.
₩ 9,594 ₩ 2,646 ₩12,452 ₩ 9,332
Company Type of Purpose of Financial Valuation Valuation Transaction Transaction transaction transaction institutions gains losses gains losses
(in millions of Korean won)
POSCO Currencyswap Fair market Citibank and others ₩ - ₩ 29,693 ₩ - ₩ -value hedge1
POSCO Currency forward Trading The Bank of New York - - 451 -POSCO Nickel forward Cash flow Sempra Metal., Ltd. 4,153 - - -
hedge
POSCO E & C Currency forward Fair market Citibank and others 2,646 1,066 936 124value hedge1
Posteel Co., Ltd. Currency forward Trading Hana Bank 12 22 305 329Pohang Coated Currency forward Trading Shinhan Bank 189 - 789 1,180Steel Co., Ltd.
Changwon Currency forward Fair market Korea First Bank 2 - - 27Specialty Steel value hedge 1
Co., Ltd.
₩ 7,002 ₩ 30,781 ₩ 2,481 ₩ 1,660
Company Type of Purpose of Financial Valuation Valuation Transaction Transaction transaction transaction institutions gains losses gains losses
1 Accounted for as trading, since the criteria for hedge accounting are not met.
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Financial Statements
117116
The gains and losses on currency swap and currency forward contracts for the year ended December 31, 2002 and related contracts
outstanding as of December 31, 2002 are as follows:
1 Accounted for as trading, since the criteria for hedge accounting are not met.
23. Selling and Administrative Expenses
Selling and administrative expenses for the years ended December 31, 2004, 2003 and 2002 consist of the following:
(in millions of Korean won)
POSCO Currency swap Fair market Citibank and others ₩ - ₩ 11,775 ₩ - ₩ -value hedge
POSCO Currency forward Cash flow Bank of America - - - 2,796hedge and
trading
POSCO E & C Currency forward Fair market Citibank 569 - 1,884 54value hedge1
Posteel Co., Ltd. Currency forward Trading Koram Bank - - 14 6POSCO Currency forward Trading The Korea - - 26 48Refractories & Development BankEnvironment(POSREC)
Pohang Coated Currency forward Trading Shinhan Bank - - 11,236 472Steel Co., Ltd.
₩ 569 ₩ 11,775 ₩ 13,160 ₩ 3,376
Company Type of Purpose of Financial Valuation Valuation Transaction Transaction transaction transaction institutions gains losses gains losses
(in millions of Korean won)
Transportation and storage ₩ 493,790 ₩ 445,723 ₩ 404,771Salaries 149,153 142,400 130,226Welfare 103,637 75,730 62,002Depreciation and amortization 68,145 65,384 72,049Research and development expenses (Note 10) 70,949 56,825 40,627Fees and charges 76,710 54,662 53,417Advertising 49,381 40,681 36,886Severance benefits 25,051 21,217 16,058Stock compensation expense (Note 21) 24,785 18,894 6,497Sales commissions 18,286 18,759 18,324Travel 18,530 16,075 14,822Rent 17,287 12,554 12,430Training 11,765 11,835 10,919Taxes and public dues 13,661 11,534 8,072Repairs 20,047 9,159 8,149Provision for doubtful accounts 53,671 8,955 6,410Sales promotions 6,474 6,333 5,769Vehicle expenses 6,509 5,983 5,828Entertainment 6,444 5,796 6,595Office supplies 8,103 5,660 6,819Membership fees 5,391 5,294 5,590Communications 3,420 3,823 3,767Subscriptions and printing 4,051 3,757 3,072Insurance 4,883 2,572 1,844Utilities 1,860 1,864 1,733Others 30,944 24,001 24,115
₩ 1,292,927 ₩ 1,075,470 ₩ 966,791
2004 2003 2002
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Financial Statements
119118
24. Donations
Donations contributed by the Company for the years ended December 31, 2004, 2003 and 2002 consist of the following:
26. Basic and Diluted Earnings Per Share and Basic and Diluted Ordinary Income Per Share
Basic earnings and ordinary income per share are computed by dividing net income allocated to common stock, by the weighted-
average number of common shares outstanding during the period.
Ordinary income per share for the years ended December 31, 2004, 2003 and 2002 are calculated as follows:
Earnings per share for the years ended December 31, 2004, 2003 and 2002 are calculated as follows:
Diluted Earnings Per Share
Diluted earnings per share for the years ended December 31, 2004, 2003 and 2002 are the same as basic earnings per share, since
there is no dilutive effect resulting from the stock option plan as of December 31, 2004, 2003 and 2002.
1 Beginning number of common shares excludes 8,258,210 treasury shares.
2 The Company retired 204,281 treasury shares during the year ended December 31, 2004 and for the computation of weighted average number of common shares outstanding, the
number of treasury shares was included.25. Income Taxes
The statutory income tax rate applicable to the Company, including resident tax surcharges, was approximately 29.7% in 2004, 2003
and 2002, and amended to 27.5% effective for the fiscal years beginning January 1, 2005, in accordance with the Corporate Income
Tax Law enacted in December 2003.
Income tax expense for the years ended December 31, 2004, 2003 and 2002 consists of the following:
POSAM and 16 other overseas subsidiaries recorded taxes payable for the year ended December 31, 2004 as income tax expense in
accordance with the applicable tax laws.
The following table reconciles income tax expense computed at the statutory rates to the actual income tax expense recorded by the
Company:
(in millions of Korean won)
POSCO Educational Foundation ₩ 39,500 ₩ 38,800 ₩ 37,800Pohang University of Science and Technology 32,479 2,267 3,000POSCO welfare Fund 58,000 - -Support for local community and others 39,567 62,124 9,347
₩ 169,546 ₩ 103,191 ₩ 50,147
2004 2003 2002
(in millions of Korean won except for per share amount)
Ordinary income ₩ 3,811,843 ₩ 1,995,983 ₩ 1,089,288Weighted-average number of shares of common stock 80,835,690 81,483,634 81,932,084Ordinary income per share ₩ 47,155 ₩ 24,496 ₩ 13,295
2004 2003 2002
(in millions of Korean won except for per share amount)
Net income ₩ 3,814,225 ₩ 1,995,983 ₩ 1,089,288Weighted-average number of shares of common stock 80,835,690 81,483,634 81,932,084Earnings per share ₩ 47,185 ₩ 24,496 ₩ 13,295
2004 2003 2002
Beginning1 80,707,945 366 29,539,107,870Acquisition and disposal of treasury stock, net 204,281 - 2 46,754,748
29,585,862,618
Number of Number of Weighted
Period shares issued days outstanding number of shares
(in millions of Korean won)
2004 29,585,862,618 ÷ 366 = 80,835,6902003 29,741,526,418 ÷ 365 = 81,483,6342002 29,905,210,535 ÷ 365 = 81,932,084
Period Weighted-average number of common shares
(in millions of Korean won)
Current income tax ₩ 1,542,480 ₩ 746,482 ₩ 527,381 Deferred income tax (40,834) (16,212) (129,076)
₩ 1,501,646 ₩ 730,270 ₩ 398,305
2004 2003 2002
(in millions of Korean won)
Net income before income tax expense ₩ 5,342,910 ₩ 2,747,270 ₩ 1,507,437 Statutory tax rate (%) 29.70 29.70 29.70 Income tax expense computed at statutory rate 1,586,844 815,939 447,709 Tax credit of POSCO (161,939) (99,109) (87,628)Others, net 76,741 13,440 38,224 Income tax expense ₩ 1,501,646 ₩ 730,270 ₩ 398,305Effective rate (%) 28.11 26.58 26.42
2004 2003 2002
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Financial Statements
121120
27. Foreign Currency Translation
Monetary assets and liabilities denominated in foreign currencies as of December 31, 2004 and 2003 are as follows:
1 Cash and cash equivalents, short-term financial instruments and long-term financial instruments are included.
2 Represented at face value, except for marketable available-for-sale securities.
3 Currencies other than US$, JPY, and EUR have been converted into US$ and the amounts of overseas subsidiaries are converted into US$.
4 Includes current portion of long-term debt.
Losses on foreign currency translation of other monetary assets and liabilities for the years ended December 31, 2004, 2003 and
2002 are ₩17,407 million, ₩118,231 million and ₩28,768 million, respectively. Gains on foreign currency translation of other mon-
etary assets and liabilities for the years ended December 31, 2004, 2003 and 2002 are ₩177,889 million, ₩6,415 million, ₩128,844
million, respectively.
Assets:Cash and cash US$ 37,006,990 ₩ 38,628 80,818,103 ₩ 96,804equivalents 1
JPY 842,262 9 17,130,996,104 191,799EUR - - 19,659 30Overseas subsidiaries 208,988,625 218,143 172,176,896 206,234
Trade accounts and US$ 316,354,184 330,210 205,789,975 246,495notes receivable JPY 4,187,608,143 42,382 1,998,415,701 22,374
EUR 656,582 934 3,322,846 4,993Overseas subsidiaries 303,790,888 317,097 200,952,723 240,701
Other accounts and US$ 263,248,710 274,779 30,522,047 36,559notes receivable JPY 10,284,822 104 4,608,464 52
Overseas subsidiaries 7,989,116 8,339 2,916,498 3,493Short-term & Long-term loans US$ - - 1,900,000 2,276
Overseas subsidiaries 69,420,557 72,461 97,664,714 116,982Long-term trade accounts Overseas subsidiaries 70,513 74 70,513 84and notes receivable
Investment securities 2 US$ 1,000,000 1,044 10,482,213 12,556Overseas subsidiaries 24,079,162 25,134 29,374,172 35,184
Guarantee deposits US$ 442,769 462 535,696 642Overseas subsidiaries 1,262,109 1,317 1,571,166 1,882US$ 1,233,653,623 ₩1,331,117 834,774,716 ₩1,219,140JPY 4,198,735,227 19,134,020,269EUR 656,582 3,342,505
2004 2003Foreign currency 3 Won equivalent Foreign currency 3 Won equivalent
(in millions of Korean won, except for foreign currencies)
Liabilities:Trade accounts and US$ 263,248,710 ₩ 274,779 163,706,585 ₩ 196,088note payable JPY 529,399,734 5,358 2,222,139,387 24,879
EUR 5,133,029 7,304 130,245,785 195,705Overseas subsidiaries 105,708,151 110,338 108,186,414 129,586
Other accounts and US$ 7,276,448 7,595 820,897 983notes payable JPY 274,651,006 2,780 37,853,352 424
EUR 356,769 508 - -Overseas subsidiaries 413,973 432 16,965,921 20,322
Accrued expenses US$ 216,422,509 225,902 111,607,366 133,683Overseas subsidiaries 10,280,795 10,731 10,764,620 12,894
Short-term borrowings US$ 15,208,564 15,875 500,918 600Overseas subsidiaries 498,460,078 520,292 472,741,791 566,250
Withholdings US$ 5,110,728 5,335 2,171,835 2,601JPY 36,654,000 371 - -EUR 4,788,294 6,814 2,144,806 3,223Overseas subsidiaries 538,686 562 1,074,512 1,287
Long-term debt 2 4 US$ 461,715,000 481,938 640,605,000 767,317JPY 81,622,000,000 826,072 81,187,477,671 908,975
Foreign currency loans 4 JPY 3,183,662,414 32,221 5,500,535,906 61,584Overseas subsidiaries 245,645,137 256,404 141,410,774 169,382
Loans from foreign US$ 23,443,359 24,470 183,032,109 219,236financial institutions 4 JPY - - 942,165,425 10,548
EUR 25,401,970 36,146 29,357,589 44,113Overseas subsidiaries 26,278 28 - -US$ 1,853,498,416 ₩ 2,852,255 1,853,588,742 ₩3,469,680 JPY 85,646,367,154 89,890,171,741EUR 35,680,062 161,748,180
2004 2003Foreign currency 3 Won equivalent Foreign currency 3 Won equivalent
(in millions of Korean won, except for foreign currencies)
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Financial Statements
123122
28. Related Party Transactions
Significant transactions, which occurred in the ordinary course of business, with consolidated subsidiaries for the years ended
December 31, 2004, 2003 and 2002, and the related account balances as of December 31, 2004 and 2003, are as follows:
1 Sales and others include sales and non-operating income; purchases and others include purchases and overhead expenses.
2 Receivables include trade accounts receivable and other accounts receivable; payables include trade accounts payable and other accounts payable.
3 Includes transaction with PIO, which was merged into POSCO-Japan Co., Ltd. during the year ended December 31, 2004.
POSCO E & C ₩ 82,889 ₩ 247 ₩ 237,283 ₩ 29,888Posteel Co., Ltd. 122,260 46,543 1,876 5POSCON Co., Ltd. 15,172 3 43,050 20,297Pohang Coated Steel Co., Ltd. 43,021 23,613 1 169POSCO Machinery & Engineering Co., Ltd. 2,270 6 27,879 13,858POSDATA Co., Ltd. 442 1 30,782 28,370POSCO Research Institute - - 7,224 4,006Seung Kwang Co., Ltd. 2,038 477 - 1POS-AC Co., Ltd. - - 663 330Changwon Specialty Steel Co., Ltd. 1 65 6,692 7,580POSCO Machinery Co., Ltd. 4,300 2 19,767 10,477POSA 24 17 - 4,618POSCAN 16 17 - 4,074POA 29,866 6,492 4,730 5,605POSCO-Japan Co., Ltd. 18,751 5,153 1,722 111Zhangjiagang Pohang Stainless Steel Co., Ltd. 16,486 10,770 - -POSTECH Venture Capital Co., Ltd. - - - -POSCO Refractories & Environment 19 5 23,526 17,263Others 11 91 - -
₩ 337,566 ₩ 93,502 ₩ 405,195 ₩ 146,652
Receivables 2 Payables 2
Company 2004 2003 2004 2003
(in millions of Korean won)
POSCO E & C ₩ 9,317 ₩ 4,834 ₩ 3,089 ₩ 891,474 ₩ 314,456 ₩ 863,525Posteel Co., Ltd. 919,618 870,792 1,431,012 67,193 35,681 2,969POSCON Co., Ltd. 139 72 40 194,847 167,642 146,872Pohang Coated Steel Co., Ltd. 303,425 251,137 233,474 271 1,576 1,279POSCO Machinery & 5,001 65 67 116,424 102,099 87,852Engineering Co., Ltd.
POSDATA Co., Ltd. 989 857 753 209,839 206,562 167,782POSCO Research Institute - - - 13,203 11,694 10,232Seung Kwang Co., Ltd. - - - 35 60 4POS-AC Co., Ltd. 517 450 408 20,980 9,150 14,054Changwon Specialty Steel Co., Ltd. 31 77 417 75,984 57,557 62,141POSCO Machinery Co., Ltd. 116 126 40 95,892 80,908 72,194POSAM 33,446 - - - 107 473POSA 1,115 - - 41,673 157,641 72,714POSCAN - - - 56,143 39,664 41,932POA 573,772 367,998 149,590 146,016 111,889 68,047POSCO-Japan Co., Ltd 3 409,845 226,276 114,561 30,846 10,922 7,066Zhangjiagang Pohang 714,832 349,723 29 - - -Stainless Steel Co., Ltd.
POSTECH Venture Capital Co., Ltd. 59 54 50 - - 10POSCO Refractories & Environment 137 122 36 173,917 154,404 149,185Others 86,821 33,110 916 - - 1,211
₩3,059,180 ₩2,105,693 ₩1,934,482 ₩2,134,737 ₩1,462,012 ₩1,769,542
Sales and others 1 Purchases and others 1
Company 2004 2003 2002 2004 2003 2002
(in millions of Korean won)
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Financial Statements
125124
Significant transactions, which occurred in the ordinary course of business, with equity method investees for the years ended
December 31, 2004, 2003 and 2002, and related account balances as of December 31, 2004 and 2003, are as follows:
1 Sales and others include sales and non-operating income; purchases and others include purchases and overhead expenses.
2 Receivables include trade accounts receivable and other accounts receivable; payables include trade accounts payable and other accounts payable.
Eliminations of inter-company revenues and expenses for the year ended December 31, 2004 are as follows:
KOBRASCO ₩ - ₩ - ₩ 2,584 ₩ 6,145eNtoB Corporation - - 3,286 3,029POSVINA Co., Ltd. - 4 - -
₩ - ₩ 4 ₩ 5,870 ₩ 9,174
Receivables 2 Payables 2
Company 2004 2003 2004 2003
(in millions of Korean won, except for foreign currencies)
KOBRASCO ₩ - ₩ - ₩ - ₩ 104,848 ₩ 99,498 ₩ 94,038UPI 365,362 239,294 291,528 - 16 -POSCHROME - - - 51,820 33,267 22,937Shunde Xingpu Steel Center Co., Ltd - 219 - - - -eNtoB Corporation - - - 131,377 69,072 15,383POSVINA Co., Ltd. 12,599 7,281 - - - -POSMMIT 7,655 480 - - - -MIDUS Information Technologies Co., Ltd. - - - 15 99 -PT POSMI STEEL Indonesia (POSMI) 5 - - - - -
₩385,621 ₩247,274 ₩291,528 ₩ 288,060 ₩ 201,952 ₩ 132,358
Sales and others 1 Purchases and others 1
Company 2004 2003 2002 2004 2003 2002
(in millions of Korean won)
(in millions of Korean won) (in millions of Korean won)
Sales ₩ 5,982,359Interest income 2,242Rental income 727Others 3,693
5,989,021
Revenues
Cost of goods sold ₩ 5,849,925Interest expense 2,272Selling and administrative expenses 120,428Others 16,396
5,989,021
Expenses
(in millions of Korean won) (in millions of Korean won)
Sales ₩ 4,115,235Interest income 485Rental income 612Others 3,023
₩ 4,119,355
Revenues
Cost of goods sold ₩ 4,007,975Interest expense 495Selling and administrative expenses 109,011Others 1,874
₩ 4,119,355
Expenses
(in millions of Korean won) (in millions of Korean won)
Sales ₩ 4,610,052Interest income 1,654Rental income 594Others 2,798
₩ 4,615,098
Revenues
Cost of goods sold ₩ 4,493,261Interest expense 1,678Selling and administrative expenses 88,482Others 31,677
₩ 4,615,098
Expenses
Eliminations of inter-company revenues and expenses for the year ended December 31, 2003 are as follows:
Eliminations of inter-company revenues and expenses for the year ended December 31, 2002 are as follows:
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Financial Statements
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Eliminations of significant inter-company receivables and payables for the years ended December 31, 2004 and 2003 are as follows:
29. Segment and Regional Information
The following table provides information on the significant financial status of each operating segment of the consolidated sub-
sidiaries as of and for the year ended December 31, 2004:
The following table provides information on the significant financial status of each operating segment of the consolidated sub-
sidiaries as of and for the year ended December 31, 2003:(in millions of Korean won)
Trade accounts and notes payable ₩ 412,421 ₩ 213,137Short-term borrowings 19,959 38,434Other accounts and notes payable 265,881 101,846Long-term debt 50,435 26,927Other liabilities 114,934 100,202
₩ 863,630 ₩ 480,546
Trade accounts and notes receivable ₩ 676,744 ₩ 361,569Short-term loans 20,628 1,198Other accounts and notes receivable 296 12,658Long-term loans 51,032 34,353Other assets 114,930 70,768
₩ 863,630 ₩ 480,546
2004 2003
Statement of income:External customers ₩ 22,624,977 ₩ 2,986,345 ₩4,344,090 ₩(5,982,359) ₩ 23,973,053Less: Inter-segment (3,322,773) (626,579) (2,033,007) 5,982,359 -
₩ 19,302,204 ₩ 2,359,766 ₩2,311,083 ₩ - ₩ 23,973,053Balance sheet:
Inventories ₩ 2,534,497 ₩ 72,463 ₩ 515,567 ₩ (57,006) ₩ 3,065,521Investments 4,087,223 282,491 633,453 (2,298,629) 2,704,538Property, plant and equipment 10,189,473 230,082 586,270 (565,534) 10,440,291Intangible assets 410,170 1,515 97,100 (12,470) 496,315
ReconcilingSteel Trading Others adjustment Consolidated
(in millions of Korean won)
Statement of income:External customers ₩ 16,503,386 ₩ 2,384,952 ₩3,016,135 ₩(4,115,236) ₩ 17,789,237Less: Inter-segment (2,241,755) (599,615) (1,273,866) 4,115,236 -
₩ 14,261,631 ₩ 1,785,337 ₩1,742,269 ₩ - ₩ 17,789,237Balance sheet:
Inventories ₩ 1,867,743 ₩ 51,638 ₩ 160,389 ₩ (11,399) ₩ 2,068,371Investments 4,056,692 308,349 501,454 (2,039,817) 2,826,678Property, plant and equipment 9,549,746 206,416 612,625 (523,010) 9,845,777Intangible assets 402,439 2,351 79,593 (9,887) 474,496
ReconcilingSteel Trading Others adjustment Consolidated
(in millions of Korean won)
The following table provides information on the significant financial status of each operating segment of the consolidated sub-
sidiaries as of and for the year ended December 31, 2002:
Statement of income:External customers ₩ 13,593,010 ₩ 2,584,532 ₩2,787,428 ₩(4,610,052) ₩ 14,354,918Less: Inter-segment (2,076,385) (686,250) (1,847,417) 4,610,052 -
₩ 11,516,625 ₩ 1,898,282 ₩ 940,011 ₩ - ₩ 14,354,918Balance sheet:
Inventories ₩ 1,470,931 ₩ 26,933 ₩ 193,871 ₩ (20,289) ₩ 1,671,446Investments 3,908,130 295,959 557,102 (1,898,578) 2,862,613Property, plant and equipment 10,068,549 217,739 594,364 (556,078) 10,324,574Intangible assets 391,271 3,444 83,002 (2,905) 474,812
ReconcilingSteel Trading Others adjustment Consolidated
(in millions of Korean won)
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Financial Statements
129128
Substantially all of the Company's operations are for the production of steel products. Net sales and non-current assets by geo-
graphic area as of and for the years ended December 31, 2004, 2003 and 2002 are as follows:
(in millions of Korean won)
Korea ₩ 16,738,372 ₩ 15,295,486Japan 1,163,541 84,640China 3,315,789 813,798Asia/Pacific, excluding Japan and China 1,257,108 108,119North America 529,080 153,919Others 969,163 61,815Consolidationadjustments - (2,876,633)
₩ 23,973,053 ₩ 13,641,144
2004
Sales Non-current assets
Condensed consolidated balance sheets categorized by types of business are as follows:
(in millions of Korean won)
AssetCurrent asset ₩ 10,484,417 ₩ 19,247Non-current asset 13,581,551 168,593
Investment assets 2,645,019 168,518Property, plant and equipment 10,440,265 26Intangible assets 496,267 49
Total assets 24,065,968 187,840LiabilitiesCurrent liabilities 4,923,870 87,641Non-current liabilities 2,757,773 31,351Total liabilities 7,681,643 118,992Shareholders' equityCommon stock 482,403 52,908Capital surplus 3,894,235 -Retained earnings 12,854,385 19,859Capital adjustments (1,152,868) (3,919)Minority interest 306,170 -Total liabilities and shareholders' equity 16,384,325 68,848
₩ 24,065,968 ₩ 187,840
2004
Non-financial Institution Financial Institution(in millions of Korean won)
Korea ₩ 12,100,326 ₩ 12,146,239 Japan 770,765 55,430China 2,706,120 613,078Asia/Pacific, excluding Japan and China 1,078,675 130,410North America 311,529 162,198Others 821,822 39,596
₩ 17,789,237 ₩ 13,146,951
2003
Sales Non-current assets
(in millions of Korean won)
Korea ₩ 9,531,423 ₩ 12,853,344Japan 650,029 43,110China 2,088,735 369,075Asia/Pacific, excluding Japan and China 1,069,432 236,359North America 473,289 142,238Others 542,010 17,873
₩ 14,354,918 ₩ 13,661,999
2002
Sales Non-current assets
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Financial Statements
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(in millions of Korean won)
Sales ₩ 23,966,264 ₩ 6,848Cost of goods sold (17,358,582) (2,280)Selling and administrative expense (1,290,280) (2,493)Operating income 5,317,402 2,075Non-operating income 829,000 5,840Non-operating expenses (806,897) (3,341)Ordinary income 5,339,505 4,574Extraordinary income 3,388 -Extraordinary expense - -Net income before income tax expense and minority interest 5,342,893 4,574Income tax expense (1,501,195) (451)Net income before minority interest 3,841,698 4,123Minority interest in income of consolidated subsidiaries (26,955) -Net income ₩ 3,814,743 ₩ 4,123
2004Non-financial Institution Financial Institution
Condensed consolidated balance sheets categorized by types of business are as follows:
30. Operating Results for the Final Interim Period
Significant operating results for the three-month period ended December 31, 2004 are as follows:
31. Reclassification of Prior Year Financial Statement Presentation
Certain amounts in the financial statements as of and for the year ended December 31, 2003 have been reclassified to conform to
the 2004 presentation. These reclassifications had no effect on previously reported net income or shareholders' equity.
32. Events Subsequent to the Issuance of the Auditor's Report
On February 3, 2005, the Company decided to purchase 1,743,730 shares of its own stock from the market during the period from
February 7, 2005 to May 6, 2005.
Reconciliation to U.S. Generally Accepted Accounting Principles
The consolidated financial statements of the Company are prepared in accordance with generally accepted accounting principles in
the Republic of Korea ("Korean GAAP"), which differs in certain material respects from generally accepted accounting principles in
the United States of America ("U.S. GAAP"). Application of U.S. GAAP would have affected the balance sheets as of December 31,
2003 and 2004 and net income for the three year periods then ended to the extent described below.
A description of the material differences between Korean GAAP and U.S. GAAP as they relate to the Company are discussed in detail
below.
33. Significant Differences between Korean GAAP and U.S. GAAP
(a) Reconciliation of net income from Korean GAAP to U.S. GAAP
(in millions of Korean won, except per share amount)
Sales ₩ 6,748,462Cost of sales 4,708,064Operating income 1,656,003Net income 1,175,618Ordinary income per share 19,755Net income per share 14,602
(in millions of Korean won and thousands of US dollar)
Net income under Korean GAAP ₩ 3,814,225 ₩ 1,995,983 ₩ 1,089,288 Adjustments:
Property, plant and equipment:Fixed asset revaluation 26,428 26,351 28,667 Capitalized costs 47,458 16,187 64,890Capitalized repairs (9,422) (9,721) (11,466)Impairment loss on investment securities (557,615) (22,557) (177,532)Others, net 4,270 (8,773) (5,448)Income tax effect 134,870 (442) 30,017
(354,011) 1,045 (70,872) Net income as adjusted in accordance with U.S. GAAP ₩ 3,460,214 ₩ 1,997,028 ₩ 1,018,416Basic and diluted earnings per share, as adjusted, ₩ 42,806 ₩ 24,508 ₩ 12,430in accordance with U.S. GAAP
Weighted-average shares outstanding 80,835,690 81,483,634 81,932,084
2004 2003 2002
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Financial Statements
133132
(b) Reconciliation of shareholders' equity from Korean GAAP to U.S. GAAP
1 As indicated in note 2, the Korean Accounting Standards Board ("KASB") has published a series of Statements of Korean Financial Accounting Standards ("SKFAS"), which will grad-
ually replace the existing financial accounting standards established by the Korean Financial and Supervisory Board. The balance sheet as of December 31, 2002, was restated in
accordance with SKFAS No. 6. As a result, the dividends payable, previously recorded as current liabilities, decreased by ₩245,216 million and the balance of retained earnings
increased by same amount as of December 31, 2002.
(c) Fixed asset revaluation
Under Korean GAAP, certain fixed assets were subject to upward revaluations in accordance with the Asset Revaluation Law, withthe revaluation increment credited to capital surplus. As a result of this revaluation, depreciation expense on these assets wasadjusted to reflect the increased basis. Under U.S. GAAP, such a revaluation is not permitted and depreciation expense should bebased on historical cost. When assets are sold, any revaluation surplus related to those assets under Korean GAAP would bereflected in income as additional gain on sale of assets under U.S. GAAP.
(d) Capitalized costs
Under Korean GAAP, the Company capitalizes certain foreign exchange gains and losses on borrowings associated with property,plant and equipment during the construction period. Under U.S. GAAP, all foreign exchange gains and losses are included in theresults of operations for the current period. No foreign exchange gains and losses have been capitalized as of December 31, 2004, 2003 and 2002 under Korean GAAP. Depreciation of net capitalized foreign exchange gains and losses carried forward fromprior periods amounted to ₩20,611 million in 2004, 2003 and 2002, respectively. In addition, effective from the period beginningafter December 31, 2002, under Korean GAAP, interest costs that would have been theoretically avoided had expenditures not beenmade for assets which require a period of time to prepare them for their intended use are generally expensed as incurred, exceptwhen certain criteria are met for capitalization. The Company has adopted this application and expensed financing costs subject tothe capitalization. Under U.S. GAAP, the Company is required to capitalize the amount that would have been theoretically avoidedhad expenditures not been made for assets which require a period of time to prepare them for their intended use. Capital projects
that have had their progress halted would suspend the capitalization of interest and would also delay the accumulation of deprecia-tion during the suspense period.
Capitalized interest for the years ended December 31, 2004, 2003 and 2002 are as follows:
Under Korean GAAP, organization costs, research and development costs and internal use software costs have been recorded asintangible assets and amortized over a period not exceeding 20 years. Under U.S. GAAP, organization costs as well as research anddevelopments costs are generally expensed as incurred. In addition, certain costs incurred for software developed for internal use,U.S. GAAP requires that costs incurred in the preliminary project stage be expensed as incurred. External direct costs such asma-terial and service, payroll or payroll related costs for employees who are directly associated with the project, and interest costsincurred when developing computer software for internal use, should be capitalized and amortized on a straight-line method overthe estimated useful life. Training costs, data conversion costs and general administrative costs should be expensed as incurred.
U.S. GAAP reconciliation adjustments for the capitalization and amortization of intangible assets for the years ended December 31,2004, 2003 and 2002 are as follows:
(e) Capitalized repairs
Under Korean GAAP, repair costs associated with the Company's furnaces are expensed as incurred, regardless of the nature of theexpenditure. U.S. GAAP requires that repairs that extend an asset's useful life or significantly increase its value be capitalized whenincurred and depreciated. Routine maintenance and repairs are expensed as incurred. No repair costs have been capitalized as ofDecember 31, 2004, 2003 and 2002 under Korean GAAP. Depreciation of capitalized repairs carried forward from prior periods havebeen recorded.
(f) Guarantees
Under Korean GAAP, the guarantor is required to disclose guarantees, including indirect guarantees of indebtedness of others.Under U.S. GAAP, the guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligationundertaken in issuing the guarantee for guarantees issued or modified after December 31, 2002. As of December 31, 2004, theguarantees issued or modified after December 31, 2002 by the Company for the repayment of loans amounts to ₩197,040 million,
(in millions of Korean won and thousands of US dollar)
Shareholders' equity before minority interest ₩ 16,386,056 ₩ 13,249,567 ₩ 11,819,646under Korean GAAP 1
Minority interest (307,891) (293,299) (279,165)16,078,165 12,956,268 11,540,481
Adjustments:Property, plant and equipment:
Fixed asset revaluation (195,044) (221,472) (247,823)Capitalized costs 270,827 223,369 207,182Capitalized repairs 9,036 18,458 28,179Impairment loss on investment securities (48,399) (36,732) (191,435)Others, net (4,127) (8,397) 376Income tax effect 169,387 34,517 44,031Deferred taxes related to OCI (71,788) 52,306 82,734
129,892 62,049 (76,756)Shareholders' equity, as adjusted, ₩ 16,208,057 ₩ 13,018,317 ₩11,463,725in accordance with U.S. GAAP
2004 2003 2002
(in millions of Korean won)
Capitalized interest ₩ 84,948 ₩ 54,386 ₩ 64,788 Depreciation of capitalized interest (55,871) (54,857) (73,254)Net income impact ₩ 29,077 ₩ (471) ₩ (8,466)
2004 2003 2002
(in millions of Korean won)
Net income impact ₩ (2,230) ₩ (3,953) ₩ 12,347
2004 2003 2002
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Financial Statements
135134
excluding guarantees issued either between parents and their subsidiaries or between corporations under common control (Note17). The Company has recognized the fair value of liabilities amounting to ₩2,956 million and ₩2,396 million for the years endedDecember 31, 2004 and 2003, respectively.
(g) Stock Appreciation Rights
Under Korean GAAP, the intrinsic value method for awards that call for settlement in cash, shares, or a combination of both mea-sures compensation at the end of each period as the amount by which the moving weighted average of quoted market value of theshares of the enterprise's stock covered by a grant exceeds the option price. The moving weighted average of quoted market valueis calculated based on the weighted average market price of last one week, last one month and last two months of each period.Under U.S. GAAP, accounting for stock appreciation rights requires compensation for awards that call for settlement in cash,shares, or a combination of both to be measured at the end of each period as the amount by which the quoted market value of theshares of the enterprise's stock covered by a grant exceeds the option price.
The compensation costs, in accordance with U.S. GAAP, for stock appreciation rights granted to employees and executives recog-nized for the years ended December 31, 2004, 2003 and 2002 are as follows:
Information with respect to available-for-sale debt and equity securities as of December 31, 2004, 2003 and 2002 is as follows:
Available-for-Sale Securities:
No other-than-temporary impairment is recorded for held-to-maturity securities as of December 31, 2004, 2003 and 2002.
The gross unrealized losses on investments in available-for-sale securities at December 31, 2004 for 12 months or longer are ₩3 million.
(i) Deferred Income Taxes
In general, accounting for deferred income taxes is substantially the same between Korean GAAP and U.S. GAAP. The Company is alsorequired to recognize the additional deferred tax effects that result from differences between the reported Korean GAAP and U.S. GAAPamounts. Korean GAAP does not require the income tax effect to be calculated for components within other comprehensive income.However, U.S. GAAP requires the presentation of the income tax effect allocated to components of other comprehensive income.
(j) Deferred taxes in accordance with U.S. GAAP
The tax effects of temporary differences that resulted in significant portions of the deferred tax assets and liabilities at December 31, 2004
and 2003, computed under U.S. GAAP, and a description of the financial statement items that created these differences are as follows:
(h) Investment Securities
Under Korean GAAP, if the fair value of an investment permanently declines compared to its acquisition cost as evidenced by events
such as bankruptcy, liquidation, negative net asset values and cessation of operations, the carrying value of the debt or equity secu-
rity is adjusted to fair value, with the resulting valuation loss charged to current operations. If the fair value of the security subse-
quently recovers, a gain is recognized up to the amount of previously recognized impairment loss. In addition, available-for-sale
securities, including securities that are not publicly traded, are reported at fair value. Securities that are not publicly traded and
which the fair value cannot be reasonably measured are recorded at acquisition cost. In accordance with Koran GAAP, the
Companyhas recorded certain securities that are not publicly traded at fair value based on discounted cash flows of investees with
resulting valuation losses being charged to capital adjustments.
Under U.S. GAAP, declines in fair value of individual investments below their cost that are other-than-temporary result in write-
downs of the investments' carrying value to their fair value. In addition, U.S. GAAP prohibits gain recognition based on subsequent
recoveries of previously impaired investments. In addition, equity securities without readily determinable market value are
accounted for as cost method investments and carried at cost less impairment if any.
(in millions of Korean won)
Stock compensation expense ₩ 9,810 ₩ 24,894 ₩ 4,299
2004 2003 2002
(in millions of Korean won)
Book value ₩ 2,261,620 ₩ 2,315,508 ₩ 2,580,290Unrealized gains and losses 47,272 (157,844) (298,640)
Permanent impairment loss (3,190) (10,651) (27,041)Fair value (Korean GAAP) 2,305,702 2,147,013 2,254,609
Other-than-temporary impairment (48,399) (38,118) (191,435)Fair value (US GAAP) ₩ 2,257,303 ₩ 2,108,895 ₩ 2,063,174
2004 2003 2002
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Financial Statements
(in millions of Korean won)
Deferred tax assets:Fixed asset revaluation ₩ 30,705 ₩ 37,545 Capitalized foreign exchange losses 3,071 8,574 Investment securities 69,822 55,845 Loss on valuation of equity method investments 78,145 78,396Impairment loss on fixed assets 129,135 116,057 Impairment loss on investment securities 221,337 61,976Allowance for doubtful accounts 32,148 78,706 Allowance for severance benefits 69,913 48,243
2004 2003
137136
34. Additional Financial Information in Accordance with U.S. GAAP
(a) Comprehensive income
Under Korean GAAP, there is no requirement to present comprehensive income. Under U.S. GAAP, comprehensive income and itscomponents are required to be presented under the provisions of SFAS No.130, Reporting Comprehensive Income. Comprehensiveincome includes all changes in shareholders' equity during the period except those resulting from investments by, or distributionsto owners, including certain items not included in the current year's results of operations. Comprehensive income for the yearsended December 31, 2004, 2003, and 2002 is summarized as follows:
Accumulated other comprehensive income as of December 31, 2004 and 2003 is summarized as follows:
(in millions of Korean won)
Net income, as adjusted, in accordance with U.S GAAP ₩ 3,460,214 ₩ 1,997,028 ₩ 1,018,416 Other comprehensive income, net of tax:
Foreign currency translation adjustments (91,750) 34,414 (28,789)Unrealized gains (losses) on investments 433,465 8,960 (214,059)
Comprehensive income, as adjusted, in accordance ₩ 3,801,929 ₩ 2,040,402 ₩ 775,568 with U.S. GAAP
2004 2003 2002
(in millions of Korean won)
Balance, December 31, 2001 ₩ 97,661 ₩ (50,643) ₩ 47,018 Foreign currency translation adjustments, (28,789) - (28,789)net of tax benefit ₩34,801 million
Unrealized losses on investments, - (214,059) (214,059)net of tax benefit of ₩(147,801) million
Current period change (28,789) (214,059) (242,848)
Balance, December 31, 2002 ₩ 68,872 ₩ (264,702) ₩ (195,830)Foreign currency translation adjustments, 34,414 - 34,414net of tax benefit ₩12,163 million
Unrealized gains on investments, - 8,960 8,960net of tax expense of ₩90,436 million
Current period change 34,414 8,960 43,374
Balance, December 31, 2003 ₩ 103,286 ₩ (255,742) ₩ (152,456)Foreign currency translation adjustments, (91,750) - (91,750)net of tax benefit of ₩34,801 million
Foreign currency Unrealized Accumulated other translation gains (losses) on comprehensive
adjustments investments income
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Financial Statements
(in millions of Korean won)
Depreciation expense ₩ 17,299 ₩ 15,510 Capital expenditures 9,489 8,876 Research and development expense 9,804 9,768 Deferred taxes related to OCI - 52,306 Others 132,133 101,655
Total deferred tax assets 803,001 673,457
Deferred tax liabilities:Earnings from equity-method investees 159,545 32,572 Reserve for repairs 137,394 140,267 Accrued income 3,453 15,748 Reserve for technology 367,283 255,379 Capitalized repairs 2,485 5,076 Capitalized costs 78,876 65,212 Deferred taxes related to OCI 71,788 -Others 101,061 149,035Total deferred tax liabilities 921,885 663,289
Net deferred tax assets (liabilities) ₩ (118,884) ₩ 10,168
2004 2003
(in millions of Korean won)
Unrealized gains on investments, - 434,753 434,753net of tax expense of ₩(147,801) million
Less: Reclassification adjustment for net realized gain - (1,288) (1,288)included in income, net of tax expense of ₩488 million
Current period change (91,750) 433,465 341,715Balance, December 31, 2004 ₩ 11,536 ₩ 177,723 ₩ 189,259
Foreign currency Unrealized Accumulated other translation gains (losses) on comprehensive
adjustments investments income
139138
(c) Minority interest
Minority interests in consolidated subsidiaries are disclosed within the shareholders' equity section of the balance sheet. Under
U.S. GAAP, minority interests are recorded between the liability section and the shareholders' equity section in the consolidated
balance sheet.
(d) Classification differences
Under Korean GAAP, certain income and expense items considered as non-operating or extraordinary would be considered as
operating items under U.S. GAAP. In addition, Korean GAAP does not require cash balances that are restricted in use to be sepa-
rately disclosed. Under U.S. GAAP such restricted cash balances would need to be separately presented on the face of the balance
sheet. Under Korean GAAP, non-marketable equity securities are included as available-for-sale securities, and under US GAAP,
non-marketable equity securities are not considered available-for-sale securities. Both Korea GAAP and US GAAP carried such
securities at cost less impairment if any. These reclassifications would have no impact on the shareholders' equity, net income or
earnings per share amounts reported under U.S. GAAP.
(b) Fair value of financial instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it ispracticable to estimate that value:
(i) Cash and cash equivalents, short-term financial instruments, trading securities, trade accounts and notes receivable,trade accounts and notes payable, and short-term borrowings The carrying amount approximates fair value due to the short-term nature of those instruments.
(ii) Investment SecuritiesThe fair value of market-traded investments such as listed company's stocks, public bonds and other marketable securi-ties are based on quoted market prices for those investments. Investments in non-listed companies' stock, for whichthere are no quoted market prices, estimate of fair value is based on acquisition cost less impairment if any.
(iii) Long-Term loans, trade account and notes receivableLoans receivable, accounts and notes receivable are reported net of specific and general provisions for impairment as
well as present value discount factor. As a result, the fair values of long-term loans approximate their carrying values. (iv) Long-Term debt
The fair value of long-term debt is based on quoted market prices, where available. For those notes where quoted marketprices are not obtainable, a discounted cash flow model is used based on the current rates for issues with similar maturities.
The estimated fair values of the Company's financial instruments stated under Korean GAAP as of December 31, 2004 and 2003 are
summarized as follows:
Cash and cash equivalents ₩ 486,370 ₩ 486,370 ₩ 592,602 ₩ 592,602Short-term financial instruments 640,988 640,988 695,169 695,169Trading securities 2,689,593 2,689,593 1,321,301 1,321,301Trade accounts and notes receivable, 3,374,219 3,374,219 2,530,551 2,530,551including long-term loans
Investment securities 2,345,076 2,345,076 2,318,830 2,318,830Short-term borrowings 657,541 657,541 731,781 731,781Trade accounts and notes payable 1,082,299 1,082,299 917,495 917,495Long-term debt, including current portion 3,096,727 3,184,984 3,973,900 4,100,490
2004 2003Carrying amount Fair value Carrying amount Fair value
(in millions of Korean won)
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Financial Statements
(e) Segment
The following table provides information on reconciliation of net income of each operating segment of the consolidated subsidiaries
from Korean GAAP to U.S. GAAP for the year ended December 31, 2004:
The following table provides information on reconciliation of total assets of the consolidated subsidiaries from Korean GAAP to U.S.
GAAP as of December 31, 2004:
Net income under Korean GAAP ₩3,923,286 ₩ 43,408 ₩ 154,270 ₩ (306,739) ₩ 3,814,225Adjustments (346,565) - (7,446) - (354,011)Net income under U.S. GAAP ₩3,576,721 ₩ 43,408 ₩ 146,824 ₩ (306,739) ₩ 3,460,214
ReconcilingSteel Trading Others adjustment Consolidated
(in millions of Korean won)
Segments' total assets ₩23,302,209 ₩961,762 ₩3,509,189 ₩ 27,773,160 ₩(3,644,200) ₩ 201,679 ₩24,330,639
Subtotal before Reconciling US GAAP
Steel Trading Others elimination adjustment adjustments Consolidated
(in millions of Korean won)
140
35. Recent Accounting Pronouncements
U.S. GAAP
In November 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
151, "Inventory Costs - an Amendment of ARB No. 43, Chapter 4" ("FAS 151"). FAS 151 provides clarification that abnormal amounts
of idle facility expense, freight, handling costs, and spoilage should be recognized as current-period charges. Additionally, this
standard requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the
production facilities. The provisions of this standard are effective for inventory costs incurred during fiscal years beginning after
June 15, 2005. The Company does not expect the adoption of this statement to have a material impact on its financial position or
result of operations.In December 2004, the FASB issued Statement of Financial Accounting Standards No. 153, "Exchanges of
Nonmonetary Assets - an amendment of APB Opinion No. 2" ("FAS 153"). FAS 153 amends and clarifies accounting for exchanges of
nonmonetary assets under Accounting Principles Board ("APB") Opinion No. 29, "Accounting for Nonmonetary Transaction" ("APB
29"). APB 29 is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the
assets exchanged. The guidance in APB 29, however, included certain exceptions to that principle. FAS 153 amends APB 20 to
eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if
the future cash flows of the entity are expected to change significantly as a result of the exchange. FAS 153 is effective for nonmon-
etary asset exchanges occurring in fiscal periods beginning after June 15, 2005, with earlier adoption permitted. The Company does
not expect the adoption of this statement to have a material impact on its financial position or result of operations.
The following table provides information on the significant items in total assets of each operating segment of the consolidated sub-
sidiaries as of December 31, 2004:
Investments under Korean GAAP ₩ 4,087,223 ₩ 282,491 ₩ 633,453 ₩(2,298,629) ₩ 2,704,538Adjustments 139,045 (4,544) (13,514) - 120,987Investments under U.S. GAAP ₩ 4,226,268 ₩ 277,947 ₩ 619,939 ₩(2,298,629) ₩ 2,825,525Property, plant and equipment ₩10,189,473 ₩ 230,082 ₩ 586,270 ₩ (565,534) ₩10,440,291under Korean GAAP
Adjustments 100,813 - - - 100,813Property, plant and equipment ₩10,290,286 ₩ 230,082 ₩ 586,270 ₩ (565,534) ₩10,541,104under U.S. GAAP
ReconcilingSteel Trading Others adjustment Consolidated
(in millions of Korean won)
Financial Statements
Investor Information
POSCO SecuritiesAs of December 31, 2004 POSCO had 87,186,835 shares of common stock outstanding. The company's integrated common stock [code 05490] is listed and traded on the Korea StockExchange. Of the total outstanding shares, 25,326,486 (101,305,944 ADRs) have been issuedas depository receipts and are listed and traded under the symbol of PKX on the New YorkStock Exchange and 0549q.L on the London Stock Exchange.
Depository and Transfer Agent for American Depository Receipts [ADRs]Holders of ADRs should deal directly with the depository, the Bank of New York, on all matters relating to their ADRs.
The Bank of New York, Inc.ADR Division101 Barclay Street, New York, NY 10286, USATel: 1-212-815-8161Fax: 1-212-571-3050
InquiresInvestor Relations TeamFinance Management DepartmentPOSCOPOSCO Center892, Daechi-4-dong, Gangnam-guSeoul 135-777, KoreaTel: 82-2-3457-0389, 82-2-3457-1086Fax: 82-2-558-3462Email: [email protected]
Internet WebsitesFurther information regarding POSCO is available at http://www.posco.co.kr
Headquarters1, Goedong-dong, Nam-gu, PohangGyeongsangbuk-do 790-600, KoreaTel: 82-54-220-0114 Fax: 82-54-220-6000
Seoul OfficePOSCO Center, 892, Daechi-4-dongGangnam-gu, Seoul 135-777, KoreaTel: 82-2-3457-0114Fax: 82-2-3457-6000
Pohang Works5, Dongchon-dong, Nam-gu, PohangGyeongsangbuk-do 790-600, KoreaTel: 82-54-220-0114Fax: 82-54-220-6000
Gwangyang Works700, Geumho-dong, GwangyangJeollanam-do 540-090, KoreaTel: 82-61-790-0114Fax: 82-61-790-7000
www.posco.co.kr