Edgar Filing: POSCO

e20vf

As filed with the Securities and Exchange Commission on June 28, 2005

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

Form 20-F

ANNUAL REPORT PURSUANT TO

SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

Commission file number 1-13368

POSCO

(Exact name of Registrant as specified in its charter)

The Republic of Korea

(Jurisdiction of incorporation or organization)

Finance Division

POSCO Center

892 Daechi-4-dong

Gangnam-gu

Seoul, Korea

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.


Title of Class		Name of each exchange on which registered

American Depositary Shares, each representing one-fourth of one share of common stock		New York Stock Exchange, Inc.
Common Stock, par value Won 5,000 per share		New York Stock Exchange, Inc.*

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

$300,000,000 7¹/8% Notes due 2006

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

80,503,664 shares of common stock, par value Won 5,000 per share

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

Indicate by check mark which financial statement item the registrant has elected to follow. o Item 17 þ Item 18

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. o Yes o No


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

TABLE OF CONTENTS


			Page

Glossary				1
PART I				2
Item 1.	Identity of Directors, Senior Managers and Advisors			2
	Item 1A.	Directors and Senior Management		2
	Item 1B.	Advisers		2
	Item 1C.	Auditors		2
Item 2.	Offer Statistics and Expected Timetable			2
Item 3.	Key Information			2
	Item 3A.	Selected Financial Data		2
	Item 3B.	Capitalization and Indebtedness		5
	Item 3C.	Reasons for Offer and Use of Proceeds		5
	Item 3D.	Risk Factors		5
Item 4.	Information on the Company			9
	Item 4A.	History and Development of the Company		9
	Item 4B.	Business Overview		9
	Item 4C.	Organizational Structure		22
	Item 4D.	Property, Plants and Equipment		22
Item 5.	Operating and Financial Review and Prospects			23
	Item 5A.	Operating Results		24
	Item 5B.	Liquidity and Capital Resources		32
	Item 5C.	Research and Development, Patents and Licenses, Etc.		36
	Item 5D.	Trend Information		37
	Item 5E.	Off-balance Sheet Arrangements		37
	Item 5F.	Tabular Disclosure of Contractual Obligations		37
Item 6.	Directors, Senior Management and Employee			37
	Item 6A.	Directors and Senior Management		37
	Item 6B.	Compensation		41
	Item 6C.	Board Practices		42
	Item 6D.	Employees		44
	Item 6E.	Share Ownership		45
Item 7.	Major Shareholders and Related Party Transactions			47
	Item 7A.	Major Shareholders		47
	Item 7B.	Related Party Transactions		47
	Item 7C.	Interests of Experts and Counsel		48
Item 8.	Financial Information			48
	Item 8A.	Consolidated Statements and Other Financial Information		48
	Item 8B.	Significant Changes		49


			Page

Item 9.	The Offer and Listing			49
	Item 9A.	Offer and Listing Details		49
	Item 9B.	Plan of Distribution		52
	Item 9C.	Markets		52
	Item 9D.	Selling Shareholders		56
	Item 9E.	Dilution		56
	Item 9F.	Expenses of the Issuer		56
Item 10.	Additional Information			56
	Item 10A.	Share Capital		56
	Item 10B.	Memorandum and Articles of Association		56
	Item 10C.	Material Contracts		61
	Item 10D.	Exchange Controls		61
	Item 10E.	Taxation		65
	Item 10F.	Dividends and Paying Agents		71
	Item 10G.	Statements by Experts		71
	Item 10H.	Documents on Display		71
Item 11.	Quantitative and Qualitative Disclosures about Market Risk			71
Item 12.	Description of Securities Other than Equity Securities			73
PART II				81
Item 13.	Defaults, Dividend Arrearages and Delinquencies			81
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds			81
Item 15.	Controls and Procedures			81
	Item 16A.	Audit Committee Financial Expert		81
	Item 16B.	Code of Ethics		81
	Item 16C.	Principal Accountant Fees and Services		82
	Item 16D.	Exemptions from the Listing Standards for Audit Committees		82
	Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers		83
PART III				84
Item 17.	Financial Statements			84
Item 18.	Financial Statements			84
Item 19.	Exhibits			84
EX-8.1 LIST OF SUBSIDIARIES
EX-12.1 CEO CERTIFICATION PURSUANT TO SECTION 302
EX-12.2 CFO CERTIFICATION PURSUANT TO SECTION 302
EX-13.1 CEO & CFO CERTIFICATION PURSUANT TO SECTION 906
EX-15.1 CONSENT OF SAMIL PRICEWATERHOUSECOOPERS

GLOSSARY


“ADR”		American Depositary Receipt evidencing ADSs.

“ADR depositary”		The Bank of New York.

“ADS”		American Depositary Share representing one-fourth of one share of Common Stock.

“Australian Dollar” or “A$”		The currency of the Commonwealth of Australia.

“common stock”		Common stock, par value Won 5,000 per share, of POSCO.

“deposit agreement”		Deposit Agreement, dated as of September 26, 1994, among POSCO, the ADR Depositary and all holders and beneficial owners from time to time of ADRs issued thereunder, as amended by amendment no. 1 thereto dated June 25, 1997.

“Dollars,” “$” or “US$”		The currency of the United States of America.

“Government”		The government of the Republic of Korea.

“Yen” or “JPY”		The currency of Japan.

“Korean GAAP”		Generally accepted accounting principles in the Republic of Korea.

“Gwangyang Works”		Gwangyang Steel Works.

“We”		POSCO.

“Pohang Works”		Pohang Steel Works.

“Republic”		The Republic of Korea.

“Securities Act”		The United States Securities Act of 1933, as amended.

“Securities Exchange Act”		The United States Securities Exchange Act of 1934, as amended.

“SEC”		The United States Securities and Exchange Commission.

“tons”		Metric tons (1,000 kilograms), equal to 2,204.6 pounds.

“U.S. GAAP”		Generally accepted accounting principles in the United States.

“Won” or “W”		The currency of the Republic of Korea.

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

PART I


Item 1.	*Identity of Directors, Senior Managers and Advisors*


Item 1A.	*Directors and Senior Management*

Not applicable


Item 1B.	*Advisers*

Not applicable


Item 1C.	*Auditors*

Not applicable


Item 2.	*Offer Statistics and Expected Timetable*

Not applicable


Item 3.	*Key Information*


Item 3A.	*Selected Financial Data*

The selected financial data presented below should be read in conjunction with our Consolidated Financial Statements and related notes thereto and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report. The selected financial data as of December 31, 2003 and 2004 and for each of the three years in the period ended December 31, 2004 is derived from our Consolidated Financial Statements included elsewhere in this annual report. Our Consolidated Financial Statements are prepared in accordance with Korean GAAP, which differ in significant respects from U.S. GAAP.

INCOME STATEMENT DATA


	For the Year Ended December 31,

	2000			2001			2002		2003			2004		2004(11)

	(in billions of Won and millions of Dollars, except per share data)
Korean GAAP:
Sales(1)	W	13,776		W	13,121		W	14,355	W	17,789		W	23,973	US $	23,160
Cost of goods sold(2)		10,752			10,680			11,338		13,451			17,361		16,772
Selling and administrative expenses		718			854			967		1,075			1,293		1,249
Operating income		2,306			1,587			2,050		3,263			5,319		5,139
Interest expense		464			451			332		250			192		186
Foreign exchange transaction and translation gains (losses), net		(173	)		(10	)		135		(105	)		179		173
Donations(3)		449			83			50		103			170		164
Income taxes		689			337			398		730			1,502		1,451
Net earnings		1,634			846			1,089		1,996			3,814		3,685
Earnings per share of common stock(4)		19,131			10,366			13,295		24,496			47,185		45.58
Dividends per share of common stock		2,500			2,500			3,500		6,000			8,000		7.73
U.S. GAAP(5):
Operating income	W	2,475		W	1,588		W	2,021	W	3,235		W	5,299	US $	5,120
Net earnings		1,743			908			1,018		1,997			3,460		3,343
Basic and diluted earnings (loss) per share of common stock		20,410			11,126			12,430		24,508			42,806		41.35

BALANCE SHEET DATA


	As of December 31,

	2000		2001		2002		2003		2004		2004(11)

	(in billions of Won and millions of Dollars)
Korean GAAP:
Working capital(6)	W	960	W	1,342	W	1,695	W	3,450	W	5,493	US $	5,307
Property, plant and
equipment, net(7)		10,455		10,601		10,325		9,846		10,440		10,086
Total assets(7)		20,147		19,405		19,077		20,769		24,129		23,311
Long-term debt(8)(9)(10)		4,159		4,235		3,194		2,952		2,051		1,981
Total stockholders’ equity(7)		9,558		10,351		11,820		13,250		16,386		15,830
U.S.GAAP(5):
Property, plant and equipment, net	W	10,113	W	10,522	W	10,322	W	9,880	W	10,541	US $	10,184
Total assets		19,620		19,285		19,000		20,838		24,279		23,456
Total shareholders’ equity		9,936		10,940		11,464		13,018		16,208		15,658


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


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

(3)	Includes donations to educational foundations supporting basic science and technology research. See “Item 5. Operating and Financial Review and Prospects — Item 5C. Research and Development, Patents and Licenses, Etc.” and Note 24 of Notes to Consolidated Financial Statements.

(4)	See Note 26 of Notes to Consolidated Financial Statements for method of calculation.

(5)	A description of the material differences between Korean GAAP and U.S. GAAP as well as the reconciliation to U.S. GAAP are discussed in detail in Note 33 of Notes to Consolidated Financial Statements.

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

(7)	Reflects revaluations of assets permitted under Korean law.

(8)	Net of current portion and discount on debentures issued.

(9)	For information regarding swap transactions entered into by us, see “Item 5. Operating and Financial Review and Prospects — Item 5A. Operating Results — Exchange Rate Fluctuations” and Note 22 of Notes to Consolidated Financial Statements.


(10)	Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at the basic rates in effect at the balance sheet date and resulting translation gains and losses are recognized in current operations. See Notes 2 and 27 of Notes to Consolidated Financial Statements.

(11)	Translated into U.S. Dollars at the rate of Won 1,035.10 to US$1.00, the noon buying rate of the Federal Reserve Bank of New York for Won in effect on December 31, 2004. This translation should not be construed as a representation that the Korean Won amounts represent, have been, or could be converted to U.S. Dollars at that rate or any other rate.

EXCHANGE RATE INFORMATION

The following table sets out information concerning the noon buying rate for the periods and dates indicated.


		At End
Period		of Period		Average Rate(1)		High		Low

		(per US$1.00)
2000			1,267.0		1,140.0		1,267.0		1,105.5
2001			1,313.5		1,293.4		1,369.0		1,234.0
2002			1,186.3		1,242.0		1,332.0		1,160.6
2003			1,192.0		1,183.0		1,262.0		1,146.0
2004			1,035.1		1,139.3		1,195.1		1,035.1
2005 (through June 24)			1,013.5		1,009.8		1,058.0		997.0
	January		1,026.9		1,038.0		1,058.0		1,024.0
	February		1,000.9		1,023.1		1,044.0		1,000.9
	March		1,015.4		1,007.8		1,023.9		997.5
	April		997.0		1,010.1		1,019.0		997.0
	May		1,005.0		1,001.8		1,009.0		997.0
	June (through June 24)		1,013.5		1,009.6		1,016.0		1,003.0

Source: Federal Reserve Bank of New York.


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

We have translated the Won amounts into Dollars in this prospectus solely for your convenience. We make no representation that the Won or Dollar amounts contained in this prospectus could have been or could be converted into Dollar or Won, as the case may be, at any particular rate or at all.

Item 3B. Capitalization and Indebtedness

Not applicable

Item 3C. Reasons for Offer and Use of Proceeds

Not applicable

Item 3D. Risk Factors

You should carefully consider the risks described below.

Korea is our most important market, and our current business and future growth could be materially and adversely affected if economic conditions in Korea deteriorate.

We are incorporated in Korea, and substantially all of our operations and assets are located in Korea. In addition, Korea is our most important market, accounting for 74.2% of our total sales volume of steel products in 2004. Domestic demand for our products is affected by the condition of major steel consuming industries, such as construction, shipbuilding, automobile, electrical appliances and downstream steel processors, and the Korean economy in general. As a result, we are subject to political, economic, legal and regulatory risks specific to Korea.

From early 1997 until 1999, Korea experienced a significant financial and economic downturn, from which it is widely believed the country has now recovered to a significant extent. However, the economic indicators in the past three years have shown mixed signs of recovery and uncertainty, and future recovery or growth of the economy is subject to many factors beyond our control. Events related to the terrorist attacks in the United States on September 11, 2001, recent developments in the Middle East including the war in Iraq, higher oil prices, the general weakness of the global economy and the outbreak of severe acute respiratory syndrome, or SARS, in Asia and other parts of the world have increased the uncertainty of global economic prospects and may continue to adversely affect the Korean economy. Any future deterioration of the Korean and global economy could adversely affect our financial condition and results of operations.

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


	•	financial problems relating to chaebols, or Korean conglomerates, and their suppliers;

	•	failure or lack of progress in restructuring of chaebols and other large troubled companies or the financial sector, including credit card companies;

	•	loss of investor confidence arising from corporate accounting irregularities and corporate governance issues of certain chaebols;

	•	a slowdown in consumer spending;

	•	adverse changes or volatility in foreign currency reserve levels, commodity prices, exchange rates, interest rates or stock markets;

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

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


	•	social and labor unrest;

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

	•	geo-political uncertainty and risk of further attacks by terrorist groups around the world;

	•	the recurrence of SARS or avian flu in Asia and other parts of the world;

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

	•	political uncertainty or increasing strife among or within political parties in Korea;

	•	hostilities involving oil producing countries in the Middle East and any material disruption in the supply of oil or increase in the price of oil; and

	•	an increase in the level of tension or an outbreak of hostilities between North Korea and Korea or the United States.

We rely on export sales for a significant portion of our total sales. Adverse economic and financial developments in Asia in the future may have an adverse effect on demand for our products in Asia and increase our foreign exchange risks.

Our export sales accounted for 25.8% of our total sales volume for steel products in 2004. Our export sales to Asia, including China, Japan, Indonesia, Thailand and Malaysia, accounted for 76.9% of our total export sales volume for steel products in 2004, and we expect our sales to these countries, especially to China, to remain important in the future. Accordingly, adverse economic and financial developments in these countries may have an adverse effect on demand for our products. Economic weakness in Asia may also adversely affect our sales to the Korean companies that export to the region, especially companies in the construction, shipbuilding, automobile, electrical appliances and downstream steel processing industries. Weaker demand in these countries, combined with addition of new steel production capacity, particularly in China and India, may also reduce export prices in Dollar terms of our principal products. We attempt to maintain and expand our export sales to generate foreign currency receipts to cover our foreign currency purchases and debt service requirements. Consequently, any decrease in our export sales could increase our foreign exchange risks.

Depreciation of the value of the Won against the Dollar and other major foreign currencies may have a material adverse effect on the results of our operations and on the price of the ADSs.

Depreciation of the Won may materially affect the results of our operations because, among other things, it causes:


	•	an increase in the amount of Won required for us to make interest and principal payments on our foreign currency-denominated debt, which accounted for approximately 53.4% of our total long-term debt (excluding discounts on debentures issued and including current portion) as of December 31, 2004;

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

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

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

We are dependent on imported raw materials.

We purchase substantially all of the principal raw materials we use from sources outside Korea, including iron ore and coal. In 2004, we imported approximately 42 million tons of iron ore and 21 million tons of coal. Iron ore is imported primarily from Australia, Brazil and India. Coal is imported primarily from Australia, China, Canada and Russia. Although we have not experienced significant unanticipated supply disruptions in the past, supply disruptions, which could be caused by political or other events in the countries from which we import these materials, could adversely affect our operations.

We expect expansion of global steel production capacity in the near future, and over-capacity in the global steel industry may return.

In recent years, driven in part by strong growth in steel consumption in China, the global steel industry has experienced favorable market conditions, which have led to renewed interest in expansion of steel production capacity. In a January 2005 conference organized by the OECD and the International Iron and Steel Institute, participants expected global crude steel production capacity to increase from 1,184 million tons in 2004 to more than 1,305 million tons in 2006, primarily as a result of additions of new capacity in China, India and other Asian countries. Over-capacity in the global steel industry may return if increase in demand from developing countries that have experienced significant growth in the past several years does not meet this growth in production capacity. Over-capacity will affect our ability to expand export sales and to increase steel production in general, as well as reduce export prices in Dollar terms of our principal products.

Consolidation in the global steel industry may increase competition.

In recent years, there has been a trend toward industry consolidation among our competitors, and smaller competitors in the global steel market today may become larger competitors in the future. For example, Aceralia, Arbed and Usinor merged in February 2002 to create Arcelor, and LNM Holdings and Ispat International merged in October 2004 to create Mittal Steel. Arcelor produced 47 million tons of steel in 2004 and Mittal Steel recorded shipments of 42 million tons of steel products in 2004. With the proposed acquisition of International Steel Group, Mittal Steel is expected to become the world’s largest steelmaker, with annual production capacity of 70 million tons. Competition from global steel manufacturers with expanded production capacity such as Mittal Steel and Arcelor, and new market entrants, especially from China, could result in significant price competition, declining margins and reductions in revenue. Our larger competitors may use their resources, which may be greater than ours, against us in a variety of ways, including by making additional acquisitions, investing more aggressively in product development and capacity and displacing demand for our export products.

A number of our products have been and may become subject to anti-dumping and countervailing proceedings or safeguard measures, which may have an adverse effect on our export sales.

In recent years, a number of our products have been subject to anti-dumping and countervailing proceedings or safeguard measures, including in the United States and China. Further increases in or new imposition of dumping duties, countervailing duties, quotas or tariffs on our sales in these markets may have a material adverse effect on our exports to these regions in the future. Exports to these regions accounted for 12.2% of our sales volume of steel products in 2004. See “Item 4. Information on the Company — Item 4B. Business Overview — Markets — Exports.”

Escalations in tension with North Korea could have an adverse effect on us and the market value of our common stock and ADSs.

Relations between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of current and future events. In recent years, there have been heightened security concerns stemming from North Korea’s nuclear weapons program and increased uncertainty regarding North Korea’s actions and possible responses from the international community. In addition, the United States proposed plans in June 2004 to withdraw approximately one-third of the 37,500 troops currently stationed in Korea by the end of 2005. Specific details regarding the timing and other aspects of the proposed reduction in U.S. troops have not been finalized and talks between the governments of the United States and Korea are ongoing.

In December 2002, North Korea removed the seals and surveillance equipment from its Yongbyon nuclear power plant and evicted inspectors from the United Nations International Atomic Energy Agency. In January 2003, North Korea renounced its obligations under the Nuclear Non-Proliferation Treaty. In August 2003, representatives of Korea, the United States, North Korea, China, Japan and Russia held six party multi-lateral talks in an effort to resolve issues relating to North Korea’s nuclear weapons program. Two more rounds were held in February 2004 and June 2004 without any resolution, and the parties agreed to hold further talks. In February 2005, North Korea pulled out of the six-party disarmament talks and announced that it possesses nuclear weapons. In June 2005, North Korea indicated that it would return to the six-party talks, but it remains uncertain whether the discussion will resume.

Any further increase in tension on the Korean peninsula, including breakdown of high-level contacts between Korea and North Korea or occurrence of military hostilities, could have a material adverse effect on our operations and the market value of our common stock and ADSs.

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

Under the deposit agreement, holders of shares of our common stock may deposit those shares with the ADR depositary’s custodian in Korea and obtain ADRs, and holders of ADRs may surrender ADRs to the ADR depositary and receive shares of our common stock. However, under current Korean laws and regulations, the depositary bank is required to obtain our prior consent for the number of shares to be deposited in any given proposed deposit which exceeds the difference between (i) the aggregate number of shares deposited by us for the issuance of ADSs (including deposits in connection with the initial and all subsequent offerings of ADSs and stock dividends or other distributions related to these ADSs) and (ii) the number of shares on deposit with the depositary bank at the time of such proposed deposit. It is possible that we may not give the consent. As a result, if you surrender ADRs and withdraw shares of common stock, you may not be able to deposit the shares again to obtain ADRs. See “Item 10. Additional Information — Item 10D. Exchange Controls.”

You may not be able to exercise preemptive rights for additional shares of common stock and may suffer dilution of your equity interest in us.

The Commercial Code of Korea and our articles of incorporation require us, with some exceptions, to offer shareholders the right to subscribe for new shares in proportion to their existing ownership percentage whenever new shares are issued. If we offer any rights to subscribe for additional shares of our common stock or any rights of any other nature, the ADR depositary, after consultation with us, may make the rights available to you or use reasonable efforts to dispose of the rights on your behalf and make the net proceeds available to you. The ADR depositary, however, is not required to make available to you any rights to purchase any additional shares unless it deems that doing so is lawful and feasible and:


	•	a registration statement filed by us under the Securities Act is in effect with respect to those shares; or


	•	the offering and sale of those shares is exempt from or is not subject to the registration requirements of the Securities Act.

We are under no obligation to file any registration statement. If a registration statement is required for you to exercise preemptive rights but is not filed by us, you will not be able to exercise your preemptive rights for additional shares and may suffer dilution of your equity interest in us.

This annual report contains “forward-looking statements” that are subject to various risks and uncertainties.

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


Item 4.	*Information on the Company*


Item 4A.	*History and Development of the Company*

We were established by the Government on April 1, 1968, under the Commercial Code of the Republic of Korea, to manufacture and distribute steel rolled products and plates in the domestic and overseas markets. The Government owned more than 70% of our equity until 1988, when the Government reduced its ownership of our common stock to 35% through a public offering and listing our shares on the Stock Market Division of the Korea Exchange. In July 1998, the Government announced its intention to sell all of our common stock owned directly by it or indirectly through The Korea Development Bank. In December 1998, the Government sold all of our common stock it owned directly, and The Korea Development Bank completed the sale of our shares that it owned in September 2000. The Government no longer holds any direct interest in us, and our outstanding common stock is currently held by individuals and institutions. See “Item 7. Major Shareholders and Related Party Transactions — Item 7A. Major Stockholders.”

Our legal and commercial name is POSCO. Our principal executive offices are located at POSCO Center, 892 Daechi-4-dong, Gangnam-gu, Seoul, Korea, and our telephone number is (822) 3457-0114.


Item 4B.	*Business Overview*

The Company

We are the largest and the only fully integrated steel producer in Korea, and one of the largest steel producers in the world, based on annual crude steel production in 2004. We produced over 30.2 million tons of crude steel in 2004, substantially all of them at Pohang Works and Gwangyang Works. Currently, Pohang Works has 13.4 million tons of annual crude steel and stainless steel production capacity, and Gwangyang Works has an annual crude steel production capacity of 16.8 million tons. We manufacture and sell a broad line of steel products, including hot rolled and cold rolled products, plates, wire rods, silicon steel sheets and stainless steel products.

We sell primarily to the Korean market, with domestic sales accounting for 74.2% of our total sales volume of steel products in 2004. We believe that we had an overall market share of approximately 50.0% of the total sales volume of steel products sold in Korea in 2004.

Our exports in each of 2003 and 2004 accounted for 31.1% and 25.8% of our total sales volume of steel products, respectively. Our major export market is Asia, with China accounting for 38.3%, Japan 20.3% and the rest of Asia 18.3% of our total steel export sales volume in 2004.

Business Strategy

Our goal is to maintain and strengthen our position as one of the leading steel producers in the world. In recent years, the global steel industry has undergone significant consolidation, resulting in the emergence of steel companies with expanded production capacity. We seek to achieve continued global excellence in this era of consolidation through a renewed emphasis on growth and innovation. We are currently pursuing the following business strategies.


	*Continue to Seek Investment Opportunities Abroad and Establish Global Production Base*

We carefully seek out promising investment opportunities abroad, primarily in China and India, in part to prepare for the eventual maturation of the Korean steel market. We believe that China and India will continue to offer substantial growth opportunities, and we plan to selectively seek additional investment opportunities and expand our production base in China and India. In November 2003, we launched POSCO China Holding Corporation, a holding company for our investments in China. In June 2005, we also entered into a memorandum of understanding with Orissa State Government of India for the construction of an integrated steel mill and the development of a mine in Bhubaneswar, the capital of Orissa. The project currently contemplates construction of a steel mill from 2007 to 2010 with an annual production capacity of 3 million tons of slabs and, depending on consumption demand and market conditions, construction of additional facilities to increase its annual production capacity to up to 12 million tons. In addition, the project contemplates development of a mine for up to 600 million tons of iron ore. We estimate the aggregate costs of the initial round of construction and mine development to be approximately $3 billion and an additional approximately $9 billion in order to increase the annual production capacity to 12 million tons. In return, Orissa State Government is expected to provide us a thirty-year license to develop the mine for up to 600 million tons of iron ore to be used at the Bhubaneswar steel mill, as well as provide infrastructure to assist us in the construction of the facilities. After additional due diligence, we expect to enter into an investment agreement with Orissa State Government by the end of 2005. In addition to China and India, we continue to seek investment opportunities abroad.


	*Develop Leading Technology to Increase Sales of Higher Margin, Higher Value-Added Products and Enhance Quality of Our Products*

We plan to continue to invest in developing leading technology necessary to produce higher margin, higher value-added products and enhance the overall quality of our products. We are currently developing FINEX, a low cost, environmentally friendly steel manufacturing process that we believe optimizes our production capacity by utilizing non-agglomerated iron ore fines and using non-coking coal as an energy source and a reducing agent. We believe that FINEX offers considerable environmental and economic advantages through elimination of major sources of pollution such as sinter and coke plants, as well as decreasing operating and raw material costs. We began construction of our first FINEX plant with an annual production capacity of 1.5 million tons in August 2004 and expect to complete the construction in December 2006. We are also incorporating a new technology called strip casting, which transfers liquefied raw ore directly to steel plates. We are currently building another plant with an annual production capacity of 600 thousand tons that utilizes strip casting technology with expected completion in June 2006.

We have also sought to enhance the quality of our products through continued modernization and rationalization of our facilities. Through our strategic alliance with Nippon Steel, we also participate in

jointly sponsored research and development projects in developing leading technology related to steel production. Leveraging our leading technology, we plan to further increase the proportion of our sales of higher margin, higher value-added products such as cold rolled products, silicon steel sheets and stainless steel products.


	*Capitalize on e-commerce Opportunities to Enhance Profitability and Operating Efficiency*

We are currently implementing strategies that would enable us to take advantage of advances in technology, particularly related to the Internet, to increase our sales and profitability and the efficiency of our operations. We believe that capitalizing on e-commerce opportunities could lead to a number of benefits, including more efficient inventory management, improved delivery time for our products and enhanced customer service. Among the e-commerce opportunities that we are pursuing is the establishment of an online market at www.steel-n.com that enables our customers to purchase many of our products through online auctions conducted three times a week. We believe that the site provides more cost effective access to a wider customer base. The site also provides various steel industry-related information that we believe contributes to the enhancement of our brand recognition. We plan to continue to seek additional online opportunities to increase our sales and profitability and the efficiency of our operations.


	*Enhance Efficiency of Operations and Cost-Effectiveness through Company-Wide Process Innovation*

We recently completed the implementation of Six Sigma programs as part of our company-wide process for innovation and enhancing efficiency of operations and launched POSPIA, our integrated management program. We reoriented our business transaction processes, including purchase of raw materials and sale of goods, to focus on our customers and established a computerized resource management system. The company-wide inventory and product classification and data standardization system have substantially cut operational inefficiencies and enhanced our cost-effectiveness. Production scheduling lead time has fallen from 60 days to 15 days, allowing us to shorten our delivery time for hot rolled steel from 30 days to 14 days. In addition, by sharing inventory and cost information in real time, we have shortened the period required to prepare monthly financial accounting data from six days to one. We will continue to seek new opportunities to implement our company-wide process innovation and increase our efficiency and cost-effectiveness.


	*Continue to Expand Our Export Customer Base*

Although supplying the Korean domestic market is our priority, we intend to continue to supply a significant amount of our products to customers in overseas markets. Our export and overseas sales represented 25.8% of our total sales volume in 2004, with 76.9% of our export and overseas sales volume to customers in nearby Asian markets in 2004. We intend to further strengthen our global market position by cultivating relationships with our existing overseas customers and assertively seeking out prospective new customers in the emerging markets for steel products. Our exports to China, in particular, have expanded in recent years and we expect our exports to China to continue to grow. Our export sales provide a foreign currency hedge by generating foreign currency that can be used to service our foreign currency debt and to purchase key raw materials, most of which we source from overseas. Maintaining strong relationships with major export customers also provides us with the flexibility to reallocate sales to foreign markets in periods when domestic demand is weak.


	*Secure Procurement of Raw Materials through Strategic Investments and Long-Term Contracts*

We purchase substantially all of the principal raw materials we use, including iron ore and coal, from sources outside Korea. Import prices of these raw materials have increased in recent years. To secure adequate procurement of principal raw materials, we have invested and will continue to explore additional investment opportunities in various raw material development projects abroad, as well as enter into long-term contracts with leading suppliers of raw materials, principally in Brazil, Canada and Australia.


	*Selectively Seek Opportunities in Growth Industries*

Our first priority is to maximize revenues and profits from our steel operations. We also selectively seek opportunities in growth industries, in part to prepare for the eventual maturation of the Korean steel market. When determining our diversification projects, we consider attractiveness of the industry and its future growth potential, as well as our capabilities to become competitive in such an industry. New businesses related to our steel operations include liquefied natural gas production and logistics. New businesses not related to our steel operations in which we intend to focus our efforts for diversification include power generation, advanced materials and alternative energy development. For example, we entered into an agreement in May 2005 to purchase a 50.0% interest in Korea Independent Energy Corporation for Won 292 billion. Korean Independent Energy Corporation is the largest private power generation company in Korea that operates power plants with total power generation capacity of 1,800 megawatts. We expect to acquire the shares on June 30, 2005.

Major Products

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


	•	hot rolled products;

	•	plates;

	•	wire rods;

	•	cold rolled products;

	•	silicon steel sheets; and

	•	stainless steel products.

The tables below set out our sales revenues and sales volume by major steel product categories for the periods indicated.


		Year Ended December 31,

		2000				2001				2002				2003				2004

		Billions of				Billions of				Billions of				Billions of				Billions of
Steel Products		Won		%		Won		%		Won		%		Won		%		Won		%

Hot rolled products			3,137		23.6		3,125		24.8		3,416		25.4		4,185		26.1		5,449		25.1
Plates			1,239		9.3		1,242		9.9		1,237		9.2		1,320		8.2		1,987		9.1
Wire rods			933		7.0		1,149		9.1		1,178		8.7		1,064		6.6		1,351		6.2
Cold rolled products			4,526		34.0		4,055		32.2		4,310		32.0		5,208		32.4		6,564		30.2
Silicon steel sheets			315		2.4		304		2.4		347		2.6		431		2.7		531		2.4
Stainless steel products			2,555		19.2		2,076		16.5		2,278		16.9		3,172		19.7		4,920		22.6
Others			607		4.6		624		5.0		700		5.2		687		4.3		952		4.4

	Total		13,312		100.0		12,576		100.0		13,465		100.0		16,067		100.0		21,753		100.0


		Year Ended December 31,

		2000				2001				2002				2003				2004

		Thousands of				Thousands of				Thousands of				Thousands of				Thousands of
Steel Products		Tons		%		Tons		%		Tons		%		Tons		%		Tons		%

Hot rolled products			10,098		35.0		11,381		37.9		11,461		37.8		11,514		37.6		10,966		34.5
Plates			3,146		10.9		3,146		10.5		3,060		10.1		3,047		9.9		3,385		10.6
Wire rods			2,651		9.2		2,802		9.3		2,808		9.3		2,777		9.1		2,503		7.9
Cold rolled products			9,437		32.7		9,425		31.3		9,503		31.3		9,770		31.9		10,242		32.2
Silicon steel sheets			542		1.9		591		2.0		589		1.9		671		2.2		705		2.2
Stainless steel products			1,423		4.9		1,266		4.2		1,394		4.6		1,778		5.8		2,069		6.5
Others			1,578		5.5		1,455		4.8		1,518		5.0		1,100		3.5		1,926		6.1

	Total		28,875		100.0		30,065		100.0		30,333		100.0		30,657		100.0		31,796		100.0

The sales revenues and sales volumes in the tables above represent the steel product sales of our consolidated entities which are steel-related companies but do not include the non-steel product sales of these entities. They include sales by our consolidated sales subsidiaries of steel products purchased by these subsidiaries from third parties, including trading companies to which we sell steel products. The sales of steel products purchased from third parties amounted to approximately 1.4 million tons in 2000, 1.3 million tons in 2001, 1.2 million tons in 2002, 1.4 million tons in 2003 and 1.0 million tons in 2004, accounting for Won 644 billion in 2000, Won 657 billion in 2001, Won 511 billion in 2002, Won 679 billion in 2003 and Won 699 billion in 2004, respectively.


	*Hot Rolled Products*

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

Our deliveries of hot rolled products amounted to 11.0 million tons in 2004, representing 34.5% of our total steel sales volume. The Korean market accounted for 8.9 million tons or 81.3% of our hot rolled product sales in 2004, representing a domestic market share of approximately 67.6%. The largest customers of our hot rolled products are downstream steelmakers in Korea who use the products to manufacture pipes and cold rolled products.

Hot rolled products constitute our largest product category in terms of sales volume and revenue. In 2004, our sales volume of hot rolled products decreased by 4.8% compared to 2003 primarily due to a decrease in demand from the construction industry.


	*Plates*

Plates are used in shipbuilding, structural steelwork, offshore oil and gas production, power generation, mining, and the manufacture of earth-moving and mechanical handling equipment, boiler and pressure vessels and other industrial machinery.

Our deliveries of plates amounted to 3.4 million tons in 2004, representing 10.6% of our total steel sales volume. The Korean market accounted for 3.1 million tons or 91.3% of our plate sales in 2004, representing a domestic market share of approximately 39.9%. The Korean shipbuilding industry, which uses plates to manufacture chemical tankers, rigs, bulk carriers and containers, and the construction industry are our largest customers of plates.

In 2004, our sales volume of plates increased by 11.1% compared to 2003 primarily due to an increase in demand from the shipbuilding industry, which more than offset a decrease in demand from the industrial machinery industry.


	*Wire Rods*

Wire rods are used mainly by manufacturers of wire, nails, bolts, nuts and welding rods. Wire rods are also used in the manufacture of coil springs, tension bars and tire cords in the automobile industry.

Our deliveries of wire rods amounted to 2.5 million tons in 2004, representing 7.9% of our total steel sales volume. The Korean market accounted for 2.3 million tons or 89.9% of our wire rod sales in 2004, representing a domestic market share of approximately 65.5%. The largest customers for our wire rods are manufacturers of wire and nails.

In 2004, our sales volume of wire rods decreased by 9.9% compared to 2003 primarily due to a decrease in demand from the construction industry, which more than offset an increase in demand from the automobile industry.


	*Cold Rolled Products*

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

Our deliveries of cold rolled products amounted to 10.2 million tons in 2004, representing 32.2% of our total steel sales volume. The Korean market accounted for 6.1 million tons or 59.6% of our cold rolled product sales in 2004, representing a domestic market share of approximately 56.2%.

Cold rolled products constitute our second product category in terms of sales volume and revenue. Sales of cold rolled products in recent years had experienced growth due to increasing demand for higher quality products in the automobile, electrical appliances and other industries. In 2004, our sales volume of cold rolled products increased by 4.8% compared to 2003 primarily due to an increase in demand from the automobile industry.


	*Silicon Steel Sheets*

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

Our deliveries of silicon steel sheets amounted to 705 thousand tons in 2004, representing 2.2% of our total steel sales volume. The Korean market accounted for 460 thousand tons or 65.2% of our silicon steel sheet sales in 2004, representing a domestic market share of approximately 95.8%.

Our sales volume of silicon steel sheets showed strong growth in recent years following increased demand from manufacturers of power transformers and generators and rotating machines. In 2004, our sales volume of silicon steel sheets increased by 5.1% compared to 2003.


	*Stainless Steel Products*

Stainless steel products are used by the chemical industry, paper mills, the aviation industry, the automobile industry, the construction industry and the food processing industry.

Our deliveries of stainless steel products amounted to 2.1 million tons in 2004, representing 6.5% of our total steel sales volume. The Korean market accounted for 1.0 million tons or 50.7% of our stainless steel product sales in 2004, representing a domestic market share of approximately 53.9%.

Although sales of stainless steel products accounted for only 6.5% of our total sales volume in 2004, they represented 22.6% of our total revenues from sales of steel products in 2004. Our sales volume of stainless steel products showed strong growth in recent years as a result of rationalization of our facilities and increased focus on production of higher margin, higher value-added products. Our sales volume of stainless steel increased by 16.4% in 2004 compared to 2003.


	*Others*

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

Markets

Korea is our most important market. Domestic sales represented 74.2% of our total steel sales volume in 2004. Exports and overseas sales by our overseas subsidiaries represented 25.8% of our total sales volume in 2004. Our sales strategy has been to devote our production primarily to satisfy domestic demand, while seeking export sales to utilize capacity to the fullest extent, to expand our international market presence and to earn foreign exchange.


	*Domestic Market*

The total Korean market for steel products amounted to 47.2 million tons in 2004. We sold a total of 23.6 million tons of steel products in Korea in 2004, maintaining an overall domestic market share of 50.0% for such period.

The table below sets out sales of steel products in Korea for the periods indicated.


	Year Ended December 31,

	2000				2001				2002				2003				2004

	Thousands				Thousands				Thousands				Thousands				Thousands
Region	of Tons		%		of Tons		%		of Tons		%		of Tons		%		of Tons		%

POSCO’S sales		20,059		52.2		20,894		54.6		21,090		48.2		21,121		46.6		23,599		50.0
Other Korean steel companies’ sales		15,116		39.3		14,144		37.0		17,732		40.6		17,838		39.3		15,969		33.9
Imports(1)		3,266		8.5		3,235		8.5		4,898		11.2		6,411		14.1		7,595		16.1

Total domestic sales(1)		38,441		100.0		38,273		100.0		43,720		100.0		45,370		100.0		47,163		100.0


(1)	Source: 2004 Official Statistics, Korea Iron & Steel Association.

Total domestic sales volume of our steel products increased by 4.2% in 2001 to 20.9 million tons compared to 20.1 million tons in 2000, as the Korean economy continued its rebound from the difficult economic conditions of the late 1990s. Our market share increased to 54.6% in 2001 from 52.2% in 2000 as the domestic sales of other Korean steel companies decreased by 6.4% in 2001 to 14.1 million tons

compared to 15.1 million tons in 2000. Imports from foreign competitors remained relatively stable at 3.2 million tons in 2001 compared to 3.3 million tons in 2000.

Increased demand from the shipbuilding industry and the automobile industry contributed to a robust 14.2% increase in total domestic sales volume in 2002 compared to 2001. Domestic sales volume of other Korean steel companies increased by 25.4% in 2002 to 17.7 million tons, and imports from foreign competitors, primarily from Japan, China and Russia, also showed strong growth of 51.4% in 2002 to 4.9 million tons. On the other hand, growth in our domestic sales volume slowed to 0.9% in 2002, and our market share dropped to 48.2% in 2002 from 54.6% in 2001.

Total domestic sales increased by 3.8% in 2003, primarily resulting from an increase in demand from the construction industry which more than offset decreases in demand from the automobile industry and the consumer appliance industry. Imports from foreign competitors, primarily from Japan, China and Russia, showed strong growth as import sales volume increased by 30.9% in 2003 to 6.4 million tons. Growth in domestic sales volume of other Korean steel companies in 2003 slowed to 0.6% in 2003 while our domestic sales volume remained stable with a 0.1% increase in 2003 to 21.1 million tons. Accordingly, our market share dropped to 46.6% in 2003 from 48.2% in 2002.

In 2004, total domestic sales increased by 4.0%, primarily due to an increase in demand from the automobile, consumer appliance, and shipbuilding industries which more than offset a decrease in demand from the construction industry. Imports from foreign competitors, primarily from Japan, China, and Russia, showed strong growth as import sales volume increased by 18.5% in 2004 to 7.6 million tons. Growth in domestic sales volume of other Korean steel companies decreased by 10.5% in 2004 while our domestic sales volume increased by 11.7% in 2004 to 23.6 million tons. Accordingly, our market share increased to 50.0% in 2004 from 46.6% in 2003.

We sell in Korea higher value-added and other finished products to end-users and semi-finished products to other steel manufacturers for further processing. Local distribution companies and sales affiliates sell finished steel products to low-volume customers. We provide service technicians for large customers and distributors in each important product area.

For a discussion of our domestic sales of steel products in 2002, 2003 and 2004 and factors that may affect domestic sales in the future, see “Item 5. Operating and Financial Review and Prospects — Item 5A. Operating Results.”


	*Exports*

Exports and sales of steel products by our overseas subsidiaries represented 25.8% of our total sales volume of steel products in 2004, 76.9% of which was generated in Asia. Our exports in terms of sales volume decreased by 14.0% to 8.2 million tons in 2004, primarily as a result of an increase in domestic demand. The tables below set out our exports and sales of steel products by our overseas subsidiaries in terms of sales volume by geographical market and by product for the periods indicated.


		Year Ended December 31,

		2000				2001				2002				2003				2004

		Thousands				Thousands				Thousands				Thousands				Thousands
Region		of Tons		%		of Tons		%		of Tons		%		of Tons		%		of Tons		%

China			2,798		31.7		2,976		32.4		2,828		30.6		3,510		36.8		3,138		38.3
Asia (other than China and Japan)			1,994		22.6		1,965		21.4		2,414		26.1		2,259		23.7		1,502		18.3
Japan			2,136		24.2		2,040		22.2		1,780		19.3		1,719		18.0		1,661		20.3
North America			1,094		12.4		665		7.2		978		10.6		715		7.5		737		9.0
Europe			285		3.2		313		3.4		294		3.2		236		2.5		116		1.4
Others			509		5.8		1,213		13.2		949		10.3		1,096		11.5		1,043		12.7

	Total		8,816		100.0		9,172		100.0		9,243		100.0		9,535		100.0		8,198		100.0


		Year Ended December 31,

		2000				2001				2002				2003				2004

		Thousands				Thousands				Thousands				Thousands				Thousands
Steel Products		of Tons		%		of Tons		%		of Tons		%		of Tons		%		of Tons		%

Hot rolled products			2,234		25.3		2,225		24.3		2,224		24.1		2,464		25.8		2,049		25.0
Plates			377		4.3		318		3.5		300		3.2		363		3.8		295		3.6
Wire rods			619		7.0		672		7.3		679		7.3		598		6.3		252		3.1
Cold rolled products			4,522		51.3		4,923		53.7		4,694		50.8		4,649		48.8		4,139		50.5
Silicon steel sheets			144		1.6		134		1.5		161		1.7		223		2.3		245		3.0
Stainless steel products			671		7.6		646		7.0		706		7.6		795		8.3		1,019		12.4
Others			249		2.8		254		2.8		478		5.2		443		4.7		199		2.4

	Total		8,816		100.0		9,172		100.0		9,243		100.0		9,535		100.0		8,198		100.0

The table below sets out our total net sales, including non-steel sales, by geographic region for the periods indicated.


		Year Ended December 31,

Region		2002		2003		2004

		(in billions)
Korea		W	9,531	W	12,100	W	16,738
China			2,089		2,706		3,316
Asia (other than China and Japan)			1,069		1,079		1,257
Japan			650		771		1,164
North America			473		312		529
Other			543		822		969

	Total		14,355		17,789		23,973

The above tables include sales by our consolidated sales subsidiaries of steel products purchased by these subsidiaries from third parties, including trading companies to which we sell steel products.

The table below sets out the world’s crude steel consumption for the periods indicated.


	Year Ended December 31,

	1999			2000			2001			2002			2003

Crude steel equivalent consumption (million tons)		805			869			834			887			951
Percentage of annual increase (decrease)		3.1	%		8.0	%		(4.0	)%		6.4	%		7.2	%

Source: International Iron and Steel Institute.

We distribute our export products mostly through Korean trading companies and our overseas sales subsidiaries. Our largest export market in 2004 was China, which accounted for 38.3% of our export volume of steel products, including sales by our overseas subsidiaries. The principal products exported to China are cold rolled products and stainless steel products. Our exports to China amounted to 2.8 million tons in 2002, 3.5 million tons in 2003, and 3.1 million tons in 2004. Exports to China increased by 24.1%

in 2003 due to our increased marketing focus in this region but decreased by 10.6% in 2004 primarily due to our decision to focus on meeting increased domestic demand. Sales volume to Asian countries other than China and Japan decreased from 2.4 million tons in 2002 to 2.3 million tons in 2003 primarily due to our decision to increase sales in China. In 2004, sales volume to Asian countries other than China and Japan further decreased to 1.5 million primarily due to our decision to focus on meeting increased domestic demand. Our exports to Japan decreased during each of the past five years, from 2.1 million tons in 2000 to 1.7 million tons in 2004. Profit margins from export sales to China, Indonesia and Malaysia have typically been higher than export sales to Japan in recent years.

To offset the slowdown in the economies of Asian countries in the late 1990s, we focused our efforts on increasing exports to the United States and Europe during that period. However, from 1999 to 2004, sales volume to these regions decreased and remained at low levels, primarily due to anti-dumping proceedings and our decision to export to Asian countries other than Japan that have higher profit margins. As a result, sales volume to the United States and Europe decreased to 853 thousand tons in 2004, representing only 10.4% of our export volume of steel products.

A significant part of our sales in North America are made to USS-POSCO Industries (“UPI”), a 50-50 joint venture between U.S. Steel Corporation and us. We sell hot rolled products to UPI, which uses such products to manufacture cold rolled and galvanized steel products for sale in the United States. Our sales to UPI were 686 thousand tons in 2002, 539 thousand tons in 2003 and 641 thousand tons in 2004, accounting for approximately 70% of our sales to North America in 2002, 75% in 2003 and 75% in 2004.

In the United States, a number of our products have been subject to anti-dumping and countervailing proceedings since 1992. As a result of these proceedings, our sales of corrosion resistant steel are subject to a countervailing duty of 1.15% and a dumping duty of 2.34%, our sales of stainless steel plates are subject to a dumping duty of 1.19% and our sales of stainless steel sheets are subject to a dumping duty of 0.92%.

In China, we are subject to a dumping duty of 11.0% on our sales of stainless cold rolled steel since December 2000. However, we entered into a suspension agreement in December 2000 with China and agreed to certain price undertakings. Since then, we have been exporting certain types of stainless cold rolled steel products to China that are exempt from such dumping duty.

Our products that have been subject to anti-dumping and countervailing proceedings or safeguard measures in the aggregate have not accounted for a material portion of our total sales in recent years. Consequently, the anti-dumping and countervailing duties or safeguard measures imposed on our products have not had a material adverse effect on our total sales. However, there can be no assurance that further increases in or new imposition of dumping duties, countervailing duties, quotas or tariffs on our sales in the United States, China or elsewhere may not have a material adverse effect on our exports to these or other regions in the future.

Pricing Policy

We determine the sales price of our products based on market conditions. In setting prices, we take into account our costs, including those of raw materials, supply and demand in the Korean market, exchange rates, and conditions in the international steel market. We charge domestic end-users and domestic manufacturers a uniform price for our products, although we offer discounts to domestic customers who buy large volumes of our steel products.

Our export prices can fluctuate considerably over time, depending on market conditions and other factors. The export prices of our higher value-added steel products in the largest markets must be competitive with the prices charged by our Japanese competitors. Export prices in Dollar terms increased in 2002 as the United States, China and the European Union announced their safeguard measures on key steel products to provide relief to their domestic steel manufacturers, demand for steel products increased in China and the prices of raw materials used in steel production generally increased in Dollar terms. Export prices in Dollar terms, after stabilizing in the first half of 2003, increased in the second half of

2003 and in 2004, primarily as a result of general recovery of the global economy and continued increase in steel consumption in China, as well as increases in transportation cost and price of raw materials.

Raw Materials


	*Steel Production*

The principal raw materials used in producing steel through the basic oxygen steelmaking method are iron ore and coal. We import all of the coal and virtually all of the iron ore that we use. In 2004, we imported approximately 42 million tons of iron ore and 21 million tons of coal. Iron ore is imported primarily from Australia, Brazil and India. Coal is imported primarily from Australia, China, Canada and Russia.

In 2004, we purchased most of our iron ore and coal imports pursuant to long-term contracts. We purchased approximately 12% of our iron ore and coal imports in 2004 from foreign mines in which we have made an investment. The long-term contracts generally have terms of three to ten years and provide for periodic price adjustments to the then-market prices. The long-term contracts require us to purchase a minimum amount of the relevant raw materials each year, and to date the minimum purchase amounts have been equivalent to about 10% to 20% of our total yearly purchases under these contracts. We or the suppliers may cancel the long-term contracts only if performance under the contracts is prevented by causes beyond our or their control and these causes continue for a specified period.

The prices of coal and iron ore increased substantially in 2004. The average price of coal per ton (including transportation costs) increased from $48.55 in 2002 to $49.12 in 2003 and $72.02 in 2004. The average price of iron ore per ton (including transportation costs) increased from $24.15 in 2002 to $26.10 in 2003 and $31.96 in 2004. We currently do not depend on any single country or supplier for our coal or iron ore.

In April 2002, we entered into an agreement with BHP Billiton, Itochu Corporation and Mitsui Corporation and invested A$16.3 million to establish the largest iron ore development project in Australia. We have a 20% interest in the project, while BHP Billiton, Itochu and Mitsui have 65%, 8% and 7% interests, respectively. We are obligated under the agreement to purchase 3.0 million tons of iron ore each year, representing approximately 8% of our total annual iron ore procurement amount, for twenty-five years starting in 2003. The purchase price will be determined based on the global market price at the time of purchase. We purchased 2.4 million tons of iron ore from this development project in 2004.

In 2004 and 2005, we invested $38 million to acquire a 20% interest in a coal mine project in Foxleigh, Australia, securing 0.5 million tons of coal per year. In addition, we expect to invest approximately $25 million to acquire a 2.5% stake in a coal mine project in Elkview, Canada, securing additional 0.7 million tons of coal per year. We continue to seek opportunities to enter into additional strategic relationships, particularly in Brazil, that would enhance our ability to meet our requirements for high quality raw materials.


	*Stainless Steel Production*

The principal raw materials for the production of stainless steel are wrought nickel, ferrochrome, stainless steel scrap and carbon steel scrap. We purchase a substantial portion of our requirements for wrought nickel from leading producers in Australia, Indonesia, New Caledonia, Russia and Japan, as well as Korea. A substantial portion of requirements for ferrochrome are purchased from producers in South Africa, Zimbabwe and Kazakhstan. Most of the requirements for stainless steel scrap are sourced from domestic and overseas dealers, as well as from processors in Korea, Japan, United States and Southeast Asian countries. As for the requirements for carbon steel scrap, scrap from the Pohang Steelworks is also utilized. The average price of nickel per ton (including transportation costs) increased from $6,768 in 2002 to $9,634 in 2003 and $13,852 in 2004.


	*Transportation*

Since 1983, we have retained a fleet of dedicated bulk carriers to transport our raw materials through long-term contracts with shipping companies in Korea. These dedicated bulk carriers transported approximately 70% of our coal and iron ore in 2004, with the remaining 30% transported by other vessels through chartering contracts. All imported raw materials are unloaded at our port facilities in Pohang and Gwangyang. Costs of transportation of iron ore and coal represented approximately 42% and 13% of the total cost of such materials in 2004.

The Steelmaking Process

Our major production facilities, Pohang Works and Gwangyang Works, produce steel by the basic oxygen steelmaking method. The stainless steel plant at Pohang Works produces stainless steel by the electric arc furnace method. Continuous casting improves product quality by imparting a homogenous structure to the steel. Pohang Works and Gwangyang Works produce all of their products through continuous casting.


	*Steel — Basic Oxygen Steelmaking Method*

First, molten pig iron is produced in a blast furnace from iron ore, which is the basic raw materials used in steelmaking. Molten pig iron is then refined into molten steel in converters by blowing pure oxygen at high pressure to remove impurities. At this stage, steel scrap may be added to increase the volume of molten steel produced. Different desired steel properties may also be obtained by regulating the chemical contents.

At this point, molten steel is made into semi-finished products such as slabs, blooms or billets at the continuous casting machine. Slabs, blooms and billets are produced at different standardized sizes and shapes. Slabs, blooms and billets are semi-finished lower margin products that we either use to produce our further processed products or sell to other steelmakers that produce further processed steel products.

Slabs are processed to produce hot rolled coils products at hot strip mills or to produce plates at plate mills. Hot rolled coils are an intermediate stage product that may either be sold to our customers as various finished products or be further processed by us or our customers into higher value-added products, such as cold rolled sheets and silicon steel sheets. Blooms and billets are processed into wire rods at wire rod mills.


	*Stainless Steel — Electric Arc Furnace Method*

Stainless steel is produced from stainless steel scrap, chrome, nickel and steel scrap using an electric arc furnace. Stainless steel is then processed into higher value-added products by methods similar to those used for steel production. Stainless steel slabs are produced at a continuous casting mill. The slabs are processed at hot rolling mills into stainless steel hot coil, which can be further processed at cold strip mills to produce stainless cold rolled steel products.

Competition


	*Domestic Market*

We are currently the only fully integrated steel producer in Korea. As we had an overall market share of 50.0% of the total sales volume of steel products sold in Korea in 2004, we generally face fragmented competition in the domestic market. In hot rolled products, where we had a market share of approximately 67.6% in 2004, we face competition from a Korean operator of mini-mills, which produces lower quality products, and from various foreign producers, primarily from China and Japan. In cold rolled products and stainless steel products, where we had a market share of approximately 56.2% and 53.9% in 2004, respectively, we compete with smaller specialized domestic manufacturers and various foreign producers, primarily from China and Japan.

We may face increased competition in the future from new specialized or integrated domestic manufacturers of steel products in the Korean market. Our biggest competitor in Korea is INI Steel Company, an electric-furnace steel producer with annual crude steel production of 7.7 million tons in 2004. INI Steel was spun-off from Hyundai Group in August 2000. In October 2004, INI Steel acquired Hanbo Steel, which has an annual production capacity of 1.8 million tons of hot rolled products and 1.2 million tons of steel bars.

The Korean Government does not impose quotas on or provide subsidies to local steel producers. As a World Trade Organization signatory, Korea has also removed all steel tariffs.


	*Export Markets*

The competitors in our export markets include all the leading steel manufacturers of the world. In recent years, there has been a trend toward industry consolidation among our competitors, and smaller competitors in the global steel market today may become larger competitors in the future. For example, Aceralia, Arbed and Usinor merged in February 2002 to create Arcelor, and LNM Holdings and Ispat International merged in October 2004 to create Mittal Steel. Arcelor produced 47 million tons of steel in 2004 and Mittal Steel recorded shipments of 42 million tons of steel products in 2004. With the proposed acquisition of International Steel Group, Mittal Steel is expected to become the world’s largest steelmaker, with annual production capacity of 70 million tons. Competition from global steel manufacturers with expanded production capacity such as Mittal Steel and Arcelor, and new market entrants, especially from China, could result in a significant increase in competition. Major competitive factors include the range of products offered, quality, price, delivery performance and customer service. Our larger competitors may use their resources, which may be greater than ours, against us in a variety of ways, including by making additional acquisitions, investing more aggressively in product development and capacity and displacing demand for our export products.

Various export markets currently impose tariffs on different types of steel products. However, we do not believe that tariffs significantly affect our ability to compete in these markets.

Joint Venture and Other Investments

In September 1996, we entered into an agreement with Sagang Group Co. to establish Zhangjiagang Pohang Stainless Steel Co., Ltd., a joint venture company in China for the manufacture and sale of stainless cold rolled steel products. We have an 87.1% interest in the joint venture (including 13.8% interest of POSCO China Holding Corporation). The plant commenced production of stainless cold rolled steel products and galvanizing iron in December 1998 and produced 315,711 tons of stainless cold rolled products in 2004, as well as 151,765 tons of galvanizing iron in 2004. The joint venture is currently constructing new mills with expected completion in December 2006 in order to add the annual production capacity of 600 thousand tons of stainless hot rolled products.

We established Changwon Specialty Steel as a wholly-owned subsidiary in Korea in February 1997. The plants operated by Changwon Specialty Steel have annual production capacities of 800,000 tons of wire rods, round bars, steel pipes and semi-finished products. Changwon Specialty Steel produced 782,300 tons of such products in 2004.

We currently hold an 80.0% interest in Qingdao Pohang Stainless Steel Co., Ltd. (including 10.0% interest of POSCO China Holding Corporation), a joint venture set up to manufacture and sell stainless cold rolled steel products in China. Construction of the plant operated by Qingdao Pohang Steel began in August 2003 and became operational in December 2004, with an annual production capacity of 180,000 tons of stainless cold rolled steel products.

In August 2003, we entered into a joint venture agreement with Benxi Iron and Steel Group in China to establish Benxi Steel POSCO Cold Rolled Sheet Co., Ltd. and build a cold rolling mill with annual production capacity of 1.8 million tons that we expect to be operational by March 2006. We currently hold a 10.0% interest in this joint venture.

In November 2003, we launched POSCO China Holding Corporation, a wholly-owned holding company for our investments in China. POSCO China Holding Corporation also provides support to our Chinese investment projects and affiliated companies with their marketing efforts in China and solidify their business relationships with clients and suppliers.

Diversification

Our first priority is to maximize revenues and profits from our steel operations. We also selectively seek opportunities in growth industries, in part to prepare for the eventual maturation of the Korean steel market. When determining our diversification projects, we consider attractiveness of the industry and its future growth potential, as well as our capabilities to become competitive in such an industry. New businesses related to our steel operations include liquefied natural gas production and logistics. We are currently constructing a Won 288 billion liquefied natural gas terminal scheduled for completion in June 2005. In January 2003, we also entered into a joint venture with Mitsui Corporation of Japan for a 51.0% interest in POSCO Terminal Co., Ltd. which provides logistics services related to storage and transportation of raw materials used in steel production and other industries. Facilities operated by POSCO Terminal Co., Ltd. currently have an annual handling capacity of 5.5 million tons and enable us to transport raw materials on behalf of third parties, including electric power companies, cement companies and overseas steel manufacturers.

New businesses not related to our steel operations in which we intend to focus our efforts for diversification include power generation, development of alternative energy and advanced materials and biotechnology. In May 2005, we entered into an agreement to purchase a 50.0% interest in Korea Independent Energy Corporation for Won 292 billion. Korean Independent Energy Corporation is the largest private power generation company in Korea that operates power plants with total power generation capacity of 1,800 megawatts. We expect to acquire the shares on June 30, 2005. For our entry into the alternative energy market, we plan to establish partnerships with established corporations with a focus on fuel cell and wind power generation. In production of advanced materials, we plan to utilize our proprietary steel rolling and strip casting technologies and to develop additional technologies and manufacturing capabilities. In the biotechnology field, we launched in September 2002 POSCO BioVentures, L.P., a $50.0 million venture capital fund established in the United States. The BioVentures fund is committed to investing in promising biotech companies, including various pharmaceutical companies, and assists in their development in cooperation with the Biotech Center at Pohang University of Science & Technology. We expect to continue to work closely with Pohang University of Science & Technology and Research Institute of Industrial Science & Technology to develop additional technologies and enhance our business development and diversification efforts.

Currently, the revenues we derive from these ventures and companies are not, in the aggregate, material.

Insurance

We maintain casualty and fire insurance for our facilities and loss insurance for our raw materials and supplies. In addition, we maintain medical and accident insurance for our employees to the extent we consider appropriate.

Item 4C. Organizational Structure

We are not part of a group. Our significant subsidiaries include POSCO Engineering & Construction Co., Ltd., an engineering and construction company, and Posteel Co., Ltd., our steel sales subsidiary. The following table sets out their jurisdiction of incorporation and our ownership interests:


	Jurisdiction of		Percentage of
Name	Incorporation		Ownership

POSCO Engineering & Construction Co., Ltd.		Korea		90.9	%
Posteel Co., Ltd.		Korea		95.3	%

Item 4D. Property, Plants and Equipment

Our principal properties are Pohang Works, which is located at Youngil Bay on the southeastern coast of Korea, and Gwangyang Works, which is located in Gwangyang City in the southwestern region of Korea. We expect to increase our production capacity in the future when we increase our capacity as part of our facilities expansion or as a result of continued modernization and rationalization of our existing facilities. For a discussion of major items of our capital expenditures currently in progress, see “Item 5. Operating and Financial Review and Prospects — Item 5B. Liquidity and Capital Resources — Liquidity — Capital Expenditures and Capital Expansion.”

Pohang Works

Construction of Pohang Works began in 1970 and ended in 1983. Currently, Pohang Works has an annual crude steel and stainless steel production capacity of 13.3 million tons. Pohang Works produces a wide variety of steel products. Products produced at Pohang Works include hot rolled sheets, plates, wire rods and cold rolled sheets, as well as specialty steel products such as stainless steel sheets and silicon steel sheets. These products can also be customized to meet the specifications of our customers.

Situated on a site of 8.9 million square meters at Youngil Bay on the southeastern coast of Korea, Pohang Works consists of 43 plants and 46 supporting facilities, including iron-making, crude steelmaking and continuous casting and other rolling facilities. Pohang Works also has docking facilities capable of accommodating ships as large as 250,000 tons for unloading raw materials, storage areas for up to 45 days’ supply of raw materials and separate docking facilities for ships carrying products for export. Pohang Works is equipped with an up-to-date computerized production-management system allowing constant monitoring and control of the production process.

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


	Year Ended December 31,

	2000		2001		2002		2003		2004

Crude steel and stainless steel production capacity (million tons per year)		12.20		12.20		12.20		12.67		13.30
Actual crude steel and stainless steel output (million tons)		12.36		12.04		12.16		12.67		13.45
Capacity utilization rate(%)(1)		101.3		98.7		99.7		100.0		101.1


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

Gwangyang Works

Construction of Gwangyang Works began in 1985 on a site of 14.0 million square meters reclaimed from the sea in Gwangyang City in the southwestern region of Korea. Production capacity is currently 16.7 million tons per year. Gwangyang Works specializes in high volume production of a limited number of steel products. Products manufactured at Gwangyang Works include both hot and cold rolled types.

Gwangyang Works is comprised of 36 plants and 43 supporting facilities, including iron-making plants, steelmaking plants, continuous casting plants, hot strip mills and thin-slab hot rolling plants. The site also features docking and unloading facilities for raw materials capable of accommodating ships of as large as 300,000 tons for unloading raw materials, storage areas for 44 days’ supply of raw materials and separate docking facilities.

We believe Gwangyang Works is one of the most technologically advanced integrated steel facilities in the world. Gwangyang Works has a completely automated, linear production system that enables the whole production process, from iron-making to finished products, to take place without interruption. This advanced system reduces the production time for hot rolled products to only four hours. Like Pohang

Works, Gwangyang Works is equipped with an up-to-date computerized production-management system allowing constant monitoring and control of the production process.

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


	Year Ended December 31,

	2000		2001		2002		2003		2004

Crude steel and stainless steel production capacity (million tons per year)		15.80		15.80		15.80		16.23		16.70
Actual crude steel and stainless steel output (million tons)		15.38		15.78		15.90		16.23		16.76
Capacity utilization rate(%)(1)		97.3		99.9		100.6		100.0		100.4


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

The Environment

We believe we are in compliance with all applicable environmental laws and regulations. Our levels of pollution control are higher than those mandated by Government standards. We continue to voluntarily reduce emissions from our operations by using less Peruvian iron ore, using lower sulphur content oil, and modernizing anti-pollution facilities. We spent approximately Won 98 billion on anti-pollution facilities in 2004.


Item 5.	*Operating and Financial Review and Prospects*

Item 5A. Operating Results

Our results of operations are affected by sales volume, unit prices and product mix, costs and production efficiency and exchange rate fluctuations.

Overview


	*Sales Volume, Prices and Product Mix*

In recent years, our net sales have been affected by the following factors:


	•	the demand for our products in the Korean market and our capacity to meet that demand;

	•	our ability to compete for sales in the export market;

	•	price levels; and

	•	our ability to improve our product mix.

Domestic demand for our products is affected by the condition of major steel consuming industries, such as construction, shipbuilding, automobile, electrical appliances and downstream steel processors, and the Korean economy in general.

Our sales volume increased by 1.1% in 2003 and 3.7% in 2004. In 2003, our crude steel output increased to 28.9 million tons and sales volume increased to 30.7 million tons due to strong export demand, as well as an increase in domestic demand from the construction industry. In 2004, our crude steel output increased to 30.2 million tons and sales volume increased to 31.8 million tons due to a further increase in domestic demand primarily from the automobile, consumer appliance, and shipbuilding industries, which outweighed a decrease in demand from the construction industry. For a discussion of our sales volume and revenues by major products and markets from 2000 to 2004, see “Item 4. Information on the Company — Item 4B. Business Overview — Major Products” and “— Markets.”

Unit sales price for all of our principal product lines other than wire rods increased in 2003 and the weighted average unit prices for our products increased by 18.1% in 2003 compared to 2002. Unit sales price of hot rolled products, which accounted for 37.6% of total sales volume, increased by 21.9% in 2003. Unit sales price of cold rolled products, which is our second largest product category in terms of sales volume with 31.9%, increased by 17.5% in 2003. These increases were partially offset by an 8.7% decrease in unit sales price of wire rods, which accounted for 9.1% of total sales volume in 2003. In 2004, unit sales price for all of our principal product lines increased. The weighted average unit prices for our products increased by 30.5% in 2004 compared to 2003. Unit sales price of wire rods, which accounted for 7.9% of total sales volume, increased by 40.9% in 2004. Unit sales price of hot rolled products, which accounted for 34.5% of total sales volume, increased by 36.7% in 2004. Unit sales price of plates, which accounted for 10.6% of total sales volume, increased by 35.5% in 2004.

Export prices in Dollar terms, after stabilizing in the first half of 2003, increased in the second half of 2003 and continued to increase in 2004, primarily as a result of general recovery of the global economy as well as continuous increases in transportation costs and price of raw materials. Export prices in Dollar terms stabilized in the first half of 2005. See “Item 4. Information on the Company — Item 4B. Business Overview — Markets — Exports.”

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


		Year Ended December 31,

Product		2002		2003		2004

		(In thousands of Won per ton)
Hot rolled products		W	298.1	W	363.5	W	496.9
Plates			404.1		433.1		586.8
Wire rods			419.5		383.2		539.6
Cold rolled products			453.6		533.1		640.8
Silicon steel sheets			588.0		642.0		753.0
Stainless steel products			1,634.4		1,783.7		2,378.4
Others			460.9		624.6		494.4

	Average(1)	W	443.9	W	524.1	W	684.1


(1)	“Average” prices are based on the weighted average, by sales volume, of our sales for the listed products. See “Item 4. Information on the Company — Item 4B. Business Overview — Major Products.”

Costs and Production Efficiency

Our major costs and operating expenses are raw material purchases, depreciation, labor and other purchases.

The table below sets out a breakdown of our total costs and operating expenses as a percentage of our net sales for the periods indicated.


	Year Ended December 31,

	2002			2003			2004

	(percentage of net sales)
Cost of goods sold		79.0	%		75.6	%		72.4	%
Selling and administrative expenses(1)		6.7			6.0			5.4
Total operating expenses		85.7			81.6			77.8
Gross margin		21.0			24.4			27.6
Operating margin		14.3			18.4			22.2


(1)	See Note 23 of Notes to Consolidated Financial Statements.

Our production efficiency in recent years has continued to benefit from operation near or in excess of stated capacity levels. Production capacity represents our maximum production capacity that can be achieved with an optimal level of operations of our facilities. We expect to increase our production capacity in the future when we increase our production capacity as part of our facilities expansion or as a result of continued modernization and rationalization of our existing facilities. See “Item 4. Information on the Company — Item 4D. Property, Plants and Equipment.”

The table below sets out certain information regarding our efficiency in the production of steel products for the periods indicated.


	2000		2001		2002		2003		2004

Crude steel and stainless steel production capacity (million tons per year)		28.00		28.00		28.00		28.90		30.00
Actual crude steel and stainless steel output million tons)		27.74		27.83		28.07		28.90		30.21
Capacity utilization rate(%)		99.1		99.4		100.3		100.0		100.7
Steel product sales (million tons)(1)		28.88		30.07		30.33		30.66		31.80
Man-hours per ton of crude steel produced(2)		1.29		1.28		1.26		1.16		1.20


(1)	Includes sales by our consolidated sales subsidiaries of steel products purchased by them from third parties, including trading companies to which we sell steel products. These sales amounted to approximately 1.4 million tons in 2000, 1.3 million tons in 2001, 1.2 million tons in 2002, 1.4 million tons in 2003 and 1.0 million tons in 2004.

(2)	Does not include in the calculation employees of our subsidiaries or subcontractors.


	*Exchange Rate Fluctuations*

Exchange rate fluctuations also have affected our results of operations and liquidity in recent years. Foreign exchange translation gains and losses arise as a result of fluctuations in the rates of exchange of Won to the foreign currencies in which some of our assets and liabilities are denominated (primarily Dollars and Yen). Depreciation of the Won may materially affect the results of our operations because, among other things, it causes:


	•	an increase in the amount of Won required for us to make interest and principal payments on our foreign currency-denominated debt, which accounted for approximately 53.4% of our total long-term debt (excluding discounts on debentures issued and including current portion) as of December 31, 2004;

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

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

Appreciation of the Won, on the other hand, (i) causes our export products to be less competitive by raising our prices in Dollar terms and (ii) reduces net sales and accounts receivables in Won from export sales, which are primarily denominated in Dollars. However, because of the larger positive effects of the appreciation of the Won (i.e., the reverse of the negative effects caused by the depreciation of the Won, as discussed above), appreciation of the Won generally has a positive impact on our results of operations. In terms of the average noon buying rate, the Won appreciated against the Dollar from a high in 2002 of Won 1,332.0 to US$1 to Won 1,035.1 to US$1 as of December 31, 2004. See “Item 3. Key Information — Exchange Rate Information.”

We attempt to minimize our exposure to currency fluctuations by attempting to maintain export sales, which result in foreign currency receipts, at a level that covers foreign currency obligations to the extent

feasible. As a result, a decrease in our export sales could increase our foreign exchange risks. From time to time we also enter into cross currency swap agreements in the management of our interest rate and currency risks and currency forward contracts with financial institutions to reduce the fluctuation risk of future cash flows. As of December 31, 2004, we had entered into one currency swap contract and four currency forward contracts. The net valuation gain of the above contracts was approximately Won 6.9 billion and the net transaction gain was Won 6.8 billion in 2004. We may incur losses under our existing swap transactions or any swap or other derivative product transactions entered into in the future. See Note 22 of Notes to Consolidated Financial Statements.

Impairment Loss on the No. 2 Mini-mill at Gwangyang Works

We started the construction of the no. 2 mini-mill at Gwangyang Works in 1997. Our board of directors decided in May 1998 to temporarily suspend the construction of the mini-mill due to the unstable economic condition in Korea and the Asia Pacific Region. As a result of unfavorable market conditions in the steel industry, the management’s operation committee decided in April 2002 to cease the construction on the no. 2 mini-mill and instead use the buildings for the Tailor Welded Blank (“TWB”) project to manufacture custom-made automobile body panels. In June 2003, we amended our plan and determined that only some of the buildings of the mini-mill will be used for the TWB project. With the approval of our Board of Directors, we also decided to sell the machinery of the mini-mill to a third party. Accordingly, we recognized aggregate impairment losses associated with the no. 2 mini-mill in the amount of Won 391 billion as of December 31, 2003. In 2004, we recognized an additional impairment loss of Won 79 billion on buildings on related machinery recorded as other investment assets based on the estimated net selling price of Won 54 billion as of December 31, 2004. See “— Critical Accounting Estimates — Impairment of Long-lived Assets” and Note 8 of Notes to Consolidated Financial Statements.


	*Inflation*

Inflation in the Republic, which was 2.7% in 2002, 3.6% in 2003 and 3.6% in 2004, has not had a material impact on our results of operations in recent years.

Critical Accounting Estimates

Our financial statements are prepared in accordance with Korean GAAP and reconciled to U.S. GAAP. The preparation of these financial statements under Korean GAAP as well as the U.S. GAAP reconciliation requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. We have identified the following areas where we believe assumptions and estimates are particularly critical to the financial statements:


	*Allowance for Doubtful Accounts*

We maintain an allowance for doubtful accounts for exposures in our receivable balances that represent our estimate of probable losses in our short-term and long-term receivable balances. Determining the allowance for doubtful accounts requires significant management judgment and estimates including, among others, the credit worthiness of our customers, experience of historical collection patterns, potential events and circumstances affecting future collections and the ongoing risk assessment of our customers’ ability to pay. Unforeseen circumstances such as adverse market conditions that deviate significantly from our estimates may require us to change the timing of and make additional allowances to our receivable balances.


	*Valuation of Investment Securities and Derivatives*

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

If available, quoted market prices provide the best indication of fair value. We determine the fair value of our securities using quoted market prices when available, including quotes from dealers trading those securities. If quoted market prices are not available, we determine the fair value based on pricing or valuation models, quoted prices of instruments with similar characteristics or discounted cash flows. The fair value of unlisted equity securities held for investment (excluding those of affiliates and subsidiaries) is based on the latest obtainable net asset value of the investees, which often reflects cost or other reference events. These fair values based on pricing and valuation models, discounted cash flow analysis, or net asset values are subject to various assumptions used which, if changed, could significantly affect the fair value of the investments.

When the fair value of a listed equity security or the net equity value of an unlisted equity security declines compared to acquisition cost and is not expected to recover (impaired investment security), the value of the equity security is adjusted to its fair value or net asset value, with the valuation loss charged to current operations. When the fair value of a held-to-maturity or an available-for-sale investment debt security declines compared to the acquisition cost and is not expected to recover (impaired investment security), the carrying value of the debt security is adjusted to its fair value with the resulting valuation loss charged to current operations.

As part of this impairment review, the investee’s operating results, net asset value and future performance forecasts as well as general market conditions are taken into consideration. If we believe, based on this review, that the market value of an equity security or a debt security may realistically be expected to recover, the loss will continue to be classified as temporary. If economic or specific industry trends worsen beyond our estimates, valuation losses previously determined to be recoverable may need to be charged as a valuation loss in current operations.

Significant management judgment is involved in the evaluation of declines in value of individual investments. The estimates and assumptions used by our management to evaluate declines in value can be impacted by many factors, such as the financial condition, earnings capacity and near-term prospects of the company in which we have invested, the length of time and the extent to which fair value has been less than cost, and our intent and ability to hold the related security for a period of time sufficient to allow for any recovery in market value. The evaluation of these investments is also subject to the overall condition of the economy and its impact on the capital markets. Any changes in these assumptions could significantly affect the valuation and timing of recognition of valuation losses classified as other than temporary.


	*Impairment of Long-lived Assets*

The depreciable lives of long-lived assets are estimated and the assets are reviewed for impairment if events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. The recoverable amount is measured at the greater of net selling price or value in use. When the book value of long-lived asset exceeds the recoverable value of the asset due to obsolescence, physical damage or a sharp decline in market value and the amount is material, the impairment of assets is recognized and the asset’s carrying value is reduced to its recoverable value and the resulting impairment loss is charged to current operations. Such recoverable value is based on our estimates of the future use of assets which is subject to changes in market conditions.

Our estimates of the useful lives and recoverable values of long-lived assets are based on historical trends adjusted to reflect our best estimate of future market and operating conditions. Also, our estimates include the expected future period in which the future cash flows are expected to be generated from continuing use of the assets that we review for impairment and cash outflows to prepare the assets for use

that can be directly attributed or allocated on a reasonable and consistent basis. If applicable, estimates also include net cash flows to be received or paid for the disposal of the assets at the end of their useful lives. As a result of the impairment review, when the sum of the discounted future cash flows expected to be generated by the assets is less than the book value of the assets, we recognize impairment losses based on the recoverable value of those assets. We made a number of significant assumptions and estimates in the application of the discounted cash flow model to forecast cash flows, including business prospects, market conditions, selling prices and sales volume of products, costs of production and funding sources. Further impairment charges may be required if triggering events occur, such as adverse market conditions, suggesting deterioration in an asset’s recoverability or fair value. Assessment of the timing of when such declines become other than temporary and/or the amount of such impairment is a matter of significant judgment. Results in actual transactions could differ from those estimates used to evaluate the impairment of such long-lived assets.

Operating Results


	2004 Compared to 2003

Our sales in 2004 increased by 34.8% to Won 23,973 billion from Won 17,789 billion in 2003, reflecting an increase of 30.5% in the average unit sales price per ton of our steel products and a 3.7% increase in the sales volume of our steel products.

Sales volume of stainless steel products, which accounted for 6.5% of total sales volume, showed the greatest increase among our major steel product categories in 2004 with an increase of 16.4%. Sales volume of plates, which accounted for 10.6% of total sales volume, increased by 11.1%. Sales volume of silicon steel sheets, which accounted for 2.2% of total sales volume, increased by 5.1%. In addition, sales volume of cold rolled products, which accounted for 32.2% of total sales volume, increased by 4.8%. On the other hand, sales volume of wire rods, which accounted for 7.9% of total sales volume, decreased by 9.9%, and sales volume of hot rolled plates, our largest product category in terms of sales volume which accounted for 34.5% of total sales volume, decreased by 4.8%. See “Item 4. Information on the Company — Item 4B. Business Overview — Major Products.”

Our domestic sales in 2004 increased by 38.3% in terms of total sales revenues and 11.7% in terms of sales volume of steel products compared to 2003. In 2004, our domestic sales accounted for approximately 74.2% of our total sales volume, compared to 68.9% in 2003. The increase in domestic sales revenues in 2004 compared to 2003 was attributable primarily to an increase in the price of steel products sold in Korea and, to a lesser extent, on an increase in domestic sales volume.

Our export sales in 2004 increased by 27.2% in terms of sales revenues and decreased by 14.0% in terms of sales volume compared to 2003. Exports as a percentage of total sales volume decreased to 25.8% of our total sales volume in 2004 compared to 31.1% in 2003. The increase in export sales in terms of sales revenues in 2004 compared to 2003 was primarily attributable to an increase in the price of steel products sold abroad, which outweighed the overall decrease in sales volume and the reduction in net sales in Won from export sales due to appreciation of the Won against the Dollar.

Gross profit in 2004 increased by 52.4% to Won 6,612 billion from Won 4,338 billion in 2003. Gross margin in 2004 increased to 27.6% from 24.4% in 2003, as the 34.8% increase in sales more than offset a 29.1% increase in cost of goods sold in 2004 to Won 17,361 billion from Won 13,451 billion in 2003. The increase in cost of goods sold was attributable primarily to increases in purchase of raw materials, as well as an increase in labor expenses resulting from higher performance bonuses. Raw materials costs in 2004 increased primarily as a result of a general increase in the unit costs of coal, iron ore, nickel and scrap metal, as well as an increase in our production of crude steel to 30.2 million tons in 2004 compared to 28.9 million tons in 2003. The average price of coal per ton (including all associated costs such as customs duties and transportation costs) increased from $49.12 in 2003 to $72.02 in 2004. The average price of iron ore per ton (including all associated costs such as customs duties and transportation costs) increased from $26.10 in 2003 to $31.96 in 2004.

Operating income in 2004 increased by 63.0% to Won 5,319 billion compared to Won 3,263 billion in 2003. Operating margin increased to 22.2% in 2004 from 18.3% in 2003, as selling and administrative expenses increased by 20.2% in 2004 to Won 1,293 billion compared to Won 1,075 billion in 2003. The increase in selling and administrative expenses resulted principally from increases in transportation and storage expenses, provision for doubtful accounts and labor-related expenses. Our transportation and storage expenses in 2004 increased by 10.8% to Won 494 billion compared to Won 446 billion in 2003, primarily as a result of an increase in our transportation fees per ton, as well as an increase in the transportation volume. Our provision for doubtful accounts increased almost six-fold in 2004 to Won 54 billion from Won 9 billion in 2003 primarily as a result of a slowdown in the construction industry and an increase in reserve for doubtful receivables of POSCO Engineering & Construction Co., Ltd. Our labor-related expenses included in selling and administrative expenses, which consist of salaries, welfare expenses and provisions for severance benefits, increased by 16.1% to Won 278 billion in 2004 from Won 239 billion in 2003, primarily as a result of a Won 28 billion increase in welfare expenses, as well as higher wages and performance bonuses. Our welfare expenses increased in 2004 primarily as a result of our decision to sell 1,575,039 shares of treasury stock in 2004 to the employee stock ownership association, with the difference between the fair value and the proceeds being charged to welfare expenses.

Our net income in 2004 increased by 91.1% to Won 3,814 billion compared to Won 1,996 billion in 2003 as increases in operating income, net gain on foreign currency translation and gain on recovery of allowance for doubtful accounts and decreases in loss on impairment of property, plant and equipment and interest expense more than offset effects from increases in loss on impairment of investments and donations. We recorded net gain on foreign currency translation of Won 160 billion in 2004 compared to net loss on foreign currency translation of Won 112 billion in 2003 as the Korean Won appreciated in 2004 against the Dollar. Our gain on recovery of allowance for doubtful accounts in 2004 increased by almost ten-fold to Won 127 billion compared to Won 13 billion in 2003, primarily as a result of our recovery of Won 108 billion from settlement of liquidation dividends from POSVEN in 2004. Loss on impairment of property, plant and equipment decreased by 51.8% in 2004 to Won 73 billion from Won 151 billion in 2003, as impairment related to our no. 2 mini-mill in Gwangyang of Won 79 billion was treated as impairment of investments in 2004 whereas impairment related to the mini-mill of Won 151 billion in 2003 was treated as impairment of property, plant, and equipment, which effect more than offset recognition of impairment of property, plant and equipment of Won 63 billion on the building and land of our Japanese branch in 2004 compared to no such impairment in 2003. Our loss on impairment of investments in 2004 increased eight-fold to Won 95 billion from Won 12 billion in 2003, primarily as a result of impairment of investments of Won 79 billion in 2004 related to our decision to permanently cease construction of our mini-mill discussed above. Interest expense in 2004 decreased by 23.3% to Won 192 billion compared to Won 250 billion in 2003 due to our reduction in debt and a general decrease in interest rates. Our donations also increased by 64.3% in 2004 to Won 170 billion from Won 103 billion in 2003 as we contributed Won 58 billion in 2004 to employees’ welfare fund.

Our effective tax rate in 2004 was 28.1% compared to 26.6% in 2003. The statutory income tax rate applicable to us, including resident tax surcharges, will decrease from 29.7% in 2003 and 2004 to 27.5% in 2005. See Note 25 of Notes to Consolidated Financial Statements.


	*2003 Compared to 2002*

Our sales in 2003 increased by 23.9% to Won 17,789 billion from Won 14,355 billion in 2002, reflecting an increase of 18.1% in the average unit sales price per ton of our steel products and a 1.1% increase in the sales volume of our steel products.

Sales volume of stainless steel products, which accounted for 5.8% of total sales volume, showed greatest increase among our major steel product categories in 2003 with 27.6%. Sales volume of silicon steel sheets, which accounted for 2.2% of total sales volume, increased by 13.9%. In addition, sales volume of cold rolled products and hot rolled products, our two largest product categories in terms of sales volume which accounted for an aggregate of 69.4% of total sales volume, increased by 2.8% and 0.5%, respectively. On the other hand, sales volume of other steel products, wire rods and plates, which accounted for an

aggregate of 22.6% of total sales volume, decreased by 27.6%, 1.1% and 0.4%, respectively. See “Item 4. Information on the Company — Item 4B. Business Overview — Major Products.”

Our domestic sales in 2003 increased by 27.0% in terms of total sales revenues and 0.2% in terms of sales volume of steel products compared to 2002. In 2003, our domestic sales accounted for approximately 68.9% of our total sales volume compared to 69.5% in 2002. The increase in domestic sales revenues in 2003 compared to 2002 was attributable primarily to an increase in the price of steel products sold in Korea.

Our export sales in 2003 increased by 17.9% in terms of total sales revenues and 3.2% in terms of sales volume of steel products compared to 2002. Exports as a percentage of total sales volume increased to 31.1% in 2003 from 30.5% in 2002. The increase in export sales revenues in 2003 compared to 2002 was attributable primarily to an increase in the price of steel products sold abroad, as well as stronger demand for our products from China.

Gross profit in 2003 increased by 43.8% to Won 4,338 billion from Won 3,017 billion in 2002. Gross margin in 2003 increased to 24.4% from 21.0% in 2002, as the 23.9% increase in sales more than offset an 18.6% increase in cost of goods sold in 2003 to Won 13,451 billion from Won 11,338 billion in 2002. The increase in cost of goods sold was attributable primarily to increases in purchase of raw materials and depreciation, as well as an increase in labor expenses resulting from higher performance bonuses. Raw materials costs in 2003 increased primarily as a result of a general increase in the unit costs of nickel, scrap metal and iron ore, as well as an increase in our production of crude steel to 28.9 million tons in 2003 compared to 28.1 million tons in 2002. Including all associated costs such as customs duties and transportation costs, the average price of nickel per ton increased by 30.8% in 2003 and the average price of iron ore per ton increased by 2.1% in 2003. Effects from these increases more than offset results of a 2.8% decrease in the average price of coal per ton in 2003.

Operating income in 2003 increased by 59.2% to Won 3,263 billion compared to Won 2,050 billion in 2002. Operating margin increased to 18.3% in 2003 from 14.3% in 2002, as selling and administrative expenses increased by 11.2% in 2003 to Won 1,075 billion compared to Won 967 billion in 2002. The increase in selling and administrative expenses resulted principally from increases in transportation and storage expenses, labor-related expenses, research and development expenses and stock compensation expenses. Our transportation and storage expenses in 2003 increased by 10.1% to Won 446 billion compared to Won 405 billion in 2002, primarily as a result of an increase in our transportation fees per ton. Our labor-related expenses included in selling and administrative expenses, which consist of salaries, welfare expenses and provisions for severance benefits, increased by 14.9% to Won 239 billion in 2003 compared to Won 208 billion in 2002, primarily as a result of increases in wages and higher performance bonuses, as well as an increase in welfare expenses. In 2003, salaries increased by 9.3% to Won 142 billion compared to Won 130 billion in 2002 and welfare expenses increased by 22.1% to Won 76 billion compared to Won 62 billion in 2002. An increase of 39.9% in research and development expenses to Won 57 billion in 2003 from Won 41 billion in 2002 resulted primarily from our increased research activities on implementation of Six Sigma projects and commercialization of FINEX technology. Our stock compensation expenses in 2003 increased by 190.8% to Won 19 billion from Won 6 billion in 2002 primarily as a result of an increase in our share price in 2003.

Our net income in 2003 increased by 83.2% to Won 1,996 billion compared to Won 1,089 billion in 2002 as an increase in operating income and decreases in other bad debt expense, loss on valuation of equity method investments and interest expense more than offset decreases in gain on foreign currency translations and gain on foreign currency transactions, as well as an increase in donations. We did not recognize any other bad debt expense in 2003 compared to Won 178 billion in 2002 and our loss on valuation of equity method investments in 2003 decreased by 96.5% to Won 5 billion from Won 129 billion in 2002. In 2002, we recognized bad debt expense of Won 133 billion and valuation loss of Won 135 billion from the liquidation of POSVEN. Our interest expense in 2003 decreased by 24.6% to Won 250 billion from Won 332 billion in 2002 as the interest rate paid on interest-bearing liabilities generally decreased in 2003 compared to 2002. Gain on foreign currency translations in 2003 decreased by 95.0% to

Won 6 billion from Won 129 billion in 2002 and gain on foreign currency transactions in 2003 decreased by 36.1% to Won 84 billion from Won 132 billion in 2002. Our donations in 2003 increased by 105.8% to Won 103 billion from Won 50 billion in 2002, primarily as a result of a donation of Won 51 billion to our employees’ welfare fund in 2003.

Our effective tax rate in 2003 was 26.6% compared to 26.4% in 2002. See Note 25 of Notes to Consolidated Financial Statements.

Item 5B. Liquidity and Capital Resources

The following table sets forth the summary of our cash flows for the periods indicated:


	Year Ended December 31,

	2002			2003		2004

	(in billions of Won)
Net cash provided by operating activities	W	3,213		W	3,499	W	4,946
Net cash used in investing activities		2,146			2,135		3,380
Net cash used in financing activities		1,178			1,046		1,650
Cash and cash equivalents at beginning of period		407			268		594
Cash and cash equivalents at end of period		268			594		488
Net increase (decrease) in cash and cash equivalents		(139	)		326		(106	)

Capital Requirements

Historically, uses of cash consisted principally of purchases of property, plant and equipment and other assets and payments of long-term debt. Net cash used for investing activities was Won 2,146 billion in 2002, Won 2,135 billion in 2003 and Won 3,380 billion in 2004. These amounts included purchases of property, plant and equipment of Won 1,689 billion in 2002, Won 1,299 billion in 2003 and Won 2,265 billion in 2004. We recorded net acquisition of trading securities of Won 603 billion in 2002, Won 81 billion in 2003 and Won 64 billion in 2004. We also recorded net acquisition of available-for-sale securities of Won 8 billion in 2002, Won 493 billion in 2003 and Won 167 billion in 2004. In our financing activities, we used cash of Won 1,578 billion in 2002, Won 1,317 billion in 2003 and Won 1,125 billion in 2004 for principal repayments of outstanding long-term debt. We used Won 91 billion in 2002, Won 263 billion in 2003 and Won 305 billion in 2004 for the repurchase of our shares from the market as treasury stock.

We anticipate that capital expenditures and repayments of outstanding debt will represent the most significant uses of funds for the next several years. From time to time, we may also require capital for investments involving acquisitions and strategic relationships. Our total capital expenditures were Won 2,265 billion in 2004 and, under current plans, are estimated to increase to approximately Won 4,100 billion in 2005 to maintain our competitive strengths and develop higher margin, higher value-added products. We retain the ability to reduce or suspend our planned capital expenditures. However, our failure to undertake planned expenditures on steel-producing facilities could adversely affect the modernization of our production facilities and our ability to produce more higher value-added products.

In addition to our funding requirements relating to our capital investment program, payments of the principal of and interest on indebtedness will require considerable resources. Principal repayment obligations with respect to long-term debt outstanding as of December 31, 2004 are Won 1,186 billion in 2006, Won 134 billion in 2007, Won 664 billion in 2008 and Won 27 billion in 2009. Long-term debt maturing after December 31, 2009 is Won 47 billion. In addition, as of December 31, 2004, we had short-term borrowings of Won 658 billion and current portion of long term debt of Won 1,046 billion. We expect to repay these obligations primarily through cash provided by operations and additional borrowings.

We paid dividends on common stock in the amount of Won 214 billion in 2002, Won 326 billion in 2003 and Won 525 billion in 2004.

The following table sets forth the amount of long-term debt, capital lease and operating lease obligations as of December 31, 2004.


		Payments due by Period

					Less than									After
Contractual Obligations		Total			1 year			1 to 3 years			4 to 5 years			5 years

		(in billions of Won)
Long-term debt obligations			3,104			1,046			1,984			74			—
Capital lease obligations			5			2			3			—			—
Operating leases obligations			18			13			5			—			—
Purchase obligations			(a	)		(a	)		(a	)		(a	)		(a	)
Other long-term liabilities			—			—			—			—			—

	Total		3,127			1,061			1,992			74			—

(a)

Our purchase obligations include long-term contracts to purchase iron ore, coal, nickel, chrome, stainless steel scrap and liquefied natural gas. These contracts generally have terms of three to ten years and provide for periodic price adjustments to then-market prices. As of December 31, 2004, 147 million tons of iron ore and 112 million tons of coal remained to be purchased under long-term contracts.

Capital Resources

We have traditionally met our working capital and other capital requirements principally from cash provided by operations, while raising the remainder of our requirements primarily through long-term and short-term debt. We do not depend on the use of off-balance sheet financing arrangements.

Our major sources of cash have been net earnings before depreciation and amortization and proceeds of long-term debt and other long-term liabilities, and we expect that these sources will continue to be our principal sources of cash in the future. Net income before depreciation and amortization were Won 2,543 billion in 2002, Won 3,564 billion in 2003 and Won 5,381 billion in 2004, and cash proceeds from long-term debt were Won 647 billion in 2002, Won 656 billion in 2003 and Won 280 billion in 2004. Cash proceeds in 2003 included Won 578 billion we raised through the disposition of 1,696,428 shares of SK Telecom to Zeus (Cayman), an exempted company formed with limited liability under the laws of the Cayman Islands. This disposition was effected in conjunction with Zeus (Cayman)’s issuance of notes exchangeable into SK Telecom ADSs, whose notes are fully and unconditionally guaranteed by us. Total long-term debt, including current portion and excluding discount on debentures issued, was Won 4,537 billion as of December 31, 2002, Won 3,989 billion as of December 31, 2003 and Won 3,104 billion as of December 31, 2004.

We believe that we have sufficient working capital available to us for our current requirements and that we have a variety of alternatives available to us to satisfy our financial requirements to the extent that they are not met by funds generated by operations, including the issuance of debt and equity securities and bank borrowings denominated in Won and various foreign currencies. However, our ability to rely on some of these alternatives could be affected by factors such as the liquidity of the Korean and other financial markets, prevailing interest rates, our credit rating and the Government’s policies regarding Won currency and foreign currency borrowings.

Our total shareholders’ equity increased from Won 11,820 billion at December 31, 2002 to Won 16,386 billion at December 31, 2004. This growth is attributable primarily to growth in retained earnings.

Liquidity

Our liquidity is affected by exchange rate fluctuations. See “— Overview — Exchange Rate Fluctuations.” Approximately 33.6% of our sales in 2002, 32.0% of our sales in 2003 and 30.2% of our sales in 2004 were denominated in foreign currencies, of which approximately two-thirds were denominated

in Dollars and one-third in Yen and which were derived almost entirely from export sales. As of December 31, 2004, approximately 53.4% of our long-term debt (excluding discounts on debentures issued and including current portion) was denominated in foreign currencies, principally in Dollars and Yen. We have incurred foreign currency debt in the past principally due to the limited availability and cost of Won-denominated financing in the Republic, which had historically been higher than for Dollar or Yen-denominated financings.

Our liquidity is also affected by our construction expenditures and raw materials purchases. Cash used for purchases of property, plant and equipment was Won 1,689 billion in 2002, Won 1,299 billion in 2003 and Won 2,265 billion in 2004. We have entered into several long-term contracts to purchase iron ore, coal and other raw materials. The long-term contracts generally have terms of three to ten years and provide for periodic price adjustments to then-market prices. At December 31, 2004, 147 million tons of iron ore and 112 million tons of coal remained to be purchased under long-term contracts. We may face unanticipated increases in capital expenditures and raw materials purchases. There can be no assurance that we will be able to secure funds on satisfactory terms from financial institutions or other sources which are sufficient for our unanticipated needs.

We had a working capital (current assets minus current liabilities) surplus of Won 1,695 billion as of December 31, 2002, Won 3,450 billion as of December 31, 2003 and Won 5,493 billion as of December 31, 2004. As of December 31, 2004, we had unused credit lines of approximately Won 1,331 billion out of total available credit lines of Won 632 billion. We have not had, and do not believe that we will have, difficulty gaining access to short-term financing sufficient to meet our current requirements.

The following table sets forth the summary of our significant current assets for the periods indicated:


	As of December 31,

	2002		2003		2004

	(in billions of Won)
Cash and cash equivalents, net of government grants	W	267	W	593	W	486
Short-term financial instruments		258		695		641
Trading securities		1,192		1,321		2,690
Trade accounts and notes receivable, net of allowance for doubtful accounts and present value discount		1,740		2,308		3,094
Inventories		1,671		2,068		3,066

Under Korean GAAP, bank deposits and all highly liquid temporary cash instruments within maturities of three months are considered as cash equivalents. Short-term financial instruments primarily consist of time and trust deposits with maturities between four to twelve months.

The following table sets forth the summary of our significant current liabilities for the periods indicated:


	As of December 31,

	2002		2003		2004

	(in billions of Won)
Trade accounts and notes payable	W	690	W	917	W	1,082
Short-term borrowings		588		732		658
Income tax payable		415		573		1,087
Current portion of long-term debt, net of discount on debentures issued		1,320		1,021		1,046

In January 2000, we reduced our period for payment of accounts receivable for all customers from a range of 70 days to 80 days to a range of 30 days to 60 days. We do not believe that these changes in the credit terms for our customers has had or will have a material effect on our cash flows.


	*Capital Expenditures and Capacity Expansion*

Our capital expenditures for 2002, 2003 and 2004 amounted to Won 1,689 billion, Won 1,299 billion and Won 2,265 billion, respectively.

Our current capital investment in production facilities emphasizes capacity rationalization, increased production of higher value-added products and improvements in the efficiency of older facilities in order to reduce operating costs. Our total capital expenditures are estimated to be approximately Won 4,100 billion in 2005. The following table sets out the major items of our capital expenditures currently in progress:


						Estimated Remaining
						Cost of Completion
		Expected		Total Cost of		as of December 31,
Project		Completion Date		Project		2004

		(In billions of Won)
Pohang Works:
	Construction of FINEX demonstration plant		December 2006		553		534
	Extension of coke plant		September 2007		300		300
	Rationalization of silicon steel mill (level 2)		March 2007		299		299
	Second relining of no. 3 blast furnace		May 2006		264		264
	Replacement of no. 2 hot rolled mill		June 2006		256		239
	Replacement of no. 2 plate mill		November 2005		208		155
	Installation of rolling equipment at no. 2 hot rolled mill		June 2006		154		154
Gwangyang Works:
	Construction of LNG terminal		June 2005		285		33
	Installation of no. 5 continuous galvanizing line		October 2005		280		80
	Installation of no. 6 continuous galvanizing line		June 2006		217		217
	First relining of no. 2 blast furnace		May 2005		173		173
	Installation of no. 3 and no. 4 coke dry quenching facility		August 2005		151		22

Significant Changes in Korean GAAP

In February 2004, the Korean Accounting Standards Boards issued Statements of Korean Financial Accounting Standards (“SKFAS”) No. 15, “Equity Investment.” This statement provides clarification that our proportionate unrealized profit arising from sales by us to equity method investees, sales by the equity method investees to us or sales between equity method investees should be eliminated. SKFAS No. 15 amends Interpretation No. 42-59 which prescribes that unrealized profit arising from sales by us to equity method investees should be fully eliminated. Under SKFAS No. 15, we also assess the potential impairment of investment securities in accordance with the accounting standards on impairment loss, when there is objective evidence. The provisions of this standard are effective prospectively for equity investments beginning on or after December 31, 2004. We do not expect the adoption of this statement to have a material impact on our financial position or results of operations.

In June 2004, the Korea Accounting Standards Board issued SKFAS No. 16, “Accountings for income taxes.” SKFAS No. 16 provides clarification that deferred income tax on gain and losses on valuation of available-for-sale securities should be recognized. Under this statement, any changes in deferred income tax arising on initial classification of the equity component should be reflected in equity. SKFAS No. 16 amends SKFAS Interpretation No. 45-52 which does not require recognition of the aforementioned deferred income tax. In accordance with the nature of the equity component, accounting treatment should be provided based on the component’s applicable guidance. The provisions of this standard are effective prospectively for available-for-sale securities beginning on or after December 31,

2004. We do not expect the adoption of this statement to have a material impact on our financial position or results of operations.

In October 2004, the Korea Accounting Standards Board issued SKFAS No. 17, “Provision for Liabilities and Contingencies.” SKFAS No. 17, which clarifies pre-KASB standard of Article 74, “Contingencies,” states that if the difference between nominal value and present value of provision for liabilities is considered material, expected expenses for performing duty should be valued at present value. Provision for liabilities should be used only for the intended purpose at initial recognition. The provisions of this standard are effective prospectively for liabilities beginning on or after December 31, 2004. We do not expect the adoption of this statement to have a material impact on our financial position or results of operations.

U.S. GAAP Reconciliation

Our consolidated financial statements are prepared in accordance with Korean GAAP, which differ in significant respects from U.S. GAAP. For a discussion of the significant differences between Korean GAAP and U.S. GAAP, see Note 33 of Notes to Consolidated Financial Statements.

We recorded net income under U.S. GAAP of Won 3,460 billion in 2004 compared to net income of Won 1,997 billion in 2003 and Won 1,018 billion in 2002 primarily due to the factors discussed in “— Operating Results.” Our net income under U.S. GAAP of Won 3,460 billion in 2004 is 9.3% lower than our net income under Korean GAAP of Won 3,814 billion. See Note 33(a) of Notes to Consolidated Financial Statements.

Recent Accounting Pronouncements in 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” (“SFAS 151”). SFAS 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. We do not expect the adoption of this statement to have a material impact on our 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. 29” (“SFAS 153”). SFAS 153 amends and clarifies accounting for exchanges of nonmonetary assets under Accounting Principles Board (“APB”) Opinion No. 29, “Accounting for Nonmonetary Transactions” (“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 Opinion No. 29, however, included certain exceptions to that principle. SFAS No. 153 amends APB Opinion No. 29 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. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005, with earlier adoption permitted. We do not expect the adoption of this statement to have a material impact on our financial position or result of operations.

Item 5C. Research and Development, Patents and Licenses, Etc.

We maintain a research and development program to carry out basic research and applied technology development activities. Our technology development department works closely with the Pohang University of Science & Technology, Korea’s first research-oriented college founded by us in 1986, and the Research Institute of Industrial Science and Technology, Korea’s first private comprehensive research institute

founded by us in 1987. At December 31, 2004, we employed a total of 169 researchers, including 126 with doctoral degrees.

In 1994, we founded the POSCO Technical Research Laboratory to carry out applied research and technology development activities. At December 31, 2004, the Technical Research Laboratory employed a total of 528 researchers, including 176 with doctoral degrees.

We recorded research and development expenses of Won 161 billion as cost of goods sold in 2002, Won 199 billion in 2003 and Won 206 billion in 2004, as well as research and development expenses of Won 41 billion as selling and administrative expenses in 2002, Won 57 billion in 2003 and Won 71 billion in 2004. In addition, we made donations to educational foundations supporting basic science and technology research, amounting to Won 38 billion in 2002, Won 39 billion in 2003 and Won 40 billion in 2004. We also donated Won 3 billion to Pohang University of Science & Technology, a university founded by us, in 2002 and an additional Won 2 billion in 2003 and Won 32 billion in 2004. See Note 24 of Notes to Consolidated Financial Statements.

Our research and development program has developed over two thousand patents and three thousand proprietary steel-related processes and technologies through December 31, 2004 and has successfully applied many of these to our manufacturing process.

Item 5D. Trend Information

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

Item 5E. Off-balance Sheet Arrangements

As of December 31, 2002, 2003 and 2004, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Item 5F. Tabular Disclosure of Contractual Obligations

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


Item 6.	*Directors, Senior Management and Employees*

Item 6A. Directors and Senior Management

Board of Directors

Our board of directors has the ultimate responsibility for the management of our business affairs. Under our articles of incorporation, our board is to consist of six directors who are to also act as our executive officers (“Standing Directors”) and nine directors who are to be outside directors (“Outside Directors”). Our shareholders elect both the Standing Directors and Outside Directors at a general meeting of shareholders. Candidates for Standing Director are recommended to shareholders by the board of directors after the board reviews such candidates’ qualifications and candidates for Outside Director are recommended to the shareholders by a separate board committee consisting of three Outside Directors and one Standing Director (the “Director Candidate Recommendation Committee”) after the committee reviews such candidates’ qualifications. Any shareholder holding an aggregate of 0.5% or more of our outstanding shares with voting rights for at least six months may suggest candidates for Outside Directors to the Director Candidate Recommendation Committee.

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


	•	the Director Candidate Recommendation Committee;

	•	the Evaluation and Compensation Committee;


	•	the Finance and Operation Committee;

	•	the Executive Management Committee;

	•	the Audit Committee; and

	•	the Insider Trading Committee.

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

Our articles of incorporation require that the Standing Directors include one Chairman and one President, each of whom is to serve as a Representative Director. Under the Commercial Code and our articles of incorporation, each of Representative Director is authorized to represent us in activities relating to our business.


	*Standing Directors*

Our current Standing Directors are:

Years

Expiration

with

of term

Name

Position

Division

director

POSCO

Age

of office

Lee, Ku-Taek

Chairman and Representative Director

—

February 2007

Kang, Chang-Oh

President and Representative Director

—

February 2006

Ryoo, Kyeong-Ryul

Senior Executive Vice President

General Superintendent, Pohang Works

February 2006

Yoon, Seok-Man

Senior Executive Vice President

Marketing, Corporate Communications and Secretary

February 2007

Lee, Youn

Senior Executive Vice President

Stainless Steel Division Manager, Stainless Steel Raw Materials Procurement Department

February 2008

Chung, Joon-Yang

Executive Vice President

General Superintendent, Gwangyang Works

February 2007

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


	*Outside Directors*

Our current Outside Directors are set out in the table below. Each of our Outside Directors meets the applicable independence standards set forth under the rules of the Korean Securities and Exchange Act of 1962 (the “Securities and Exchange Act”).

Expiration

Years as

of term

Name

Position

Principal Occupation

director

Age

of office

Chevalier, Samuel F

Director

Former Vice Chairman, The Bank of New York

February 2006

Kim, E. Han

Director

Professor, University of Michigan

February 2008

Park, Young-Ju

Director

Chairman, Eagon Industrial Co., Ltd.

February 2006

Jun, Kwang-Woo

Director

Vice Chairman, Deloitte Group; Former Vice Chairman, Woori Financial Group

February 2007

Jones, Jeffrey D

Director

Attorney, Kim & Chang

February 2007

Suh, Yoon-Suk

Director

Dean of Division of Business Administration, Ewha Woman’s University

February 2006

Park, Won-Soon

Director

Executive Director, Beautiful Foundation

February 2007

Sun, Wook

Director

Former President & CEO, Samsung Human Resources Development Center

February 2008

Ahn, Charles

Director

Former President & CEO, AhnLab, Inc.

February 2008

Each director’s term expires at the close of the ordinary general meeting of shareholders convened in respect of the fiscal year ending on or before the third anniversary of the commencement of such director’s tenure.

Senior Management

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

Years with

Name

Position

Division

POSCO

Age

Kim, Dong-Jin

Senior Executive Vice President

POSCO China President

Cho, Sung-Sik

Executive Vice President

Corporate Strategic Planning Dept., Investment Management Dept., India Project Dept., China Project Dept.

Choi, Jong-Tae

Executive Vice President

Human Resources Dept., Labor and Welfare Dept., MRO Procurement Dept., Plant and Equipment Procurement Dept., General Administration Dept., Outside Services Dept.

Kim, Sang-Ho

Executive Vice President

Legal Affairs

Choi, Jong-Doo

Executive Vice President

Cold Rolled Steel Sales Dept., Automotive Flat Panel Sales Dept., Coated Steel Sales Dept.

Hur, Nam-Suk

Executive Vice President

Technical Research Laboratories, FINEX Research and Development Project Dept., POSTRIP R&D Project Dept.

Kim, Chang-Ho

Senior Vice President

Education and Training Center

Oh, Chang-Kwan

Senior Vice President

Marketing Strategy Dept., Market Development Dept., Sales and Production Planning Dept.

Lee, Jeon-Young

Senior Vice President

Strategic Business Development Dept.

Kwon, Young-Tae

Senior Vice President

Coal Procurement Dept., Iron Ore Procurement Dept., Steel Raw Material Procurement Dept. Stainless Steel Raw Material Procurement Dept.

Chang, Hyun-Shik

Senior Vice President

LNG Project Dept.

Kwon, Oh-Joon

Senior Vice President

European Union Office

Chung, Dong-Hwa

Senior Vice President

Deputy General Superintendent, Gwangyang Works

Kim, Jin-Il

Senior Vice President

Innovation Strategy Planning Dept., Process Standardization Dept., Information System Dept.

Lee, Dong-Hee

Senior Vice President

Finance Dept., Finance Management Dept.

Lee, Sang-Young

Senior Vice President

Deputy General Superintendent, Gwangyang Works

Sung, Hyun-Uck

Senior Vice President

Deputy General Superintendent, Pohang Works

Park, Han-Yong

Senior Vice President

Corporate Ethics Dept., Audit Dept.

Chung, Keel-Sou

Senior Vice President

President of Zhangjiagang POSCO Stainless Steel

Years with

Name

Position

Division

POSCO

Age

Ha, Sang-Wook

Senior Vice President

Technology Development Dept., Knowledge Asset Dept., Environment & Energy Dept.

Kim, Sang-Young

Senior Vice President

Corporate Communication Dept.

Lee, Young-Suk

Senior Vice President

Stainless Steel Strategy Dept., Stainless Steel Sales Dept.

Kim, Sang-Myun

Senior Vice President

Deputy General Superintendent, Gwangyang Works

Lee, Kun-Soo

Senior Vice President

Deputy General Superintendent, Pohang Works

Park, Kee-Young

Senior Vice President

Wire Rod Sector Manager, Hot Rolled Steel Sales Dept., Plate and Wire Rod Sales Dept.

Lee, Kyu-Jeong

Senior Vice President

Hot Rolling Sector Manager, Production Order and Process Dept., Product Technology Dept., Small Lot Improvement Mega Y Project Dept.

Jang, Byung-Ki

Senior Vice President

MRO Procurement Dept., Plant and Equipment Procurement Dept.

Won, Jong-Hai

Vice President

President, Qingdao Pohang Stainless Steel Co., Ltd.

Kim, Tae-Man

Vice President

Human Resources Dept., Labor and Welfare Dept.

Cho, Jun-Gil

Vice President

Deputy General Superintendent, Pohang Works, Electrical Steel Sector Manager

Yoo, Kwang-Jae

Vice President

Stainless Steel Production and Technology

Yoon, Yong-Chul

Vice President

Deputy General Superintendent, Pohang Works

Cho, Noi-Ha

Vice President

Deputy General Superintendent, Gwangyang Works, Cold Rolling Sector Manager, TWB Project Dept., Automotive Steel Mega Y Project Dept., Hydroforming Project Dept.

Yoon, Yong-Won

Vice President

Iron and Steelmaking Facilities Investment Planning Dept., Rolling Facilities Investment Planning Dept.

Item 6B. Compensation

Compensation of Directors and Officers

We pay our Standing Directors salaries and bonuses as determined by shareholder resolutions. We may pay expenses incurred by our Outside Directors in the performance of their services. We may also pay our Outside Directors salaries if our shareholders resolve to do so. In addition, all executive officer compensation is approved by the Evaluation and Compensation Committee. The aggregate compensation (salaries, bonuses and allowances) paid and accrued to all Directors and executive officers was approximately Won 12.4 billion in 2004 and the aggregate amount set aside or accrued by us to provide pension and retirement benefits to such persons was Won 2.7 billion in 2004.

We have also granted stock options to our Directors and some of our executive officers. See “— Item 6E. Share Ownership” for a list of stock options granted to our Directors and executive officers.

Item 6C. Board Practices

Director Candidate Recommendation Committee

The Director Candidate Recommendation Committee comprises three Outside Directors, Kwang-Woo Jun (committee chair), Wook Sun and Charles Ahn, and one Standing Director, Seok-Man Yoon. The Director Candidate Recommendation Committee reviews the qualifications of potential candidates and proposes nominees to serve on our board of directors as an Outside Director. Any shareholder holding an aggregate of 0.5% or more of our outstanding shares with voting rights for at least six months may suggest candidates for Outside Directors to the committee.

Evaluation and Compensation Committee

The Evaluation and Compensation Committee comprises four Outside Directors, Yoon-Suk Suh (committee chair), Samuel F. Chevalier, Young-Ju Park and Won-Soon Park. The Evaluation and Compensation Committee’s primary responsibilities include establishing evaluation procedures and incentive compensation for Directors and executive officers and executing such plans, as well as policies regarding our employee stock ownership plan.

Finance and Operation Committee

The Finance and Operation Committee is comprised of three Outside Directors, Young-Ju Park (committee chair), Kwang-Woo Jun and Charles Ahn, and two Standing Directors, Seok-Man Yoon and Youn Lee. This committee is an operational committee that oversees decisions with respect to finance and operational matters, including making assessments with respect to potential capital investments and evaluating prospective capital-raising activities.

Executive Management Committee

The Executive Management Committee comprises six Standing Directors: Ku-Taek Lee (committee chair), Chang-Oh Kang, Kyeong-Ryul Ryoo, Seok-Man Yoon, Youn Lee and Joon-Yang Chung. This committee oversees decisions with respect to our operational and management matters, including review of management’s proposals of new strategic initiatives, as well as deliberation over critical internal matters related to organization structure and development of personnel.

Audit Committee

Under Korean law and our articles of incorporation, we are required to have an Audit Committee. The Audit Committee may be composed of three or more directors; all members of the Audit Committee must be Outside Directors. Audit Committee members must also meet the applicable independence criteria set forth under the rules and regulations of the Sarbanes-Oxley Act of 2002. Members of the Audit Committee are elected by the shareholders at the ordinary general meeting of shareholders. We currently have an Audit Committee composed of four Outside Directors. Members of our Audit Committee are E. Han Kim (committee chair), Jeffrey D. Jones, Yoon-Suk Suh and Wook Sun.

The duties of the Audit Committee include:


	•	engaging independent auditors;

	•	approving independent audit fees;

	•	approving audit and non-audit services;

	•	reviewing annual financial statements;


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

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

	•	examining improprieties or suspected improprieties.

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

Insider Trading Committee

The Insider Trading Committee is comprised of four Outside Directors, E. Han Kim (committee chair), Jeffrey D. Jones, Yoon-Suk Suh and Wook Sun. This committee reviews related party and other internal transactions and ensures compliance with the Monopoly Regulation and Fair Trade Act.

Differences in Corporate Governance Practices

Pursuant to the rules of the New York Stock Exchange applicable to foreign private issuers like us that are listed on the New York Stock Exchange, we are required to disclose significant differences between the New York Stock Exchange’s corporate governance standards and those that we follow under Korean law and in accordance with our own internal procedures. The following is a summary of such significant differences.


NYSE Corporate Governance Standards		POSCO’s Corporate Governance Practice

Director Independence
Independent directors must comprise a majority of the board		Our articles of incorporation provide that our board of directors must comprise no less than a majority of Outside Directors. Our Outside Directors must meet the criteria for outside directorship set forth under the Securities and Exchange Act of Korea.
		The majority of our board of directors is independent (as defined in accordance with the New York Stock Exchange’s standards), and 9 out of 15 directors are Outside Directors.
Nomination/ Corporate Governance Committee
Listed companies must have a nomination/ corporate governance committee composed entirely of independent directors		We have not established a separate nomination/ corporate governance committee. However, we maintain a Director Candidate Recommendation Committee composed of three Outside Directors and one Standing Director.
Compensation Committee
Listed companies must have a compensation committee composed entirely of independent directors		We maintain an Evaluation and Compensation Committee composed of four Outside Directors.
Executive Session
Listed companies must hold meetings solely attended by non-management directors to more effectively check and balance management directors		Our Outside Directors hold meetings solely attended by Outside Directors in accordance with operation guidelines of our board of directors.


NYSE Corporate Governance Standards		POSCO’s Corporate Governance Practice

Audit Committee
Listed companies must have an audit committee that is composed of more than three directors and satisfy the requirements of Rule 10A-3 under the Exchange Act		We maintain an Audit Committee comprised of four Outside Directors who meet the applicable independence criteria set forth under Rule 10A-3 under the Exchange Act.
Shareholder Approval of Equity Compensation Plan
Listed companies must allow its shareholders to exercise their voting rights with respect to any material revision to the company’s equity compensation plan		We currently have two equity compensation plans: one providing for the grant of stock options to officers and directors; and an Employee Stock Ownership Program. All material matters related to the granting stock options are provided in our articles of incorporation, and any amendments to the articles of incorporation are subject to shareholders’ approval. Matters related to the Employee Stock Ownership Program are not subject to shareholders’ approval under Korean law.
Corporate Governance Guidelines
Listed companies must adopt and disclose corporate governance guidelines		We have adopted a Corporate Governance Charter setting forth our practices with respect to relevant corporate governance matters. Our Corporate Governance Charter is in compliance with Korean law but does not meet all requirements established by the New York Stock Exchange for U.S. companies listed on the exchange. A copy of our Corporate Governance Charter is available on our website at www.posco.co.kr.
Code of Business Conduct and Ethics
Listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers		We have adopted a Code of Conduct for all directors, officers and employees. A copy of our Code of Conduct is available on our website at www.posco.co.kr.

Item 6D. Employees

At December 31, 2004, we had 27,919 employees, including 8,524 persons employed by our subsidiaries, almost all of whom were employed within Korea. Of the total number of employees, approximately 80% are technicians and skilled laborers and 20% are administrative staff. We use subcontractors for maintenance, cleaning and transport activities. We had 27,415 employees, including 8,042 persons employed by our subsidiaries, as of December 31, 2003 and 27,100 employees, including 7,931 persons employed by our subsidiaries, as of December 31, 2002. To improve operational efficiency and increase labor productivity, we plan to reduce the number of our employees in future years through natural attrition. However, we expect the number of persons employed by our subsidiaries in growth industries to increase in the future.

We consider our relations with our work force to be excellent. We have never experienced a work stoppage or strike. Wages of our employees are among the highest in Korea. In addition to a base monthly wage, employees receive periodic bonuses and allowances. Base wages are determined annually following consultation between the management and employee representatives, who are currently elected outside the framework of the POSCO labor union. A labor union was formed by our employees in June 1988. Union membership peaked at 19,026 employees at the beginning of 1991, but has steadily declined since then. At December 31, 2004, only 23 of our employees were members of the POSCO labor union.

We maintain a retirement plan, as required by Korean labor law, pursuant to which employees terminating their employment after one year or more of service are entitled to receive a lump-sum payment based on the length of their service and their total compensation at the time of termination. We are required to transfer a portion of retirement and severance benefit amounts accrued by our employees to the National Pension Fund. The amounts so transferred reduce the retirement and severance benefit amounts payable to retiring employees by us at the time of their retirement. We also provide a wide range of fringe benefits to our employees, including housing, housing loans, company-provided hospitals and schools, a company-sponsored pension program, an employee welfare fund, industrial disaster insurance, and cultural and athletic facilities.

At December 31, 2004, our employees owned approximately 1.8% of our common stock through an employee stock ownership association.

Item 6E. Share Ownership

Common Stock

The persons who are currently our Directors or executive officers held, as a group, 7,768 common shares as of December 31, 2004, the most recent date for which this information is available. The table below shows the ownership of our common shares by Directors and executive officers.


Shareholders		Number of common shares owned

Chang-Oh Kang			5,203
Chang-Kwan Oh			770
Keel-Sou Chung			708
E. Han Kim			400
Jin-Il Kim			190
Hyun-Shik Chang			107
Young-Suk Lee			105
Dong-Hwa Chung			53
Byung-Ki Jang			52
Sang-Wook Ha			40
Sang-Young Kim			40
Kun-Soo Lee			40
Oh-Joon Kwon			19
Kyung-Ryul Ryoo			17
Han-Yong Park			12
Youn Lee			2
Dong-Jin Kim			2
Jong-Doo Choi			2
Nam-Suk Hur			2
Chang-Ho Kim			2
Kee-Yeoung Park			2

	Total		7,768

Stock Options

The following table sets forth information regarding the stock options we have granted to our Directors and executive officers, as well as those of our subsidiaries, as of December 31, 2004. With respect to all of the options granted, we may elect either to issue shares of common stock, distribute treasury stock or pay in cash the difference between the exercise and the market price at the date of exercise. The options may be exercised by a person who has continued employment with POSCO for two or more years from the date on which the options are granted and within seven years from the second anniversary of the issuance of such options. All of the stock options below relate to our common stock.


			Exercise Period						Number of		Number of		Number of
							Exercise		Granted		Exercised		Exercisable
Directors	Grant Date		From		To		Price		Options		Options		Options

Ku-Taek Lee		July 23, 2001		7/24/2003		7/23/2008		98,900		45,184		0		45,184
		July 23, 2004		7/24/2006		7/23/2011		151,700		49,000		0		49,000
Chang-Oh Kang		July 23, 2001		7/24/2003		7/23/2008		98,900		18,074		0		18,074
		April 26, 2003		4/27/2005		4/26/2010		102,900		4,802		0		4,802
		July 23, 2004		7/24/2006		7/23/2011		151,700		24,500		0		24,500
Kyeong-Ryul Ryoo		July 23, 2001		7/24/2003		7/23/2008		98,900		9,037		3,000		6,037
		April 26, 2003		4/27/2005		4/26/2010		102,900		4,802		0		4,802
		July 23, 2004		7/24/2006		7/23/2011		151,700		4,900		0		4,900
Seok-Man Yoon		September 18, 2002		9/19/2004		9/18/2009		116,100		11,179		0		11,179
		July 23, 2004		7/24/2006		7/23/2011		151,700		7,840		0		7,840
Youn Lee		July 23, 2001		7/24/2003		7/23/2008		98,900		9,037		0		9,037
		April 26, 2003		4/27/2005		4/26/2010		102,900		1,921		0		1,921
		July 23, 2004		7/24/2006		7/23/2011		151,700		7,840		0		7,840
Joon-Yang Chung		April 27, 2002		4/28/2004		4/27/2009		136,400		9,316		0		9,316
Samuel F. Chevalier		July 23, 2001		7/24/2003		7/23/2008		98,900		2,305		0		2,305
E. Han Kim		April 26, 2003		4/27/2005		4/26/2010		102,900		2,401		0		2,401
Young-Ju Park		July 23, 2004		7/24/2006		7/23/2011		151,700		1,862		0		1,862
Kwang-Woo Jun		July 23, 2004		7/24/2006		7/23/2011		151,700		1,862		0		1,862
Jeffrey D. Jones		July 23, 2004		7/24/2006		7/23/2011		151,700		1,862		0		1,862
Yoon-Suk Suh		July 23, 2004		7/24/2006		7/23/2011		151,700		1,862		0		1,862


			Exercise Period						Number of		Number of		Number of
							Exercise		Granted		Exercised		Exercisable
Executive Officers	Grant Date		From		To		Price		Options		Options		Options

Dong-Jin Kim		July 23, 2001		7/24/2003		7/23/2008		98,900		9,037		0		9,037
		April 26, 2003		4/27/2005		4/26/2010		102,900		1,921		0		1,921
		July 23, 2004		7/24/2006		7/23/2011		151,700		7,840		0		7,840
Sung-Sik Cho		July 23, 2001		7/24/2003		7/23/2008		98,900		9,037		0		9,037
		April 26, 2003		4/27/2005		4/26/2010		102,900		1,921		0		1,921
Jong-Tae Choi		July 23, 2001		7/24/2003		7/23/2008		98,900		9,037		0		9,037
		April 26, 2003		4/27/2005		4/26/2010		102,900		1,921		0		1,921
Jong-Doo Choi		April 27, 2002		4/28/2004		4/27/2009		136,400		9,316		0		9,316
Chang-Ho Kim		April 27, 2002		4/28/2004		4/27/2009		136,400		9,316		0		9,315
Nam-Suk Hur		April 27, 2002		4/28/2004		4/27/2009		136,400		9,316		0		9,316
Chang-Kwan Oh		April 27, 2002		4/28/2004		4/27/2009		136,400		9,316		0		9,316
Jeon-Young Lee		April 27, 2002		4/28/2004		4/27/2009		136,400		9,316		0		9,316
Young-Tae Kwon		September 18, 2002		9/19/2004		9/18/2009		116,100		9,316		0		9,316
Hyun-Shik Chang		April 26, 2003		4/27/2005		4/26/2010		102,900		9,604		0		9,604
Oh-Joon Kwon		April 26, 2003		4/27/2005		4/26/2010		102,900		9,604		0		9,604


			Exercise Period						Number of		Number of		Number of
							Exercise		Granted		Exercised		Exercisable
Executive Officers	Grant Date		From		To		Price		Options		Options		Options

Dong-Hwa Chung		April 26, 2003		4/27/2005		4/26/2010		102,900		9,604		0		9,604
Jin-Il Kim		April 26, 2003		4/27/2005		4/26/2010		102,900		9,604		0		9,604
Dong-Hee Lee		April 26, 2003		4/27/2005		4/26/2010		102,900		9,604		0		9,604
Sang-Young Lee		April 26, 2003		4/27/2005		4/26/2010		102,900		9,604		0		9,604
Hyun-Uck Sung		April 26, 2003		4/27/2005		4/26/2010		102,900		9,604		0		9,604
Han-Yong Park		April 26, 2003		4/27/2005		4/26/2010		102,900		9,604		0		9,604
Keel-Sou Chung		July 23, 2004		7/24/2006		7/23/2011		151,700		9,800		0		9,800
Sang-Wook Ha		July 23, 2004		7/24/2006		7/23/2011		151,700		9,800		0		9,800
Sang-Young Kim		July 23, 2004		7/24/2006		7/23/2011		151,700		9,800		0		9,800
Young-Suk Lee		July 23, 2004		7/24/2006		7/23/2011		151,700		9,800		0		9,800
Sang-Myun Kim		July 23, 2004		7/24/2006		7/23/2011		151,700		9,800		0		9,800
Kun-Soo Lee		July 23, 2004		7/24/2006		7/23/2011		151,700		9,800		0		9,800
Kee-Yeoung Park		July 23, 2004		7/24/2006		7/23/2011		151,700		9,800		0		9,800
Kyu-Jeong Lee		July 23, 2004		7/24/2006		7/23/2011		151,700		9,800		0		9,800
Byung-Ki Jang		July 23, 2004		7/24/2006		7/23/2011		151,700		9,800		0		9,800


Item 7.	*Major Shareholders and Related Party Transactions*


Item 7A.	*Major Shareholders*

The following table sets forth certain information relating to the shareholders of our common stock issued as of December 31, 2004.


		Number of
Shareholders		Shares Owned		Percentage

National Pension Corporation			3,084,186		3.54	%
SK Telecom			2,481,310		2.85
Pohang University of Science and Technology			2,475,000		2.84
Directors and executive officers as a group			7,768		0.00
Public(1)			72,455,400		83.10
POSCO (held in the form of treasury stock)			5,771,161		6.62
POSCO (held through treasury stock fund)			912,010		1.05

	Total issued shares of common stock		87,186,835		100.00	%


(1)	Includes 25,326,486 shares of common stock, representing 29.05% of the total issued shares of common stock, in the form of ADRs.


Item 7B.	*Related Party Transactions*

We have issued guarantees of Won 403 billion as of December 31, 2002, Won 425 billion as of December 31, 2003 and Won 443 billion as of December 31, 2004, in favor of affiliated and related companies. We have also engaged in various transactions with our subsidiaries and affiliated companies. Please see Note 17 of Notes to Consolidated Financial Statements.

As of December 31, 2002, 2003 and 2004, we had no loans outstanding to our executive officers and Directors.


Item 7C.	*Interests of Experts and Counsel*

Not Applicable


Item 8.	*Financial Information*


Item 8A.	*Consolidated Statements and Other Financial Information*

See “Item 18. Financial Statements” and pages F-1 through F-80.

Legal Proceedings


	*Claim against the Fair Trade Commission*

In December 2000, Hyundai HYSCO requested us to sell hot rolled coils which are necessary in manufacturing cold rolled coils used in the automobile industry to produce car body panels. In response to our refusal to sell hot rolled coils to Hyundai HYSCO, Hyundai Motors announced in January 2001 that it will reduce its purchase of cold rolled products from us. In addition, the Fair Trade Commission began an investigation into a potential anti-competitive action by us.

On April 12, 2001, the Fair Trade Commission determined that we were involved in anti-competitive action by refusing to sell our hot rolled coils to Hyundai HYSCO. In addition to issuing a suspension order, the Fair Trade Commission imposed on us a surcharge of Won 1.6 billion. We brought a claim against the Fair Trade Commission but the Seoul High Court rendered its decision against us in August 2002. We appealed to the Supreme Court of Korea in August 2002 and our petition for an injunction against the decision of the Fair Trade Commission was granted in October 2002 in our favor. We cannot predict the ultimate outcome of our appeal.


	*Anti-dumping and Countervailing Proceedings and Safeguard Measures*

We have been subject to a number of anti-dumping and countervailing proceedings in the United States and China. The U.S. and China anti-dumping and countervailing proceedings have not had a material adverse effect on our business and operations. However, there can be no assurance that further increases in or new imposition of countervailing duties, dumping duties, quotas or tariffs on our sales in the United States or China may not have a material adverse effect on our exports to these regions in the future. See “Item 4. Information on the Company — Item 4B. Business Overview — Markets — Exports.”

Except as described above, we are not involved in any pending or threatened legal or arbitration proceedings that may have, or have had during the last 12 months, a material adverse effect on our results of operations or financial position.

DIVIDENDS

The amount of dividends paid on our common stock is subject to approval at the annual general meeting of shareholders, which is typically held in February or March of the following year. In addition to our annual dividends, our board of directors is authorized to declare and distribute interim dividends once a year under our articles of incorporation. If we decide to pay interim dividends, our articles of incorporation authorize us to pay them in cash and to the shareholders of record as of June 30 of the relevant fiscal year. We may pay cash dividends out of retained earnings that have not been appropriated to statutory reserves.

The table below sets out the dividends declared on our common stock to the holders of record at December 31 of the years indicated. A total of 87,186,835 shares of common stock were issued at the end of 2004. Of these shares, 80,503,664 shares were outstanding and 5,771,161 shares were held by us in treasury and 912,010 shares were held through our treasury stock fund. The dividends set out for each of the years below were paid in the immediately following year. The Dollar figures set out below are based on the exchange rates at each payment date.


Period

	Cash Dividends
	per Share of
	Common Stock

2000	W	2,500	$	1.97
2001		2,500		1.90
2002		3,500		2.95
2003		6,000		5.10
2004		8,000		7.73

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

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


Item 8B.	*Significant Changes*

Not Applicable


Item 9.	*The Offer and Listing*


Item 9A.	*Offer and Listing Details*

Market Price Information


	*Notes*

Our 7% notes due 2006 are traded in the over-the-counter market. Sales prices for the notes are not regularly reported on any exchange or other quotation service.


	*Common Stock*

The principal trading market for our common stock is the Stock Market Division of the Korea Exchange. Our common stock, which is in registered form and has a par value of Won 5,000 per share, has been listed on the first section of the Stock Market Division of the Korea Exchange since June 1988 under the identifying code 005490. The table below shows the high and low trading prices and the average daily volume of trading activity on the Stock Market Division of the Korea Exchange for our common stock since January 1, 2000.


		Price
						Average Daily
		High		Low		Trading Volume

						(number of shares)
		(in Won)
2000
	First Quarter		149,500		99,800		517,296
	Second Quarter		116,000		80,000		442,389
	Third Quarter		93,500		75,100		307,953
	Fourth Quarter		81,500		58,000		403,766


			Price
							Average Daily
			High		Low		Trading Volume

							(number of shares)
			(in Won)
2001
	First Quarter			104,000		76,500		343,509
	Second Quarter			118,000		85,000		240,070
	Third Quarter			104,000		74,000		179,392
	Fourth Quarter			81,500		127,000		259,027
2002
	First Quarter			117,500		160,000		303,579
	Second Quarter			139,000		133,500		323,772
	Third Quarter			130,000		309,501		106,500
	Fourth Quarter			130,500		103,500		257,180
2003
	First Quarter			133,000		92,400		339,182
	Second Quarter			127,000		97,500		300,224
	Third Quarter			152,500		123,500		310,936
	Fourth Quarter			163,000		345,274		131,500
2004
	First Quarter			181,000		156,000		312,764
	Second Quarter			177,000		131,000		413,523
	Third Quarter			184,000		145,000		241,698
	Fourth Quarter			203,000		163,000		287,645
2005
	First Quarter			225,500		176,500		290,773
		January		190,000		176,500		247,001
		February		221,500		182,500		306,306
		March		225,500		197,000		320,554
	Second Quarter (through June 27)			203,000		174,508		300,722
		April		203,000		179,500		313,528
		May		188,000		174,580		316,581
		June (through June 27)		187,000		178,000		320,281


	*ADSs*

Our common stock is also listed on the New York Stock Exchange and the London Stock Exchange in the form of ADSs. The ADSs have been issued by The Bank of New York as ADR depositary and are listed on the New York Stock Exchange under the symbol “PKX.” One ADS represents one-fourth of one share of common stock. As of December 31, 2004, 101,305,944 ADSs were outstanding, representing 25,326,486 shares of common stock. The outstanding ADSs, each of which represents one-fourth of one share of our common stock, are listed on the New York Stock Exchange and the London Stock Exchange.

The table below shows the high and low trading prices and the average daily volume of trading activity on the New York Stock Exchange for our ADSs since January 1, 2000.


			Price
							Average Daily
			High		Low		Trading Volume

							(number of ADSs)
			(in US$)
2000
	First Quarter			43.00		23.75		475,862
	Second Quarter			26.25		19.19		509,135
	Third Quarter			23.88		17.88		495,173
	Fourth Quarter			18.19		14.06		578,037
2001
	First Quarter			22.39		17.75		384,677
	Second Quarter			22.80		17.10		378,273
	Third Quarter			18.83		13.60		260,559
	Fourth Quarter			24.21		15.91		261,502
2002
	First Quarter			29.25		22.41		375,578
	Second Quarter			30.64		23.50		354,997
	Third Quarter			29.52		21.30		354,083
	Fourth Quarter			27.40		21.20		268,748
2003
	First Quarter			28.66		18.46		324,841
	Second Quarter			26.55		19.26		334,283
	Third Quarter			32.49		26.08		262,191
	Fourth Quarter			33.97		28.98		469,815
2004
	First Quarter			38.43		33.55		578,866
	Second Quarter			39.50		27.26		1,013,306
	Third Quarter			40.50		32.47		729,723
	Fourth Quarter			48.49		35.99		764,192
2005
	First Quarter			55.65		41.16		866,448
		January		45.60		41.46		823,705
		February		55.08		44.43		785,057
		March		55.65		47.06		975,595
	Second Quarter (through June 27)			50.17		43.11		796,125
		April		50.17		44.29		946,523
		May		48.09		43.11		788,967
		June (through June 27)		46.90		43.70		640,379

Item 9B. Plan of Distribution

Not Applicable

Item 9C. Markets

The Korean Securities Market

The Korea Stock Exchange began its operations in 1956. On January 27, 2005, the Korea Exchange was established pursuant to the Korea Exchange Act through the consolidation of the Korea Stock Exchange, the Korea Futures Exchange, the KOSDAQ Stock Market, Inc. (the “KOSDAQ”) and the KOSDAQ Committee within the Korea Securities Dealers Association, which was in charge of the management of the KOSDAQ. The Stock Market Division of the Korea Exchange (formerly the Korea Stock Exchange) has a single trading floor located in Seoul. The Korea Exchange is a limited liability company, the shares of which are held by (i) securities companies and futures companies that were the members of the Korea Stock Exchange or the Korea Futures Exchange and (ii) the stockholders of the KOSDAQ.

The Korea Exchange has the power in some circumstances to suspend trading in the shares of a given company or to de-list a security. The Korea Exchange also restricts share price movements. All listed companies are required to file accounting reports annually, semi-annually and quarterly and to release immediately all information that may affect trading in a security.

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

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

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


									Average		Price
									Dividend		Earnings
	Opening		High		Low		Closing		Yield(1)(3)		Ratio(2)(3)

									(percent)
1979		131.28		131.28		104.38		118.97		17.8		3.8
1980		100.00		119.36		100.00		106.87		20.9		2.6
1981		97.95		165.95		93.14		131.37		13.2		3.1
1982		123.60		134.49		106.00		127.31		10.5		3.4
1983		122.52		134.46		115.59		121.21		6.9		3.8
1984		116.73		142.46		114.37		142.46		5.1		4.5
1985		139.53		163.37		131.40		163.37		5.3		5.2
1986		161.40		279.67		153.85		272.61		4.3		7.6
1987		264.82		525.11		264.82		525.11		2.6		10.9
1988		532.04		922.56		527.89		907.20		2.4		11.2
1989		919.61		1,007.77		844.75		909.72		2.0		13.9
1990		908.59		928.82		566.27		696.11		2.2		12.8


									Average		Price
									Dividend		Earnings
	Opening		High		Low		Closing		Yield(1)(3)		Ratio(2)(3)

									(percent)
1991		679.75		763.10		586.51		610.92		2.6		11.2
1992		624.23		691.48		459.07		678.44		2.2		10.9
1993		697.41		874.10		605.93		866.18		1.6		12.7
1994		879.32		1,138.75		855.37		1,027.37		1.2		16.2
1995		1,013.57		1,016.77		847.09		882.94		1.2		16.4
1996		888.85		986.84		651.22		651.22		1.3		17.8
1997		653.79		792.29		350.68		376.31		1.5		17.0
1998		385.49		579.86		280.00		562.46		1.9		10.8
1999		587.57		1,028.07		498.42		1,028.07		1.1		13.5
2000		1,059.04		1,059.04		500.60		504.62		1.6		18.6
2001		520.95		704.50		468.76		693.70		2.0		14.2
2002		724.95		937.61		584.04		627.55		1.4		17.8
2003		635.17		822.16		515.24		810.71		2.2		10.9
2004		821.26		936.06		719.59		895.92		2.1		15.8
2005 (through June 27)		896.00		1,023.34		866.17		999.11		2.5		—

Source: The Stock Market Division of the Korea Exchange.


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

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

(3)	Starting in April 2000, dividend yield and price earnings ratio of KOSPI 200, an index of 200 equity securities listed on the Stock Market Division of the Korea Exchange. Excludes classified companies, companies which did not submit annual reports to the Stock Market Division of the Korea Exchange, and companies which received disqualified opinions from external auditors.

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

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


	Rounded Down
Previous Day’s Closing Price (Won)	To (Won)

Less than 5,000		5
5,000 to less than 10,000		10
10,000 to less than 50,000		50
50,000 to less than 100,000		100
100,000 to less than 500,000		500
500,000 or more		1,000

As a consequence, if a particular closing price is the same as the price set by the fluctuation limit, the closing price may not reflect the price at which persons would have been prepared, or would be prepared

to continue, if so permitted, to buy and sell shares. Orders are executed on an auction system with priority rules to deal with competing bids and offers.

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

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


	Market Capitalization on the
	Last Day of Each Period						Average Daily Trading Volume, Value

	Number of
	Listed		(Millions of		(Thousands of		Thousands		(Millions of		(Thousands of
Year	Companies		Won)		Dollars)(1)		of Shares		Won)		Dollars)(1)

1979		355		2,609,414		5,391,351		5,382		4,579		4,641
1980		352		2,526,553		3,828,691		5,654		3,897		5,905
1981		343		2,959,057		4,224,207		10,565		8,708		12,433
1982		334		3,000,494		4,407,711		9,704		6,667		8,904
1983		328		3,489,654		4,386,743		9,325		5,941		7,468
1984		336		5,148,460		6,222,456		14,847		10,642		12,862
1985		342		6,570,404		7,380,818		18,925		12,315		13,834
1986		355		11,994,233		13,924,115		31,755		32,870		38,159
1987		389		26,172,174		33,033,162		20,353		70,185		88,584
1988		502		64,543,685		94,348,318		10,367		198,364		289,963
1989		626		95,476,774		140,489,660		11,757		280,967		414,431
1990		669		79,019,676		110,301,055		10,866		183,692		256,500
1991		686		73,117,833		96,182,364		14,022		214,263		281,850
1992		688		84,711,982		107,502,515		24,028		308,246		391,175
1993		693		112,665,260		139,419,948		35,130		574,048		676,954
1994		699		151,217,231		191,729,721		36,862		776,257		984,223
1995		721		141,151,399		182,201,367		26,130		487,762		629,614
1996		760		117,369,988		139,031,021		26,571		486,834		575,733
1997		776		70,988,897		50,161,742		41,525		555,759		392,707
1998		748		137,798,451		114,090,455		97,716		660,429		471,432
1999		725		349,503,966		305,137,040		278,551		3,481,620		3,039,654
2000		704		188,041,490		150,162,898		306,163		2,602,211		2,078,028
2001		689		255,850,070		194,784,979		473,241		1,997,420		1,506,685
2002		683		258,680,756		216,071,436		857,245		3,041,595		2,540,590
2003		684		355,362,626		298,123,294		385,852		2,026,774		1,700,314
2004		683		412,588,139		396,338,269		372,895		2,232,109		2,138,445
2005 (through June 27)		679		460,342,240		454,703,912		439,159		2,456,361		2,426,475

Source: The Stock Market Division of the Korea Exchange.


(1)	Converted at the Concentration Base Rate of The Bank of Korea or the Market Average Exchange Rate as announced by the Seoul Money Brokerage Services Limited, as the case may be, at the end of the periods indicated.

The Korean securities markets are principally regulated by the FSC and the Securities and Exchange Act. The Securities and Exchange Act was amended fundamentally numerous times in recent years to broaden the scope and improve the effectiveness of official supervision of the securities markets. As amended, the Securities and Exchange Act imposes restrictions on insider trading and price manipulation, requires specified information to be made available by listed companies to investors and establishes rules regarding margin trading, proxy solicitation, takeover bids, acquisition of treasury shares and reporting requirements for shareholders holding substantial interests.

Further Opening of the Korean Securities Market

A stock index futures market was opened on May 3, 1996 and a stock index option market was opened on July 7, 1997, in each case at the Stock Market Division of the Korea Exchange. Remittance and repatriation of funds in connection with investment in stock index futures and options are subject to regulations similar to those that govern remittance and repatriation in the context of foreign investment in Korean stocks.

Starting from May 1, 1996, foreign investors were permitted to invest in warrants representing the right to subscribe for shares of a company listed on the Stock Market Division of the Korea Exchange, subject to certain investment limitations. A foreign investor may not acquire such warrants with respect to shares of a class of a company for which the ceiling on aggregate investment by foreigners has been reached or exceeded.

As of December 30, 1997, foreign investors were permitted to invest in all types of corporate bonds, bonds issued by national or local governments and bonds issued in accordance with certain special laws without being subject to any aggregate or individual investment ceiling. The FSC sets forth procedural requirements for such investments. The Government announced on February 8, 1998 its plans for the liberalization of the money market with respect to investment in money market instruments by foreigners in 1998. According to the plan, foreigners have been permitted to invest in money market instruments issued by corporations, including commercial paper, starting February 16, 1998 with no restrictions as to the amount. Starting May 25, 1998, foreigners have been permitted to invest in certificates of deposit and repurchase agreements.

Currently, foreigners are permitted to invest in certain securities including shares of all Korean companies which are not listed on the Stock Market Division of the Korea Exchange and in bonds which are not listed.

Protection of Customer’s Interest in Case of Insolvency of Securities Companies

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

When a customer places a sell order with a securities company which is not a member of the Korea Exchange and this securities company places a sell order with another securities company which is a member of the Korea Exchange, the customer is still entitled to the proceeds of the securities sold received by the non-member company from the member company regardless of the bankruptcy or reorganization of the non-member company. Likewise, when a customer places a buy order with a non-member company and the non-member company places a buy order with a member company, the customer has the legal right to the securities received by the non-member company from the member company because the purchased securities are regarded as belonging to the customer in so far as the customer and the non-member company’s creditors are concerned.

Under the Securities and Exchange Act, the Korea Exchange is obliged to indemnify any loss or damage incurred by a counterparty as a result of a breach by its members. If a securities company which is a member of the Korea Exchange breaches its obligation in connection with a buy order, the Korea Exchange is obliged to pay the purchase price on behalf of the breaching member.

As the cash deposited with a securities company is regarded as belonging to the securities company, which is liable to return the same at the request of its customer, the customer cannot take back deposited cash from the securities company if a bankruptcy or reorganization procedure is instituted against the securities company and, therefore, can suffer from loss or damage as a result. However, the Depositor Protection Act provides that Korea Deposit Insurance Corporation will, upon the request of the investors, pay investors up to Won 50 million per depositor per financial institution in case of the securities company’s bankruptcy, liquidation, cancellation of securities business license or other insolvency events. Pursuant to the Securities and Exchange Act, as amended, securities companies are required to deposit the cash received from its customers to the extent the amount is not covered by the Depositor Protection Act with the Korea Securities Finance Corporation, a special entity established pursuant to the Securities and Exchange Act. Set-off or attachment of cash deposits by securities companies is prohibited. The premiums related to this insurance are paid by securities companies.

Item 9D. Selling Shareholders

Not Applicable


Item 9E.	*Dilution*

Not Applicable


Item 9F.	*Expenses of the Issuer*

Not Applicable


Item 10.	*Additional Information*


Item 10A.	*Share Capital*

Currently, our authorized share capital is 200,000,000 shares, which consists of shares of common stock, par value Won 5,000 per share (“Common Shares”) and shares of non-voting stock, par value Won 5,000 per share (“Non-Voting Shares”). Common Shares and Non-Voting Shares together are referred to as “Shares.” Under our articles of incorporation, we are authorized to issue Non-Voting Shares up to the limit prescribed by applicable law, the aggregate of which currently is one-half of our total issued and outstanding capital stock. As of December 31, 2004, 87,186,835 Common Shares were issued, of which 5,771,161 shares were held by us in treasury and an additional 912,010 shares were held by our treasury stock fund. We have never issued any Non-Voting Shares. All of the issued and outstanding Common Shares are fully-paid and non-assessable and are in registered form. We issue share certificates in denominations of 1, 3, 4, 5, 10, 50, 100, 500, 1,000 and 10,000 shares.


Item 10B.	*Memorandum and Articles of Association*

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

Dividends

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

Holders of Non-Voting Shares are entitled to receive dividends in priority to the holders of Common Shares in an amount not less than 9% of the par value of the Non-Voting Shares as determined by the board of directors at the time of their issuance. If the amount available for dividends is less than the aggregate amount of such minimum dividend, we do not have to declare dividends on the Non-Voting Shares.

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

Under the Commercial Code, we may pay an annual dividend only out of the excess of our net assets, on a non-consolidated basis, over the sum of (1) our stated capital and (2) the total amount of our capital surplus reserve and legal reserve accumulated up to the end of the relevant dividend period. We may not pay an annual dividend unless we have set aside as legal reserve an amount equal to at least 10% of the cash portion of the annual dividend or unless we have accumulated a legal reserve of not less than one-half of our stated capital. In addition, we are required under the Securities and Exchange Act and the relevant regulations to set aside as reserve a certain amount every fiscal year until our capital ratio is at least 30%. We may not use legal reserve to pay cash dividends but may transfer amounts from legal reserve to capital stock or use legal reserve to reduce an accumulated deficit.

Distribution of Free Shares

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

Preemptive Rights and Issuance of Additional Shares

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

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


	•	publicly offered pursuant to the Securities and Exchange Act;

	•	issued to members of our employee stock ownership association;


	•	represented by depositary receipts;

	•	issued through offering to public investors, the amount of which is no more than 10% of the outstanding Shares;

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

	•	issued to domestic or foreign corporations pursuant to a joint venture agreement or technology inducement agreement;

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

	•	issued upon exercise of stock options.

In addition, we may issue convertible bonds or bonds with warrants, each up to an aggregate principal amount of Won 1,000 billion, to persons other than existing shareholders.

Members of our employee stock ownership association, whether or not they are our shareholders, generally have a preemptive right to subscribe for up to 20% of the Shares publicly offered pursuant to the Securities and Exchange Act. This right is exercisable only to the extent that the total number of Shares so acquired and held by members of our employee stock ownership association does not exceed 20% of the total number of Shares then issued. As of December 31, 2004, approximately 3.4% of the outstanding Shares were held by members of our employee stock ownership association.

General Meeting of Shareholders

We hold the annual general meeting of shareholders within three months after the end of each fiscal year. Subject to a board resolution or court approval, we may hold an extraordinary general meeting of shareholders:


	•	as necessary;

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

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

	•	at the request of our audit committee.

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

We must give shareholders written notice setting out the date, place and agenda of the meeting at least two weeks before the date of the general meeting of shareholders. However, for holders of 1% or less of the total number of issued and outstanding voting Shares, we may give notice by placing at least two public notices in at least two daily newspapers at least two weeks in advance of the meeting. Currently, we use The Seoul Shinmun published in Seoul, The Maeil Shinmun published in Taegu and The Kwangju Ilbo published in Kwangju for this purpose. Shareholders not on the shareholders’ register as of the record date are not entitled to receive notice of the general meeting of shareholders or attend or vote at the meeting. Holders of Non-Voting Shares or Convertible Shares, unless enfranchised, are not entitled to receive notice of general meetings of shareholders, but may attend such meetings.

Our general meetings of shareholders are held either in Pohang or Seoul.

Voting Rights

Holders of our Common Shares are entitled to one vote for each Common Share, except that voting rights of Common Shares held by us, or by a corporate shareholder that is more than 10% owned by us either directly or indirectly, may not be exercised. A recent amendment to the Commercial Code

permitted cumulative voting, under which voting method each shareholder would have multiple voting rights corresponding to the number of directors to be appointed in the voting and may exercise all voting rights cumulatively to elect one director.

Our shareholders may adopt resolutions at a general meeting by an affirmative majority vote of the voting Shares present or represented at the meeting, where the affirmative votes also represent at least one-fourth of our total voting Shares then issued and outstanding. However, under the Commercial Code and our articles of incorporation, the following matters, among others, require approval by the holders of at least two-thirds of the voting Shares present or represented at a meeting, where the affirmative votes also represent at least one-third of our total voting Shares then issued and outstanding:


	•	amending our articles of incorporation;

	•	removing a director;

	•	effecting any dissolution, merger or consolidation of us;

	•	transferring the whole or any significant part of our business;

	•	effecting our acquisition of all of the business of any other company; or

	•	issuing any new Shares at a price lower than their par value.

In general, holders of Non-Voting Shares are not entitled to vote on any resolution or receive notice of any general meeting of shareholders. However, in the case of amendments to our articles of incorporation, or any merger or consolidation of us, or in some other cases which affect the rights or interests of the Non-Voting Shares, approval of the holders of Non-Voting Shares is required. We may obtain the approval by a resolution of holders of at least two-thirds of the Non-Voting Shares present or represented at a class meeting of the holders of Non-Voting Shares, where the affirmative votes also represent at least one-third of our total issued and outstanding Non-Voting Shares. In addition, if we are unable to pay dividends on Non-Voting Shares as provided in our articles of incorporation, the holders of Non-Voting Shares will become enfranchised and will be entitled to exercise voting rights until the dividends are paid. The holders of enfranchised Non-Voting Shares have the same rights as holders of Common Shares to request, receive notice of, attend and vote at a general meeting of shareholders.

Shareholders may exercise their voting rights by proxy. A shareholder may give proxies only to another shareholder, except that the Government may give proxies to a designated public official and a corporate shareholder may give proxies to its officers or employees.

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

Rights of Dissenting Shareholders

In some limited circumstances, including the transfer of the whole or any significant part of our business and our merger or consolidation with another company, dissenting shareholders have the right to require us to purchase their Shares. To exercise this right, shareholders, including holders of Non-Voting Shares, must submit to us a written notice of their intention to dissent before the general meeting of shareholders. Within 20 days after the relevant resolution is passed at a meeting, the dissenting shareholders must request us in writing to purchase their Shares. We are obligated to purchase the Shares of dissenting shareholders within one month after the expiration of the 20-day period. The purchase price for the Shares is required to be determined through negotiation between the dissenting shareholders and us. If we cannot agree on a price through negotiation, the purchase price will be the average of (1) the weighted average of the daily Share prices on the Korea Exchange for the two-month period before the date of the adoption of the relevant board resolution, (2) the weighted average of the daily Share price on the Korea Exchange for the one month period before the date of the adoption of the relevant resolution

and (3) the weighted average of the daily Share price on the Korea Exchange for the one week period before such date of the adoption of the relevant resolution. However, the FSC may adjust this price if we or holders of 30% or more of the Shares we are obligated to purchase do not accept the purchase price. Holders of ADSs will not be able to exercise dissenter’s rights unless they have withdrawn the underlying common stock and become our direct shareholders.

Register of Shareholders and Record Dates

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

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

Annual Report

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

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

Transfer of Shares

Under the Commercial Code, the transfer of Shares is effected by delivery of share certificates. However, to assert shareholders’ rights against us, the transferee must have his name and address registered on our register of shareholders. For this purpose, a shareholder is required to file his name, address and seal with our transfer agent. A non-Korean shareholder may file a specimen signature in place of a seal, unless he is a citizen of a country with a sealing system similar to that of Korea. In addition, a non-resident shareholder must appoint an agent authorized to receive notices on his behalf in Korea and file a mailing address in Korea. The above requirements do not apply to the holders of ADSs.

Under current Korean regulations, Korean securities companies and banks, including licensed branches of non-Korean securities companies and banks, asset management companies, futures trading companies and internationally recognized foreign custodians and the Korea Securities Depository may act as agents and provide related services for foreign shareholders. Certain foreign exchange controls and securities regulations apply to the transfer of Shares by non-residents or non-Koreans. See “Item 10. Additional Information — Item 10D. Exchange Controls.”

Our transfer agent is Kookmin Bank, located at 24-3, Yoido-dong, Youngdungpo-gu, Seoul, Korea.

Acquisition of Shares by Us

We may not acquire our own Shares except in limited circumstances, such as a reduction in capital. In addition, we may acquire Shares through purchases on the Korea Exchange or through a tender-offer. In addition, we may acquire interests in our own Shares through agreements with trust companies and

asset management companies. The aggregate purchase price for the Shares may not exceed the total amount available for distribution of dividends, subject to certain procedural requirements.

Under the Commercial Code, except in the case of a reduction in capital, we must resell or transfer any Shares acquired by us from a third party within a reasonable time. In general, corporate entities in which we own more than 50% equity interest may not acquire our Shares. Under the Securities and Exchange Act, we are subject to certain selling restrictions for the Shares acquired by us. In the case of a reduction in capital, we must immediately cancel the Shares acquired by us.

Liquidation Rights

In the event of our liquidation, after payment of all debts, liquidation expenses and taxes, our remaining assets will be distributed among shareholders in proportion to their shareholdings. Holders of Non-Voting Shares and Convertible Shares have no preference in liquidation.


Item 10C.	*Material Contracts*

None.


Item 10D.	*Exchange Controls*

Notes

Korean law does not limit the right of non-Koreans to hold notes outside Korea. In order for us to issue the notes outside Korea, we are required to submit a report to the MOFE or our designated foreign exchange bank (depending on the aggregate issuance amount) with respect to the issuance of the notes. Furthermore, in order for us to make payments of principal of or interest on the notes and other amounts as provided in the indenture and the notes, each actual payment should be reviewed by a foreign exchange bank at the time of such actual payment. The purpose of this review is to ensure that the actual remittance amount is consistent with the amounts payable under the notes.

Under Korean law, if the Government deems that certain emergency circumstances, including, but not limited to, sudden fluctuations in interest rates, or exchange rates, extreme difficulty in stabilizing the balance of payments or a substantial disturbance in the Korean financial and capital markets, are likely to occur, it may impose any necessary restrictions such as suspending or restricting transactions involving foreign exchange or cross border payments (including payments of principal of an interest on the notes), requiring prior approval from the Minister of Finance and Economy for any such transactions or obligating a certain portion of the foreign investor’s holdings to be deposited in Korea.

Shares and ADSs

The Foreign Exchange Transaction Act and the Presidential Decree and regulations under that Act and Decree (collectively the “Foreign Exchange Transaction Laws”) regulate investment in Korean securities by non-residents and issuance of securities outside Korea by Korean companies. Under the Foreign Exchange Transaction Laws, non-residents may invest in Korean securities only to the extent specifically allowed by these laws. The FSC has also adopted, pursuant to its authority under the Korean Securities and Exchange Act, regulations that restrict investment by foreigners in Korean securities and regulate issuance of securities outside Korea by Korean companies.

Under the Foreign Exchange Transaction Laws, if the Government deems that certain emergency circumstances, including, but not limited to, sudden fluctuations in interest rates or exchange rates, extreme difficulty in stabilizing the balance of payments or a substantial disturbance in the Korean financial and capital markets, are likely to occur, it may impose any necessary restrictions such as requiring foreign investors to obtain prior approval from the MOFE or obligating a certain portion of the foreign investors’ holdings to be deposited in Korea.

Government Review of Issuance of ADRs

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

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

Reporting Requirements for Holders of Substantial Interests

Any person whose direct or beneficial ownership of shares, whether in the form of shares or ADSs, certificates representing the rights to subscribe for Shares and equity-related debt securities including convertible bonds and bonds with warrants (collectively, the “Equity Securities”) together with the Equity Securities beneficially owned by certain related persons or by any person acting in concert with the person accounts for 5% or more of the total outstanding Equity Securities is required to report the status and the purpose (whether or not to exert an influence on management control over the issuer) of the holdings to the FSC and the Korea Exchange within five business days after reaching the 5% ownership interest. In addition, any change in the purpose of holding such ownership interest or a change in the ownership interest subsequent to the report which equals or exceeds 1% of the total outstanding Equity Securities is required to be reported to the FSC and the Korea Exchange within five business days from the date of the change.

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

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

Restrictions Applicable to ADSs

No Korean governmental approval is necessary for the sale and purchase of ADSs in the secondary market outside Korea or for the withdrawal of shares underlying ADSs and the delivery inside Korea of shares in connection with the withdrawal, provided that a foreigner who intends to acquire the shares must obtain an investment registration card from the Financial Supervisory Service (the “FSS”) as described below. The acquisition of the shares by a foreigner must be immediately reported by the foreigner or his standing proxy in Korea to the Governor of the FSS (the “Governor”).

Persons who have acquired shares as a result of the withdrawal of shares underlying the ADSs may exercise their preemptive rights for new shares, participate in free distributions and receive dividends on shares without any further governmental approval.

Restrictions Applicable to Shares

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


	•	odd-lot trading of shares;

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

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

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

For over-the-counter transactions of shares between foreigners outside the Korea Exchange with respect to which the limit on aggregate foreign ownership has been reached or exceeded, a securities company licensed in Korea must act as an intermediary. Odd-lot trading of shares outside the Korea Exchange must involve a licensed securities company in Korea as the other party. Foreign investors are prohibited from engaging in margin transactions with respect to shares which are subject to a foreign ownership limit.

The Investment Rules require a foreign investor who wishes to invest in shares on the Korea Exchange (including Converted Shares) to register its identity with the FSS prior to making any such investment; however, the registration requirement does not apply to foreign investors who acquire Converted Shares with the intention of selling such Converted Shares within three months from the date of acquisition of the Converted Shares. Upon registration, the FSS will issue to the foreign investor an investment registration card which must be presented each time the foreign investor opens a brokerage account with a securities company. Foreigners eligible to obtain an investment registration card include foreign nationals who are individuals residing abroad for more than six months, foreign governments, foreign municipal authorities, foreign public institutions, international financial institutions or similar international organizations, corporations incorporated under foreign laws and any person in any additional category designated by decree of the MOFE. All Korean offices of a foreign corporation as a group are treated as a separate foreigner from the offices of the corporation outside Korea. However, a foreign corporation or depositary issuing depositary receipts may obtain one or more investment registration cards in its name in certain circumstances as described in the relevant regulations.

Upon a foreign investor’s purchase of shares through the Korea Exchange, no separate report by the investor is required because the investment registration card system is designed to control and oversee foreign investment through a computer system. However, a foreign investor’s acquisition or sale of shares outside the Korea Exchange (as discussed above) must be reported by the foreign investor or his standing proxy to the Governor at the time of each such acquisition or sale; provided, however, that a foreign investor must ensure that any acquisition or sale by it of shares outside the Korea Exchange in the case of trades in connection with a tender offer, odd-lot trading of shares or trades of a class of shares for which the aggregate foreign ownership limit has been reached or exceeded, is reported to the Governor by the securities company engaged to facilitate such transaction. A foreign investor must appoint one or more standing proxies from among the Korea Securities Depository, foreign exchange banks, including domestic branches of foreign banks, securities companies, including domestic branches of foreign securities companies, asset management companies, futures trading companies and internationally recognized custodians which will act as a standing proxy to exercise shareholders’ rights or perform any matters

related to the foregoing activities if the foreign investor does not perform these activities himself. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the Governor in cases deemed inevitable by reason of conflict between laws of Korea and those of the home country of the foreign investor.

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

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

Under the Foreign Exchange Transaction Laws, a foreign investor who intends to acquire shares must designate a foreign exchange bank at which he must open a foreign currency account and a Won account exclusively for stock investments. No approval is required for remittance into Korea and deposit of foreign currency funds in the foreign currency account. Foreign currency funds may be transferred from the foreign currency account at the time required to place a deposit for, or settle the purchase price of, a stock purchase transaction to a Won account opened in the name of a securities company. Funds in the foreign currency account may be remitted abroad without any governmental approval.

Dividends on Shares are paid in Won. No governmental approval is required for foreign investors to receive dividends on, or the Won proceeds of the sale of, any shares to be paid, received and retained in Korea. Dividends paid on, and the Won proceeds of the sale of, any shares held by a non-resident of Korea must be deposited either in a Won account with the investor’s securities company or his Won Account. Funds in the investor’s Won Account may be transferred to his foreign currency account or withdrawn for local living expenses up to certain limitations. Funds in the Won Account may also be used for future investment in shares or for payment of the subscription price of new shares obtained through the exercise of preemptive rights.

Securities companies and investment trust companies are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors’ stock investments in Korea. Through these accounts, these securities companies and investment trust companies may enter into foreign exchange transactions on a limited basis, such as conversion of foreign currency funds and Won funds, as a counterparty to foreign investors, without the investors having to open their own accounts with foreign exchange banks.


Item 10E.	*Taxation*

The following summary is based upon tax laws of the United States and the Republic of Korea as in effect on the date of this annual report on Form 20-F, and is subject to any change in United States or Korean law that may come into effect after such date. Investors in the notes, shares of common stock or ADSs are advised to consult their own tax advisers as to the United States, Korean or other tax consequences of the purchase, ownership and disposition of such securities, including the effect of any national, state or local tax laws.

Korean Taxation

The following summary of Korean tax considerations applies to you so long as you are not:


	•	a resident of Korea;

	•	a corporation organized under Korean law; or

	•	engaged in a trade or business in Korea through a permanent establishment or a fixed base to which the relevant income is attributable or with which the relevant income is effectively connected.


	*Note*


	Taxation of Interest

Under current Korean tax laws, when we make payments of interest to you on the notes, no amount will be withheld from such payments for, or on account of, any income taxes of any kind imposed, levied, withheld or assessed by Korea or any political subdivision or taxing authority thereof or therein.


	Taxation of Capital Gains

Under specific exemptions granted under Korean tax law, you will not be subject to any Korean income or withholding taxes in connection with the capital gains from sale, exchange or other disposition of a note if (i) you transfer the note to another non-resident (other than to such transferee’s permanent establishment in Korea) or (ii) you transfer the note to a resident or a non-resident of Korea (regardless of whether the transferees have a permanent establishment in Korea) by virtue of the Special Tax Treatment Control Law of Korea (the “STTCL”), provided that the issuance of the note outside Korea is deemed to be an overseas issuance under the STTCL. If you sell or otherwise dispose of a note through other ways than those mentioned above, any gain realized on the transaction will be taxable at ordinary Korean withholding tax rates (the lesser of, subject to the production of satisfactory evidence of the acquisition cost of, and certain direct transaction costs attributable to the disposal of, the relevant notes, 27.5% of the net gain or 11% of the gross sale proceeds), unless an exemption is available under an applicable income tax treaty. See the discussion under “— Tax Treaties” below for an additional explanation on treaty benefits.


	Inheritance Tax and Gift Tax

If you die while you are the holder of a note, the subsequent transfer of the notes by way of succession will be subject to Korean inheritance tax. Similarly, if you transfer a note as a gift, the donee will be subject to Korean gift tax and you may be required to pay the gift tax if the donee fails to do so.

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


	*Shares or ADSs*


	Dividends on the Shares of Common Stock or ADSs

We will deduct Korean withholding tax from dividends paid to you at a rate of 27.5%. If you are a qualified resident in a country that has entered into a tax treaty with Korea, you may qualify for a reduced

rate of Korean withholding tax. See the discussion under “— Tax Treaties” below for an additional explanation on treaty benefits.

In order to obtain the benefits of a reduced withholding tax rate under a tax treaty, you must submit to us, prior to the dividend payment date, such evidence of tax residence as may be required by the Korean tax authorities. Evidence of tax residence may be submitted to us through the ADR depositary. If we distribute to you free shares representing a transfer of certain capital reserves or asset revaluation reserves into paid-in capital, that distribution may be subject to Korean tax.


	Taxation of Capital Gains

As a general rule, capital gains earned by non-residents upon the transfer of the common shares or ADSs would be subject to Korean withholding tax at a rate equal to the lesser of (i) 11% of the gross proceeds realized or (ii) 27.5% of the net realized gain (subject to the production of satisfactory evidence of the acquisition costs and certain direct transaction costs arising out of the transfer of such common shares or ADSs), unless such non-resident is exempt from Korean income taxation under an applicable Korean tax treaty into which Korea has entered with the non-resident’s country of tax residence. See the discussion under “— Tax Treaties” below for an additional explanation on treaty benefits. Even if you do not qualify for any exemption under a tax treaty, you will not be subject to the foregoing withholding tax on capital gains if you qualify for the relevant Korean domestic tax law exemptions discussed in the following paragraphs.

With respect to shares of our common stock, you will not be subject to Korean income taxation on capital gains realized upon the transfer of such shares through the Korea Exchange if you (i) have no permanent establishment in Korea and (ii) did not own or have not owned (together with any shares owned by any entity with which you have a certain special relationship and possibly including the shares represented by the ADSs) 25% or more of our total issued and outstanding shares at any time during the calendar year in which the sale occurs and during the five calendar years prior to the calendar year in which the sale occurs.

With respect to ADSs, there are uncertainties as to whether ADSs should be viewed as securities separate from the shares of common stock underlying such ADSs or as the underlying shares themselves for capital gains tax purposes, as discussed in more detail in the following paragraph. However, in either case, you will be eligible for exemptions for capital gains available under Korean domestic tax law (in addition to the exemption afforded under income tax treaties) if certain conditions discussed below are satisfied.

Under a tax ruling issued by the Korean tax authority in 1995 (the “1995 tax ruling”), ADSs are treated as securities separate from the underlying shares represented by such ADSs and, based on such ruling, (i) capital gains earned by you from the transfer of ADSs to another non-resident (other than to such transferee’s permanent establishment in Korea) will not be subject to Korean income taxation and (ii) capital gains earned by you (regardless of whether you have a permanent establishment in Korea) from the transfer of ADSs outside Korea will be exempt from Korean income taxation by virtue of the STTCL, provided that the issuance of the ADSs is deemed to be an overseas issuance under the STTCL. However, according to a recent tax ruling issued in 2004 by the Korean tax authority regarding the securities transaction tax (the “2004 tax ruling”), depositary receipts constitute share certificates, the transfer of which is subject to the securities transaction tax. Even though the 2004 tax ruling addresses the securities transaction tax and not the income tax on capital gains, it raises the question of whether depositary shares (such as ADSs) should be viewed as underlying shares for capital gains tax purposes. If so, exemptions afforded under Korean domestic tax law to capital gains from transfer of ADSs based on the treatment of ADSs as securities separate from the underlying shares would no longer apply (including those referred to in the 1995 tax ruling), but, instead, exemptions for capital gains from transfer of the underlying shares would apply. Under an applicable exemption, capital gains from transfer of ADSs would be exempt from Korean income tax under the STTCL if (i) the ADSs are listed on the securities market overseas that is similar to the Stock Market Division of the Korea Exchange and (ii) the transfer of ADSs

is made through such securities market. We believe that New York Stock Exchange would satisfy the condition (i) above.

If you are subject to tax on capital gains with respect to the sale of ADSs, or of shares of common stock which you acquired as a result of a withdrawal, the purchaser or, in the case of the sale of shares of common stock on the Korea Exchange or through a licensed securities company in Korea, the licensed securities company, is required to withhold Korean tax from the sales price in an amount equal to 11% (including resident surtax) of the gross realization proceeds and to make payment of these amounts to the Korean tax authority, unless you establish your entitlement to an exemption under an applicable tax treaty or domestic tax law or produce satisfactory evidence of your acquisition cost and transaction costs for the shares of common stock or the ADSs. To obtain the benefit of an exemption from tax pursuant to a tax treaty, you must submit to the purchaser or the securities company, or through the ADR depositary, as the case may be, prior to or at the time of payment, such evidence of your tax residence as the Korean tax authorities may require in support of your claim for treaty benefits. See the discussion under “— Tax Treaties” below for an additional explanation on claiming treaty benefits.


	*Tax Treaties*

Korea has entered into a number of income tax treaties with other countries (including the United States), which would reduce or exempt Korean withholding tax on dividends on, and capital gains on transfer of, shares of our common stock or ADSs. For example, under the Korea-United States income tax treaty, reduced rates of Korean withholding tax of 16.5% or 11.0% (respectively, including resident surtax, depending on your shareholding ratio) on dividends and an exemption from Korean withholding tax on capital gains are available to residents of the United States that are beneficial owners of the relevant dividend income or capital gains. However, under Article 17 (Investment of Holding Companies) of the Korea-United States income tax treaty, such reduced rates and exemption do not apply if (i) you are a United States corporation, (ii) by reason of any special measures, the tax imposed on you by the United States with respect to such dividends or capital gains is substantially less than the tax generally imposed by the United States on corporate profits, and (iii) 25% or more of your capital is held of record or is otherwise determined, after consultation between competent authorities of the United States and Korea, to be owned directly or indirectly by one or more persons who are not individual residents of the United States. Also, under Article 16 (Capital Gains) of the Korea-United States income tax treaty, the exemption on capital gains does not apply if you are an individual, and (a) you maintain a fixed base in Korea for a period or periods aggregating 183 days or more during the taxable year and your ADSs or shares of common stock giving rise to capital gains are effectively connected with such fixed base or (b) you are present in Korea for a period or periods of 183 days or more during the taxable year.

You should inquire whether you are entitled to the benefit of an income tax treaty with Korea. It is the responsibility of the party claiming the benefits of an income tax treaty in respect of dividend payments or capital gains to submit to us, the purchaser or the securities company, as applicable, a certificate as to his or her tax residence. In the absence of sufficient proof, we, the purchaser or the securities company, as applicable, must withhold tax at the normal rates. In addition, effective starting July 1, 2002, in order for you to obtain the benefit of a tax exemption on certain Korean source income (e.g., dividends and capital gains) under an applicable tax treaty, Korean tax law requires you (or your agent) to submit the application for tax exemption along with a certificate of your tax residency issued by a competent authority of your country of tax residence, subject to certain exceptions. Such application should be submitted to the relevant district tax office by the ninth day of the month following the date of the first payment of such income.


	Inheritance Tax and Gift Tax

If you die while holding an ADS or donate an ADS, it is unclear whether, for Korean inheritance and gift tax purposes, you will be treated as the owner of the shares of common stock underlying the ADSs. If the tax authority’s interpretation of treating depositary receipts as the underlying share certificates under the 2004 tax ruling applies in the context of inheritance and gift taxes as well, you may be treated as the

owner of the shares of common stock and your heir or the donee (or in certain circumstances, you as the donor) will be subject to Korean inheritance or gift tax presently at the rate of 10% to 50%; provided that the value of the ADSs or shares of common stock is greater than a specified amount.

If you die while holding a share of common stock or donate a share of common stock, your heir or donee (or in certain circumstances, you as the donor) will be subject to Korean inheritance or gift tax at the same rate as indicated above.

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


	Securities Transaction Tax

If you transfer shares of common stock on the Korea Exchange, you will be subject to securities transaction tax at the rate of 0.15% and an agriculture and fishery special surtax at the rate of 0.15% of the sale price of the shares of common stock. If your transfer of the shares of common stock is not made on the Korea Exchange, subject to certain exceptions you will be subject to securities transaction tax at the rate of 0.5% and will not be subject to an agriculture and fishery special surtax.

With respect to transfer of ADRs, the 2004 tax ruling has been issued by the Korean tax authority to the effect that depositary receipts (which the ADRs fall under) constitute share certificates subject to the securities transaction tax; provided that, under the Securities Transaction Tax Law, the transfer of depositary receipts listed on the New York Stock Exchange or the Nasdaq National Market is exempt from the securities transaction tax. Based on the 2004 tax ruling and the relevant provisions of the Securities Transaction Tax Law, once the ADSs are listed on the New York Stock Exchange, your transfer of ADRs should not be subject to the securities transaction tax. According to tax rulings issued by the Korean tax authorities in 2000 and 2002, foreign stockholders are not subject to securities transaction tax upon the deposit of underlying stock and receipt of depositary shares or upon the surrender of depositary shares and withdrawal of the originally deposited underlying stock, but there remained uncertainties as to whether holders of ADRs other than initial holders will not be subject to securities transaction tax when they withdraw shares of common stock upon surrendering the ADRs. However, the holding of the 2004 tax ruling referred to above seems to view the ADRs as the underlying shares of common stock at least for the purpose of the securities transaction tax and, though not specifically stated, could be read to imply that the securities transaction tax should not apply to the deposit of shares of common stock in exchange of ADRs or withdrawal of shares of common stock upon surrender of the ADRs regardless of whether the holder is the initial holder because the transfer of ADRs by the initial holder to the subsequent holder would have already been subject to securities transaction tax under such tax ruling.

In principle, the securities transaction tax, if applicable, must be paid by the transferor of the shares or rights. When the transfer is effected through a securities settlement company, such settlement company is generally required to withhold and pay the tax to the tax authorities. When such transfer is made through a securities company only, such securities company is required to withhold and pay the tax. Where the transfer is effected by a non-resident without a permanent establishment in Korea, other than through a securities settlement company or a securities company, the transferee is required to withhold the securities transaction tax.

United States Taxation

This summary describes the material U.S. federal income tax consequences for a U.S. holder (as defined below) of owning our notes, shares of common stock or ADSs. This summary applies to you only if you hold notes, shares of common stock or ADSs as capital assets for tax purposes and, in the case of

the notes, only if you purchased such notes in the applicable initial offering at their issue price. This summary does not apply to you if you are a member of a class of holders subject to special rules, such as:


	•	a dealer in securities or currencies;

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

	•	a bank;

	•	a life insurance company;

	•	a tax-exempt organization;

	•	a person that holds notes, shares of common stock or ADSs that are a hedge or that are hedged against interest rate or currency risks;

	•	a person that holds notes, shares of common stock or ADSs as part of a straddle or conversion transaction for tax purposes;

	•	a person whose functional currency for tax purposes is not the U.S. dollar; or

	•	a person that owns or is deemed to own 10% or more of any class of our stock.

This summary is based on laws, treaties and regulatory interpretations in effect on the date hereof, all of which are subject to change, possibly on a retroactive basis.

Please consult your own tax advisers concerning the U.S. federal, state, local and other national tax consequences of purchasing, owning and disposing of notes, shares of common stock or ADSs in your particular circumstances.

For purposes of this summary, you are a “U.S. holder” if you are a beneficial owner of a note, share of common stock or ADS that is:


	•	a citizen or resident of the United States;

	•	a U.S. domestic corporation; or

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


	*Notes*


	Interest

Interest on the notes will be includible in your income at the time the interest is accrued or received, in accordance with your method of tax accounting.


	Sale, Exchange or Retirement

Upon the sale, exchange or retirement of a note, you generally will recognize gain or loss equal to the difference between the amount realized (less any accrued interest, which will be taxable as interest income) and your tax basis in such note. Such gain or loss generally will be long-term capital gain or loss if you held the note for more than one year at the time of disposition. Your ability to offset capital losses against ordinary income is limited. Long-term capital gain recognized by an individual U.S. holder generally is subject to taxation at reduced rates of tax.


	*Shares of Common Stock and ADSs*

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


	Dividends

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

Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual prior to January 1, 2009 with respect to the ADSs will be subject to taxation at a maximum rate of 15% if the dividends are “qualified dividends.” Dividends paid on the ADSs will be treated as qualified dividends if (i) the ADSs are readily tradable on an established securities market in the United States and (ii) the Company was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend is paid, (a) a passive foreign investment company (“PFIC”) or (b) for dividends paid prior to the 2005 tax year, a foreign personal holding company (“FPHC”) or foreign investment company (“FIC”). The ADSs are listed on the New York Stock Exchange, and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. Based on the Company’s audited financial statements and relevant market and shareholder data, the Company believes that it was not treated as a PFIC, FPHC or FIC for U.S. federal income tax purposes with respect to its 2003 or 2004 taxable year. In addition, based on the Company’s audited financial statements and its current expectations regarding the value and nature of its assets, the sources and nature of its income, and relevant market and shareholder data, the Company does not anticipate becoming a PFIC for its 2005 taxable year.

Distributions of additional shares in respect of shares of common stock or ADSs that are made as part of a pro-rata distribution to all of our shareholders generally will not be subject to U.S. federal income tax.


	Sales and Other Dispositions

For U.S. federal income tax purposes, gain or loss you realize on the sale or other disposition of shares of common stock or ADSs will be capital gain or loss, and will be long-term capital gain or loss if the shares of common stock or ADSs were held for more than one year. Your ability to offset capital losses against ordinary income is limited. Long-term capital gain recognized by an individual U.S. holder generally is subject to taxation at a reduced rate.


	Foreign Tax Credit Considerations

You should consult your own tax advisers to determine whether you are subject to any special rules that limit your ability to make effective use of foreign tax credits, including the possible adverse impact of failing to take advantage of benefits under the income tax treaty between the United States and Korea. If no such rules apply, you may claim a credit against your U.S. federal income tax liability for Korean taxes withheld from dividends on shares of common stock or ADSs, so long as you have owned the shares of common stock or ADSs (and not entered into specified kinds of hedging transactions) for at least a 16-day period that includes the ex-dividend date. Instead of claiming a credit, you may, at your election, deduct such Korean taxes in computing your taxable income, subject to generally applicable limitations under U.S. tax law. Korean taxes withheld from a distribution of additional shares that is not subject to U.S. tax will be treated for U.S. federal income tax purposes as imposed on “general limitation” income. Such treatment may affect your ability to utilize any available foreign tax credit in respect of such taxes.

Any Korean securities transaction tax or agriculture and fishery special tax that you pay will not be creditable for foreign tax credit purposes.

Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions in securities and may not be allowed in respect of arrangements in which a U.S. holder’s expected economic profit is insubstantial.

The calculation of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions involve the application of complex rules that depend on a U.S. holder’s particular circumstances. You should consult your own tax advisers regarding the creditability or deductibility of such taxes.


	*U.S. Information Reporting and Backup Withholding Rules*

Payments in respect of the notes, shares of common stock or ADSs that are made within the United States or through certain U.S.-related financial intermediaries are subject to information reporting and may be subject to backup withholding unless the holder (1) is a corporation or other exempt recipient or (2) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Holders that are not U.S. persons generally are not subject to information reporting or backup withholding. However, such a holder may be required to provide a certification of its non-U.S. status in connection with payments received within the United States or through a U.S.-related financial intermediary.


Item 10F.	*Dividends and Paying Agents*

See “Item 8A. Consolidated Statements and Other Financial Information — Dividends” above for information concerning our dividend policies and our payment of dividends. See “Item 10B. Memorandum and Articles of Association — Dividends” for a discussion of the process by which dividends are paid on shares of our common stock. See “Item 12. Description of Securities Other than Equity Securities — Dividends, Other Distributions and Rights” for a discussion of the process by which dividends are paid on our ADSs. The paying agent for payment of our dividends on ADSs in the United States is Bank of New York.


Item 10G.	*Statements by Experts*

Not applicable


Item 10H.	*Documents on Display*

We file reports, including annual reports on Form 20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. You may read and copy any materials filed with the SEC at the Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20459. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Any filings we make electronically will be available to the public over the Internet at the SEC’s web site at http://www.sec.gov.


Item 11.	*Quantitative and Qualitative Disclosures about Market Risk*

We are exposed to foreign exchange rate and interest rate risk primarily associated with underlying liabilities, and to changes in the commodity prices of principal raw materials and the market value of our equity investments. Following evaluation of these positions, we selectively enter into derivative financial instruments to manage the related risk exposures. These contracts are entered into with major financial institutions, which minimizes the risk of credit loss. The activities of our finance division are subject to policies approved by our senior management. These policies address the use of derivative financial instruments, including the approval of counterparties, setting of limits and investment of excess liquidity. Our general policy is to hold or issue derivative financial instruments for hedging purposes. From time to time, we may also enter into derivative financial contracts for trading purposes.

Exchange Rate Risk

Korea is our most important market and, therefore, a substantial portion of our cash flow is denominated in Won. Most of our exports are denominated in Dollars. Japan is also an important market for us, and we derive significant cash flow denominated in Yen. We are exposed to foreign exchange risk related to foreign currency denominated liabilities and anticipated foreign exchange payments. Anticipated foreign exchange payments, which represent a substantial sum and are mostly denominated in Dollars, relate primarily to imported raw material costs and freight costs. Foreign currency denominated liabilities relate primarily to foreign currency denominated debt. We use, to a limited extent, cross-currency interest rate swaps to reduce our exchange rate exposure with respect to foreign currency denominated debt. Under cross-currency interest rate swaps, we typically agree with the other parties to exchange, at the maturity date, a fixed amount denominated in one currency with a fixed amount denominated in another currency. Until the maturity date, we agree to exchange interest payments, at specified intervals, calculated based on different interest rates for each currency. We also use, to a limited extent, currency forward contracts to purchase Dollars to reduce our exchange rate exposure. Under currency forward contracts, we typically agree with the other parties to exchange, at the maturity date, a fixed amount denominated in Dollars with an amount denominated in Yen or Won at fixed exchange rate.

As of December 31, 2004, we had entered into one currency swap contract and four currency forward contracts. Our aggregate net valuation gain of above contracts was approximately Won 6.9 billion and net transaction gain was Won 6.8 billion in 2004. We may incur losses under our existing swap transactions or any swap or other derivative product transactions entered into in the future. See Note 22 of Notes to Consolidated Financial Statements.

Interest Rate Risk

We are also subject to market risk exposure arising from changing interest rates. A reduction of interest rates increases the fair value of our debt portfolio, which is primarily of a fixed interest nature. From time to time, we use, to a limited extent, interest rate swaps to reduce interest rate volatility on some of our debt and manage our interest expense by achieving a balanced mixture of floating and fixed rate debt. As of December 31, 2004, we did not have any outstanding interest rate swap contract.

The following table summarizes the carrying amounts, fair values, principal cash flows by maturity date and weighted average interest rates of our short-term and long-term liabilities as of December 31, 2004 which are sensitive to exchange rates and/or interest rates. The information is presented in Won, which is our reporting currency.


				Maturities

																						December 31, 2004					December 31, 2003

				2005			2006			2007			2008			2009			Thereafter			Total			Fair Value		Total			Fair Value

				(In millions of Won except rates)
Local currency:
	Fixed rate				898,894			519,358			73,120			72,675			2,099			2,003			1,568,148			1,613,304		1,972,944			2,014,015
		Average weighted rate(1)			6.16	%		6.54	%		6.21	%		5.81	%		3.86	%		3.95	%		6.27	%		—		5.82	%		—
		Variable rate			—			—			—			—			—			—			—			—		—			—
		Average weighted rate(1)			—			—			—			—			—			—			—			—		—			—

		Sub-total			898,894			519,358			73,120			72,675			2,099			2,003			1,568,148			1,613,304		1,972,944			2,014,015

Foreign currency, principally Dollars and Yen:
	Fixed rate				768,906			657,063			51,564			582,366			15,893			40,714			2,116,505			2,152,279		2,506,588			2,576,839
		Average weighted rate(1)			3.42	%		4.01	%		2.95	%		0.25	%		2.94	%		2.66	%		2.70	%		—		3.06	%		—
		Variable rate			35,666			9,172			9,172			9,172			9,172			4,586			76,941			76,941		245,275			245,275
		Average weighted rate(1)			3.71	%		3.59	%		3.59	%		3.59	%		3.59	%		3.59	%		3.65	%		—		2.82	%		—

		Sub-total			804,572			666,235			60,736			591,538			25,065			45,300			2,193,447			2,229,221		2,751,863			2,822,114

			Total		1,703,466			1,185,593			133,857			664,213			27,164			47,302			3,761,595			3,842,525		4,724,807			4,836,129


(1)	Weighted average rates of the portfolio at the period end.

Commodity Price Risk

We are exposed to market risk of price fluctuations related to the purchase of raw materials, especially iron ore and coal. To ensure adequate supply of raw materials, we enter into long-term supply contracts to purchase iron ore, coal, nickel, chrome, stainless steel scrap and liquefied natural gas. These contracts generally have terms of three to ten years and provide for periodic price adjustments to then-market prices. As of December 31, 2004, 147 million tons of iron ore and 112 million tons of coal remained to be purchased under long-term supply contracts. We generally do not use commodity derivatives to manage our commodity price risks. As of December 31, 2004, we had entered into one nickel forward contract, which recorded net transaction loss of Won 3 billion in 2004.

Equity Price Risk

We are exposed to equity price risk primarily from changes in the stock price of SK Telecom and Nippon Steel Corporation. We currently hold a 4.98% interest in SK Telecom (excluding shares placed as collateral for exchangeable bonds issued in August 2003) and a 2.2% interest in Nippon Steel Corporation. We have not entered into any derivative instruments or any other arrangements to manage our equity price risks.


Item 12.	*Description of Securities Other than Equity Securities*

The following is a summary of the deposit agreement, dated as of September 26, 1994, among us, The Bank of New York as ADR depositary and all holders and beneficial owners of ADRs, as amended by

amendment no. 1 dated as of June 25, 1997. The deposit agreement is governed by the laws of the State of New York. Because it is a summary, it does not contain all the information that may be important to you. For more complete information, you should read the entire deposit agreement and the ADR. The deposit agreement has been filed as an exhibit to the registration statement of which this prospectus forms a part. Additional copies of the deposit agreement are available for inspection at the Corporate Trust Office of the ADR depositary, located at 101 Barclay Street, New York, New York 10286. The principal executive office of the ADR depositary is located at One Wall Street, New York, New York 10286.

American Depositary Receipts

The ADR depositary will execute and deliver the ADRs evidencing the ADSs. Each ADS will represent one-fourth of one share of our common stock or the right to receive one-fourth of one share of our common stock. All shares of our common stock deposited or deemed deposited under the deposit agreement and any other securities, cash or other property held under the deposit agreement shall be referred to as “Deposited Securities.” We will deposit Deposited Securities with Korea Securities Depository in Seoul, Korea (the “Custodian”), an agent of the ADR depositary. An ADR may represent any number of ADSs. You may hold ADRs either directly or indirectly through your broker or other financial institution. If you hold ADRs directly, you are an ADR holder. This description assumes you hold your ADRs directly. If you hold the ADRs indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of ADR holders described in this section. You should consult with your broker or financial institution to find out what those procedures are.

As an ADR holder, you will not be treated as one of our shareholders and you will not have shareholder rights, which are governed by Korean law. The ADR depositary will be the holder of the shares underlying your ADSs. You will have the rights of an ADR holder. Your rights as the ADR holder and the obligations of the ADR depositary are set out in the deposit agreement. As an ADR holder, you will not be able to exercise dissenters’ rights unless you have withdrawn the underlying common stock and become a direct shareholder.

Deposit and Withdrawal of Deposited Securities

Notwithstanding the provisions described below, under current Korean laws and regulations, the ADR depositary is required to obtain our prior consent for the number of shares to be deposited in any given proposed deposit which exceeds the difference between (1) the aggregate number of shares deposited by us for the issuance of ADSs (including deposits in connection with the initial and all subsequent offerings of ADSs and stock dividends or other distributions related to these ADSs) and (2) the number of shares on deposit with the ADR depositary at the time of such proposed deposit.

The shares of common stock underlying the ADRs will be held in scripless form. Accordingly, no share certificates will be issued for them, and the ADR depositary will hold the shares through the book-entry settlement system of the Custodian. The delivery of shares of common stock pursuant to the deposit agreement will take place through the facilities of the Custodian in accordance with its applicable settlement procedures. The ADR depositary will execute and deliver ADRs if you or your broker deposit shares or evidence of rights to receive shares of common stock with the Custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the ADR depositary will register the appropriate number of ADSs in the names you designate and will deliver an ADR or ADRs for those ADSs at its Corporate Trust Office to the persons you designate. The ADR depositary and the Custodian will refuse to accept shares of common stock for deposit whenever we restrict transfers of shares to comply with ownership restrictions under applicable law or our articles of incorporation, whenever the deposit would result in any violation of our articles of incorporation or applicable law, or whenever the deposit would cause the total number of shares of common stock deposited to exceed a level we determine from time to time. See “Item 10. Additional Information — Item 10D. Exchange Controls — Restrictions Applicable to Common Stock.”

You may surrender your ADRs at the Corporate Trust Office of the ADR depositary to withdraw the underlying shares of our common stock. Upon payment of the fees and any governmental charges and taxes provided in the deposit agreement, and subject to applicable laws and regulations of Korea and our articles of incorporation, the ADR depositary will deliver, at the principal office of the Custodian in Seoul, Korea, the amount of Deposited Securities underlying the surrendered ADRs. The ADR depositary may also deliver the amount of Deposited Securities then underlying the surrendered ADRs at its Corporate Trust Office. At your request, risk and expense, we will forward share certificates and other proper documents of title to the Corporate Trust Office of the ADR depositary for delivery to you. If you surrender an ADR evidencing a number of ADSs not evenly divisible by four, the ADR depositary will deliver the appropriate whole number of shares of common stock and other Deposited Securities represented by the surrendered ADSs, and will execute and deliver to you a new ADR evidencing ADSs representing any remaining fractional shares of common stock.

Neither the ADR depositary nor the Custodian will deliver shares of common stock in any manner or otherwise permit the shares to be withdrawn from the facility created by the deposit agreement, except upon the receipt and cancellation of ADRs. However, in certain circumstances, subject to the provisions of the deposit agreement, the ADR depositary may execute and deliver ADRs before deposit of the underlying shares of common stock. This is called a pre-release of the ADR. The ADR depositary may also deliver shares of common stock upon cancellation of pre-released ADRs (even if the cancellation occurs before the termination of the pre-release) or upon receipt of other ADRs. The ADR depositary may pre-release ADRs only under the following conditions: (1) before or at the time of the pre-release, the person to whom the pre-release is being made must represent to the ADR depositary in writing that it or its customer owns the shares of common stock or ADRs to be deposited; (2) the pre-release must be fully collateralized with cash or U.S. government securities; (3) the ADR depositary must be able to terminate the pre-release on not more than five business days’ notice; and (4) the pre-release is subject to further indemnities and credit regulations as the ADR depositary deems appropriate. In addition, the ADR depositary will limit the number of ADSs that may be outstanding at any time as a result of pre-release, although the ADR depositary may disregard the limit from time to time if it thinks it is appropriate to do so.

Dividends, Other Distributions and Rights

The ADR depositary has agreed to pay to you the cash dividends or other distributions it or the Custodian receives on Deposited Securities, after deducting its fees and expenses. You will receive these distributions in proportion to the number of shares your ADRs represent.

The ADR depositary will convert any cash dividend or other cash distribution paid in Won on the shares of common stock into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If that is not possible or if any approval from the Korean Government is required and cannot be promptly obtained, the deposit agreement allows the ADR depositary to distribute the Won to ADR holders who have requested the distribution in writing and hold the remainder of the non-convertible Won for the account of those ADR holders who have not been paid. It will not invest the Won it holds and will not be liable for any interest.

Before making a distribution, the ADR depositary will deduct any withholding taxes that must be paid. See “Item 10. Additional Information — Item 10E. Taxation — Korean Taxation.” If the exchange rates fluctuate during a time when the ADR depositary cannot convert the Won, you may lose some or all of the value of the distribution.

The ADR depositary may distribute new ADRs representing any shares we distribute as a dividend or free distribution. The ADR depositary will only distribute whole ADSs. It will sell shares which would require it to deliver a fractional ADS and distribute the net proceeds in the same way as it does with cash. If the ADR depositary does not distribute additional ADRs, then each outstanding ADS will also represent the new shares so distributed.

If we offer holders of our securities any rights to subscribe for additional shares of common stock or any other rights, the ADR depositary may make these rights available to you. The ADR depositary must first determine whether it is lawful and feasible to do so. If the ADR depositary determines that it is not lawful or feasible to make these rights available to you, then at our request, the ADR depositary will use its best efforts to sell the rights and distribute the proceeds in the same way as it would do with cash. The ADR depositary may allow the rights that are not distributed or sold to lapse. In that case, you will receive no value for them.

If a registration statement under the Securities Act is required with respect to the securities to which any rights relate in order for us to offer the rights to you and to sell the securities represented by the rights, the ADR depositary will not offer such rights to you if you have an address in the United States (as defined in Regulation S under the Securities Act) unless and until such a registration statement is in effect, or unless the offering and sale of such securities and such rights to you are exempt from the registration requirements of the Securities Act. The ADR depositary will not be responsible for any failure to determine that it may be lawful or feasible to make the rights available to you.

We may decide not to register under the Securities Act securities to which the rights relate where registration under the Securities Act may be required. In this case, you would not be permitted to purchase the securities or otherwise exercise the rights and the ADR depositary would, to the extent possible, dispose of the rights for your account. Such a disposal of rights may reduce your equity interest in us.

If the ADR depositary determines that any distribution of property other than cash, shares of common stock or rights to subscribe for them cannot be made proportionally, or if for any other reason the ADR depositary deems the distribution not to be feasible, the ADR depositary may, after consultation with us, dispose of all or a portion of the property in such amounts and in such manner, including by public or private sale, as the ADR depositary deems equitable and practicable. The ADR depositary will distribute to you the net proceeds of any such sale, or the balance of any such property, after deduction of the fees of the ADR depositary.

In the case of a change in the par value, or a split-up, consolidation or any other reclassification of shares of our common stock or upon any recapitalization, reorganization, merger or consolidation or sale of assets affecting us, any securities received by the ADR depositary or the Custodian in exchange for, in conversion of or in respect of Deposited Securities will be treated as new Deposited Securities under the deposit agreement. In that case, ADSs will, subject to the terms of the deposit agreement and applicable laws and regulations, including any registration requirements under the Securities Act, represent the right to receive the new Deposited Securities, unless additional ADRs are issued, as in the case of a stock dividend, or unless the ADR depositary calls for the surrender of outstanding ADRs to be exchanged for new ADRs.

Record Dates

The ADR depositary will fix a record date in each of the following situations:


	•	any cash dividend or other cash distribution becomes payable;

	•	any distribution other than cash is made;

	•	rights are issued with respect to Deposited Securities;

	•	the ADR depositary receives notice of any shareholder meeting; and

	•	the ADR depositary causes a change in the number of shares of common stock that are represented by each ADS.

The record date will, to the extent practicable, either be the same date as the record date fixed by us, or if different from the record date fixed by us, be fixed after consultation with us. The record date will determine (1) the ADR holders who are entitled to receive the dividend, distribution or rights, or the net

proceeds of the sale of the rights; (2) the ADR holders who are entitled to give instruction for the exercise of voting rights at a shareholders’ meeting or to attend (without voting at or speaking to) the meeting; or (3) the date on which each ADS will represent a changed number of shares of common stock.

Voting of the Underlying Deposited Securities

As soon as practicable after it receives our notice of any meeting or solicitation of shareholder proxies, and upon our written request, the ADR depositary will mail to you a notice that will contain the following:


	•	the information contained in our notice to the ADR depositary, or, if requested by us, a summary of the information provided by us;

	•	a statement that the ADR holders as of the close of business on a specified record date will be entitled to instruct the ADR depositary as to how to exercise their voting rights for the number of shares of common stock or other Deposited Securities represented by their ADSs, subject to the provisions of applicable Korean law and our articles of incorporation, which provisions, if any, will be summarized in the notice to the extent that they are material; and

	•	a statement as to the manner in which the ADR holders may give their instructions.

Upon your written request received on or before the date set by the ADR depositary for this purpose, the ADR depositary will endeavor, in so far as practicable, to vote or cause to be voted the shares of common stock or other Deposited Securities underlying your ADRs in accordance with the instructions set forth in your written request. The ADR depositary may not itself exercise any voting discretion over any Deposited Securities. You may only exercise the voting rights in respect of four ADSs or multiples of four ADSs.

Disclosure of Beneficial Ownership; Ownership Restrictions

We may from time to time request you to provide information as to the capacity in which you hold or held ADRs, the identity of any other persons then or previously interested in ADRs and the nature of the interest, and various other matters. You will agree in the deposit agreement to provide any such information reasonably requested by us or the ADR depositary whether or not you are still an ADR holder or beneficial owner at the time of the request.

We may restrict transfers of the shares of common stock where the transfer might result in ownership of shares of common stock exceeding the limits under our articles of incorporation and applicable law. See “Item 10. Additional Information — Item 10D. Exchange Controls — Restrictions Applicable to Common Stock.” We may also restrict transfers of the ADSs where the transfer may cause the total number of shares of common stock represented by the ADSs beneficially owned by a single ADR holder or beneficial owner of ADRs, taken together with all other shares of common stock beneficially owned by the ADR holder or beneficial owner, including shares of common stock beneficially owned by affiliated owners, to any limit under our articles of incorporation and applicable law with respect to which we may, from time to time, notify the ADR depositary. We may instruct the ADR depositary to take action with respect to the beneficial ownership of any ADR holder or beneficial owner of ADRs or common stock represented by the ADSs held by such ADR holder or beneficial owner in excess of the limitations, if and to the extent the disposition is permitted by applicable law. See “Item 10. Additional Information — Item 10D. Exchange Controls — Restrictions Applicable to ADSs.”

Reports and Notices

We will furnish to the ADR depositary English language versions of any reports, notices and other communications that we generally transmit to holders of our common stock or other Deposited Securities, including our annual reports, with annual audited consolidated financial statements prepared in conformity with Korean GAAP and, if prepared pursuant to the Exchange Act, a reconciliation of net earnings for the year and stockholders’ equity to U.S. GAAP, and unaudited non-consolidated semiannual financial statements prepared in conformity with Korean GAAP. The ADR depositary will arrange for the prompt

mailing of copies of these documents, or, if we request, a summary of any such notice provided by us to you or, at our request, make notices, reports (other than the annual reports and semiannual financial statements) and other communications available to you on a basis similar to that for the holders of our common stock or other Deposited Securities or on such other basis as we may advise the ADR depositary according to any applicable law, regulation or stock exchange requirement.

Notices to you under the deposit agreement will be deemed to have been duly given if personally delivered or sent by mail or cable, telex or facsimile transmission, confirmed by letter, addressed to you at your address as it appears on the transfer books of the ADR depositary or at such other address as you have notified the ADR depositary.

In addition, the ADR depositary will make available for your inspection at its Corporate Trust Office any reports, notices and other communications received by it, the Custodian or a nominee of either as a holder of Deposited Securities and which we generally transmit to the holders of Deposited Securities.

Amendment and Termination of the Deposit Agreement

We may agree with the ADR depositary to amend the deposit agreement and the ADRs without your consent for any reason. If the amendment adds or increases fees or charges, except for taxes and other governmental charges or certain expenses of the ADR depositary, or prejudices a substantial right of ADR holders, it will only become effective 30 days after the ADR depositary notifies you of the amendment. If you continue to hold your ADRs at the time an amendment becomes effective, you will be considered to have agreed to the amendment and to be bound by the deposit agreement as amended. Except as otherwise required by any mandatory provisions of applicable law, no amendment may impair your right to surrender your ADRs and to receive the underlying Deposited Securities.

The ADR depositary will terminate the deposit agreement if we ask it to do so. The ADR depositary may also terminate the deposit agreement if the ADR depositary has notified us that it would like to resign and we have not appointed a new depositary within 90 days. In both cases, the ADR depositary must notify you at least 30 days before the termination date.

If any ADRs remain outstanding after the date of termination, the ADR depositary will stop performing any further acts under the deposit agreement, except:


	•	to collect dividends and other distributions pertaining to the Deposited Securities and any other property represented by the outstanding ADRs;

	•	to sell rights as provided in the deposit agreement; and

	•	to deliver Deposited Securities, together with any dividends or other distributions received with respect to the Deposited Securities and the net proceeds of the sale of any rights or other property represented by those ADRs in exchange for surrendered ADRs after payment of fees and other charges of the ADR depositary.

On and after the date of termination, you will be entitled to receive the amount of Deposited Securities underlying an ADR upon (1) surrender of the ADR at the Corporate Trust Office of the ADR depositary, (2) payment of the fees of the ADR depositary for the surrender of the ADR and (3) payment of any applicable taxes or governmental charges.

At any time after the expiration of one year from the date of termination, the ADR depositary may sell any remaining Deposited Securities and hold uninvested the net proceeds in an unsegregated account, together with any other cash or property then held, without liability for interest, for the pro rata benefit of the holders of ADRs that have not been surrendered by then. After making the sale, the ADR depositary will be discharged from all obligations under the deposit agreement, except for some indemnification obligations and the obligation to account for the net proceeds of the sale and other cash or property (after deducting, in each case, the fee of the ADR depositary for surrendered ADRs, any expenses for the account of the holder of the ADRs in accordance with the terms and conditions of the deposit agreement, and any applicable taxes or governmental charges). Upon the termination of the deposit agreement, we

will also be discharged from all obligations under deposit agreement except for some obligations to the ADR depositary.

Charges of the ADR Depositary

We will pay the fees and expenses of the ADR depositary as agreed between us and the ADR depositary.

You will not pay any fees in connection with the issuance of ADRs in the global offering. If you deposit or withdraw shares of common stock, or surrender ADRs, or receive newly issued ADRs, including issuance of ADRs pursuant to a stock dividend or stock split declared by us or an exchange of stock regarding the ADRs or Deposited Securities or a distribution of ADRs pursuant to the deposit agreement, you will incur the following charges, whichever applicable:


	•	taxes and other governmental charges;

	•	registration fees applicable to transfers of shares of common stock on our shareholders’ register, or that of any entity acting as registrar for the shares, to the name of the ADR depositary or its nominee, or the Custodian or its nominee, when making deposits or withdrawals under the deposit agreement;

	•	cable, telex and facsimile transmission expenses that are expressly provided in the deposit agreement;

	•	expenses incurred by the ADR depositary in the conversion of foreign currency under the deposit agreement;

	•	a fee of $5.00 or less per 100 ADSs, or portion thereof, for the execution and delivery of ADRs and the surrender of ADRs under the deposit agreement; and

	•	a fee for the distribution of proceeds of sales of securities or rights under the deposit agreement, the fee equaling the lesser of the proceeds of the sale and the fee for the execution and delivery of ADRs which would have been charged as a result of the deposit of the securities or shares received in exercise of rights but which securities or rights are instead sold and the proceeds distributed.

Liability of Holders for Taxes or Other Charges

You are liable for payment to the ADR depositary of any tax or other governmental charges or expenses payable by the Custodian, the ADR depositary or its nominee as the registered holder of any Deposited Securities represented by your ADSs. The ADR depositary may refuse to effect any transfer or split-up or combination of your ADRs or any withdrawal of Deposited Securities underlying your ADRs until the payment is made. The ADR depositary may withhold any dividends or other distributions or sell any part or all of the Deposited Securities underlying your ADRs and apply the dividends or distributions or the proceeds of the sale to the payment of any tax or other governmental charges or expenses. You will remain liable for any deficiency.

Regardless of any provision in the deposit agreement, before making any distribution or other payment on any Deposited Securities, we will make deductions (if any) that we are required to make under Korean law in respect of any income tax, capital gains tax or other taxes, and we may also deduct the amount of any tax or governmental charges payable by us in respect of a distribution or other payment or any document signed in connection with such a distribution or payment. In making deductions, we will have no obligation to you to apply a rate under any treaty or other arrangement between Korea and the country in which you are resident unless you have timely provided to us evidence of your residency that is satisfactory to the relevant tax authorities of Korea.

Limitations on Execution, Transfer and Surrender of ADRs

The ADRs are transferable on the books of the ADR depositary. However, the ADR depositary may close the transfer books at any time it deems expedient in the performance of its duties or at our request. The ADR depositary may suspend or refuse the execution and delivery or transfer of ADRs during any period when the transfer books of the ADR depositary are closed, or at any time we or the ADR depositary consider the action necessary or advisable.

Before the execution and delivery, registration of transfer, split-up, combination or surrender of any ADR, the delivery of any distribution on the ADR, or withdrawal of Deposited Securities represented by the ADR, we, the ADR depositary, the Custodian or any registrar of ADRs may require the person presenting the ADR or depositing the shares of common stock to pay a sum sufficient to reimburse us or them for any tax or other governmental charges, any stock transfer or registration fee and other applicable fees payable by the ADR holder.

The ADR depositary will refuse to register any transfer of ADSs if the transfer would cause the total number of shares of common stock represented by the ADSs beneficially owned by you, when aggregated with all other shares of common stock beneficially owned by you and certain of your affiliates, to exceed any limit under our articles of incorporation or applicable law of which we may, from time to time, notify the ADR depositary. The ADR depositary may also refuse to deliver ADRs, register the transfer of any ADR or make any distribution of Deposited Securities until it has received such proof of citizenship, residence, exchange control approval, payment of applicable taxes or other governmental charges, legal or beneficial ownership or other information as it may reasonably deem necessary or proper or as we may require.

Regardless of any provision in the deposit agreement or the ADRs, the surrender of outstanding ADRs and withdrawal of shares of common stock may not be suspended except when required in connection with: (1) temporary delays caused by closing the transfer books of the ADR depositary or us or the deposit of shares of common stock in connection with voting at a meeting of shareholders or payment of dividends, (2) the payment of fees, taxes and similar charges, or (3) compliance with any U.S. or foreign laws or governmental regulations relating to the ADRs or the withdrawal of shares of common stock.

ADR holders may inspect the transfer books of the ADR depositary at any reasonable time. However, the inspection may not be for the purpose of communicating with other ADR holders in the interest of a business or object other than our business, including any matter related to the deposit agreement or the ADRs.

General

Neither we nor the ADR depositary will be liable to you if prevented from or delayed in performing our or their obligations under the deposit agreement by the law of any country, by any governmental authority or stock exchange, by any provision of our articles of incorporation or by any circumstances beyond our or their control. Our obligations and the obligations of the ADR depositary to the holders and beneficial owners of ADRs are expressly limited to performing our and their respective duties specified in the deposit agreement without negligence or bad faith.

So long as any ADRs or ADSs evidenced by ADRs are listed on one or more stock exchanges, the ADR depositary will act as registrar or, with our approval, appoint a registrar or one or more co-registrars, for registration of the ADRs in accordance with any requirements of these stock exchanges.

PART II


Item 13.	*Defaults, Dividend Arrearages and Delinquencies*

Not Applicable


Item 14.	*Material Modifications to the Rights of Security Holders and Use of Proceeds*

Not Applicable


Item 15.	*Controls and Procedures*

We carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2004. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our chief executive officer and chief financial officer concluded that the disclosure controls and procedures as of December 31, 2004, were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported as and when required.

There has been no change in our internal control over financial reporting during 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


Item 16A.	*Audit Committee Financial Expert*

At our annual general meeting of shareholders in March 2005, our shareholders elected the following four members of the audit committee: E. Han Kim (committee chair), Jeffrey D. Jones, Yoon-Suk Suh and Wook Sun. In addition, they determined and designated that Yoon-Suk Suh is an “audit committee financial expert” within the meaning of this Item 16A. The board of directors have approved this newly elected audit committee, and reaffirmed the determination by our shareholders that Yoon-Suk Suh is an audit committee financial expert and further determined that he is independent within the meaning of applicable SEC rules.


Item 16B.	*Code of Ethics*

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


Item 16C.	*Principal Accountant Fees and Services*

Audit and Non-Audit Fees

The following table sets forth the fees billed to us by our independent auditors, Samil PricewaterhouseCoopers, during the fiscal years ended December 31, 2003 and 2004:


		Year Ended December 31,

		2003		2004

		(In millions of Won)
Audit fees			W2,116		W1,006
Audit-related fees			137		46
Tax fees			62		72
Other fees			68		—

	Total fees		W2,383		W1,124

Audit fees in the above table are the aggregate fees billed by Samil PricewaterhouseCoopers, the Korean member firm of PricewaterhouseCoopers, in connection with the audit of our annual financial statements and the annual financial statements of POSCO Canada Ltd. and review of interim financial statements. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

Audit-related fees in the above table are the aggregate fees billed by Samil PricewaterhouseCoopers for due diligence service related to an acquisition project, accounting advisory service on consolidation and general consultation on financial accounting and reporting standards.

Tax fees in the above table are fees billed by Samil PricewaterhouseCoopers for our tax compliance and tax planning, as well as tax planning and preparation of Canadian tax returns for POSCO Canada Ltd.

Other fees in the above table are fees billed by Samil PricewaterhouseCoopers primarily related to review of financial information on potential investment projects.

Audit Committee Pre-Approval Policies and Procedures

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


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

Not Applicable


Item 16E.	*Purchases of Equity Securities by the Issuer and Affiliated Purchasers*

The following table sets forth the repurchases of common shares by us or any affiliated purchasers during the fiscal year ended December 31, 2004:


						Total Number of		Maximum Number
				Average Price Paid		Shares Purchased as		of Shares that May
		Total Number of		Per Share (in		Part of Publicly		Yet Be Purchased
Period		Shares Purchased		Won)		Announced Plans		Under the Plans

January 1 to January 31			—		—		—		—
February 1 to February 29			—		—		—		—
March 1 to March 31			—		—		—		—
April 1 to April 30			—		—		—		—
May 1 to May 31			—		—		—		—
June 1 to June 30			—		—		—		—
July 1 to July 31			—		—		—		—
August 1 to August 31			581,320		W160,393		581,320		1,198,000
September 1 to September 30			940,420		175,377		940,420		257,580
October 1 to October 31			257,580		180,696		257,580		—
November 1 to November 30			—		—		—		—
December 1 to December 31			—		—		—		—

	Total		1,779,320		W171,252		1,779,320		—

PART III


Item 17.	*Financial Statements*

Not Applicable


Item 18.	*Financial Statements*


	Page

Report of Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets as of December 31, 2003 and 2004		F-2
Consolidated Statements of Income for the Years Ended December 31, 2002, 2003 and 2004		F-4
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2002, 2003 and 2004		F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2003 and 2004		F-7
Notes to Consolidated Financial Statements		F-9

Item 19. Exhibits


1	.1	—	Articles of incorporation of POSCO (English translation) (incorporated by reference to Exhibit 1.1 to the Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2003)*
2	.1	—	Form of Common Stock Certificate (including English translation) (incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement No. 33-81554)*
2	.2	—	Form of Deposit Agreement (including Form of American Depositary Receipts) (incorporated by reference to the Registrant’s Registration Statement (File No. 33-84318) on Form F-6)*
2	.3	—	Letter from ADR Depositary to the Registrant relating to the Pre-release of American Depositary Receipts (incorporated by reference to the Registrant’s Registration Statement (File No. 33-84318) on Form F-6)*
8	.1	—	List of subsidiaries of POSCO
12	.1	—	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12	.2	—	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13	.1	—	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15	.1	—	Consent of Samil PricewaterhouseCoopers, the Korean member firm of PricewaterhouseCoopers


*	Filed previously

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of POSCO

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 management. 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.

Samil PricewaterhouseCoopers

Seoul, Republic of Korea

March 5, 2005

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.

F-1

POSCO and Subsidiaries

Consolidated Balance Sheets

December 31, 2004 and 2003


							(Note 2)

			2004		2003		2004

			(in millions of Korean Won and
			thousands of US Dollar)
ASSETS
Current assets
	Cash and cash equivalents, net of government grants (Notes 3 and 27)		W	486,370	W	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 doubtful accounts and present value discount (Notes 5, 13, 27 and 28)			3,093,511		2,308,445		2,988,611
	Other accounts and notes receivable, net of allowance for doubtful accounts and present value discount (Notes 5, 27 and 28)			163,118		95,564		157,587
	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 present value discount (Notes 5, 27, 28 and 29)				81,496		82,877		78,732
Long-term trade accounts and notes receivable, net of allowance for doubtful accounts and present value discount (Notes 5, 27 and 29)				36,094		43,665		34,870
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 and present value discount (Notes 11 and 29)				144,585		288,913		139,683

Total assets			W	24,128,960	W	20,768,549	$	23,310,752

F-2

POSCO and Subsidiaries

Consolidated Balance Sheets — (Continued)

December 31, 2004 and 2003


			2004			2003			2004

									(Note 2)
			(In millions of Korean Won and
			thousands of US Dollar)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
	Trade accounts and notes payable (Notes 27 and 28)		W	1,082,299		W	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 debentures issued (Notes 12, 13 and 27)			1,046,699			1,020,865			1,011,205
	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 debentures issued (Notes 13, 27 and 28)				2,050,801			2,952,384			1,981,259
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, W5,000 par value, authorized 200 million shares: issued and outstanding 87,186,835 shares in 2004 and 88,966,155 shares in 2003 (Note 1)			482,403			482,403			466,045
	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: W3,814,225 million in 2004 and W1,995,983 million in 2003 and W1,089,288 million in 2002
		Losses in excess of minority interest: W13,205 million in 2004 and W3,163 million in 2003 and W2,495 million in 2002)
	Capital adjustments, net (Note 20)			(1,150,734	)		(1,229,988	)		(1,111,713	)

				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			W	24,128,960		W	20,768,549		$	23,310,752

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

F-3

POSCO and Subsidiaries

Consolidated Statements of Income

Year Ended December 31, 2004, 2003 and 2002


								(Note 2)

		2004		2003		2002		2004

		(in millions of Korean Won and thousands of US Dollar,
		except per share amounts)
Sales (Notes 28 and 29)		W	23,973,053	W	17,789,237	W	14,354,918	$	23,160,133
Cost of goods sold (Note 28)			17,360,706		13,450,786		11,338,260		16,772,008

Gross 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		1,249,086

Operating 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		800,714

Non-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 and equipment (Note 8)		72,692		150,750		139,833		70,227
	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		—		—		3,273

Net 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		1,450,726

Net 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)		W	3,814,225	W	1,995,983	W	1,089,288	$	3,684,885

Per Share Data (Note 26) (in Korean won and US dollar)
	Basic and diluted ordinary income per share	W	47,155	W	24,496	W	13,295	$	45.56
	Basic and diluted earnings per share		47,185		24,496		13,295		45.58

F-4

POSCO AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity

Year Ended December 31, 2004, 2003 and 2002


	Common Stock
						Capital			Retained			Capital			Minority
	Shares			Amount		Surplus			Earnings			Adjustments			Interest			Total

	(In millions of Korean Won)
Balance as of January 1, 2002		93,589,485		W	482,403	W	3,859,029		W	7,129,436		W	(1,125,004	)	W	168,171		W	10,514,035
Net income for 2002		—			—		—			1,089,288			—			—			1,089,288
Cumulative effect of accounting policy change		—			—		—			717,510			—			—			717,510
Effect of change in percentage of ownership of investees		—			—		(70,419	)		13,572			—			106,833			49,986
Dividends		—			—		—			(204,089	)		—			(13,751	)		(217,840	)
Change in losses in excess of minority interest		—			—		—			(458	)		—			458			—
Retirement of treasury stock		(2,807,690	)		—		—			(281,698	)		281,698			—			—
Change in treasury stock		—			—		—			—			(12,289	)		—			(12,289	)
Overseas operations translation adjustment		—			—		—			—			(40,952	)		(999	)		(41,951	)
Valuation loss on investment securities		—			—		—			—			(307,175	)		(612	)		(307,787	)
Minority interest in income of consolidated subsidiaries		—			—		—			—			—			19,844			19,844
Others		—			—		9,127			1,154			(652	)		(779	)		8,850

Balance as of December 31, 2002		90,781,795		W	482,403	W	3,797,737		W	8,464,715		W	(1,204,374	)	W	279,165		W	11,819,646

Balance as of January 1, 2003		90,781,795		W	482,403	W	3,797,737		W	8,464,715		W	(1,204,374	)	W	279,165		W	11,819,646
Net income for 2003		—			—		—			1,995,983			—			—			1,995,983
Effect of change in percentage of ownership of investees		—			—		(7,345	)		—			—			3,248			(4,097	)
Dividends		—			—		—			(326,865	)		—			(7,538	)		(334,403	)
Loss on prior period unadjusted equity method		—			—		—			(16,124	)		—			—			(16,124	)
Change in losses in excess of minority interest		—			—		—			(668	)		—			668			—
Retirement of treasury stock		(1,815,640	)		—		—			(253,381	)		253,381			—			—
Change in treasury stock		—			—		21,635			—			(175,555	)		—			(153,920	)
Overseas operations translation adjustment		—			—		—			—			44,496			(1,006	)		43,490
Valuation loss on investment securities		—			—		—			—			(152,089	)		(5,157	)		(157,246	)
Minority interest in income consolidated subsidiaries		—			—		—			—			—			21,017			21,017
Others		—			—		16,746			11,420			4,153			2,902			35,221

Balance as of December 31, 2003		88,966,155		W	482,403	W	3,828,773		W	9,875,080		W	(1,229,988	)	W	293,299		W	13,249,567

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

F-5

POSCO and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity — (Continued)

Year Ended December 31, 2004, 2003 and 2002


	Common Stock
						Capital		Retained			Capital			Minority
	Stock			Amount		Surplus		Earnings			Adjustments			Interest			Total

	(In millions of Korean Won and thousands of US Dollar)
Balance as of January 1, 2004		88,966,155		W	482,403	W	3,828,773	W	9,875,080		W	(1,229,988	)	W	293,299		W	13,249,567
Net income for 2004		—			—		—		3,814,225			—			—			3,814,225
Effect of change in percentage of ownership of investees		—			—		1,527		1,167			—			(3,316	)		(622	)
Dividends		—			—		—		(524,602	)		—			(7,107	)		(531,709	)
Change in losses in excess of minority interest		—			—		—		(10,042	)		—			10,042			—
Retirement of treasury stock		(1,779,320	)		—		—		(304,711	)		—			—			(304,711	)
Change in treasury stock		—			—		63,695		—			158,025			—			221,720
Overseas operations translation adjustment		—			—		—		—			(126,552	)		(11,905	)		(138,457	)
Valuation gain on investment securities		—			—		—		—			51,933			97			52,030
Minority interest in income consolidated subsidiaries		—			—		—		—			—			27,039			27,039
Others		—			—		1,383		1			(4,152	)		(258	)		(3,026	)

Balance as of December 31, 2004		87,186,835		W	482,403	W	3,895,378	W	12,851,118		W	(1,150,734	)	W	307,891		W	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 ownership of investees	—			—		1,476		1,127			—			(3,204	)		(601	)
Dividends	—			—		—		(506,813	)		—			(6,866	)		(513,679	)
Change in losses in excess of minority interest	—			—		—		(9,701	)		—			9,701			—
Retirement of treasury stock	(1,779,320	)		—		—		(294,379	)		—			—			(294,379	)
Change in treasury stock	—			—		61,535		—			152,667			—			214,202
Overseas operations translation adjustment	—			—		—		—			(122,260	)		(11,501	)		(133,761	)
Valuation gain on investment securities	—			—		—		—			50,172			93			50,265
Minority interest in income consolidated subsidiaries	—			—		—		—			—			26,122			26,122
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

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

F-6

POSCO and Subsidiaries

Consolidated Statements of Cash Flows

Year Ended December 31, 2004, 2003 and 2002


												(Note 2)

			2004			2003			2002			2004

			(In millions of Korean Won and thousands of US Dollar)
Cash flows from operating activities
Net income			W	3,814,225		W	1,995,983		W	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 and property, plant and equipment			72,692			150,750			166,874			70,227
	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 to the association of employee stock ownership			159,897			74,687			—			154,475
	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 liabilities
	Increase 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

F-7

POSCO and Subsidiaries

Consolidated Statements of Cash Flows — (Continued)

Year Ended December 31, 2004, 2003 and 2002


			2004			2003			2002			2004

												(Note 2)
			(In millions of Korean Won and thousands of US Dollar)
Cash flows from investing activities
	Disposal of trading securities		W	10,482,755		W	10,800,373		W	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	)		87,265

		Net cash used in investing activities		(3,379,902	)		(2,135,269	)		(2,145,564	)		(3,265,290	)

Cash flows from financing activities
	Payment 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 consolidated subsidiaries				381			—			(16,097	)		368

		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			W	488,331		W	593,946		W	267,675		$	471,772

Supplemental disclosure of cash flow information:
	Cash paid during the year for interest		W	214,845		W	255,762		W	327,575		$	207,560

	Cash paid during the year for income tax		W	854,899		W	589,052		W	264,729		$	825,910

F-8

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004 and 2003


1.	Consolidated Companies

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 subsidiaries, 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 manufacture 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 W5,000 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:


	Number of		Percentage of
	Shares		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

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.

F-9

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


	*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		Number of Shares						Percentage of				Percentage of
		(In millions of			Outstanding								Ownership				Ownership of
Subsidiaries	Primary Business	Korean Won)(1)			Shares		POSCO		Subsidiaries		Total		(%)			Location	Subsidiaries (%)

Domestic:
POSCO E & C (POSEC)	Engineering and construction	W	788,126			30,000,000		27,281,080		—		27,281,080		90.94		Pohang	—
Posteel Co., Ltd.	Steel sales and service		274,282			18,000,000		17,155,000		—		17,155,000		95.31		Pohang	—
POSCON Co., Ltd.	Electronic control devices manufacturing		83,228			3,519,740		3,098,610		—		3,098,610		88.04		Pohang	—
Pohang Coated Steel Co., Ltd.	Coated steel manufacturing		280,599			6,000,000		4,000,000		—		4,000,000		66.67		Pohang	—
POSCO Machinery & Engineering Co., Ltd.	Steel work maintenance		34,632			1,700,000		1,700,000		—		1,700,000		100.00		Pohang	—
POSDATA Co., Ltd.	Computer hardware and software distribution		111,806			6,155,160		4,000,000		—		4,000,000		64.99		Sungnam	—
POSCO Research Institute	Economic research and consulting		22,645			3,800,000		3,800,000		—		3,800,000		100.00		Seoul	—
Seung Kwang Co., Ltd.	Athletic facilities operation		42,529			4,145,000		2,737,000		1,208,000		3,945,000		95.17		Suncheon	POSCO E&C (29.14)
POS-AC Co., Ltd.	Architecture and consulting		10,187			130,000		130,000		—		130,000		100.00		Seoul	—
Changwon Specialty Steel Co., Ltd.	Specialty steel manufacturing		388,899			30,000,000		26,000,000		4,000,000		30,000,000		100.00		Changwon	Posteel (6.67), POSCON (6.67)
POSCO Machinery Co., Ltd.	Machinery installation		27,131			1,000,000		1,000,000		—		1,000,000		100.00		Gwangyang	—
POSTECH Venture Capital Co., Ltd.	Investment in venture companies		34,433			6,000,000		5,700,000		—		5,700,000		95.00		Pohang	—
POSCO Refractories & Environment (POSREC)	Manufacturing		98,439			5,907,000		3,544,200		—		3,544,200		60.00		Pohang	—
SEO MUEUN Development Inc.	Real estate, rental and construction		(17,386	)		30,000		—		—		—		—(2	)	Busan	—
Foreign:
POSCO America Corp. (POSAM)	Steel trading		136,073			308,610		306,855		1,755		308,610		100.00		U.S.A.	POSCAN (0.57)

F-10

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

Capital

Number of

Number of Shares

Percentage of

(In millions of

Outstanding

Ownership

Ownership of

Subsidiaries

Primary Business

Korean Won)(1)

Shares

POSCO

Subsidiaries

Total

(%)

Location

Subsidiaries (%)

POSCO Australia Pty. Ltd. (POSA)

Steel trading

43,629

761,775

—

761,775

100.00

Australia

—

POSCO Canada Ltd. (POSCAN)

Coal trading

45,736

1,099,885

—

1,099,885

100.00

Canada

Posteel (100.00)

POSCO Asia Co., Ltd. (POA)

Steel trading

17,788

9,360,000

—

9,360,000

100.00

Hongkong

—

VSC POSCO Steel Corporation (VPS)

Steel manufacturing

15,229

N/ A

40.00

Vietnam

Posteel (5.00)(3)

DALIAN POSCO — CFM Coated Steel Co., Ltd.

Coated steel manufacturing

33,203

N/ A

55.00

China

Posteel (15.00)(3)

POS-Tianjin Coil Center Co., Ltd.

Steel service center

12,471

N/ A

70.00

China

Posteel (60.00)(3)

POSMETAL Co., Ltd.

Steel service center

7,282

6,000

—

3,000

50.00

Japan

Posteel (50.00)

Shanghai Real Estate Development Co., Ltd.

Real estate rental

66,743

N/ A

100.00

China

POSCO E & C (100.00)

IBC Corporation

Real estate rental

15,677

N/ A

60.00

Vietnam

POSCO E & C (60.00)

POSLILAMA Steel Structure Co., Ltd.

Steel structure fabrication and sales

(6,895

)

N/ A

70.00

Vietnam

POSCO E & C (60.00), Posteel (10.00)

Zhangjiagang Pohang Stainless Steel Co., Ltd.

Stainless steel manufacturing

262,468

N/ A

87.08

China

POSCO-China Holding Corp. (13.79)

SHUNDE Pohang Coated Steel Co., Ltd.

Coated steel manufacturing

32,428

N/ A

93.80

China

POSCO-China Holding Corp. (10.00)

POS-THAI Service Steel Center Co., Ltd.

Steel service center

8,209

4,091,570

477,288

2,136,208

2,613,496

63.87

Thailand

Posteel (52.21)

Qingdao Pohang Stainless Steel Co., Ltd.

Stainless steel manufacturing

60,581

N/ A

80.00

China

POSCO-China Holding Corp. (10.00)(3)

Myanmar-POSCO Co., Ltd.

Steel manufacturing

6,216

19,200

13,440

—

13,440

70.00

Myanmar

—

F-11

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

Capital

Number of

Number of Shares

Percentage of

(In millions of

Outstanding

Ownership

Ownership of

Subsidiaries

Primary Business

Korean Won)(1)

Shares

POSCO

Subsidiaries

Total

(%)

Location

Subsidiaries (%)

Zhangjiagang POSHA Steel Port Co., Ltd.

Depot service

9,938

N/ A

90.00

China

POSCO E & C
(25.00),
Zhangjiagang
Pohang Stainless
Steel (65.00)(3)

POSCO Investment Co., Ltd.

Finance

34,415

2,000,000

—

2,000,000

100.00

Hongkong

—

POSCO (SUZHOU) Automotive Processing Center Co., Ltd.

Steel service center

20,778

N/ A

100.00

China

POSCO-China Holding Corp.(10.00)(3)

POS-Qingdao Coil Center Co., Ltd.

Steel service center

8,871

N/ A

69.08

China

Posteel (69.08)(3)

POSCO-China Holding Corp.

Investment

53,675

N/ A

100.00

China

—(3)

POS-ORE Pty. Ltd.

Soft coal

20,953

17,500,001

—

17,500,001

100.00

Australia

POSA (100.00)(3)

POSCO-JAPAN Co., Ltd.

Steel trading

49,212

88,038

—

88,038

100.00

Japan

—(4)


(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 W44,808 million and additional cash amounting to W1,058 million after closing down the Japanese branch.

F-12

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


	*Equity Method Investees*

The following table sets forth certain information with regard to equity method investees as of December 31, 2004.


		Capital			Number of Shares						Percentage of			Percentage of
		(In millions of									Ownership			Ownership of
Investees	Primary Business	Korean Won)(1)			POSCO		Subsidiaries		Total		(%)		Location	Subsidiaries (%)

Domestic:
eNtoB Corporation	E-business	W	17,393			560,000		180,000		740,000		23.13	Seoul	POSDATA and others (5.00)
MIDUS Information Technologies Co., Ltd.	Engineering		10,211			—		866,190		866,190		25.92	Seoul		POSCO E & C (25.92)
SONGDO New City Development Inc.	Real estate rental		(44,800	)		—		78,338		78,338		29.90	Seoul		POSCO E & C (29.90)
Seoul Subway Metro Railway 9	Railway management		7,322			—		430,534		430,534		29.40	Seoul	POSCON (14.7) PODATA (14.7)
Foreign:
KOBRASCO	Pellet		26,481			2,010,719,185		—		2,010,719,185		50.00	Brazil		—(2)
Fujiura Butsuryu Center Co., Ltd.	Warehousing		2,201			—		600		600		30.00	Japan		PIO (30.00)
USS — POSCO Industries (UPI)	Material processing		179,248			N/A		N/A		N/A		50.00	U.S.A.	POSAM (50.00)(2)(3)
Suzhou Dongshin Color Metal Sheet Co., Ltd.	Coloring		11,465			N/A		N/A		N/A		30.00	China		Posteel (30.00)(3)
POSCHROME	Fe-Cr		31,762			21,675		—		21,675		25.00	Republic of South Africa		—
Shunde Xingpu Steel Center Co., Ltd.	Metal processing		14,901			N/A		N/A		N/A		21.00	China		Posteel (10.50)(3)
POS-HYUNDAI STEEL	Metal processing		7,715			2,345,558		4,573,838		6,919,396		29.50	India		Posteel (19.50)
POSCO Bioventures LP.	Investment in companies in the bio-tech industry		33,221			N/A		N/A		N/A		100.00	U.S.A.	POSAM (80.00)(3)(4)
PT POSMI STEEL Indonesia (POSMI)	Steel service center		3,504			743		2,229		2,972		36.69	Indonesia		Posteel (27.52)(2)
Posmmit Steel Centre SDN BHD (POSMMIT)	Steel service center		10,559			4,200,000		—		4,200,000		30.00	Malaysia		—
POSVINA Co., Ltd.	Steel manufacturing		6,954			N/A		N/A		N/A		50.00	Vietnam		—(2)(3)
POSVEN	Steel manufacturing		—			4,480		2,240		6,720		60.00	Venezuela	POSCO E & (10.00) POSTEEL (10.00)(2)


(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 companies. 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.

F-13

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


	*Subsidiaries Excluded from the Consolidated Financial Statements*


		Shareholders’
		Equity			Number of shares						Percentage of				Percentage of
		(In millions of									Ownership				Ownership of
		Korean Won)(1)			POSCO		Subsidiaries		Total		(%)		Location		Subsidiaries (%)

Domestic:
POSCO Terminal Co., Ltd.	Distribution and warehousing	W	14,738			51,000		—		51,000		51.00		Kwangyang		—(2)
Metapolis Co., Ltd.	Construction		2,063			—		320,400		320,400		40.05		Hwasung	POSCO E & C (40.05)(2)
Foreign:
PT. POSNESIA Stainless Steel Industry	STS/CR		—			29,610,000		—		29,610,000		70.00		Indonesia		—(3)
POSEC-HAWAII Inc.	Construction		5,343			—		18,100		18,100		100.00		U.S.A.	POSCO E & C (100.00)(4)
POSCO E&C (ZHANGJIAGANG) Engineering & Consulting Co., Ltd.	Facilities manufacturing		(229	)		—		N/A		N/A		100.00		China	POSCO E & C (100.00)(2)
Dalian Poscondongbang Automatic Co., LTd	Electronic use facilities manufacturing		1,177			—		100,000		100,000		70.00		China		POSCON (70.00)(2)
Qingdao Posco Steel Processing Co., Ltd	Steel service center		4,175			—		N/A		N/A		100.00		China		POA (100.00)(2)
POSCO-FOSHAN Steel Processing Center Co., Ltd	Steel service center		887			—		N/A		N/A		100.00		China	POA (40.00) POSCO-CHINA (60.00)(2)


(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 W7,000 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 W7,000 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 W482,413 million, W165,354 million, W350 million and W102,943 million, respectively.

F-14

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


2.	Summary of Significant Accounting Policies

The significant accounting policies followed by the Company in the preparation of its consolidated financial statements are summarized 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 consolidated 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 statements, 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 principles 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.

F-15

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


	*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 liability. 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.

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 determinable 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

F-16

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

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 securities are carried at a value using the present value of future cash flows, discounted at a reasonable interest rate determined considering 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 investments 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

F-17

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

page 25 and 26. Depreciation is computed using the straight-line method or declining-balance method over the estimated useful lives of the assets, as follows:


	Estimated Useful Lives

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

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 termination of the asset’s useful life, meets the criteria for the recognition of provisions, the present value of the estimated expenditure 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.


	*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.


	Estimated Useful Lives

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


(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 measured 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 W22,602 million for the year ended December 31, 2004.

F-18

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


	*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 recognized 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.

The government grants, contributed to compensate for specific expenses, are offset against the related expenses. Other government 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 balance sheet date. In addition, in accordance with the applicable laws and regulations, POSAM and 22 other overseas

F-19

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

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 accompanying 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 balance sheets at fair value and classified into: cash flow hedges, fair market value hedges and transactions entered into for nontrading 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 transactions are charged to earnings and the gains and losses from cash flow hedged are offset against the purchasing price of inventories.


	*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 payments 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

F-20

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

operations translation amounting to W29,538 million from the Japanese branch was reclassified as extraordinary income amounting to W3,387 million and gain on valuation of equity method investments amounting to W26,151 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 proportionally 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 initial date of manufacture, acquisition, and construction to the date of the estimated completion of the manufacture, acquisition and construction.


	*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 common 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:W1,035.10, 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 generally 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.

F-21

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

Accounting Policies on Inventories and Depreciation of property, plant and equipment of POSCO and its Controlled Subsidiaries are as follows:


		Depreciation of property,
Company	Inventories(1)	plant and equipment

POSCO	Moving-average method	Straight-line method
POSCO E & C	Moving-average method	Straight-line method
Posteel Co., Ltd.	Moving-average method	Straight-line method
POSCON Co., Ltd.	Moving-average method	Straight-line method, Declining-balance method
Pohang Coated Steel Co., Ltd.	Gross average method	Straight-line method
POSCO Machinery & Engineering Co., Ltd.	Moving-average method	Straight-line method
POSDATA Co., Ltd.	Moving-average method	Straight-line method
POSCO Research Institute	N/ A	Straight-line method
Seung Kwang Co., Ltd.	Gross average method	Straight-line method, Declining-balance method
POS-AC Co., Ltd.	N/ A	Straight-line method, Declining-balance method
Changwon Specialty Steel Co., Ltd.	Moving-average method	Straight-line method
POSCO Machinery Co., Ltd.	Moving-average method	Straight-line method
POSTECH Venture Capital Co., Ltd.	N/ A	Declining-balance method
POSCO Refractories & Environment (POSREC)	First-in, First-out Method; Moving- average method	Straight-line method, Declining-balance method
SEO MUEUN Development Inc.	Specific identification method	Straight-line method
POSCO America Corp. (POSAM)	Moving-average method	Straight-line method
POSCO Australia Pty. Ltd. (POSA)	Gross average method	Straight-line method
POSCO Canada Ltd. (POSCAN)	Gross average method	Straight-line method, unit of production method
POSCO Asia Co., Ltd. (POA)	N/ A	Declining-balance method
VSC POSCO Steel Corporation (VPS)	Moving-average method	Straight-line method
DALIAN POSCO — CFM Coated Steel Co., Ltd.	Moving-average method	Straight-line method
POS-Tianjin Coil Center Co., Ltd.	Moving-average method	Straight-line method
POSMETAL Co., Ltd.	Moving-average method	Straight-line method
Shanghai Real Estate Development Co., Ltd.	N/ A	Straight-line method
IBC Corporation	Specific identification method	Straight-line method
POSLILAMA Steel Structure Co., Ltd.	Moving-average method	Straight-line method
Zhangjiagang Pohang Stainless Steel Co., Ltd.	Moving-average method	Straight-line method
SHUNDE Pohang Coated Steel Co., Ltd.	Moving-average method	Straight-line method
POS-THAI Service Steel Center Co., Ltd.	Moving-average method	Straight-line method
Qingdao Pohang Stainless Steel Co., Ltd.	Moving-average method	Straight-line method

F-22

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


		Depreciation of property,
Company	Inventories(1)	plant and equipment

Myanmar-POSCO Co., Ltd.	Moving-average method	Straight-line method
Zhangjiagang POSHA Steel Port Co., Ltd.	Moving-average method	Straight-line method
POSCO Investment Co., Ltd.	N/ A	Straight-line method
POSCO (SUZHOU) Automotive Processing Center Co., Ltd.	Moving-average method	Straight-line method
POS-Qingdao Coil Center Co., Ltd.	Moving-average method	Straight-line method
POSCO-China Holding Corp.	N/ A	Straight-line method
POS-ORE Pty. Ltd.	N/ A	Straight-line method
POSCO-Japan Co., Ltd.	Gross-average method	Straight-line method


(1)	Specific identification method is used for materials-in-transit.

F-23

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


3.	Cash and Cash Equivalents and Financial Instruments

Cash and cash equivalents and short-term and long-term financial instruments as of December 31, 2004 and 2003 consist of the following:


	Annual interest
	rates (%) as of
	December 31,
	2004		2004			2003

			(in millions of Korean
			Won)
Cash and cash equivalents
Cash on hand and bank deposits		0.00 - 3.00	W	16,106		W	9,732
Corporate bank deposits		0.10 - 5.00		20,655			37,874
Checking accounts		—		2,927			4,704
Time deposits in foreign currency and others		0.00 - 2.00		246,891			351,430
Maintained by overseas affiliates		1.00 - 5.00		201,752			190,206

				488,331			593,946
Government grants				(1,961	)		(1,344	)

			W	486,370		W	592,602

Short-term financial instruments
Time deposits		3.00 - 6.00	W	113,000		W	285,850
Installment accounts		4.00		656			77,276
Time deposits in foreign currency		—		—			2,463
Money in trust		—		2,140			2,121
Negotiable certificates of deposit		4.00 - 5.00		185,000			259,000
Commercial Paper		3.50 - 5.00		43,893			42,109
Trust type savings accounts		3.70 - 4.80		270,000			—
Others		3.00		9,909			10,322
Maintained by overseas affiliates		2.50 - 3.31		16,390			16,028

			W	640,988		W	695,169

Long-term financial instruments
Installment accounts		1.00 - 5.00	W	1,307		W	498
Guarantee deposits for opening accounts		—		108			113
Time deposits in foreign currency and others		0.00 - 4.00		291			17,391

			W	1,706		W	18,002

As of December 31, 2004, the Company’s financial assets amounting to W7,649 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 financial instruments amounting to W7,000 million and W541 million, respectively, in relation to performance guarantee deposits, and long-term financial instruments amounting to W108 million in relation to collateral deposits for opening checking accounts and others (Note 13).

F-24

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

As of December 31, 2003, the Company’s financial assets amounting to W8,255 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 W8,000 million and W142 million, respectively, in relation to performance guarantee deposits, and long-term financial instruments amounting to W113 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:


	2004		2003

	(in millions of Korean Won)
Beneficiary certificates(1)	W	2,658,756	W	1,147,219
Mutual funds		30,837		174,082

	W	2,689,593	W	1,321,301


(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:


		2004			2003

		(in millions of Korean Won)
Trade accounts and notes receivable		W	3,163,644		W	2,332,737
Less: Allowance for doubtful accounts			(69,509	)		(23,327	)
	Present value discount		(624	)		(965	)

		W	3,093,511		W	2,308,445

Other accounts and notes receivable		W	226,236		W	152,053
Less: Allowance for doubtful accounts			(63,032	)		(56,489	)
	Present value discount		(86	)		—

		W	163,118		W	95,564

Long-term trade accounts and notes receivable		W	50,266		W	61,734
Less: Allowance for doubtful accounts			(2,081	)		(2,090	)
	Present value discount		(12,091	)		(15,979	)

		W	36,094		W	43,665

Long-term loans		W	82,296		W	83,346
Less: Allowance for doubtful accounts			(746	)		(384	)
	Present value discount		(54	)		(85	)

		W	81,496		W	82,877

F-25

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

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:


						Present value						Maturity		Discount rate
Accounts		Company	Face value			discount			Book value			(year)		(%)

		(in millions of Korean Won)
Long-term deferred payment:
	Long-term loans	Employees	W	159		W	19		W	140			2017		7.54
		Others		260			35			225			2006		7.54

				419			54			365

	Other long-term assets	Cointop Software Corp.		201			38			163			2008		6.50
		Softpark Corp.		198			46			152			2009		6.32

				399			84			315

				818			138			680

Rescheduled payment:
	Long-term trade accounts and notes receivable	BNG Steel Co., Ltd.	W	53,259		W	12,212		W	41,047			2005 – 2009		8.00 – 8.62
		Hanbo Iron and Steel Co., Ltd. and Others		2,114			503			1,611			2010 – 2014		4.97 – 7.54

				55,373			12,715			42,658
Less: Current portion				(8,569	)		(624	)		(7,945	)

				46,804			12,091			34,713
Other long-term assets		Dong Sung Construction Co., Ltd. and Others		16,157			375			15,782			2005 – 2018		5.09 – 8.00
Less: Current portion				(3,504	)		(86	)		(3,418	)

			W	59,457		W	12,380		W	47,077

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.

F-26

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

Valuation and qualifying accounts for allowance for doubtful accounts for the years ended December 31, 2004, 2003 and 2002 are as follows:

Additions

Balance at

Charged to

beginning of

costs and

other

Balance at the

Description

period

expenses

accounts(2)

Deductions(1)

end of period

(in millions of Korean Won)

Year ended December 31, 2004:

Reserves deducted in the balance sheet from the assets to which the apply:

Allowance for doubtful accounts

325,187

(56,961

)

—

121,444

146,782

Year ended December 31, 2003:

Reserves deducted in the balance sheet from the assets to which the apply:

Allowance for doubtful accounts

321,534

(3,843

)

—

(7,496

)

325,187

Year ended December 31, 2002:

Reserves deducted in the balance sheet from the assets to which the apply:

Allowance for doubtful accounts

44,047

184,886

103,954

11,353

321,534


(1)	Deduction for allowance for doubtful accounts includes amount written off as uncollectible and others.

(2)	Includes W104 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:


	2004		2003

	(in millions of Korean Won)
Finished goods	W	448,659	W	340,814
By-products		2,842		3,226
Semi-finished goods		640,672		457,954
Raw materials		1,215,136		699,970
Materials in-transit		563,470		513,645
Others		194,742		52,762

	W	3,065,521	W	2,068,371


7.	Investment Securities

Investment securities as of December 31, 2004 and 2003 consist of the following:


	2004		2003

	(in millions of Korean Won)
Available-for-sale securities	W	2,164,129	W	2,147,013
Held-to-maturity securities		38,741		17,481
Equity method investments		142,206		154,336

	W	2,345,076	W	2,318,830

F-27

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


	*Available-For-Sale Securities*


	2004		2003

	(in millions of Korean Won)
Current portion of debt security investments	W	141,573	W	—

Marketable equity securities		1,682,772		1,647,038
Non-marketable equity securities		321,000		226,793
Debt security investments		145,640		243,691
Other investments		14,717		29,491

		2,164,129		2,147,013

	W	2,305,702	W	2,147,013

Investments in marketable equity securities as of December 31, 2004 and 2003 are as follows:


					2004				2003
			Percentage of
	Number of		ownership (%) as of		Acquisition
	shares		December 31, 2004		cost		Book value(1)		Book value

					(in millions of Korean Won)
Hanil Iron Steel Co., Ltd.		206,798		10.14	W	2,412	W	3,102	W	2,337
HISTEEL Co., Ltd.		123,052		9.95		1,608		1,747		1,053
MunBae Steel Co., Ltd.		1,849,380		9.02		3,588		2,367		1,840
Chohung Bank		—		—		—		—		529
Hana Bank		4,617,600		2.34		29,998		119,134		101,587
Korea Investment Corporation		588,000		0.76		588		135		185
SK Telecom Co., Ltd.(2)		5,834,296		7.09		1,665,249		1,170,222		1,153,190
Samjung P&A Co., Ltd.		270,000		9.00		2,714		1,944		1,866
DongYang Steel Pipe Co., Ltd.		1,564,250		2.46		3,911		501		508
Nippon Steel Corporation		147,876,000		2.17		285,103		375,649		380,794
Korea Line Corporation		217,373		2.17		8,067		7,695		—
Others		—		—		266		276		3,149

					W	2,003,504	W	1,682,772	W	1,647,038


(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).

F-28

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

Investments in non-marketable equity securities as of December 31, 2004 and 2003 are as follows:


					2004						2003
			Percentage of
	Number of		ownership (%) as of		Acquisition		Net asset
	shares		December 31, 2004		cost		value(1)		Book value		Book value

					(in millions of Korean Won)
Dae Kyeong Special Steel Co., Ltd.		1,786,000		19.00	W	8,930	W	5,365	W	8,930	W	8,930
Kihyup Corporation		600,000		10.34		3,000		3,425		3,000		3,000
Keo Yang Shipping Co., Ltd.		150,000		0.88		780		1,555		780		780
Korea Economic Daily		57,456		0.46		309		169		309		308
Daewoo Commercial Vehicle Co., Ltd.		—		—		—		—		—		51
The Siam United Steel		9,000,000		10.00		26,640		13,486		26,640		26,640
PT-POSNESIA Stainless Steel Industry(2)		29,610,000		70.00		9,474		1,567		1,567		2,537
Global Unity Ltd.		70,649		10.00		710		1,141		710		710
Seoul Daily News		1,614,000		19.40		17,317		6,926		9,551		9,551
POSCO Terminal Co., Ltd.(2)		1,183,200		51.00		5,916		7,517		5,916		1,020
Incheon Airport Train Co., Ltd.		14,865,988		12.00		74,330		74,330		74,330		44,892
POS-Ore Pty Ltd.(3)		—		—		—		—		—		15,697
POSEC-HAWAII Inc.(2)		18,100		100.00		10,132		5,343		5,343		8,260
BX Steel Posco Cold Rolled Sheet Co., Ltd.		—		10.00		26,803		26,803		26,803		—
Powercomm		7,500,000		5.00		246,000		76,125		76,125		68,407
Others		—		—		101,251		69,256		80,996		36,010

					W	531,592	W	293,008	W	321,000	W	226,793


(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 discounted 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 W169,875 million. Except for Powercomm, shares without an objective market value were based on acquisition costs.

(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.,

F-29

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


	having total assets of less than W7,000 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 W7,000 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:


			2004						2003

	Maturity (year)		Acquisition cost			Book value			Book value

			(in millions of Korean Won)
Government and municipal bonds	Within one year		W	130,467		W	132,478		W	—
		1 - 5		89,734			92,807			211,503
		5 - 10		8			8			124
Other bonds		1 - 5		62,855			61,920			32,064

				283,064			287,213			243,691
Less: Current portion				(139,467	)		(141,573	)		—

			W	143,597		W	145,640		W	243,691

Other investments as of December 31, 2004 and 2003 are as follows:


		2004				2003

		Acquisition cost		Book value(1)		Book value

		(in millions of Korean Won)
Investments in capital
	Stock Market Stabilization Fund	W	—	W	—	W	3,542
	Contractor Financial Fund		12,589		12,589		12,167
	Software Financial Fund and Others		2,128		2,128		13,782

		W	14,717	W	14,717	W	29,491


	(1)	As of December 31, 2004, other investments with no readily determinable fair value are carried at cost.

F-30

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

Details of valuation gains and losses on available-for-sale securities for the year ended December 31, 2004 are as follows:


		Beginning			Increase			Ending
		balance			(decrease)			balance

		(in millions of Korean Won)
Marketable equity securities:
	Hanil Iron & Steel Co., Ltd.	W	(75	)	W	764		W	689
	HISTEEL Co., Ltd.		(555	)		694			139
	MunBae Steel Co., Ltd.		(1,748	)		527			(1,221	)
	Chohung Bank		(3,228	)		3,228			—
	Hana Bank		71,589			17,547			89,136
	Korea 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	)		90,547
	Daehan 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		W	(529,777	)	W	47,272		W	(482,505	)

F-31

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

Details of valuation gains and losses on available-for-sale securities for the year ended December 31, 2003 are as follows:


		Beginning			Increase			Ending
		balance			(decrease)			balance

		(in millions of Korean won)
Marketable equity securities:
	Hanil Iron & Steel Co., Ltd.	W	(197	)	W	122		W	(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			71,589
	Korea 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			95,692
	Others		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		W	(371,935	)	W	(157,842	)	W	(529,777	)

Details of gross unrealized gains and losses on available-for-sale securities for the years ended December 31, 2004 and 2003 are as follows:


	2004								2003

			Gross		Gross						Gross		Gross
			Unrealized		Unrealized		Fair				Unrealized		Unrealized		Fair
	Amortized Cost		Gains		Losses		Value		Amortized Cost		Gains		Losses		Value

	(in millions of Korean Won)
Government and municipal bonds	W	220,150	W	5,146	W	3	W	225,293	W	210,509	W	1,120	W	2	W	211,627
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 securities		1,659,684		28,747		5,659		1,682,772		1,621,878		199,957		174,797		1,647,038
Non-marketable equity securities		304,621		16,379		—		321,000		410,913		—		184,120		226,793

	W	2,245,489	W	51,158	W	5,662	W	2,290,985	W	2,275,364	W	201,077	W	358,919	W	2,117,522

F-32

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

For the years ended December 31, 2004, 2003 and 2002, proceeds from sales of available-for-sale securities amounted to W27,558 million, W234,038 million and W109,523 million, respectively. Gross realized gains and losses amounted to W1,730 million and W3,506 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:


				2004				2003
		Maturity
		(year)		Acquisition cost		Book value		Book value

				(in millions of Korean Won)
Current portion of held-to-maturity securities:
	Government and municipal bonds		Within one year	W	12,721	W	12,721	W	239,129
	Corporate bond denominated in US$		“		1,321		1,048		11,352

				W	14,042		13,769		250,481

	Government and municipal bonds		1 - 5	W	6,814	W	6,814	W	15,232
	Corporate bond denominated in US$		1 - 5		—		—		1,207
	Government and municipal bonds		5 - 10	W	31,870		31,927		1,042

				W	38,684		38,741		17,481

				W	52,726	W	52,510	W	267,962

The Company provided national treasury bonds, amounting to W29,460 million, and certain government and municipal bonds, amounting to W1,688 million, to the Gyeongsangbuk-do provincial office as a performance guarantee in relation to the development of a waste disposal area (Note 13).

F-33

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


	*Equity Method Investments*

Details of equity method investees as of December 31, 2004 and 2003 are as follows:


			Percentage of		2004
			ownership (%)								2003
	Number of		as of December 31,		Acquisition		Net asset		Book		Book
	shares		2004		cost		value(1)		value		value

	(in millions of Korean Won)
KOBRASCO		2,010,719,185		50.00	W	32,950	W	13,240	W	11,203	W	562
Fujiura Butsuryu Center Co., Ltd.		600		30.00		632		660		648		538
USS-POSCO Industries(2)		—		50.00		234,293		89,624		65,084		98,653
Suzhou Dongshin Color Metal Sheet Co., Ltd.(2)		—		30.00		2,547		3,439		3,361		4,066
POSCHROME		21,675		25.00		4,859		7,941		7,000		6,711
Shunde Xingpu Steel Center Co., Ltd.(2)		—		21.00		1,852		3,129		3,094		3,291
POS-HYUNDAI STEEL		6,919,396		29.50		3,136		2,276		2,276		1,883
eNtoB Corporation		740,000		23.13		3,700		4,023		3,762		3,295
POSVINA Co., Ltd.(2)		—		50.00		1,527		3,477		3,145		3,970
POS-MMIT		4,200,000		30.00		2,308		3,168		3,015		2,625
PT POSMI STEEL Indonesia		2,972		36.69		1,467		1,286		1,599		1,572
MIDUS Information Technologies Co., Ltd.		866,190		25.92		433		2,647		2,646		2,281
POSCO Bioventures LP.(2)		—		100.00		38,157		33,221		33,221		24,889
POSVEN(3)		6,720		60.00		66,876		—		—		—
SONGDO New City Development Inc.(3)		78,338		29.90		404		—		—		—
Seoul Subway Metro Railway 9		430,534		29.40		2,152		2,152		2,152		—

					W	397,293	W	170,283	W	142,206	W	154,336


(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 initial investments and contracts.

(3)	The application of the equity method has been suspended due to its negative book value.

F-34

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

Details of equity method valuation for the years ended December 31, 2004 and 2003 are as follows:


			Valuation								Valuation
	2003		gain or loss			Other			2003		gain or loss			Other			2004
	Beginning		using equity			increase or			Ending		using equity			increase or			Ending
	balance		method			decrease(1)			balance		method			decrease(1)			balance

	(in millions of Korean Won)
KOBRASCO	W	—	W	21,447		W	(20,885	)	W	562	W	10,539		W	102		W	11,203
Fujiura Butsuryu Center Co., Ltd.		553		(102	)		87			538		207			(97	)		648
USS-POSCO Industries		119,979		(28,350	)		7,024			98,653		(8,011	)		(25,558	)		65,084
Suzhou Dongshin Color Metal Sheet Co., Ltd.		3,606		413			47			4,066		86			(791	)		3,361
POSCHROME		4,379		695			1,637			6,711		766			(477	)		7,000
Shunde Xingpu Steel Center Co., Ltd.		2,992		137			162			3,291		248			(445	)		3,094
POS-HYUNDAI STEEL		1,379		377			127			1,883		746			(353	)		2,276
eNtoB Corporation		2,579		812			(96	)		3,295		467			—			3,762
POSVINA Co.,Ltd.		—		2,263			1,707			3,970		485			(1,310	)		3,145
POS-MMIT		2,308		322			(5	)		2,625		808			(418	)		3,015
PT POSMI STEEL Indonesia		1,467		817			(712	)		1,572		191			(164	)		1,599
MIDUS Information Technologies Co., Ltd.		—		1,706			575			2,281		433			(68	)		2,646
POSCO Bioventures LP.		10,020		(2,186	)		17,055			24,889		(3,056	)		11,388			33,221
SONGDO New City Development Inc.		—		—			—			—		(404	)		404			—
Seoul Subway Metro Railway 9		—		—			—			—		—			2,152			2,152
Seoul Shinmun Co., Ltd.(2)		13,750		(2,874	)		(10,876	)		—		—			—			—

Total	W	163,012	W	(4,523	)	W	(4,153	)	W	154,336	W	3,505		W	(15,635	)	W	142,206


(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.

F-35

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

Details on the elimination of unrealized gain or loss for the years ended December 31, 2004 and 2003 are as follows:


	2004						2003

			Property, plant,						Property, plant,
	Current		equipment and				Current		equipment and
	assets		intangible assets		Total		assets		intangible assets		Total

	(in millions of Korean Won)
KOBRASCO	W	1,358	W	—	W	1,358	W	655	W	—	W	655
Fujiura Butsuryu Center Co., Ltd.		12		—		12		—		—		—
USS-POSCO Industries		18,303		—		18,303		6,237		—		6,237
Suzhou Dongshin Color Metal Sheet Co., Ltd.		79		—		79		—		—		—
POSCHROME		908		—		908		—		—		—
Shunde Xingpu Steel Center Co., Ltd.		39		—		39		—		—		—
eNtoB Corporation		213		22		235		10		15		25
POSVINA Co., Ltd.		332		—		332		—		—		—
POS-MMIT		211		—		211		—		—		—
PT POSMI STEEL Indonesia		182		—		182		—		—		—

	W	21,637	W	22	W	21,659	W	6,902	W	15	W	6,917

F-36

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


8.	Property, Plant and Equipment

Property, plant and equipment as of December 31, 2004 and 2003 consist of the following:


	2004			2003

	(in millions of Korean Won)
Buildings and structures	W	5,096,042		W	5,040,909
Machinery and equipment		19,544,990			18,995,021
Tools		380,744			347,664
Vehicles		173,847			166,062
Furniture and fixtures		207,288			195,602

		25,402,911			24,745,258
Less: Accumulated depreciation		(18,268,530	)		(17,147,340	)
Less: Accumulated impairment		(2,786	)		(2,786	)

		7,131,595			7,595,132

Land		1,109,382			1,212,850
Less: Accumulated impairment		(565	)		(566	)

		1,108,817			1,212,284

Construction in-progress		2,283,496			1,121,978
Less: Accumulated impairment		(83,617	)		(83,617	)

		2,199,879			1,038,361

	W	10,440,291		W	9,845,777

The value of land based on the posted price issued by the Korean tax authority amounted to W2,860,565 million as of December 31, 2004 (2003: W2,796,338 million).

As of December 31, 2004, property, plant and equipment are insured against fire and other casualty losses up to W4,755,080 million (2003: W4,568,357 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 manufacture custom-made automobile body panels. The Company previously recognized impairment losses on the construction-in-progress in Gwangyang No. 2 Minimill amounting to W390,764 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 W78,817 million on related machinery recorded as other investment assets based on the estimated net selling price which amounted to W54,309 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 W11,875 million and W50,680 million, respectively.

F-37

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

The changes in the carrying value of property, plant and equipment for the year ended December 31, 2004 are as follows:


	As of											Elimination of			As of
	December 31,											intercompany			December 31,
	2003		Acquisition		Disposal		Depreciation		Others(1)			transactions			2004

	(in millions of Korean won)
Land	W	1,212,284	W	7,723	W	73,091	W	—	W	(38,044	)	W	(55	)	W	1,108,817
Buildings		2,314,058		91,189		29,597		152,276		106,106			(130,172	)		2,199,308
Structures		913,564		58,499		4,401		78,759		53,107			(52,573	)		889,437
Machinery and equipment		4,178,717		894,562		22,435		1,209,030		265,772			(255,717	)		3,851,869
Vehicles		33,867		15,194		865		12,098		(137	)		(337	)		35,624
Tools		101,172		49,483		868		51,317		67			(243	)		98,294
Furniture and equipment		53,754		25,928		2,491		20,921		4,808			(4,015	)		57,063
Construction-in-progress		1,038,361		2,206,870		145,758		—		(777,172	)		(122,422	)		2,199,879

	W	9,845,777	W	3,349,448	W	279,506	W	1,524,401	W	(385,493	)	W	(565,534	)	W	10,440,291


(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:


	2004			2003

	(in millions of Korean Won)
Goodwill	W	—		W	234
Negative goodwill		(457	)		(914	)
Intellectual property rights		485			523
Port facilities usage rights		146,396			129,698
Development costs		22,060			18,272
Internally used software		230,758			233,000
Land usage rights		32,416			12,750
Others		64,657			80,933

	W	496,315		W	474,496

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 W22,602 million for the year ended December 31, 2004.

As of December 31, 2004, accumulated amortization of intangible assets amounted to W557,933 million (2003: W433,138 million).

F-38

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

The estimated aggregated amortization expenses for each of the next five fiscal years are as follows:


	(in millions of
	Korean Won)

2005	W	117,278
2006		87,300
2007		64,951
2008		49,006
2009		13,766

	W	332,301


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:


	2004			2003

	(in millions of Korean Won)
Beginning balance	W	332,205		W	294,395
Increase		95,211			125,069
Decrease(1)		101,256			78,087
Foreign exchange		(8,685	)		(9,172	)

Ending balance	W	317,475		W	332,205


(1)	Decrease consists of amortization and dispositions.

The Company expensed research and development costs amounting to W277,149 million and for the year ended December 31, 2004 (2003: W255,696 million). For the year ended December 31, 2004, the Company charged research and development costs to cost of goods sold amounting to W206,200 million (2003: W198,871 million) and selling and administrative expenses amounting to W70,949 million (2003: W56,825 million).

F-39

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


11.	Other Assets

Other assets as of December 31, 2004 and 2003 consist of the following:


			2004			2003

			(in millions of Korean Won)
Other current assets Short-term loans (Notes 27 and 28)				W23,622			W85,027
	Accrued income			25,032			60,440
	Advance payments			120,374			125,754
	Prepaid expenses			15,121			10,498
	Others			19,903			13,059
	Less: Allowance for doubtful accounts			(10,679	)		(5,113	)

				W193,373			W289,665

Other long-term assets
	Other investment assets (Notes 5, 8, 17 and 29)			W145,691			W526,784
	Less: Allowance for doubtful accounts			(733	)		(237,782	)
		Present value discount		(373	)		(89	)

				W144,585			W288,913

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:

Annual

interest rate (%)

as of December 31,

Financial institutions

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
1.00 - 3.80

29,575

10,221

Chohung Bank and others

LIBOR + 1.80

506,592

556,629

536,167

566,850

657,541

731,781

F-40

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

Current portion of long-term debt as of December 31, 2004 and 2003 consist of the following:


		Annual
		interest rate (%)
		as of December 31,
Financial institutions		2004		2004			2003

				(in millions of Korean Won)
Debentures:
	Domestic and foreign debentures		6.00 - 8.00	W	961,607		W	789,405
	Less: Discount on debentures issued				(1,347	)		(1,958	)

					960,260			787,447

Won currency borrowings:
	Korea Development Bank and others		3.00		31,511			1,618
Foreign currency borrowings:
	Development Bank of Japan and others		1.00 - 8.30		52,808			230,493

					84,319			232,111

Lease obligations:
	HP Financial Services		5.00		2,103			1,307
Unearned revenue:
	Unearned revenue				17			—

				W	1,046,699		W	1,020,865

F-41

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

13. Long-Term Debt

Long-term borrowings as of December 31, 2004 and 2003 are as follows:


		Annual
		interest rate (%)
		as of December 31,
Financial institutions		2004		2004			2003

				(in millions of Korean Won)
Won currency borrowings:
	Korea Development Bank and others		1.0 - 6.00	W	170,715		W	11,953
	Less: Current portion				(31,511	)		(1,618	)

					139,204			10,335

Foreign currency borrowings:
	Development bank of Japan and others		1.00 - 5.00 LIBOR + 0.8		349,269			504,863
	Less: Current portion				(52,808	)		(230,493	)

					296,461			274,370

Debentures:
	Domestic debentures		4.00 - 8.00		1,276,060			1,796,060
	Foreign bonds(1)		0.00 - 7.40		1,308,010			1,676,291

					2,584,070			3,472,351

	Less: Current portion				(961,607	)		(789,405	)
	Discount on debentures issued		6.00 - 8.00		(7,327	)		(15,267	)

					1,615,136			2,667,679

				W	2,050,801		W	2,952,384

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:


Issuance date:		August 20, 2003

Maturity date:		August 20, 2008 (full amount of principal is repaid if not exercised)

Rate:		Interest rate of zero percent

Face value:		JPY 51,622,000,000

Issuance price:		JPY 51,880,110,000

Exchangeable price:		JPY 3,304/ADR

Exercise call period:		Commencing ten business days following the issuance date until ten business days prior to maturity date

F-42

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


Exercise put period:		Exactly three years following the payment date

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 transactions 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.

Contractual maturities of long-term debt outstanding as of December 31, 2004 are as follows:


			Local currency		Foreign currency
Year	Debentures		borrowings		borrowings		Total

	(in millions of Korean Won)
2006	W	1,040,012	W	49,308	W	96,273	W	1,185,593
2007		30,000		43,120		60,737		133,857
2008		552,451		42,675		69,087		664,213
2009		—		2,099		25,065		27,164
Thereafter		—		2,002		45,299		47,301

	W	1,622,463	W	139,204	W	296,461	W	2,058,128

Details of assets pledged as collateral for short-term borrowings and long-term debt as of December 31, 2004 and 2003 are as follows:


	Financial institutions	2004		2003

		(in millions of Korean Won)
Land	Shinhan Bank and others	W	35,541	W	52,851
Buildings and structures	Kookmin Bank and others		55,120		46,540
Machinery and equipment	Industrial and Commercial Bank of China and others		54,918		8,583
Cash and cash equivalents	Kyongnam Bank and others		6,555		8,142
Trade accounts and notes receivable	Comerica Bank and others		62,900		70,574
Available-for-sale securities	Exchangeable Bond Creditor		362,818		337,589
Others(1)	Pusan municipal government and others		32,000		36,050

		W	609,852	W	560,329


(1)	The Company provided certain national treasury bonds and government municipal bonds, amounting to W31,148 million, to the Gyeongsangbuk-do provincial office as a performance guarantee in relation to the development of a waste disposal area (Note 7).

F-43

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

Details of loans from foreign financial institutions covered by guarantees provided by financial institutions as of December 31, 2004 and 2003 are as follows:

2004

2003

Financial institution

Foreign currency

Won equivalent

Foreign currency

Won equivalent

(in millions of Korean Won and in foreign currencies)

Korea Development Bank

EUR7,255,009

W10,324

EUR7,900,852

W11,872


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 W6,324 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 W1,347 million.

Future minimum lease payments under capital lease agreements are as follows:


	Principal		Interest		Total

	(in millions of Korean Won)
2005		W2,103		W165		W2,268
2006		1,949		62		2,011
2007		331		4		335

		W4,383		W231		W4,614


	*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 W17,521 million for the year ended December 31, 2004. Future lease payments under the above lease agreements are as follows:


	(in millions of
	Korean Won)

2005		W13,193
2006		3,550
2007		1,212
2008		205
2009		17

		W18,177

F-44

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

15. Accrued Severance Benefits

The changes in the carrying value of accrued severance benefits for the year ended December 31, 2004 are as follows:


	Accrued severance			National Pension			Group severance
	benefits			Fund			insurance deposits			Total

	(in millions of Korean Won)
Beginning balance		W397,430			W(1,989	)		W(232,779	)		W162,662
Increase		196,853			(99	)		(110,970	)		85,784
Decrease		32,247			(263	)		(13,961	)		18,023
Foreign currency adjustment and others		(56	)		—			—			(56	)

Ending balance		W561,980			W(1,825	)		W(329,788	)		W230,367

The Company expects to pay the following future benefits to its employees upon their normal retirement age:


	(in millions of
	Korean Won)

2005	W	3,771
2006		6,928
2007		9,107
2008		13,799
2009		15,199
2010-2014		85,928

	W	134,732

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.

F-45

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


16.	Other Liabilities

Other liabilities as of December 31, 2004 and 2003 consist of the following:


		2004		2003

		(in millions of Korean Won)
Other current liabilities
	Advances received	W	316,778	W	215,489
	Unearned revenue		2,397		2,082
	Others		90,468		92,275

		W	409,643	W	309,846

Other long-term liabilities
	Reserve for allowance	W	10,667	W	16,553
	Others		185,410		95,486

		W	196,077	W	112,039

F-46

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


17.	Commitments and Contingencies

As of December 31, 2004, contingent liabilities for outstanding guarantees provided for the repayment of loans of affiliated companies are as follows:

Amount

Won

Grantors

Entity being guaranteed

Financial institutions

guaranteed(1)

equivalent

(in millions of

Korean Won)

POSCO

POSAM

Bank of America

US$

13,600,000

14,196

VPS

Credit Lyonnais

821,052

857

POS-HYUNDAI STEEL

Infrastructure Leasing and Financial Services Limited

11,463

POSCO Investment Co., Ltd.

Industrial & Commercial Bank of China and others

122,845,411

128,226

Zhangjiagang Pohang Stainless Steel Co., Ltd.

Bank of China

76,660,000

80,018

PT POSMI STEEL Indonesia

Korea Exchange Bank

1,800,000

1,879

POSCO E & C

IBC Corporation

The Export-Import Bank

of Korea and others

61,780,000

64,486

Shanghai Real Estate Development Co., Ltd.

Korea Exchange Bank Shanghai branch and others

29,500,000

30,792

POSLILAMA Steel Structure Co., Ltd.

The Export-Import Bank of Korea and others

15,000,000

15,657

Posteel Co., Ltd.

POS-THAI Service Steel Center Co., Ltd.

Sumitomo Bank and others

6,554,000

6,841

POS-Qingdao Coil Center Co., Ltd.

Industrial Bank of Korea and others

4,000,000

4,175

POS-Tianjin Coil Center Co., Ltd.

Shinhan Bank

3,300,000

3,445

PT POSMI STEEL Indonesia

Korea Exchange Bank

5,400,000

5,637

POS-HYUNDAI STEEL

Infrastructure Leasing and Financial Services Limited

22,353

POSCO Investment Co., Ltd.

Qingdao Pohang Stainless Steel Co., Ltd.

Bank of Tokyo-Mitsubishi

56,000,000

58,453

SHUNDE Pohang Coated Steel Co., Ltd

Bank of Tokyo-Mitsubishi

15,000,000

15,657

POSVINA Co., Ltd.

Shinhan Bank

1,500,000

1,566

POSCO-Japan Co., Ltd.

Fujiura Butsuryu Center Co., Ltd.

Korea Exchange Bank

JPY 500,000,000

5,060

Fujiura Butsuryu Center Co., Ltd.

POSINVEST

610,000,000

6,174

US$

413,794,279

443,154

JPY1,110,000,000


(1)	Currencies other than US$ or JPY are translated into US$ amount.

F-47

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

As of December 31, 2003, contingent liabilities for outstanding guarantees provided for the payment of loans of affiliated companies amount to W425,317 million.

As of December 31, 2004, contingent liabilities for outstanding guarantees provided to non-affiliated companies for the repayment of loans are as follows:

Amount

Won

Grantors

Entity being guaranteed

Financial institutions

guaranteed

equivalent

(in millions of Korean Won)

POSCO

Dae Kyeong Special Steel

Korea Development

3,454

Co., Ltd.

Bank

US$

2,598,400

2,712

DC Chemical Co., Ltd.

E1 Corporation

1,601

The Siam United Steel

J-BIC

US$

8,006,478

8,357

Zeus (Cayman)

Related creditors

JPY 51,622,000,000

522,451

POSCO E & C

Zenith

Woori Bank

107,429

Humanrex

Woori Bank

49,232

Others

25,125

186,841

720,361

US$

10,604,878

JPY 51,622,000,000

F-48

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

As of December 31, 2003, contingent liabilities for outstanding guarantees provided to non-affiliated companies for the repayment of loans are as follows:

Amount

Won

Grantors

Entity being guaranteed

Financial institutions

guaranteed

equivalent

(in millions of Korean Won)

POSCO

S U S

J-BIC

US$

10,000

11,978

Dae Kyeong Special

Korea Development

3,249

3,892

Steel Co., Ltd.

Bank

4,318

DC Chemical Co., Ltd.

LG-Caltex Gas

1,921

Zeus

Related creditors

JPY

51,622,000

577,960

POSCO E & C

Zenith

Woori Bank

94,500

Keumseki Distribution Co., Ltd.

Hansol Mutual Savings Bank and others

45,000

Humanrex

Woori Bank

44,290

Iron City Co., Ltd. and Others

Samsung Life Insurance Company and others

28,365

WorldView Co., Ltd.

Hana Bank

12,337

US$

13,249

824,561

JPY

51,622,000

230,731

The Company entered into long-term contracts to purchase iron ore, coal, nickel, chrome and stainless steel scrap. These contracts 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 W236,858 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 W108 billion and expecting liquidation dividend receivables amounting to W15.8 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.

F-49

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

As of December 31, 2004, POSCO has a bank overdraft agreement with Woori Bank and other six banks amounting to W200,000 million 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 W300,000 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 W35,000 million as of December 31, 2004. POSCO E & C has provided nine blank promissory notes and 21 other notes, with amounts equivalent to approximately W437,013 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 W2,500 million as collateral for agreements and outstanding loans. POSCO E & C has provided performance guarantee to Samsung Corporation amounting to W1,209,310 million.

As of December 31, 2004, Posteel Co., Ltd. has an unsettled document against acceptance and JPY629 million and US$59 million. In addition, an unsettled document against payment balances in relation to exports amounting to JPY48 million and US$164 thousand. Posteel Co., Ltd. has entered into local credit agreements, up to W421,247 million with Hana Bank of which W280,744 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 W6,000 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 W7,893 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 W362 million and two outstanding balance of endorsed notes amounting to W822 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 W30,000 million.

As of December 31, 2004, Changwon Specialty Steel Co., Ltd. has entered into loan agreement, secured by trade accounts receivables, with Woori Bank amounting to W30,000 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 W10,000 million for opening letter of credit, and W10,000 million in relation to trade as of December 31, 2004.

F-50

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


18.	Capital Surplus

Capital surplus as of December 31, 2004 and 2003 consist of the following:


	2004		2003

	(in millions of Korean Won)
Additional paid-in capital	W	463,825	W	463,825
Revaluation surplus		3,213,414		3,213,414
Others		218,139		151,534

	W	3,895,378	W	3,828,773


19.	Retained Earnings

Retained earnings as of December 31, 2004 and 2003 consist of the following:


		2004		2003

		(in millions of Korean Won)
Appropriated
	Legal reserve	W	241,201	W	241,201
	Appropriated retained earnings for business stabilization		918,300		918,300
	Other legal reserve		880,000		746,667
	Voluntary reserve		7,341,899		6,263,545
Unappropriated			3,469,718		1,705,367

		W	12,851,118	W	9,875,080


	*Legal Reserve*

The Commercial Code of the Republic of Korea requires the Company to appropriate, as a legal reserve, an amount equal to a minimum 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 appropriate 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 investment 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 dividends after its reversal.

F-51

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


	*Additional Losses of Minority Interest*

Accumulated deficit of SEO MUEUN Development Inc. and POSLILAMA Steel Structure Co., Ltd., an affiliates included in the consolidated financial statements, resulted in losses in excess of minority interest amounting to W13,205 million for the year ended December 31, 2004 (2003: W3,164 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 minority 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:


		2004		2003		2002

		(in millions of Korean Won)
Interim cash dividends:
	Number of shares		80,707,945		81,648,519		81,683,875
	Dividend ratio		30%		20%		10%
	Dividend amount	W	121,062	W	81,649	W	40,842


		2004		2003		2002

		(in millions of Korean Won)
Year-end cash dividends:
	Number of shares		80,503,664		80,707,945		81,738,519
	Dividend ratio		130%		100%		60%
	Dividend amount	W	523,274	W	403,540	W	245,216

Details of the dividend payout ratio and dividend yield ratio for the years ended December 31, 2004 and 2003 are as follows:

2004

2003

2002

Dividend

payout ratio

yield ratio

payout ratio

yield ratio

payout ratio

yield ratio

Common shares

16.89%

4.28%

24.31%

3.68%

26.26%

2.85%


20.	Capital Adjustments

Capital adjustments as of December 31, 2004 and 2003 consist of the following:


	2004			2003

	(in millions of Korean Won)
Treasury stock	W	(680,144	)	W	(838,169	)
Valuation loss on investment securities		(486,502	)		(538,435	)
Cumulative foreign currency translation adjustment		15,912			142,463
Others		—			4,153

	W	(1,150,734	)	W	(1,229,988	)

F-52

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

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 W579,030 million and 912,010 shares of specified money in trust amounting to W101,114 million 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 welfare expenses.

Details of treasury stock for the years ended December 31, 2004, 2003 and 2002 are as follows:


	2004						2003						2002

	Shares			Amount			Shares			Amount			Shares			Amount

				(in millions of Korean Won and thousands of share)
Beginning balance		8,258		W	838,169			9,043		W	915,995			11,966		W	1,185,404
Decrease, net		(1,575	)		(158,025	)		(785	)		(77,826	)		(2,923	)		(269,409	)

Ending balance		6,683		W	680,144			8,258		W	838,169			9,043		W	915,995


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:

1st Grant

2nd Grant

3rd Grant

4th Grant

5th Grant

Before the modifications(1):

Number of shares

498,000 shares

60,000 shares

22,000 shares

141,500 shares

218,600 shares

Exercise price

W98,400 per share

W135,800 per share

W115,600 per share

W102,900 per share

W151,700 per share

After the modifications(1):

Grant date

July 23, 2001

April 27, 2002

September 18, 2002

April 26, 2003

July 23, 2004

Exercise price

W98,900 per share

W136,400 per share

W116,100 per share

W102,900 per share

W151,700 per share

Number of shares granted

453,576 shares

55,896 shares

20,495 shares

135,897 shares

214,228 shares

Number of shares cancelled

19,409 shares

—

Number of shares exercised

138,676 shares

—

Number of shares outstanding

295,491 shares

55,896 shares

20,495 shares

135,897 shares

214,228 shares

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


(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.

F-53

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

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:


	1st Grant		2nd Grant		3rd Grant		4th Grant		5th Grant		Total

	(in millions of Korean Won)
Prior periods	W	13,428	W	770	W	489	W	2,349	W	—	W	17,036
Current period		12,723		2,080		973		7,314		1,695		24,785
Future periods		—		—		—		1,820		5,953		7,773

	W	26,151	W	2,850	W	1,462	W	11,483	W	7,648	W	49,594

The following table summarizes information about appreciation rights granted and expense recognized at the award date:


	2004					2003

	Number of stock			Weighted-average		Number of stock			Weighted-average
	appreciation			exercise price per		appreciation			exercise price per
Stock appreciation rights outstanding,	rights			share		rights			share

	(in Korean Won)
Beginning of year		638,598		W	103,681		570,000		W	103,001
Granted		218,600			151,700		141,500			102,900
Exercised		(119,888	)		98,900		(18,788	)		98,900
Canceled		—			—		(9,221	)		98,900
Forfeited		(15,303	)		117,973		(44,893	)		95,565

Stock appreciation rights outstanding, end of year		722,007		W	118,711		638,598		W	103,681

Exercisable at the year end		456,885		W	104,865		421,979		W	98,900

Weighted-average fair value at grant date				W	110,179				W	95,641

The following table summarizes information about stock appreciation rights outstanding at December 31, 2004:


	Appreciation rights outstanding

			Weighted-average		Weighted-average
			remaining		exercise price per
Exercise prices	Shares		contractual Life		share

					(in Korean Won)
98,900		295,491		3.56 years	W	98,900
136,400		55,896		4.32 years		136,400
116,100		20,495		4.72 years		116,100
102,900		135,897		5.32 years		102,900
151,700		214,228		6.56 years		151,700

		722,007		4.87 years	W	118,711

F-54

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


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 currency swap and currency forward contracts for the year ended December 31, 2004 and related contracts outstanding as of December 31, 2004 are as follows:

Type of

Purpose of

Valuation

Transaction

Company

transaction

Financial institutions

gains

losses

gains

losses

(in millions of Korean Won)

POSCO

Currency swap

Trading

Citibank and others

—

683

—

Nickel forward

Trading

Sempra Metals., Ltd.

—

2,800

5,980

Future exchange

Trading

CALYON

—

597

1,092

POSCO E & C

Currency forward

Trading

Citibank and others

9,588

2,646

4,900

1,499

Posteel Co., Ltd.

Currency forward

Trading

KorAm Bank

—

328

694

Pohang Coated Steel Co., Ltd.

Currency forward

Trading

Shinhan Bank

—

3,106

Changwon Specialty Steel Co., Ltd.

Currency forward

Trading

Korea First Bank

—

9,594

2,646

12,452

9,332

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:

Type of

Purpose of

Valuation

Transaction

Company

transaction

Financial institutions

gains

losses

gains

losses

(in millions of Korean Won)

POSCO

Currency swap

Fair market value hedge(1)

Citibank and others

—

29,693

—

POSCO

Currency forward

Trading

The Bank of New York

—

451

—

POSCO

Nickel forward

Cash flow hedge

Sempra Metal., Ltd.

4,153

—

POSCO E & C

Currency forward

Fair market value hedge(1)

Citibank and others

2,646

1,066

936

124

Posteel Co., Ltd.

Currency forward

Trading

Hana Bank

305

329

Pohang Coated Steel Co., Ltd.

Currency forward

Trading

Shinhan Bank

189

—

789

1,180

Changwon Specialty Steel Co., Ltd.

Currency forward

Fair market value hedge(1)

Korea First Bank

—

7,002

30,781

2,481

1,660


(1)	Accounted for as trading, since the criteria for hedge accounting are not met.

F-55

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

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:

Type of

Purpose of

Valuation

Transaction

Company

transaction

Financial institutions

gains

losses

gains

losses

(in millions of Korean Won)

POSCO

Currency swap

Fair market value hedge

Citibank and others

—

11,775

—

POSCO

Currency forward

Cash flow hedge and trading

Bank of America

—

2,796

POSCO E & C

Currency forward

Fair market value hedge(1)

Citibank

569

—

1,884

Posteel Co., Ltd.

Currency forward

Trading

Koram Bank

—

POSCO Refractories & Environment (POSREC)

Currency forward

Trading

The Korea Development Bank

—

Pohang Coated Steel Co., Ltd.

Currency forward

Trading

Shinhan Bank

—

11,236

472

569

11,775

13,160

3,376


(1)	Accounted for as trading, since the criteria for hedge accounting are not met.

F-56

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


23.	Selling and Administrative Expenses

Selling and administrative expenses for the years ended December 31, 2004, 2003 and 2002 consist of the following:


	2004		2003		2002

	(in millions of Korean Won)
Transportation and storage	W	493,790	W	445,723	W	404,771
Salaries		149,153		142,400		130,226
Welfare		103,637		75,730		62,002
Depreciation and amortization		68,145		65,384		72,049
Research and development expenses (Note 10)		70,949		56,825		40,627
Fees and charges		76,710		54,662		53,417
Advertising		49,381		40,681		36,886
Severance benefits		25,051		21,217		16,058
Stock compensation expense (Note 21)		24,785		18,894		6,497
Sales commissions		18,286		18,759		18,324
Travel		18,530		16,075		14,822
Rent		17,287		12,554		12,430
Training		11,765		11,835		10,919
Taxes and public dues		13,661		11,534		8,072
Repairs		20,047		9,159		8,149
Provision for doubtful accounts		53,671		8,955		6,410
Sales promotions		6,474		6,333		5,769
Vehicle expenses		6,509		5,983		5,828
Entertainment		6,444		5,796		6,595
Office supplies		8,103		5,660		6,819
Membership fees		5,391		5,294		5,590
Communications		3,420		3,823		3,767
Subscriptions and printing		4,051		3,757		3,072
Insurance		4,883		2,572		1,844
Utilities		1,860		1,864		1,733
Others		30,944		24,001		24,115

	W	1,292,927	W	1,075,470	W	966,791

F-57

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


24.	Donations

Donations contributed by the Company for the years ended December 31, 2004, 2003 and 2002 consist of the following:


	2004		2003		2002

	(in millions of Korean Won)
POSCO Educational Foundation	W	39,500	W	38,800	W	37,800
Pohang University of Science and Technology		32,479		2,267		3,000
POSCO welfare Fund		58,000		—		—
Support for local community and others		39,567		62,124		9,347

	W	169,546	W	103,191	W	50,147


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:


	2004			2003			2002

	(in millions of Korean Won)
Current income tax	W	1,542,480		W	746,482		W	527,381
Deferred income tax		(40,834	)		(16,212	)		(129,076	)

	W	1,501,646		W	730,270		W	398,305

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:


	2004			2003			2002

	(in millions of Korean Won)
Net income before income tax expense	W	5,342,910		W	2,747,270		W	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	W	1,501,646		W	730,270		W	398,305

Effective rate (%)		28.11			26.58			26.42

F-58

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


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.


			Number
	Number of		of days			Weighted number
Period	shares issued		outstanding			of shares

Beginning(1)		80,707,945		366			29,539,107,870
Acquisition and disposal of treasury stock, net		204,281		—	(2)		46,754,748

							29,585,862,618


(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.


Period		Weighted-average number of common shares
2004		29,585,862,618 ÷ 366 = 80,835,690

Period		Weighted-average number of common shares
2003		29,741,526,418 ÷ 365 = 81,483,634

Period		Weighted-average number of common shares
2002		29,905,210,535 ÷ 365 = 81,932,084

Ordinary income per share for the years ended December 31, 2004, 2003 and 2002 are calculated as follows:

2004

2003

2002

(in millions of Korean Won

except for per share amount)

Ordinary income

3,811,843

1,995,983

1,089,288

Weighted-average number of shares of common stock

80,835,690

81,483,634

81,932,084

Ordinary income per share

47,155

24,496

13,295

Earnings per share for the years ended December 31, 2004, 2003 and 2002 are calculated as follows:

2004

2003

2002

(in millions of Korean Won

except for per share amount)

Net income

3,814,225

1,995,983

1,089,288

Weighted-average number of shares of common stock

80,835,690

81,483,634

81,932,084

Earnings per share

47,185

24,496

13,295


	*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.

F-59

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


27.	Foreign Currency Translation

Monetary assets and liabilities denominated in foreign currencies as of December 31, 2004 and 2003 are as follows:


		2004				2003

		Foreign currency(3)		Won equivalent		Foreign currency(3)		Won equivalent

		(in millions of Korean Won, except for foreign currencies)
Assets:
	Cash and cash equivalents(1)	US$	37,006,990	W	38,628		80,818,103	W	96,804
		JPY	842,262		9		17,130,996,104		191,799
		EUR	—		—		19,659		30
		Overseas subsidiaries	208,988,625		218,143		172,176,896		206,234
	Trade accounts and notes receivable	US$	316,354,184		330,210		205,789,975		246,495
		JPY	4,187,608,143		42,382		1,998,415,701		22,374
		EUR	656,582		934		3,322,846		4,993
		Overseas subsidiaries	303,790,888		317,097		200,952,723		240,701
	Other accounts and notes receivable	US$	263,248,710		274,779		30,522,047		36,559
		JPY	10,284,822		104		4,608,464		52
		Overseas subsidiaries	7,989,116		8,339		2,916,498		3,493
	Short-term & Long-term loans	US$	—		—		1,900,000		2,276
		Overseas subsidiaries	69,420,557		72,461		97,664,714		116,982
	Long-term trade accounts and notes receivable	Overseas subsidiaries	70,513		74		70,513		84
	Investment securities(2)	US$	1,000,000		1,044		10,482,213		12,556
		Overseas subsidiaries	24,079,162		25,134		29,374,172		35,184
	Guarantee deposits	US$	442,769		462		535,696		642
		Overseas subsidiaries	1,262,109		1,317		1,571,166		1,882

		US$	1,233,653,623	W	1,331,117		834,774,716	W	1,219,140
		JPY	4,198,735,227				19,134,020,269
		EUR	656,582				3,342,505

F-60

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


		2004				2003

		Foreign currency(3)		Won equivalent		Foreign currency(3)		Won equivalent

		(in millions of Korean Won, except for foreign currencies)
Liabilities:
	Trade accounts and note payable	US$	263,248,710	W	274,779		163,706,585	W	196,088
		JPY	529,399,734		5,358		2,222,139,387		24,879
		EUR	5,133,029		7,304		130,245,785		195,705
		Overseas subsidiaries	105,708,151		110,338		108,186,414		129,586
	Other accounts and notes payable	US$	7,276,448		7,595		820,897		983
		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		133,683
		Overseas subsidiaries	10,280,795		10,731		10,764,620		12,894
	Short-term borrowings	US$	15,208,564		15,875		500,918		600
		Overseas subsidiaries	498,460,078		520,292		472,741,791		566,250
	Withholdings	US$	5,110,728		5,335		2,171,835		2,601
		JPY	36,654,000		371		—		—
		EUR	4,788,294		6,814		2,144,806		3,223
		Overseas subsidiaries	538,686		562		1,074,512		1,287
	Long-term debt(2,4)	US$	461,715,000		481,938		640,605,000		767,317
		JPY	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		61,584
		Overseas subsidiaries	245,645,137		256,404		141,410,774		169,382
	Loans from foreign financial institutions(4)	US$	23,443,359		24,470		183,032,109		219,236
		JPY	—		—		942,165,425		10,548
		EUR	25,401,970		36,146		29,357,589		44,113
		Overseas subsidiaries	26,278		28		—		—

		US$	1,853,498,416	W	2,852,255		1,853,588,742	W	3,469,680
		JPY	85,646,367,154				89,890,171,741
		EUR	35,680,062				161,748,180


(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.

F-61

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


(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 W17,407 million, W118,231 million and W28,768 million, respectively. Gains on foreign currency translation of other monetary assets and liabilities for the years ended December 31, 2004, 2003 and 2002 are W177,889 million, W6,415 million, W128,844 million, respectively.


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:


	Sales and others(1)						Purchases and others(1)

Company	2004		2003		2002		2004		2003		2002

	(in millions of Korean Won)
POSCO E & C	W	9,317	W	4,834	W	3,089	W	891,474	W	314,456	W	863,525
Posteel Co., Ltd.		919,618		870,792		1,431,012		67,193		35,681		2,969
POSCON Co., Ltd.		139		72		40		194,847		167,642		146,872
Pohang Coated Steel Co., Ltd.		303,425		251,137		233,474		271		1,576		1,279
POSCO Machinery & Engineering Co., Ltd.		5,001		65		67		116,424		102,099		87,852
POSDATA Co., Ltd.		989		857		753		209,839		206,562		167,782
POSCO Research Institute		—		—		—		13,203		11,694		10,232
Seung Kwang Co., Ltd.		—		—		—		35		60		4
POS-AC Co., Ltd.		517		450		408		20,980		9,150		14,054
Changwon Specialty Steel Co., Ltd.		31		77		417		75,984		57,557		62,141
POSCO Machinery Co., Ltd.		116		126		40		95,892		80,908		72,194
POSAM		33,446		—		—		—		107		473
POSA		1,115		—		—		41,673		157,641		72,714
POSCAN		—		—		—		56,143		39,664		41,932
POA		573,772		367,998		149,590		146,016		111,889		68,047
POSCO-Japan Co., Ltd.(3)		409,845		226,276		114,561		30,846		10,922		7,066
Zhangjiagang Pohang Stainless Steel Co., Ltd.		714,832		349,723		29		—		—		—
POSTECH Venture Capital Co., Ltd.		59		54		50		—		—		10
POSCO Refractories & Environment		137		122		36		173,917		154,404		149,185
Others		86,821		33,110		916		—		—		1,211

	W	3,059,180	W	2,105,693	W	1,934,482	W	2,134,737	W	1,462,012	W	1,769,542

F-62

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


	Receivables(2)				Payables(2)

Company	2004		2003		2004		2003

	(in millions of Korean Won)
POSCO E & C	W	82,889	W	247	W	237,283	W	29,888
Posteel Co., Ltd.		122,260		46,543		1,876		5
POSCON Co., Ltd.		15,172		3		43,050		20,297
Pohang Coated Steel Co., Ltd.		43,021		23,613		1		169
POSCO Machinery & Engineering Co., Ltd.		2,270		6		27,879		13,858
POSDATA Co., Ltd.		442		1		30,782		28,370
POSCO Research Institute		—		—		7,224		4,006
Seung Kwang Co., Ltd.		2,038		477		—		1
POS-AC Co., Ltd.		—		—		663		330
Changwon Specialty Steel Co., Ltd.		1		65		6,692		7,580
POSCO Machinery Co., Ltd.		4,300		2		19,767		10,477
POSA		24		17		—		4,618
POSCAN		16		17		—		4,074
POA		29,866		6,492		4,730		5,605
POSCO-Japan Co., Ltd.		18,751		5,153		1,722		111
Zhangjiagang Pohang Stainless Steel Co., Ltd.		16,486		10,770		—		—
POSTECH Venture Capital Co., Ltd.		—		—		—		—
POSCO Refractories & Environment		19		5		23,526		17,263
Others		11		91		—		—

	W	337,566	W	93,502	W	405,195	W	146,652


(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.

F-63

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

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:


	Sales and others(1)						Purchases and others(1)

Company	2004		2003		2002		2004		2003		2002

	(in millions of Korean Won)
KOBRASCO	W	—	W	—	W	—	W	104,848	W	99,498	W	94,038
UPI		365,362		239,294		291,528		—		16		—
POSCHROME		—		—		—		51,820		33,267		22,937
Shunde Xingpu Steel Center Co., Ltd		—		219		—		—		—		—
eNtoB Corporation		—		—		—		131,377		69,072		15,383
POSVINA Co., Ltd.		12,599		7,281		—		—		—		—
POSMMIT		7,655		480		—		—		—		—
MIDUS Information Technologies Co., Ltd.		—		—		—		15		99		—
PT POSMI STEEL Indonesia (POSMI)		5		—		—		—		—		—

	W	385,621	W	247,274	W	291,528	W	288,060	W	201,952	W	132,358


	Receivables(2)				Payables(2)

Company	2004		2003		2004		2003

	(in millions of Korean Won)
KOBRASCO	W	—	W	—	W	2,584	W	6,145
eNtoB Corporation		—		—		3,286		3,029
POSVINA Co., Ltd.		—		4		—		—

	W	—	W	4	W	5,870	W	9,174


(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:


	Millions of			Millions of
Revenues	Korean Won		Expenses	Korean Won

Sales	W	5,982,359	Cost of goods sold	W	5,849,925
Interest income		2,242	Interest expense		2,272
Rental income		727	Selling and administrative expenses		120,428
Others		3,693	Others		16,396

	W	5,989,021		W	5,989,021

F-64

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

Eliminations of inter-company revenues and expenses for the year ended December 31, 2003 are as follows:


	Millions of			Millions of
Revenues	Korean Won		Expenses	Korean Won

Sales	W	4,115,235	Cost of goods sold	W	4,007,975
Interest income		485	Interest expense		495
Rental income		612	Selling and administrative expenses		109,011
Others		3,023	Others		1,874

	W	4,119,355		W	4,119,355

Eliminations of inter-company revenues and expenses for the year ended December 31, 2002 are as follows:


	Millions of			Millions of
Revenues	Korean Won		Expenses	Korean Won

Sales	W	4,610,052	Cost of goods sold	W	4,493,261
Interest income		1,654	Interest expense		1,678
Rental income		594	Selling and administrative expenses		88,482
Others		2,798	Others		31,677

	W	4,615,098		W	4,615,098

Eliminations of significant inter-company receivables and payables for the years ended December 31, 2004 and 2003 are as follows:


	2004		2003			2004		2003

	(in millions of Korean Won)					(in millions of Korean Won)
Trade accounts and notes payable	W	412,421	W	213,137	Trade accounts and notes receivable	W	676,744	W	361,569
Short-term borrowings		19,959		38,434	Short-term loans		20,628		1,198
Other accounts and notes payable		265,881		101,846	Other accounts and notes receivable		296		12,658
Long-term debt		50,435		26,927	Long-term loans		51,032		34,353
Other liabilities		114,934		100,202	Other assets		114,930		70,768

	W	863,630	W	480,546		W	863,630	W	480,546

F-65

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


29.	Segment and Regional Information

The following table provides information on the significant financial status of each operating segment of the consolidated subsidiaries as of and for the year ended December 31, 2004:


											Reconciling
		Steel			Trading			Others			adjustments			Consolidated

		(in millions of Korean Won)
Statement of income:
	External customers	W	22,624,977		W	2,986,345		W	4,344,090		W	(5,982,359	)	W	23,973,053
	Less: Inter-segment		(3,322,773	)		(626,579	)		(2,033,007	)		5,982,359			—

		W	19,302,204		W	2,359,766		W	2,311,083		W	—		W	23,973,053

Balance sheet:
	Inventories	W	2,534,497		W	72,463		W	515,567		W	(57,006	)	W	3,065,521
	Investments		4,087,223			282,491			633,453			(2,298,629	)		2,704,538
	Property, plant and equipment		10,189,473			230,082			586,270			(565,534	)		10,440,291
	Intangible assets		410,170			1,515			97,100			(12,470	)		496,315

The following table provides information on the significant financial status of each operating segment of the consolidated subsidiaries as of and for the year ended December 31, 2003:


											Reconciling
		Steel			Trading			Others			adjustments			Consolidated

		(in millions of Korean Won)
Statement of income:
	External customers	W	16,503,386		W	2,384,952		W	3,016,135		W	(4,115,236	)	W	17,789,237
	Less: Inter-segment		(2,241,755	)		(599,615	)		(1,273,866	)		4,115,236			—

		W	14,261,631		W	1,785,337		W	1,742,269		W	—		W	17,789,237

Balance sheet:
	Inventories	W	1,867,743		W	51,638		W	160,389		W	(11,399	)	W	2,068,371
	Investments		4,056,692			308,349			501,454			(2,039,817	)		2,826,678
	Property, plant and equipment		9,549,746			206,416			612,625			(523,010	)		9,845,777
	Intangible assets		402,439			2,351			79,593			(9,887	)		474,496

F-66

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

The following table provides information on the significant financial status of each operating segment of the consolidated subsidiaries as of and for the year ended December 31, 2002:


											Reconciling
		Steel			Trading			Others			adjustments			Consolidated

		(in millions of Korean Won)
Statement of income:
	External customers	W	13,593,010		W	2,584,532		W	2,787,428		W	(4,610,052	)	W	14,354,918
	Less: Inter-segment		(2,076,385	)		(686,250	)		(1,847,417	)		4,610,052			—

		W	11,516,625		W	1,898,282		W	940,011		W	—		W	14,354,918

Balance sheet:
	Inventories	W	1,470,931		W	26,933		W	193,871		W	(20,289	)	W	1,671,446
	Investments		3,908,130			295,959			557,102			(1,898,578	)		2,862,613
	Property, plant and equipment		10,068,549			217,739			594,364			(556,078	)		10,324,574
	Intangible assets		391,271			3,444			83,002			(2,905	)		474,812

Substantially all of the Company’s operations are for the production of steel products. Net sales and non-current assets by geographic area as of and for the years ended December 31, 2004, 2003 and 2002 are as follows:


	2004

			Non-current
	Sales		assets

	(in millions of Korean Won)
Korea	W	16,738,372	W	15,295,486
Japan		1,163,541		84,640
China		3,315,789		813,798
Asia/ Pacific, excluding Japan and China		1,257,108		108,119
North America		529,080		153,919
Others		969,163		61,815
Consolidation adjustments		—		(2,876,633	)

	W	23,973,053	W	13,641,144


	2003

			Non-current
	Sales		assets

	(in millions of Korean Won)
Korea	W	12,100,326	W	12,146,239
Japan		770,765		55,430
China		2,706,120		613,078
Asia/ Pacific, excluding Japan and China		1,078,675		130,410
North America		311,529		162,198
Others		821,822		39,596

	W	17,789,237	W	13,146,951

F-67

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003


	2002

			Non-current
	Sales		assets

	(in millions of Korean Won)
Korea	W	9,531,423	W	12,853,344
Japan		650,029		43,110
China		2,088,735		369,075
Asia/ Pacific, excluding Japan and China		1,069,432		236,359
North America		473,289		142,238
Others		542,010		17,873

	W	14,354,918	W	13,661,999

Condensed consolidated balance sheets categorized by types of business are as follows:


		2004

		Non-financial			Financial
		Institution			Institution

		(in millions of Korean Won)
Asset
Current asset		W	10,484,417		W	19,247
Non-current asset			13,581,551			168,593
	Investment assets		2,645,019			168,518
	Property, plant and equipment		10,440,265			26
	Intangible assets		496,267			49

Total assets			24,065,968			187,840

Liabilities
Current liabilities			4,923,870			87,641
Non-current liabilities			2,757,773			31,351

Total liabilities			7,681,643			118,992

Shareholders’ equity
Common stock			482,403			52,908
Capital surplus			3,894,235			—
Retained earnings			12,854,385			19,859
Capital adjustments			(1,152,868	)		(3,919	)
Minority interest			306,170			—

Total liabilities and shareholders’ equity			16,384,325			68,848

		W	24,065,968		W	187,840

F-68

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

Condensed consolidated statements of income categorized by types of business are as follows:


	2004

	Non-financial			Financial
	Institution			Institution

	(in millions of Korean Won)
Sales	W	23,966,264		W	6,848
Cost of goods sold		(17,358,582	)		(2,280	)
Selling and administrative expense		(1,290,280	)		(2,493	)

Operating income		5,317,402			2,075
Non-operating income		829,000			5,840
Non-operating expenses		(806,897	)		(3,341	)

Ordinary income		5,339,505			4,574
Extraordinary income		3,388			—
Extraordinary expense		—			—

Net income before income tax expense and minority interest		5,342,893			4,574
Income tax expense		(1,501,195	)		(451	)

Net income before minority interest		3,841,698			4,123
Minority interest in income of consolidated subsidiaries		(26,955	)		—

Net income	W	3,814,743		W	4,123

30. Operating Results for the Final Interim Period

Significant operating results for the three-month period ended December 31, 2004 are as follows:


	(in millions of Korean Won,
	except per share amount)

Sales	W	6,748,462
Cost of sales		4,708,064
Operating income		1,656,003
Net income		1,175,618
Ordinary income per share		19,755
Net income per share		14,602

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.

F-69

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

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


				2004			2003			2002

				(in millions of Korean Won and
				thousands of US Dollar)
Net income under Korean GAAP				W	3,814,225		W	1,995,983		W	1,089,288
	Adjustments:
		Property, plant and equipment:
			Fixed asset revaluation		26,428			26,351			28,667
		Capitalized costs			47,458			16,187			64,890
		Capitalized 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				W	3,460,214		W	1,997,028		W	1,018,416

Basic and diluted earnings per share, as adjusted, in accordance with U.S. GAAP				W	42,806		W	24,508		W	12,430

Weighted-average shares outstanding					80,835,690			81,483,634			81,932,084

F-70

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

(b) Reconciliation of shareholders’ equity from Korean GAAP to U.S. GAAP


				2004			2003			2002

				(in millions of Korean Won and
				thousands of US Dollar)
Shareholders’ equity before minority interest under Korean GAAP(1)				W	16,386,056		W	13,249,567		W	11,819,646
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			207,182
		Capitalized repairs			9,036			18,458			28,179
		Impairment loss on investment securities			(48,399	)		(36,732	)		(191,435	)
		Others, net			(4,127	)		(8,397	)		376
		Income tax effect			169,387			34,517			44,031
		Deferred taxes related to OCI			(71,788	)		52,306			82,734

					129,892			62,049			(76,756	)

Shareholders’ equity, as adjusted, in accordance with U.S. GAAP				W	16,208,057		W	13,018,317		W	11,463,725

(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 gradually 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 W245,216 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, with the revaluation increment credited to capital surplus. As a result of this revaluation, depreciation expense on these assets was adjusted to reflect the increased basis. Under U.S. GAAP, such a revaluation is not permitted and depreciation expense should be based on historical cost. When assets are sold, any revaluation surplus related to those assets under Korean GAAP would be reflected 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 the results 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 from prior periods amounted to W20,611 million in 2004, 2003 and 2002, respectively.

F-71

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

In addition, effective from the period beginning after December 31, 2002, under Korean GAAP, interest costs that would have been theoretically avoided had expenditures not been made for assets which require a period of time to prepare them for their intended use are generally expensed as incurred, except when certain criteria are met for capitalization. The Company has adopted this application and expensed financing costs subject to the capitalization. Under U.S. GAAP, the Company is required to capitalize the amount that would have been theoretically avoided had 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 depreciation during the suspense period.

Capitalized interest for the years ended December 31, 2004, 2003 and 2002 are as follows:


	2004			2003			2002

	(in millions of Korean Won)
Capitalized interest	W	84,948		W	54,386		W	64,788
Depreciation of capitalized interest		(55,871	)		(54,857	)		(73,254	)

Net income impact	W	29,077		W	(471	)	W	(8,466	)

Under Korean GAAP, organization costs, research and development costs and internal use software costs have been recorded as intangible assets and amortized over a period not exceeding 20 years. Under U.S. GAAP, organization costs as well as research and developments 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 as material and service, payroll or payroll related costs for employees who are directly associated with the project, and interest costs incurred when developing computer software for internal use, should be capitalized and amortized on a straight-line method over the 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:

2004

2003

2002

(in millions of Korean Won)

Net income impact

W(2,230

)

W(3,953

)

W12,347

(e) Capitalized repairs

Under Korean GAAP, repair costs associated with the Company’s furnaces are expensed as incurred, regardless of the nature of the expenditure. U.S. GAAP requires that repairs that extend an asset’s useful life or significantly increase its value be capitalized when incurred and depreciated. Routine maintenance and repairs are expensed as incurred. No repair costs have been capitalized as of December 31, 2004, 2003 and 2002 under Korean GAAP. Depreciation of capitalized repairs carried forward from prior periods have been 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 obligation undertaken in issuing the guarantee for guarantees issued or modified after December 31, 2002. As of December 31, 2004, the guarantees issued or modified after December 31, 2002 by the Company for the repayment of loans amounts to W197,040 million,

F-72

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

excluding guarantees issued either between parents and their subsidiaries or between corporations under common control (Note 17). The Company has recognized the fair value of liabilities amounting to W2,956 million and W2,396 million for the years ended December 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 measures compensation at the end of each period as the amount by which the moving weighted average of quoted market value of the shares of the enterprise’s stock covered by a grant exceeds the option price. The moving weighted average of quoted market value is 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 the shares 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 recognized for the years ended December 31, 2004, 2003 and 2002 are as follows:

2004

2003

2002

(in millions of Korean Won)

Stock compensation expense

W9,810

W24,894

W4,299

(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 security is adjusted to fair value, with the resulting valuation loss charged to current operations. If the fair value of the security subsequently 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 Company has 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.

F-73

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

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:


		2004			2003			2002

		(in millions of Korean Won)
Book value		W	2,261,620		W	2,315,508		W	2,580,290
Unrealized 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)		W	2,257,303		W	2,108,895		W	2,063,174

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 W3 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 also required to recognize the additional deferred tax effects that result from differences between the reported Korean GAAP and U.S. GAAP amounts. 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.

F-74

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

(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:


		2004			2003

		(in millions of Korean Won)
Deferred tax assets:
	Fixed asset revaluation	W	30,705		W	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			78,396
	Impairment loss on fixed assets		129,135			116,057
	Impairment loss on investment securities		221,337			61,976
	Allowance for doubtful accounts		32,148			78,706
	Allowance for severance benefits		69,913			48,243
	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			149,035

Total deferred tax liabilities			921,885			663,289

Net deferred tax assets (liabilities)		W	(118,884	)	W	10,168

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 its components are required to be presented under the provisions of SFAS No.130, Reporting Comprehensive Income. Comprehensive income includes all changes in shareholders’ equity during the period except those resulting from investments by, or distributions to owners, including

F-75

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

certain items not included in the current year’s results of operations. Comprehensive income for the years ended December 31, 2004, 2003, and 2002 is summarized as follows:


		2004			2003		2002

		(in millions of Korean Won)
Net income, as adjusted, in accordance with U.S. GAAP		W	3,460,214		W	1,997,028	W	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 with U.S. GAAP		W	3,801,929		W	2,040,402	W	775,568

Accumulated other comprehensive income as of December 31, 2004 and 2003 is summarized as follows:


	Foreign currency			Unrealized			Accumulated other
	translation			gains (losses) on			comprehensive
	adjustments			investments			income

	(in millions of Korean Won)
Balance, December 31, 2001	W	97,661		W	(50,643	)	W	47,018
Foreign currency translation adjustments, net of tax benefit W34,801 million		(28,789	)		—			(28,789	)
Unrealized losses on investments, net of tax benefit of W(147,801) million		—			(214,059	)		(214,059	)

Current period change		(28,789	)		(214,059	)		(242,848	)

Balance, December 31, 2002	W	68,872		W	(264,702	)	W	(195,830	)
Foreign currency translation adjustments, net of tax benefit W12,163 million		34,414			—			34,414
Unrealized gains on investments, net of tax expense of W90,436 million		—			8,960			8,960

Current period change		34,414			8,960			43,374

Balance, December 31, 2003	W	103,286		W	(255,742	)	W	(152,456	)
Foreign currency translation adjustments, net of tax benefit of W34,801 million		(91,750	)		—			(91,750	)
Unrealized gains on investments, net of tax expense of W(147,801) million		—			434,753			434,753
Less: Reclassification adjustment for net realized gain included in income, net of tax expense of W488 million		—			(1,288	)		(1,288	)

Current period change		(91,750	)		433,465			341,715

Balance, December 31, 2004	W	11,536		W	177,723		W	189,259

F-76

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

(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 is practicable 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 Securities


	The fair value of market-traded investments such as listed company’s stocks, public bonds and other marketable securities are based on quoted market prices for those investments. Investments in non-listed companies’ stock, for which there 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 receivable


	Loans 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 market prices 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:


	2004				2003

	Carrying				Carrying
	amount		Fair value		amount		Fair value

	(in millions of Korean Won)
Cash and cash equivalents	W	486,370	W	486,370	W	592,602	W	592,602
Short-term financial instruments		640,988		640,988		695,169		695,169
Trading securities		2,689,593		2,689,593		1,321,301		1,321,301
Trade accounts and notes receivable, including long-term loans		3,374,219		3,374,219		2,530,551		2,530,551
Investment securities		2,345,076		2,345,076		2,318,830		2,318,830
Short-term borrowings		657,541		657,541		731,781		731,781
Trade accounts and notes payable		1,082,299		1,082,299		917,495		917,495
Long-term debt, including current portion		3,104,054		3,184,984		3,973,900		4,100,490

(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.

F-77

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

(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 separately 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 U.S. GAAP, non-marketable equity securities are not considered available-for-sale securities. Both Korea GAAP and U.S. 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.

(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:


									Reconciling
	Steel			Trading		Others			adjustments			Consolidated

	(in millions of Korean Won)
Net income under Korean GAAP	W	3,923,286		W	43,408	W	154,270		W	(306,739	)	W	3,814,225
Adjustments		(346,565	)		—		(7,446	)		—			(354,011	)

Net income under U.S. GAAP	W	3,576,721		W	43,408	W	146,824		W	(306,739	)	W	3,460,214

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:

Subtotal

before

Reconciling

U.S. GAAP

Steel

Trading

Others

elimination

adjustments

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

The following table provides information on the significant items in total assets of each operating segment of the consolidated subsidiaries as of December 31, 2004:


									Reconciling
	Steel		Trading			Others			adjustments			Consolidated

	(in millions of Korean Won)
Investments under Korean GAAP	W	4,087,223	W	282,491		W	633,453		W	(2,298,629	)	W	2,704,538
Adjustments		139,045		(4,544	)		(13,514	)		—			120,987

Investments under U.S. GAAP	W	4,226,268	W	277,947		W	619,939		W	(2,298,629	)	W	2,825,525

Property, plant and equipment under Korean GAAP	W	10,189,473	W	230,082		W	586,270		W	(565,534	)	W	10,440,291
Adjustments		100,813		—			—			—			100,813

Property, plant and equipment under U.S. GAAP	W	10,290,286	W	230,082		W	586,270		W	(565,534	)	W	10,541,104

F-78

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

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. 29” (“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 nonmonetary 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.


	*Korean GAAP*

In February 2004, the Korean Accounting Standards Boards (“KASB”) issued Statements of Korean Financial Accounting Standards (“SKFAS”) No. 15, “Equity Investment.” This statement provides clarification that the Company’s proportionate unrealized profit arising from sales by the Company to equity method investees, sales by the equity method investees to the Company or sales between equity method investees should be eliminated. SKFAS No. 15 amends Interpretation No. 42-59 which prescribes that unrealized profit arising from sales by the Company to equity method investees should be fully eliminated. Under SKFAS No. 15, the Company also assesses the potential impairment of investment securities in accordance with the accounting standards on impairment loss, when there is objective evidence. The provisions of this standard are effective prospectively for equity investments beginning on or after December 31, 2004. The Company does not expect the adoption of this statement to have a material impact on its financial position or results of operations.

In June 2004, the KASB issued SKFAS No. 16, “Accountings for income taxes.” SKFAS No. 16 provides clarification that deferred income tax on gain and losses on valuation of available-for-sale securities should be recognized. Under this statement, any changes in deferred income tax arising on initial classification of the equity component should be reflected in equity. SKFAS No. 16 amends SKFAS Interpretation No. 45-52 which does not require recognition of the aforementioned deferred income tax. In accordance with the nature of the equity component, accounting treatment should be provided based on the component’s applicable guidance. The provisions of this standard are effective prospectively for available-for-sale securities beginning on or after December 31, 2004. The Company does not expect the adoption of this statement to have a material impact on its financial position or results of operations.

F-79

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2004 and 2003

In October 2004, the KASB issued SKFAS No. 17, “Provision for Liabilities and Contingencies.” SKFAS No. 17, which clarifies pre-KASB standard of Article 74, “Contingencies,” states that if the difference between nominal value and present value of provision for liabilities is considered material, expected expenses for performing duty should be valued at present value. Provision for liabilities should be used only for the intended purpose at initial recognition. The provisions of this standard are effective prospectively for liabilities beginning on or after December 31, 2004. The Company does not expect the adoption of this statement to have a material impact on its financial position or results of operations.

F-80

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.


	POSCO

	(Registrant)

	/s/ Ku-Taek Lee

	Name: Ku-Taek Lee


	Title:	Chairman and Chief Executive Officer

Date: June 28, 2005

Exhibit Index


1	.1	—	Articles of incorporation of POSCO (English translation) (incorporated by reference to Exhibit 1.1 to the Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2003)*
2	.1	—	Form of Common Stock Certificate (including English translation) (incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement No. 33-81554)*
2	.2	—	Form of Deposit Agreement (including Form of American Depositary Receipts) (incorporated by reference to the Registrant’s Registration Statement (File No. 33-84318) on Form F-6)*
2	.3	—	Letter from ADR Depositary to the Registrant relating to the Pre-release of American Depositary Receipts (incorporated by reference to the Registrant’s Registration Statement (File No. 33-84318) on Form F-6)*
8	.1	—	List of subsidiaries of POSCO
12	.1	—	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12	.2	—	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13	.1	—	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15	.1	—	Consent of Samil PricewaterhouseCoopers, the Korean member firm of PricewaterhouseCoopers


*	Filed previously