Edgar Filing: POSCO

POSCO

As filed with the Securities and Exchange Commission on June 28, 2004

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, 2003

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 W5,000 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.

$200,000,000 7 1/8% Notes due 2004

$250,000,000 7 3/8% Notes due 2005

$300,000,000 7 1/8% 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.

80,707,945 shares of common stock, par value W5,000 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 o No

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		4
	Item 3C. Reasons for Offer and Use of Proceeds		4
	Item 3D. Risk Factors		4
Item 4.	Information on the Company		8
	Item 4A. History and Development of the Company		8
	Item 4B. Business Overview		9
	Item 4C. Organizational Structure		21
	Item 4D. Property, Plants and Equipment		21
Item 5.	Operating and Financial Review and Prospects		23
	Item 5A. Operating Results		23
	Item 5B. Liquidity and Capital Resources		30
	Item 5C. Research and Development, Patents and Licenses, Etc.		35
	Item 5D. Trend Information		36
	Item 5E. Off-balance Sheet Arrangements		36
	Item 5F. Tabular Disclosure of Contractual Obligations		36
	Item 5G. Safe Harbor		36
Item 6.	Directors, Senior Management and Employees		36
	Item 6A. Directors and Senior Management		36
	Item 6B. Compensation		39
	Item 6C. Board Practices		40
	Item 6D. Employees		42
	Item 6E. Share Ownership		43
Item 7.	Major Shareholders and Related Party Transactions		45
	Item 7A. Major Shareholders		45
	Item 7B. Related Party Transactions		45
	Item 7C. Interests of Experts and Counsel		45
Item 8.	Financial Information		45
	Item 8A. Consolidated Statements and Other Financial Information		45
	Item 8B. Significant Changes		47
Item 9.	The Offer and Listing		47
	Item 9A. Offer and Listing Details		47
	Item 9B. Plan of Distribution		49
	Item 9C. Markets		49
	Item 9D. Selling Shareholders		54
	Item 9E. Dilution		54
	Item 9F. Expenses of the Issuer		54
Item 10.	Additional Information		54
	Item 10A. Share Capital		54
	Item 10B. Memorandum and Articles of Association		54
	Item 10C. Material Contracts		59
	Item 10D. Exchange Controls		59
	Item 10E. Taxation		62
	Item 10F. Dividends and Paying Agents		69
	Item 10G. Statements by Experts		69
	Item 10H. Documents on Display		69
Item 11.	Quantitative and Qualitative Disclosures About Market Risk		69


		Page

Item 12.	Description of Securities Other than Equity Securities		71
PART II			78
Item 13.	Defaults, Dividend Arrearages and Delinquencies		78
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds		78
Item 15.	Controls and Procedures		78
Item 16A.	Audit Committee Financial Expert		78
Item 16B.	Code of Ethics		78
Item 16C.	Principal Accountant Fees and Services		79
Item 16D.	Exemptions from the Listing Standards for Audit Committees		79
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers		79
PART III			80
Item 17.	Financial Statements		80
Item 18.	Financial Statements		80
Item 19.	Exhibits		80
EX-1.1 ARTICLES OF INCORPORATION
EX-8.1 LIST OF SUBSIDIARIES
EX-12.1 CERTIFICATION
EX-13.1 SECTION 906 CERTIFICATION
EX-15.1 CONSENT OF SAMIL PRICEWATERHOUSE COOPERS

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 W5,000 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, 2002 and 2003 and for each of the three years in the period ended December 31, 2003 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,

	1999		2000			2001			2002		2003			2003(11)


	(In billions of Won and millions of Dollars, except per share data)
Korean GAAP:
Sales(1)		W12,701		W13,776			W13,121			W14,355		W17,789		US$	14,924
Cost of goods sold(2)		10,005		10,752			10,680			11,338		13,451			11,284
Selling and administrative expenses		685		718			854			967		1,075			902
Operating income		2,011		2,306			1,587			2,050		3,263			2,737
Interest expense		439		464			451			332		250			210
Foreign exchange transaction and translation gains (losses), net		53		(173	)		(10	)		135		(105	)		88
Donations(3)		123		449			83			50		103			87
Income taxes		698		689			337			398		730			613
Net earnings		1,554		1,634			846			1,089		1,996			1,674
Earnings per share of common stock(4)		16,204		19,131			10,366			13,295		24,496			20.55
Dividends per share of common stock		1,750		2,500			2,500			3,500		6,000			5.03
U.S. GAAP(5):
Operating income		W1,972		W2,475			W1,588			W2,021		W3,235		US$	2,714
Net earnings (loss)		1,532		1,743			908			1,018		1,997			1,675
Basic and diluted earnings (loss) per share of common stock		15,976		20,410			11,126			12,430		24,455			20.52

BALANCE SHEET DATA



	As of December 31,

	1999		2000		2001		2002		2003		2003(11)


	(In billions of Won and millions of Dollars)
Korean GAAP:
Working capital(6)		W1,458		W960		W1,342		W1,695		W3,450	US$	2,894
Property, plant and equipment, net(7)		10,811		10,455		10,601		10,325		9,846		8,260
Total assets(7)		19,690		20,147		19,405		19,077		20,769		17,423
Long-term debt(8)(9)(10)		3,740		4,159		4,235		3,194		2,952		2,477
Total stockholders’ equity(7)		9,200		9,558		10,351		11,820		13,250		11,115
U.S. GAAP(5):
Property, plant and equipment, net		W10,544		W10,113		W10,522		W10,322		W9,880	US$	8,289
Total assets		19,251		19,620		19,285		19,000		20,838		17,481
Total shareholders’ equity		9,674		9,936		10,940		11,464		13,018		10,921


(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 23 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 W1,192 to US$1.00, the noon buying rate of the Federal Reserve Bank of New York for Won in effect on December 31, 2003. 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		Average
Period		of Period		Rate(1)		High		Low


		(per US$1.00)
1999			1,136.0		1,188.2		1,243.0		1,125.0
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
	December		1,192.0		1,192.3		1,200.0		1,183.0
2004 (through June 24)			1,156.0		1,165.7		1,195.1		1,141.4
	January		1,174.0		1,183.3		1,195.1		1,172.0
	February		1,179.0		1,167.5		1,180.0		1,152.2
	March		1,146.7		1,166.3		1,181.0		1,146.7
	April		1,173.6		1,152.9		1,173.6		1,141.4
	May		1,165.0		1,177.9		1,191.0		1,165.0
	June (through June 24)		1,156.0		1,160.4		1,164.8		1,155.0


(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 following factors.


	*Adverse economic and financial developments in Korea recently had and may in the future have an adverse effect on domestic demand for our products.*

In 1997 and 1998, the Republic experienced a significant increase in the number and size of companies filing for corporate reorganization and protection from their creditors. As a result of these corporate failures, high levels of short-term foreign currency borrowings from foreign financial institutions and the consideration of non-market oriented factors in making lending decisions, the Republic’s financial institutions experienced a sharp increase in non-performing loans and a deterioration in their capital adequacy ratios. These developments led to a substantial increase in the number of unemployed workers, reducing the purchasing power of consumers in Korea. These developments also led international credit rating agencies to downgrade the credit ratings of the Republic and various companies, including us, and financial institutions in the Republic to below investment grade, although S&P and Moody’s raised the

credit rating of the Republic and our credit rating back to investment grade levels in early 1999. The current long-term foreign currency rating of the Republic by Standard & Poor’s is A- and the current foreign currency rating on bond obligations of the Republic by Moody’s is A3. Prompted by heightened security concerns stemming from North Korea’s nuclear weapons program, Moody’s changed the outlook on the long-term ratings of the Republic from positive to negative in February 2003.

Although the Korean economy began to experience a recovery in 1999, the pace of the recovery has since slowed and has been volatile. The economic indicators in 2001, 2002 and 2003 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 terrorist attacks in the United States that took place on September 11, 2001, recent developments in the Middle East, higher oil prices and the outbreak of severe acute respiratory syndrome, or SARS, in Asia and other parts of the world have increased the uncertainty of world economic prospects in general and continue to have an adverse effect on the world economy, and may thus adversely affect the Korean economy. Any future deterioration of the Korean economy would adversely affect our financial condition and results of operations.

Other possible developments that could hurt Korea’s economy in the future include:


	•	financial problems relating to chaebols, or their suppliers, and their potential adverse impact on Korea’s financial sector;

	•	failure of restructuring of large troubled companies, including troubled credit card companies and financial institutions;

	•	adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including depreciation of the U.S. dollar or Japanese yen), interest rates and stock markets;

	•	increased reliance on exports to service foreign currency debts, which could cause friction with Korea’s trading partners;

	•	adverse developments in the economies of countries such as the United States, China and Japan to which Korea exports, or in emerging market economies in Asia or elsewhere that could result in a loss of confidence in the Korean economy;

	•	the continued emergence of China, 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 the manufacturing base from Korea to China);

	•	social and labor unrest;

	•	declining consumer confidence and spending in Korea resulting from increasing unemployment and lower levels of income;

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

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

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

	•	an increase in the level of tensions or an outbreak of hostilities between Korea and North Korea.

Any developments that adversely affect the Republic’s economic recovery will likely also decrease demand for our products and adversely affect our results of operations. Korea is our most important market, accounting for 68.9% of our total sales volume of steel products in 2003.


	*Adverse economic and financial developments in Asia in the future may have an adverse effect on demand for our products in Asia.*

Our export sales accounted for 31.1% of our total sales volume for steel products in 2003. Our export sales to Asia, including China, Japan, Indonesia, Thailand and Malaysia, accounted for 78.5% of our total export sales volume for steel products in 2003, and we expect that sales to these countries, especially to China, may increase in the future. 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, including companies in the automobile, machinery and electrical appliance industries. In addition, weaker demand in these countries, combined with the continuing condition of over-capacity in the world steel industry, may reduce export prices in Dollar terms for 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.


	*Increased tensions with North Korea could have an adverse effect on us or the price of the ADSs.*

Relations between Korea and North Korea have been tense over most of Korea’s history. The level of tension between the two Koreas has fluctuated and may increase or change abruptly as a result of current and future events, including ongoing contacts at the highest levels of the governments of Korea and North Korea and increasing hostility between North Korea and the United States. 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, and has reportedly resumed activity at its Yongbyon power plant. In January 2003, North Korea announced its intention to withdraw from the Nuclear Non-Proliferation Treaty, demanding that the United States sign a non-aggression pact as a condition to North Korea dismantling its nuclear program. In August 2003, representatives of Korea, the United States, North Korea, China, Japan and Russia held multilateral talks in an effort to resolve issues relating to North Korea’s nuclear weapons program. While the talks concluded without resolution, participants in the August meeting indicated that further negotiations may take place in the future and, in February 2004, six party talks resumed in Beijing, China. Any further increase in tensions, resulting for example from a break-down in contacts or an outbreak in military hostilities, could hurt our business, results of operations and financial condition and could lead to a decline in the market value of the ADSs.


	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 54.7% of our total long-term debt (excluding discounts on debentures issued and including current portion) as of December 31, 2003;

	•	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 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.

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 Korea Stock Exchange and, as a result, will likely affect the market price of the ADSs. These fluctuations also will 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. Although we have not experienced any unanticipated supply disruptions in the past, any such supply disruptions, which could be caused by, among other things, political or other events in the countries from which we import these materials, could adversely affect our operations.


	*Over-capacity exists in the world steel industry.*

The world steel industry continues to have production over-capacity. This over-capacity reflects reduced demand growth in many industrialized Western countries, which has not been accompanied by significant reductions in production capacity in those countries, and development of production capacity in a number of developing countries and in the United States. This over-capacity in the world steel industry will affect our ability to expand export sales and to increase steel production in general.


	*A number of our products have been and may become subject to anti-dumping and countervailing proceedings or safeguard measures.*

In the United States, China and the European Union, a number of our products have been subject to anti-dumping and countervailing proceedings or safeguard measures. Further increases in or new imposition of dumping duties, countervailing duties, quotas or tariffs on our sales in the United States, China or the European Union may have a material adverse effect on our exports to these regions in the future. Exports to these regions accounted for 14.6% of our sales volume of steel products in 2003. See “Item 4. Information on the Company — Item 4B. Business Overview — Markets — Exports”.


	*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 in 1968. 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. In 1998, 1999 and 2000, the Government disposed of all of its interest in us. 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, which represented approximately 3.1% of our issued common stock, and The Korea Development Bank sold approximately 2.7% of our issued common stock, both in the form of ADSs. In July 1999, The Korea Development Bank sold approximately 8.0% of our issued common stock in the form of ADSs and, in December 1999, an additional 3.0% of our issued common stock, which we purchased as treasury stock. In June 2000, The Korea Development Bank sold an additional 3.0% of our issued common stock, which we purchased as treasury stock. In September 2000, The Korea Development Bank sold the rest of our shares that it owned, which amounted to 4.6% of our common stock, in the form of ADSs in a global offering. As a result of that offering, the Government no longer holds any direct interest in us. The remainder of our outstanding common stock is currently held by individuals and institutions. See “Item 7. Major Shareholders and Related Party Transactions — Item 7A. Major Stockholders”.


Item 4B.	*Business Overview*

The Company

We were one of the largest steel producers in the world based on annual crude steel production in 2003. We produced over 28.9 million tons of crude steel in 2003. We are the largest and the only fully integrated steel producer in Korea. 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.

In Korea, we produce almost all of our steel at Pohang Works and Gwangyang Works. Currently, Pohang Works has 12.87 million tons of annual crude steel and stainless steel production capacity, and Gwangyang Works has an annual crude steel production capacity of 15.83 million tons.

We sell primarily to the Korean market, with Korean sales accounting for 68.9% of our total sales volume of steel products in 2003. We believe that we had an overall market share of approximately 46.6% of the total sales volume of steel products sold in Korea in 2003. We maintained a domestic market share larger than 44.4% in each of our major product categories in 2003.

Our exports in each of 2002 and 2003 accounted for 30.5% and 31.1% of our total sales volume of steel products, respectively. Our major export market is Asia, with China accounting for 36.8%, Japan 18.0% and the rest of Asia 23.7% of our total steel export sales volume in 2003.

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.

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 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 31.1% of our total sales volume in 2003, with 78.5% of our export and overseas sales volume to customers in nearby Asian markets in 2003. 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 significantly expanded in recent years and we expect our exports to China to continue to grow. Our export sales provide a natural 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 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.


	*Continue to Seek Investment Opportunities Abroad*

We carefully seek out promising investment opportunities abroad, primarily in China, in part to prepare for the eventual maturation of the Korean steel market. We believe that China will continue to offer substantial growth opportunities, and we plan to selectively seek additional investment opportunities in China. 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 ton that we expect to be operational by December 2005. In the second half of 2004, we plan to invest $23.2 million for a 10.0% interest in Benxi Steel POSCO Cold Rolled Sheet Co., Ltd. and to invest another $23.2 million through POSCO China Holding Corporation

for an additional 10.0% interest. In October 2003, we also announced plans to expand stainless steel production facilities of our Chinese subsidiary, Zhangjiagang Pohang Stainless Steel Co., Ltd., in which we currently hold an 82.5% interest. We plan to contribute $244.1 million as additional capital for the joint venture to add stainless steel and hot rolling facilities with annual production capacity of 60,000 ton by December 2006 to its existing cold rolling facility with annual production capacity of 27,900 tons. In November 2003, we also launched POSCO China Holding Corporation, a holding company for our investments in China. In addition to China, we continue to seek investment opportunities abroad, including India and Southeast Asia.


	*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 the energy source and 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 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. Higher value-added products represented 39.9% of our total sales volume in 2003. Because our existing facilities can produce these products with minor enhancements, we do not believe that additional production will require significant capital expenditures.


	*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 using Internet technology could lead to a number of benefits, including more efficient inventory management, improved delivery time for our products and generally 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*

In July 2001, we completed phase one of a process innovation initiative designed to enhance the efficiency of operations and cost-effectiveness 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. In May 2002, we implemented a six-sigma standard master plan and continue to seek new opportunities to implement our company-wide process innovation and increase our efficiency and cost-effectiveness. We completed the initial round of

implementation of six-sigma programs in May 2003 and aim to instill six-sigma programs as part of our company-wide corporate culture by January 2005.


	*Improve Transparency and Enhance Corporate Governance and Management System*

We have sought to improve the transparency of our management and to enhance our corporate governance by expanding the role of independent directors, developing sub-committees with special tasks and implementing an audit committee. All of the directors on our audit committee are required to be comprised of outside directors. In 1997, our articles of incorporation were amended to provide for outside directors. Our board of directors is currently comprised of six directors who are also executive officers and nine outside directors. In addition, we recognize that our future performance depends, in substantial part, on hiring and retaining highly qualified personnel. We provide performance-based compensation which focus on rewarding performance to our executive officers and directors. We have also reinforced our commitment to ethical business standards. In 2003, we adopted a company-wide code of business conduct and ethics (the “Code of Conduct”).


	*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. New businesses related to our steel operations include liquefied natural gas production and logistics. We are currently constructing a W288 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 to invest W255.0 million 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. In October 2003, we agreed to invest an additional W12.5 billion in POSCO Terminal Co., Ltd. for the construction of facilities by October 2005 to increase its annual handling capacity by 4.0 million tons. This facility enhancement will allow POSCO Terminal 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 biotechnology, advanced materials and alternative energy development. For example, in September 2002, we agreed to set up a venture capital fund in the United States called POSCO BioVenture, L.P. and committed to investing $50.0 million by December 2005. The fund invests in promising biotech companies, including numerous pharmaceutical companies, and assists in their development in cooperation with Pohang University of Science & Technology.

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,


		1999				2000				2001				2002				2003

		Billions of				Billions of				Billions of				Billions of				Billions of
Steel Product		W		%		W		%		W		%		W		%		W		%

Hot rolled products			3,251		26.8		3,137		23.6		3,125		24.8		3,416		25.4		4,185		26.1
Plates			1,211		10.0		1,239		9.3		1,242		9.9		1,237		9.2		1,320		8.2
Wire rods			778		6.4		933		7.0		1,149		9.1		1,178		8.7		1,064		6.6
Cold rolled products			4,187		34.6		4,526		34.0		4,055		32.2		4,310		32.0		5,208		32.4
Silicon steel sheets			269		2.2		315		2.4		304		2.4		347		2.6		431		2.7
Stainless steel products			2,142		17.7		2,555		19.2		2,076		16.5		2,278		16.9		3,172		19.7
Others			277		2.3		607		4.6		624		5.0		700		5.2		687		4.3

	Total		12,115		100.0		13,312		100.0		12,576		100.0		13,465		100.0		16,067		100.0



		Year Ended December 31,


		1999				2000				2001				2002				2003

		Thousands				Thousands				Thousands				Thousands				Thousands
Steel Product		of Tons		%		of Tons		%		of Tons		%		of Tons		%		of Tons		%

Hot rolled products			10,712		38.2		10,098		35.0		11,381		37.9		11,461		37.8		11,514		37.6
Plates			3,026		10.8		3,146		10.9		3,146		10.5		3,060		10.1		3,047		9.9
Wire rods			2,169		7.7		2,651		9.2		2,802		9.3		2,808		9.3		2,777		9.1
Cold rolled products			8,786		31.3		9,437		32.7		9,425		31.3		9,503		31.3		9,770		31.9
Silicon steel sheets			463		1.7		542		1.9		591		2.0		589		1.9		671		2.2
Stainless steel products			1,639		5.9		1,423		4.9		1,266		4.2		1,394		4.6		1,778		5.8
Others			1,244		4.4		1,578		5.5		1,455		4.8		1,518		5.0		1,100		3.5

	Total		28,039		100.0		28,875		100.0		30,065		100.0		30,333		100.0		30,657		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 1.3 million tons in 1999, 1.4 million tons in 2000, 1.3 million tons in 2001, 1.2 million tons in 2002 and 1.4 million tons in 2003, accounting for W572 billion in 1999, W644 billion in 2000, W657 billion in 2001, W511 billion in 2002 and W679 billion in 2003, 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 11.5 million tons in 2003, representing 37.6% of our total steel sales volume. The Korean market accounted for 9.1 million tons or 78.6% of our hot rolled product sales in 2003, representing a domestic market share of approximately 69.2%. 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 2003, our sales volume of hot rolled products remained fairly constant compared to 2002.


	*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 3.0 million tons in 2003, representing 9.9% of our total steel sales volume. The Korean market accounted for 2.7 million tons or 88.1% of our plate sales in 2003, representing a domestic market share of approximately 44.4%. 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 2003, our sales volume of plates remained fairly constant compared to 2002.


	*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 2.8 million tons in 2003, representing 9.1% of our total steel sales volume. The Korean market accounted for 2.2 million tons or 78.5% of our wire rod sales in 2003, representing a domestic market share of approximately 65.6%. The largest customers for our wire rods are manufacturers of wire and nails.

In 2003, our sales volume of wire rods decreased by 1.1% compared to 2002.


	*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 9.8 million tons in 2003, representing 31.9% of our total steel sales volume. The Korean market accounted for 5.1 million tons or 52.4% of our cold rolled product sales in 2003, representing a domestic market share of approximately 47.7%.

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 2003, our sales volume of cold rolled products increased by 2.8% compared to 2002.


	*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 671 thousand tons in 2003, representing 2.2% of our total steel sales volume. The Korean market accounted for 449 thousand tons or 66.9% of our silicon steel sheet sales in 2003, representing a domestic market share of approximately 97.6%.

Our sales volume of silicon steel sheets increased significantly since 1998 as a result of increased demand from manufacturers of power transformers and generators and rotating machines and an addition of a manufacturing line, which was completed in October 1998. The new line has an annual production capacity of 240,000 tons of silicon steel sheets.

In 2003, our sale volume of silicon steel sheets increased by 13.9% compared to 2002, primarily as a result of rationalization of our facilities which increased our production of silicon steel sheets.


	*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 1,778 thousand tons in 2003, representing 5.8% of our total steel sales volume. The Korean market accounted for 983 thousand tons or 55.3% of our stainless steel product sales in 2003, representing a domestic market share of approximately 51.4%.

Although sales of stainless steel products accounted for only 5.8% of our total sales volume in 2003, they represented 19.7% of our total revenues from sales of steel products in 2003. Our sales volume of stainless steel increased by 27.6% in 2003 compared to 2002, primarily as an increase in production from completion of our stainless steel hot rolling facility in April 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 68.9% of our total steel sales volume in 2003. Exports and overseas sales by our overseas subsidiaries represented 31.1% of our total sales volume in 2003. 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 45.4 million tons in 2003. We sold a total of 21.1 million tons of steel products in Korea in 2003, maintaining an overall domestic market share of 46.6% for such period. In 2003, we had a domestic market share of more than 44.4% for each of our major product categories. See “— Major Products”.

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



	Year Ended December 31,


	1999				2000				2001				2002				2003

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

POSCO’S sales		18,997		56.3		20,059		52.2		20,894		54.6		21,090		48.2		21,121		46.6
Other Korean steel companies’ sales		12,559		37.2		15,116		39.3		14,144		37.0		17,732		40.6		17,838		39.3
Imports(1)		2,479		7.3		3,266		8.5		3,235		8.5		4,898		11.2		6,411		14.1

Total domestic sales(1)		34,035		100.0		38,441		100.0		38,273		100.0		43,720		100.0		45,370		100.0


(1)	Source: 2003 Official Statistics, Korea Iron & Steel Association.

Total sales volume of our steel products increased in 2000 by 5.6%, as the Korean economy rebounded from the difficult economic conditions of the late 1990s. Total sales volume increased further by 4.2% in 2001, 0.9% in 2002 and 0.2% in 2003, as the Korean economy continued its growth during this period. Our share of the Korean market decreased from 56.3% in 1999 to 52.2% in 2000, primarily as a result of normalized operations at other Korean steel companies that had experienced difficulties in immediately preceding periods. Our market share increased to 54.6% in 2001 as our sales increased while sales of other Korean steel companies decreased. Our market share decreased to 48.2% in 2002 as substantial increases in sales volume of other Korean steel companies and import volume more than offset a 0.9% increase in our sales volume. Increased demand from the shipbuilding industry and the automobile

industry contributed to a 14.2% increase in total domestic sales volume in 2002 compared to 2001. Our market share decreased to 46.6% in 2003 as increases in sales volume of other Korean steel companies and import volume more than offset a 0.2% increase in our sales volume. Total domestic sales in Korea 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 into the Korean market in recent years have been mainly from Japan, China and Russia.

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. In 2003, approximately 71% of our total sales in Korea in terms of volume were made directly to end-users and other steel processors, and the remainder were made to local distribution companies including our consolidated subsidiaries. The role of the distribution companies and sales affiliates is to sell finished steel products to low-volume customers. We provide service technicians for large customers and distributors and in each important product area.

For a discussion of our domestic sales of steel products in 2001, 2002 and 2003 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 31.1% of our total sales volume of steel products in 2003, 78.5% of which was generated in Asia. Our exports in terms of sales volume increased by 3.2% to 9.5 million tons in 2003, primarily as a result of an increase in our exports to China, which more than offset decreases in Asia (excluding China and Japan) and North America. 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,


		1999				2000				2001				2002				2003

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

China			1,954		21.6		2,798		31.7		2,976		32.4		2,828		30.6		3,510		36.8
Asia (other than China and Japan)			2,017		22.3		1,994		22.6		1,965		21.4		2,414		26.1		2,259		23.7
Japan			2,261		25.0		2,136		24.2		2,040		22.2		1,780		19.3		1,719		18.0
North America			1,865		20.6		1,094		12.4		665		7.2		978		10.6		715		7.5
Europe			578		6.4		285		3.2		313		3.4		294		3.2		236		2.5
Others			367		4.1		509		5.8		1,213		13.2		949		10.3		1,096		11.5

	Total		9,042		100.0		8,816		100.0		9,172		100.0		9,243		100.0		9,535		100.0



		Year Ended December 31,


		1999				2000				2001				2002				2003

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

Hot rolled products			3,455		38.2		2,234		25.3		2,225		24.3		2,224		24.1		2,464		25.8
Plates			404		4.5		377		4.3		318		3.5		300		3.2		363		3.8
Wire rods			357		4.0		619		7.0		672		7.3		679		7.3		598		6.3
Cold rolled products			4,004		44.3		4,522		51.3		4,923		53.7		4,694		50.8		4,649		48.8
Silicon steel sheets			120		1.3		144		1.6		134		1.5		161		1.7		223		2.3
Stainless steel products			486		5.4		671		7.6		646		7.0		706		7.6		795		8.3
Others			216		2.3		249		2.8		254		2.8		478		5.2		443		4.7

	Total		9,042		100.0		8,816		100.0		9,172		100.0		9,243		100.0		9,535		100.0

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



	Year Ended December 31,

Area	2001		2002		2003


	(billions)
Korea	W	8,507	W	9,531		W12,100
China		2,037		2,089		2,706
Asia (other than China and Japan)		822		1,069		1,079
Japan		692		650		771
North America		386		473		312
Other		677		543		822

		13,121		14,355		17,789

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 world steel industry continues to have production over-capacity. The table below sets out the world’s crude steel consumption for the periods indicated.



	Year Ended December 31,

	1998			1999			2000			2001			2002

Crude steel equivalent consumption (million tons)		781			805			869			834			887
Percentage of annual increase (decrease)		(1.1	)%		3.1	%		8.0	%		(4.0	)%		6.4	%


	Source: International Iron and Steel Institute.

On a long-term basis, the world steel production over-capacity reflects reduced demand growth in industrialized Western countries, which has not been accompanied by significant reductions in production capacity in those countries, and development of substantial production capacity in a number of developing countries. Demand growth for steel in many industrialized Western countries has fallen due to a number of factors, including sluggish economic growth and reduced use of steel. However, demand for steel had increased until recently in some developing countries that had experienced significant growth in the past several years.

We distribute our export products mostly through Korean trading companies and our overseas sales subsidiaries. Our largest export market in 2003 was China, which accounted for 36.8% 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 3.0 million tons in 2001, decreased to 2.8 million tons in 2002 and increased to 3.5 million tons in 2003. Exports to China increased by 24.1% in 2003 primarily due to our increased marketing focus in this region. We expect exports to China to continue to increase. See “— Business Strategy Continue to Expand our Export Base”. Sales volume to Asian countries other than China and Japan increased from 2.0 million tons in 2001 to 2.4 million tons in 2002 and decreased by 6.4% to 2.3 million tons in 2003 primarily due to our decision to increase sales in China. Our exports to Japan decreased during each of the past five years, from 2.3 million tons in 1999 to 1.7 million tons in 2003. 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 Europe and North America during that period. However, from 1999 to 2003, sales volume to these regions decreased, 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 North America and Europe decreased to 1.0 million tons in 2003, representing only 10.0% 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 425 thousand tons in 2001, 686 thousand tons in 2002 and 539 thousand tons in 2003, accounting for approximately 64% of our sales to North America in 2001, 70% in 2002 and 75% in 2003. Our sales to UPI decreased significantly in 2001 due to the suspended operation of UPI’s manufacturing plant from May 2001 to March 2002 resulting from a major fire. The manufacturing plant resumed its normal operation in April 2002.

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 0.86%, our sales of stainless steel plates are subject to a dumping duty of 1.19%, our sales of stainless steel sheets are subject to a dumping duty of 0.92%, and sales of stainless steel wire rods by Changwon Specialty Steel are subject to a dumping duty of 1.67% in the United States.

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.

The United States imposed temporary safeguard measures on key steel products to provide relief to the U.S. steel industry in March 2002, followed by temporary safeguard measures imposed by the European Union in March 2002 and China in May 2002. These measures imposed annual quotas on certain products exported by Korean steel manufacturers, as well as additional tariff on imports exceeding the global quota amount. The United States withdrew these measures on December 4, 2003, followed by the European Union on December 6, 2003 and China on December 26, 2003.

Our products that have been subject to anti-dumping and countervailing proceedings or safeguard measures in the United States, China and the European Union 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 the European Union may not have a material adverse effect on our exports to these 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. Global demand remained stable in 2001 but export prices in Dollar terms fell during this period as a result of increased production and continuing over-capacity in the world steel industry. 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, primarily as a result of general recovery of the global economy 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 2003, we imported approximately 41 million tons of iron ore and 20 million tons of coal. Iron ore is imported mainly from Australia, Brazil and India. Coal is imported mainly from Australia, China, Canada and Russia.

In 2003, we purchased all of our iron ore and coal imports pursuant to long-term contracts. We purchased about 12.6% of our coal imports in 2003 from foreign mines in which we have made an investment. The long-term contracts generally have terms of five 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 average price of iron ore per ton (including all associated costs such as customs duties and transportation costs) decreased by 6.6% in 2002 but increased by 2.1% in 2003. The average price of coal per ton (including all associated costs such as customs duties and transportation costs) increased by 0.3% in 2002 but decreased to 2.8% in 2003. We currently do not depend on any single country or supplier for our iron ore or coal.

In April 3, 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 3.0 million tons of iron ore in 2003.

We continue to seek opportunities to enter into additional strategic relationships 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 all associated costs such as customs duties and transportation costs) increased by 6.3% in 2002 and 31.0% in 2003.


	*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 thirty-seven dedicated bulk carriers transported approximately 73% of our imported raw materials in 2003, with the remaining 23% transported by other vessels through short-term 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 25% and 10% of the total cost of such materials in 2003.

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.


	*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 different standardized sizes and shapes.

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.

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. Blooms and billets are processed into wire rods at wire rod 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.


	*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 have more than 44.4% of the domestic market share in each of our major product categories, we generally face only fragmented competition in the domestic market. In hot rolled products, where we had a market share of approximately 69.2% in 2003, we face competition from a Korean operator of mini-mills, which produces lower quality products, and from various foreign producers, primarily from Japan and Russia. In cold rolled products and stainless steel products, where we had a market share of approximately 47.7% and 51.4% in 2003, respectively, we compete with smaller specialized domestic manufacturers and various foreign producers, primarily from Japan and Russia.

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, the second largest electric-furnace steel producer in the world with annual crude steel production of 7.7 million tons in 2003. INI Steel was spun-off from Hyundai Group in August 2000. In March 2000, INI Steel merged with Kangwon Industries, a specialized domestic manufacturer which had been undergoing a workout program. In addition, in May 2000, INI Steel purchased shares of BNG Steel (formerly Sammi Steel), a specialized domestic manufacturer.

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, particularly those in Japan, the United States, France and Britain. Major competitive factors include the range of products offered, quality, price, delivery performance and customer service.

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

Subsidiaries

For information regarding our subsidiaries and affiliated companies, see Notes 1 and 28 of Notes to Consolidated Financial Statements.

Diversification

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. We maintain medical and accident insurance for our employees to the extent we consider appropriate.

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 W93.2 billion on anti-pollution facilities in 2003.


Item 4C.	*Organizational Structure*

These matters are discussed under Item 4B. where relevant.


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 production capacity as part of our facilities expansion or as a result of continued modernization and rationalization of our existing facilities.

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 12.87 million tons. The completion of construction of stainless steel manufacturing, continuous casting, annealing and pickling lines in April 2003 increased annual production capacity of Pohang Works by 0.60 million tons.

Situated on a site of 8.9 million square meters at Youngil Bay on the southeastern coast of Korea, Pohang Works consists of 42 plants and 26 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 46 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.

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.

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



	Year Ended December 31,

	1999		2000		2001		2002		2003

Crude steel and stainless steel production capacity (million tons per year)		12.20		12.20		12.20		12.20		12.87
Actual crude steel and stainless steel output (million tons)		12.20		12.36		12.04		12.16		12.67
Capacity utilization rate (%)(1)		100.0		101.3		98.7		99.7		98.4


(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.

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 15.83 million tons per year.

Gwangyang Works is comprised of 34 plants and 27 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 250,000 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.

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.

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,

	1999		2000		2001		2002		2003

Crude steel and stainless steel production capacity (million tons per year)		15.80		15.80		15.80		15.80		15.83
Actual crude steel and stainless steel output (million tons)		14.34		15.38		15.78		15.90		16.23
Capacity utilization rate (%)(1)		90.8		97.3		99.9		100.6		102.5


(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.

Joint Ventures and Others

In September 1996, we entered into an agreement with Zhangjiagang Group Co. of the People’s Republic of China to establish a joint venture company in China for the manufacture and sale of stainless cold rolled steel products. Pursuant to this agreement, we have an 82.5% interest in the joint venture. The plant commenced production of stainless cold rolled steel products and galvanizing iron in December 1998 and produced 162,700 tons of stainless cold rolled products in 2001, 184,258 tons in 2002 and 240,722 tons in 2003. The plant also produced 136,500 tons of galvanizing iron in 2001, 144,547 tons in 2002 and 147,195 tons in 2003. In October 2003, we announced plans to expand the production facilities of our Chinese subsidiary by investing $244.1 million to construct new mills by December 2006 and enhance the annual production capacity by 600 thousand tons of stainless steel hot rolled products.

We established Changwon Speciality Steel as a wholly-owned subsidiary in Korea in February 1997, and we currently have a 99.0% interest. In March 1997, Changwon Speciality Steel acquired the round bar and pipe business and certain inventory and property, plant and equipment of Sammi Steel Co., Ltd. The plants acquired by Changwon Speciality Steel have annual production capacities of 759,000 tons of wire rods, round bars, steel pipes and semi-finished products. Changwon Speciality Steel produced 746,000 tons of such products in 2003.

In September 2002, we agreed to make a $131 million investment for an 80% interest in newly formed Qingdao Pohang Stainless Steel Co., Ltd. to manufacture and sell stainless cold rolled steel products in China. Construction of the plant began in August 2003. The plant will have an annual production capacity of 150,000 tons of stainless cold rolled steel products and is expected to become operational in December 2004.

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 ton that we expect to be operational by December 2005. In the second half of 2004, we plan to invest $23.2 million for a 10.0% interest in Benxi Steel POSCO Cold Rolled Sheet Co., Ltd. and to invest another $23.2 million through POSCO China Holding Corporation for an additional 10.0% interest.

In November 2003, we launched POSCO China Holding Corporation, a holding company for our investments in China. POSCO China Holding Corporation will also provide support to our Chinese investment projects and affiliated companies with their marketing efforts in China and help solidify their business relationships with clients and suppliers. We believe that China offers substantial growth opportunities and we plan to selectively seek additional investment opportunities.


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 0.9% in 2002 and 1.1% in 2003. In 2002, our crude steel output increased to 28.1 million tons and sales volume increased to 30.3 million tons due to continuing increase in domestic demand. 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. For a discussion of our sales volume and revenues by major products and markets from 2001 to 2003, 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 stainless steel increased in 2002 and the weighted average unit prices for our products increased by 6.1% in 2002 compared to 2001. Unit sales prices of hot rolled products and cold rolled products, which accounted for 69.1% of our sales volume in 2002, increased by 8.6% and 5.4% in 2002, respectively. Unit sales prices of wire rods, specialty products and plates, which accounted for 24.4% of our sales volume in 2002, increased by 2.3%, 7.3% and 2.4% in 2002, respectively. These increases were partially offset by a 0.3% decrease in unit sales price of stainless steel products. Increase in unit sales price generally continued in 2003. 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. 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, primarily as a result of general recovery of the global economy as well as increases in transportation cost

and price of raw materials. 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	2001		2002		2003


	(thousands of W per ton)
Hot rolled products	W	274.6	W	298.1	W	363.5
Plates		394.8		404.1		433.1
Wire rods		410.1		419.5		383.2
Cold rolled products		430.3		453.6		533.1
Silicon steel sheets		515.2		588.0		642.0
Stainless steel products		1,639.9		1,634.4		1,783.7
Others		429.3		460.9		624.6
Average(1)		418.3		443.9		524.1


(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,

		2001			2002			2003


		(percentage of net sales)
Cost of goods sold			81.4	%		79.0	%		75.6	%
Selling and administrative expenses(1)			6.5			6.7			6.0

	Total operating expenses		87.9			85.7			81.6

Gross margin			18.6			21.0			24.4
Operating margin			12.1			14.3			18.4


(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.


	1999			2000		2001			2002			2003

Crude steel and stainless steel production capacity (million tons per year)		28.00	(1)		28.00		28.00	(1)		28.00	(1)		28.66	(1)
Actual crude steel and stainless steel output (million tons)		26.54	(1)		27.74		27.83	(1)		28.07	(1)		28.90	(1)
Capacity utilization rate (%)		94.8			99.1		99.4			100.3			100.8
Steel product sales (million tons)(2)		28.04			28.88		30.07			30.33			30.66
Man-hours per ton of crude steel produced(3)		1.29			1.29		1.28			1.26			1.16


(1)	Includes production capacity and output of Changwon Specialty Steel.

(2)	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 1.3 million tons in 1999, 1.4 million tons in 2000, 1.3 million tons in 2001, 1.2 million tons in 2002 and 1.4 million tons in 2003.

(3)	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 against the Dollar and other foreign currencies will increase the amount of Won required for us to make interest and principal payments on foreign currency-denominated debt. In terms of the average noon buying rate, the Won appreciated against the Dollar from W1,293.4 per Dollar in 2001 to W1,242.0 per Dollar in 2002 and W1,183.0 per Dollar in 2003. See “Item 3. Key Information — Exchange Rate Information”. See “Item 3. Key Information — Item 3D. Risk Factors — Adverse Developments in Korea and Asia” and “— Adverse Impact of Depreciation of the Won”.

As of December 31, 2001, we had net foreign currency denominated liabilities of approximately W3,764 billion, including net liabilities of approximately US$2,032 million and Yen 105 billion. Primarily as a result of depreciation in the Won relative to the Dollar, we recorded net foreign exchange transaction and translation loss of W10 billion in 2001, all of which was included in our results of operations for 2001. As of December 31, 2002, we had net foreign currency denominated liabilities of W3,207 billion, including net liabilities of approximately US$1,840 million and Yen 92 billion. Primarily as a result of the appreciation in the Won relative to the Dollar and the Yen, we recorded net foreign exchange transaction and translation gain of W135 billion in 2002, all of which was included in our results of operations for 2002. As of December 31, 2003, we had net foreign currency denominated liabilities of approximately W3,470 billion, including net liabilities of approximately US$1,854 million and Yen 90 billion. Primarily as a result of the depreciation of the Won relative to the Yen, we recorded net foreign exchange transaction and translation loss of W105 billion in 2003, all of which we recorded in our results of operations for 2003. Our ultimate foreign currency translation gains and losses will depend on future currency exchange rates and other factors.

In addition to the impact of foreign exchange rates on us arising from our foreign currency-denominated borrowings, we are affected by exchange rate fluctuations because we obtain most of our raw materials and some of our equipment from sources outside Korea and the prices of these raw materials and equipment are stated in currencies other than the Won, generally in Dollars. A substantial portion of our freight costs are also affected by the Won-Dollar exchange rate. 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 enter into cross currency swap agreements in the management of our interest rate and currency risks and currency forward contracts with financial institutions to hedge the fluctuation risk of future cash flows. As of December 31, 2003, we had entered into one currency swap contract and five currency forward contracts. As of December 31, 2003, we estimate that the net valuation loss of above contracts was approximately W27.9 billion and net transaction gain was W821 million. 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. The 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. Accordingly, we recognized aggregate impairment losses on buildings and machinery of the no. 2 mini-mill at Gwangyang Works of W5 billion and W235 billion, respectively, as of December 31, 2002.

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, in 2003, we recognized additional impairment losses of W79 billion on buildings based on their net realizable value and W72 billion on machinery based on estimated selling price. We also reclassified related equipment, which we intend to dispose of, as other investment assets as of December 31, 2003. As a result of the impairment write-downs, the carrying value of the investment in the mini-mill became W144 billion and was included as other investment assets and construction in progress under fixed assets as of December 31, 2003. See “— Critical Accounting Policies — Impairment of Long-lived Assets” and Note 8 of Notes to Consolidated Financial Statements. We are planning to sell the machinery of the mini-mill in the near future.


	*Inflation*

Inflation in the Republic, which was 4.1% in 2001, 2.7% in 2002 and 3.6% in 2003, has not had a material impact on our results of operations in recent years.

Critical Accounting Policies

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 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 make additional allowances to our receivable balances.


	*Impairment of Investment Securities*

When the fair value of a listed equity security or the net equity value of an unlisted equity security held for investment (excluding those of affiliates and subsidiaries) 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 equity 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 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 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 and, for publicly-traded securities, the length of time and the extent to which fair value has been less than cost. The evaluation of these investments is also subject to the overall condition of the economy and its impact on the capital markets.


	*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. 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 by the assets that we review for impairment. 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. 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.

Operating Results


	*2003 Compared to 2002*

Our sales in 2003 increased by 23.9% to W17,789 billion from W14,355 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”.

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.

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 W4,338 billion from W3,017 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 compared to 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 cost 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 W3,263 billion compared to W2,050 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 W1,075 billion compared to W967 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 W446 billion compared to W405 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 W239 billion in 2003 compared to W208 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 W142 billion compared to W130 billion in 2002 and welfare expenses increased by 22.1% to W76 billion compared to W62 billion in 2002. An increase of 39.9% in research and development expenses to W57 billion in 2003 from W41 billion in 2002 resulted primarily from our increased research activities on implementation of Six Sigma projects and commercialization of a low-cost steel making process called FINEX. Our stock compensation expenses in 2003 increased by 190.8% to W19 billion from W6 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 W1,996 billion compared to W1,089 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 W178 billion in 2002 and our loss on valuation of equity method investments in 2003 decreased by 96.5% to W5 billion from W129 billion in 2002. In

2002, we recognized bad debt expense of W133 billion and valuation loss of W135 billion from the liquidation of POSVEN. Our interest expense in 2003 decreased by 24.6% to W250 billion from W332 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 W6 billion from W129 billion in 2002 and gain on foreign currency transactions in 2003 decreased by 36.1% to W84 billion from W132 billion in 2002 as the Korean Won appreciated against major foreign currencies in 2003, including the Dollar. Our donations in 2003 increased by 105.8% to W103 billion from W50 billion in 2002, primarily as a result of a donation of W51 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.


	*2002 Compared to 2001*

Our sales in 2002 increased by 9.4% to W14,355 billion from W13,121 billion in 2001, reflecting an increase of 6.1% in the average unit sales price per ton of our steel products and a 0.9% increase in the sales volume of our steel products.

Sales volume of stainless steel products, which accounted for 4.6% of total sales volume, increased by 10.1% in 2002. Sales volume of miscellaneous steel products, which accounted for 5.0% of total sales volume, increased by 4.3%. In addition, sales volume of cold rolled products, which accounted for 31.3% of total sales volume, and hot rolled products, which accounted for 37.8%, increased by 0.8% and 0.7%, respectively. Sales volume of wire rods, which accounted for 9.3% of total sales volume, increased by 0.2%. On the other hand, sales volume of plates, which accounted for 10.1% of total sales volume, and galvanized steel sheets, which accounted for 1.9%, decreased by 2.7% and 0.3%, respectively. See “Item 4. Information on the Company — Item 4B. Business Overview — Major Products”.

Domestic sales in 2002 increased by 12.0% in terms of total sales revenues and 0.9% in terms of sales volume of steel products compared to 2001. In 2002, our domestic sales accounted for approximately 69.5% of our total sales volume, consistent with 2001. The increase in domestic sales revenues in 2002 compared to 2001 was attributable primarily to an increase in the price of steel products sold in Korea.

Export sales in 2002 increased by 4.5% in terms of sales revenues and 0.8% in terms of sales volume compared to 2001. Exports as a percentage of total sales volume remained consistent at approximately 30.5% in 2002 compared to 2001. The increase in export sales in 2002 compared to 2001 was primarily attributable to a strong demand for our products from Asia other than China and Japan. Our export sales to this region in 2002 increased by 30.0% to W1,069 billion from W822 billion in 2001.

Gross profit in 2002 increased by 23.6% to W3,017 billion from W2,441 billion in 2001. Gross margin in 2002 increased to 21.0% from 18.6% in 2001, as the 9.4% increase in net sales more than offset a 6.2% increase in cost of goods sold in 2002 compared to 2001. 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 described below, which more than offset decreases in our repair-related expenses. Raw materials costs in 2002 increased by 8.9% to W5,340 billion from W4,905 billion in 2001 primarily as a result of a general increase in the unit cost of raw materials other than iron ore and an increase in our production of crude steel to 28.1 million tons in 2002 compared to 27.8 million tons in 2001. In 2002, depreciation increased by 12.7% to W1,338 billion while repairs expense decreased by 10.3% to W274 billion. In addition, we did not record any provision for special repairs in 2002 compared to W46 billion in 2001. Our repairs expense decreased as a result of partial completion of repair projects.

Labor expenses, which consist of salaries and wages, provisions for severance benefits and welfare expenses included in cost of goods sold and in selling and administrative expenses, increased by 23.2% in 2002 to W1,497 billion from W1,215 billion in 2001 due primarily to increases in average wages and bonuses and provisions for severance benefits. We increased our provision for severance benefits included in cost of goods sold to W119 billion in 2002 compared to W71 billion in 2001 to reflect increases in average wages and the number of employees expected to retire in the near future. See “— Overview —

Significant Changes in Our Method of Calculating Retirement and Severance Benefits” and Note 2 of Notes to Consolidated Financial Statements.

Operating income in 2002 increased by 29.1% to W2,050 billion compared to W1,587 billion in 2001. Operating margin increased to 14.3% in 2002 from 12.1% in 2001, as selling and administrative expenses increased by 13.2% in 2002 to W967 billion compared to W854 billion in 2001. The increase in selling and administrative expenses resulted principally from increases in labor-related expenses discussed above, as well as increases in advertising and fees and charges. Our advertising expenses increased by 54.6% to W37 billion compared to W24 billion in 2001 as we increased our global advertising during the 2002 FIFA Worldcup soccer tournament. An increase of 31.7% in fees and charges to W53 billion in 2002 from W41 billion in 2001 resulted primarily from fees and charges related to process innovation initiatives and FIFA Worldcup-related sponsorships.

Our net income in 2002 increased by 28.8% to W1,089 billion compared to W846 billion in 2001 as increases in operating income and foreign exchange gains, as well as reductions in interest expense and foreign exchange losses, more than offset increases in other bad debt allowance and loss on valuation of equity method investments and loss on impairment of property, plant and equipment. Foreign exchange gains in 2002 increased by 24.9% to W261 billion from W209 billion in 2001 as a result of the appreciation of the Won against major currencies, primarily against the Dollar. Interest expense in 2002 decreased by 26.4% to W332 billion compared to W451 billion in 2001 due to our reduction in debt and a general decrease in interest rates. Other bad debt allowance in 2002 increased significantly to W178 billion from none in 2001 and loss on valuation of equity method investments increased more than three-fold to W129 billion in 2002 compared to W29 billion in 2001 primarily as a result of the liquidation of POSVEN in 2002. Other bad debt allowance and valuation loss related to POSVEN in 2002 amounted to W133 billion and W135 billion, respectively. Loss on impairment of property, plant and equipment of W54 billion in 2001 and W140 billion in 2002 arose from our decision to permanently cease construction of our no. 2 mini-mill at Gwangyang.

Our effective tax rate in 2002 was 26.4% compared to 28.7% in 2001, partially due to a decrease in statutory tax rate to 29.7% in 2002 from 30.8% in 2001 and an increase in tax credit to W88 billion in 2002 from W61 billion in 2001. 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:



	For the years ended December 31,

	2001			2002			2003


	(In billions of Won)
Net cash provided by operating activities		W1,909			W3,213			W3,499
Net cash used in investing activities		1,559			2,146			2,135
Net cash used in financing activities		824			1,178			1,046
Cash and cash equivalents at beginning of period		880			407			268
Cash and cash equivalents at end of period		407			268			594
Net increase (decrease) in cash and cash equivalents		(473	)		(139	)		326

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 W1,559 billion in 2001, W2,146 billion in 2002 and W2,135 billion in 2003. These amounts included purchases of property, plant and equipment of W1,496 billion in 2001, W1,689 billion in 2002 and W1,299 billion in 2003. We recorded net sale of trading securities of W477 billion in 2001 and recorded net acquisition of trading securities of W603 billion in 2002 and W81 billion in 2003. We also recorded net acquisition of investment securities of W522 billion in 2001, W8 billion in 2002 and W493 billion in 2003. In our financing

activities, we used cash of W1,384 billion in 2001, W1,578 billion in 2002 and W1,317 billion in 2003 for principal repayments of outstanding long-term debt. We also used W91 billion in 2002 and W263 billion in 2003 for the repurchase of our shares from the market as treasury stock. We cancelled 2,891,140, 2,807,690 and 1,815,640 shares of treasury stock on August 25, 2001, November 20, 2002 and October 16, 2003, respectively. See “Item 4. Information on the Company — Item 4B. Business Overview” and Note 20 of Notes to Consolidated Financial Statements.

From time to time, we may also require capital needs for investments involving acquisitions and strategic relationships. On February 9, 2001, as a member of a consortium of companies, we acquired 12% of the outstanding stock of SK IMT Co., Ltd. for W192 billion. SK IMT Co., which was incorporated on March 5, 2001, acquired the right to purchase one of three IMT-2000 licenses. IMT-2000 is a third-generation, high-capacity wireless communications system that will offer a full range of wireless data and mobile telecommunications service.

We anticipate that capital expenditures and repayments of outstanding debt will represent the most significant uses of funds for the next several years. Our total capital expenditures were W1,299 billion in 2003 and, under current plans, are estimated to increase to approximately W2,787 billion in 2004 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, 2003 are W1,122 billion in 2005, W1,171 billion in 2006, W25 billion in 2007 and W601 billion in 2008. Long-term debt maturing after December 31, 2008 is W48 billion. In addition, as of December 31, 2003, we had short-term borrowings of W732 billion and current portion of long term debt of W1,021 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 W229 billion in 2001, W214 billion in 2002 and W326 billion in 2003.

The following table sets forth the amount of long-term debt, capital lease and operating lease obligations as of December 31, 2003.



		Payments due by period

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


		(in billions of Won)
Long-term debt obligations			3,989		1,021		2,293		626		49
Capital lease obligations			4		1		3		—		—
Operating leases obligations			12		6		6		—		—

	Total		4,005		1,028		2,302		626		49

Our other 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 five to ten years and provide for periodic price adjustments to then-market prices. As of December 31, 2003, 146 million tons of iron ore and 55 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 W2,543 billion in 2002 and W3,564 billion in 2003, and cash proceeds from long-term debt were W1,451 billion in 2001, W647 billion in 2002 and W656 billion in 2003. In August 2003, we raised W578 billion 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, which notes are fully and unconditionally guaranteed by us. Total long-term debt, including current portion and excluding discount on debentures issued, was W5,673 billion as of December 31, 2001, W4,537 billion as of December 31, 2002 and W3,989 billion as of December 31, 2003.

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 W10,351 billion at December 31, 2001 to W13,250 billion at December 31, 2003. This growth is attributable to growth in retained earnings.

Liquidity

Our liquidity is affected by exchange rate fluctuations. See “— Overview — Exchange Rate Fluctuations”. Approximately 35.2% of our sales in 2001, 33.6% of our sales in 2002 and 32.0% of our sales in 2003 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, 2003, approximately 54.7% 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 W1,496 billion in 2001, W1,689 billion in 2002 and W1,299 billion in 2003. 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 five to ten years and provide for periodic price adjustments to then-market prices. At December 31, 2003, 146 million tons of iron ore and 55 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 W1,505 billion as of December 31, 2001, W1,695 billion as of December 31, 2002 and W3,450 billion as of December 31, 2003. As of December 31, 2003, we had unused credit lines of approximately W1,248 billion out of total available credit lines of W1,834 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,

	2001		2002		2003


	(In billions of Won)
Cash and cash equivalents, net of government grants	W	407	W	267	W	593
Short-term financial instruments		424		258		695
Trading securities		530		1,192		1,321
Trade accounts and notes receivable, net of allowance for doubtful accounts and present value discount		1,480		1,740		2,308
Inventories		1,737		1,671		2,068

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,

	2001		2002		2003


	(In billions of Won)
Trade accounts and notes payable	W	510	W	690	W	917
Short-term borrowings		718		588		732
Income tax payable		144		415		573
Current portion of long-term debt, net of discount on debentures issued		1,405		1,320		1,021

In December 1998, we reduced our period for payment of accounts receivable for all customers from a range of 70 days to 90 days to a range of 70 days to 80 days. In January 2000, we further reduced our accounts receivable period 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 2001, 2002 and 2003 amounted to W1,496 billion, W1,689 billion and W1,299 billion.

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 W2,778 billion in 2004. The following table sets out the major items of our capital expenditures currently in progress:

Estimated

Total

Remaining Cost of

Expected

Cost of

Completion as of

Project

Completion Date

Project

December 31, 2003

(In billions of Won)

Pohang Works:

Replacement of no. 2 hot rolled mill plant

June 2006

252

248

Replacement of no. 2 hot plate mill plant

July 2005

210

Installation of converter at no. 2 steel making plant

December 2006

163

154

Gwangyang Works:

Construction of LNG terminal

June 2005

290

183

Installation of no. 5 continuous galvanizing line

October 2005

271

Installation of no. 6 continuous galvanizing line

June 2006

192

First relining of no. 2 blast furnace

May 2005

173

Installation of no. 3 and no. 4 coke dry quenching facility

August 2005

152

142

Miscellaneous:

Implementation of FINEX technology

December 2006

1,152

864

Significant Changes in Korean GAAP

In October 2002, the Korean Accounting Standards Boards (“KASB”) issued Statements of Korean Financial Accounting Standards (“SKFAS”) No. 10, “Inventories”. This statement prescribes the standards on accounting treatment and disclosure of inventories and requires valuation loss incurred when the market value of an inventory falls below its carrying amount shall be reported as a contra inventory account and added to the cost of goods sold. When circumstances that previously caused valuation loss of inventory on the application of lower of cost or market cease to exist, so as to cause an increase of the market value above the carrying amount, the valuation loss shall be reversed up to the extent amount of previously recognized valuation loss with resulting valuation gain charged to cost of goods sold. This statement becomes effective for financial statements covering periods beginning on or after December 31, 2003. However, early adoption of this statement is allowed. We do not expect the adoption of this statement to have a material impact on our financial position or results of operations.

In December 2003, KASB issued SKFAS 13, “Debt Restructuring”. This statement establishes standards of financial accounting and reporting by the debtor and by the creditor for a troubled receivable or payable (collectively referred to as debt) restructuring. For the purpose of this statement, a restructuring of a debt constitutes a troubled debt restructuring if the creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider. That concession either stems from an agreement between the creditor and the debtor or is imposed by law or a court. Under this statement, a debt restructuring is not necessarily a troubled debt restructuring if the debtor issues in exchange for its debt new marketable debt having an effective interest rate based on its market price that is at or near the current market interest rates of debt with similar maturity dates and stated interest rates issued by nontroubled debtors. In general, a debtor that can obtain funds from sources other than the existing creditor at market interest rates at or near those for nontroubled debt is not involved in a troubled debt restructuring. This statement becomes effective for financial statements covering period beginning on or after December 31, 2003. However, early adoption of this statement is allowed. 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 W1,997 billion in 2003 compared to net income of W1,018 billion in 2002 and W908 billion in 2001 primarily due to the factors discussed in “— Operating Results”. Our net income under U.S. GAAP of W1,997 billion in 2003 is 0.1% higher than our net income under Korean GAAP of W1,996 billion. See Note 33(i) of Notes to Consolidated Financial Statements.

Significant Changes in U.S. GAAP

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FIN 46 (revised December 2003), “Consolidation of Variable Interest Entities, and interpretation of ARB No, 51”, (FIN 46R) which addresses consolidation by business enterprises of variable interest entities that do not have sufficient equity investment to permit the entity to finance its activities without additional subordinated financial support from other parties or whose equity investors lack the characteristics of a controlling financial interest. The F-15 interpretation provides guidance related to identifying variable interest entities and determining whether such entities should be consolidated. It also provides guidance related to the initial and subsequent measurement of assets, liabilities and noncontrolling interests in newly consolidated variable interest entities and requires disclosures for both the primary beneficiary of a variable interest entity and other beneficiaries of the entity. FIN 46R must be applied to all entities subject to this interpretation as of March 31, 2004. However, prior to the required application of this interpretation, FIN 46R must be applied to those entities that are considered to be special-purpose entities as of December 31, 2003. As indicated in Note 13 of Notes to Consolidated Financial Statements, on August 20, 2003, we disposed 1,696,428 shares of SK Telecom to Zeus (Cayman), an exempted company formed with limited liability under the laws of the Cayman Islands. Zeus (Cayman) then issued JPY51,622 million “Zero Coupon Guaranteed Exchangeable Notes” due 2008 which are fully and unconditionally guaranteed by us. The notes do not bear interest and are exchangeable at the option of the holders into ADSs of SK Telecom. In accordance with the Korean generally accepted accounting principles, considering the substance of transaction, we have accounted above transaction as a borrowing transaction and accordingly, the adoption of this statement, consolidated of Zeus (Cayman), has no impact on our financial position or results of operation.

In May 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. Some of the provisions of this statement are consistent with the current definition of liabilities in FASB Concepts Statement No. 6, “Elements of Financial Statements”. The remaining provisions of this statement are consistent with the board’s proposal to revise that definition to encompass certain obligations that a reporting entity can or must settle by issuing its own equity shares, depending on the nature of the relationship established between the holder and the issuer. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We do not hold any financial instruments with characteristics of both liabilities and equity and accordingly, the adoption of this statement had no initial impact on our financial position or results 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, 2003, we employed a total of 164 researchers, including 117 with doctoral degrees.

In 1994, we founded the POSCO Technical Research Laboratory to carry out applied research and technology development activities. At December 31, 2003, the Technical Research Laboratory employed a total of 538 researchers, including 166 with doctoral degrees.

We recorded research and development expenses of W169 billion as cost of goods sold in 2001, W161 billion in 2002 and W199 in 2003, as well as research and development expenses of W31 billion as selling and administrative expenses in 2001, W41 billion in 2002 and W57 billion in 2003. In addition, we made donations to educational foundations supporting basic science and technology research, amounting to W37 billion in 2001, W38 billion in 2002 and W39 billion in 2003. We also donated W300 billion to Pohang University of Science & Technology, a university founded by us, in 2000 and an additional W3 billion in 2002 and W2 billion in 2003. 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, 2003 and has successfully applied many of these to the 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*

We do not have any off-balance sheet arrangements.


Item 5F.	*Tabular Disclosure of Contractual Obligations*

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


Item 5G.	*Safe Harbor*


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 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 Recommendation Committee.

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


	•	the Director 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
			Years as		with
Name	Position	Division	director		POSCO		Age

Lee, Ku-Taek	Chairman and Representative Director	—		14		35		58
Kang, Chang-Oh	President and Representative Director	—		9		33		61
Choi, Kwang-Woong	Senior Executive Vice President	Corporate Strategy, Finance, Investments and Law Affairs		5		33		59
Ryoo, Kyeong-Ryul	Senior Executive Vice President	General Superintendent, Pohang Works		3		30		56
Yoon, Seok-Man	Senior Executive Vice President	Marketing, Corporate Communications and Secretary		2		27		55
Chung, Joon-Yang	Executive Vice President	General Superintendent, Gwangyang Works		1		29		56

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”).

Years as

Name

Position

Principal Occupation

director

Age

Chevalier, Samuel F

Director

Former Vice Chairman, The Bank of New York

Yoo, Hyun-Shik

Director

Former Chairman and Representative Director, Samsung General Chemicals

Kim, Han-Kyoung

Director

Former Vice Chairman, SK Corporation

Kim, E. Han

Director

Professor, University of Michigan

Park, Young-Ju

Director

Chairman, Eagon Industrial Co., Ltd.

Jun, Kwang-Woo

Director

Vice Chairman, Woori Financial Group

Years as

Name

Position

Principal Occupation

director

Age

Jones, Jeffery D

Director

Attorney, Kim & Chang

Suh, Yoon-Suk

Director

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

Park, Won-Soon

Director

Executive Director, Beautiful Foundation

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

Lee, Youn

Senior Executive Vice President

Stainless Steel Division Manager, Stainless Steel Raw Materials Procurement Department

Cho, Sung-Sik

Executive Vice President

Corporate Strategic Planning Dept., Investment Dept.

Choi, Jong-Tae

Executive Vice President

General Administration Dept., Human Resources Dept., Labor and Welfare Dept.

Kim, Sang-Ho

Executive Vice President

Legal Affairs

Choi, Jong-Doo

Senior Vice President

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

Kim, Chang-Ho

Senior Vice President

Education and Training Center

Hur, Nam-Suk

Senior Vice President

Electric Steel Sector Manager, Technology Development Dept., Knowledge Asset Dept., Environment and Energy Dept.

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., POSCOBio Project 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

Years with

Name

Position

Division

POSCO

Age

Kim, Jin-Il

Senior Vice President

Process Innovation Dept., Six Sigma Dept., PI Enablement Dept.

Lee, Chun-Hwan

Senior Vice President

Facility Investment Planning Dept.

Lee, Dong-Hee

Senior Vice President

Finance Dept., Finance Management Dept.

Choi, Byung-Jo

Senior Vice President

Deputy General Superintendent, Gwangyang Works

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

Vice President

Zhangjiagang POSCO Stainless Steel President

Ha, Sang-Wook

Vice President

Deputy General Superintendent, Pohang Works

Kim, Sang-Young

Vice President

Corporate Communication Dept. Manager

Lee, Young-Suk

Vice President

Stainless Steel Sales Dept. Manager, Stainless Steel Strategy Dept.

Kim, Sang-Myun

Vice President

Deputy General Superintendent, Gwangyang Works

Lee, Kun-Soo

Vice President

Deputy General Superintendent, Pohang Works

Shin, Ki-Chul

Vice President

Deputy General Superintendent, Pohang Works

Park, Kee-Young

Vice President

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

Lee, Kyu-Jeong

Vice President

Production Order and Process Dept., Quality Service Dept.

Jang, Byung-Ki

Vice President

MRO Procurement Dept., Plant and Equipment Procurement 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 W9.2 billion in 2003 and the aggregate amount set aside or accrued by us to provide pension and retirement benefits to such persons was W2.0 billion in 2003.

We have also granted stock options to our Directors and many 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 Recommendation Committee

The Director Recommendation Committee comprises three Outside Directors, Hyun-Shik Yoo (committee chair), Han-Kyung Kim and E. Han Kim, and one Standing Director, Kwang-Woong Choi. The Director 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, Young-Ju Park (committee chair), Samuel F. Chevalier, Kwang-Woo Jun and Won-Soon Park. The Evaluation and Compensation Committee’s primary responsibilities include making recommendations to the board of directors concerning salaries and incentive compensation for our directors and executive officers, determining employee compensation policy and administering our employee benefit plan.

Finance and Operation Committee

The Finance and Operation Committee is comprised of three Outside Directors, Han-Kyoung Kim (committee chair), Young-Ju Park and Kwang-Woo Jun, and two Standing Directors, Kwang-Woong Choi and Seok-Man Yoon. 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, Kwang-Woong Choi, Kyeong-Ryul Ryoo, Seok-Man Yoon 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), Hyun-Shik Yoo, Jeffrey D. Jones and Yoon-Suk Suh.

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;


	•	reviewing and approving all related party transactions; 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), Hyun-Shik Yoo, Jeffrey D. Jones and Yoon-Suk Suh. This committee reviews related party and other internal transactions and ensures compliance with applicable insider trading rules and regulations.

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 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.
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.


NYSE Corporate Governance Standards		POSCO’s Corporate Governance Practice

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. 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, 2003, we had 27,415 employees, including 8,042 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 27,100 employees, including 7,931 persons employed by our subsidiaries, as of December 31, 2002 and 25,887 employees, including 6,694 persons employed by our subsidiaries, as of December 31, 2001.

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, 2003, only 10 of our employees were members of the POSCO labor union.

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.

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. See “Item 5. Operating and Financial Review and Prospects — Significant Changes in Our Method for Calculating Retirement and Severance Benefits” for a discussion of our method of calculating retirement and severance benefits which came into effect on May 17, 2000. 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, 2003, our employees owned approximately 1.7% of our common stock through an employee stock ownership association.

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.

Item 6E. Share Ownership

Common Stock

The persons who are currently our Directors or executive officers held, as a group, 7,153 common shares as of December 31, 2003, 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.


		Number of common		Percentage of total
Shareholders		shares owned		common shares issued (%)

Chang-Oh Kang			2,001		0.0
Ku-Taek Lee			1,000		0.0
Ki-Chul Shin			968		0.0
Han-Yong Park			769		0.0
Byung-Jo Choi			649		0.0
Hyun-Uck Sung			625		0.0
Chang-Kwan Oh			610		0.0
Dong-Hwa Chung			343		0.0
Jong-Tae Choi			100		0.0
Oh-Joon Kwon			19		0.0
Kyeong-Ryul Ryoo			17		0.0
Hyun-Shik Chang			17		0.0
Chun-Hwan Lee			17		0.0
Dong-Jin Kim			2		0.0
Youn Lee			2		0.0
Jong-Doo Choi			2		0.0
Chang-Ho Kim			2		0.0
Nam-Suk Hur			2		0.0
Keel-Sou Jung			2		0.0
Sang-Myun Kim			2		0.0
Kee-Young Park			2		0.0
Byung-Ki Jang			2		0.0

	Total		7,153		0.0

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, 2003. With respect to all of the options granted, we may elect either to issue shares of common 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

Exercise

Granted

Exercised

Exercisable

Directors

Grant Date

From

Price

Options

Ku-Taek Lee

July 23, 2001

7/24/2003

7/23/2008

98,900

46,106

46,107

Chang-Oh Kang

July 23, 2001

7/24/2003

7/23/2008

98,900

18,443

Kwang-Woong Choi

July 23, 2001

7/24/2003

7/23/2008

98,900

11,065

Kyeong-Ryul Ryoo

July 23, 2001

7/24/2003

7/23/2008

98,900

9,221

Seok-Man Yoon

September 18, 2002

9/19/2004

9/18/2009

116,100

11,407

Joon-Yang Chung

April 27, 2002

4/28/2004

4/27/2009

136,400

9,506

Samuel F. Chevalier

July 23, 2001

7/24/2003

7/23/2008

98,900

2,305



			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		9,221		0		9,221
Youn Lee		July 23, 2001		7/24/2003		7/23/2008		98,900		9,221		0		9,221
Sung-Sik Cho		July 23, 2001		7/24/2003		7/23/2008		98,900		9,221		0		9,221
Jong-Tae Choi		July 23, 2001		7/24/2003		7/23/2008		98,900		9,221		0		9,221
Jong-Doo Choi		April 27, 2002		4/28/2004		4/27/2009		136,400		9,506		0		9,506
Chang-Ho Kim		April 27, 2002		4/28/2004		4/27/2009		136,400		9,506		0		9,506
Nam-Suk Hur		April 27, 2002		4/28/2004		4/27/2009		136,400		9,506		0		9,506
Chang-Kwan Oh		April 27, 2002		4/28/2004		4/27/2009		136,400		9,506		0		9,506
Jeon-Young Lee		April 27, 2002		4/28/2004		4/27/2009		136,400		9,506		0		9,506
Young-Tae Kwon		September 18, 2002		9/19/2004		9/18/2009		116,100		9,506		0		9,506
Hyun-Shik Chang		April 26, 2003		4/27/2005		4/26/2010		102,900		9,800		0		9,800
Oh-Joon Kwon		April 26, 2003		4/27/2005		4/26/2010		102,900		9,800		0		9,800
Dong-Hwa Chung		April 26, 2003		4/27/2005		4/26/2010		102,900		9,800		0		9,800
Jin-Il Kim		April 26, 2003		4/27/2005		4/26/2010		102,900		9,800		0		9,800
Chun-Hwan Lee		April 26, 2003		4/27/2005		4/26/2010		102,900		9,800		0		9,800
Dong-Hee Lee		April 26, 2003		4/27/2005		4/26/2010		102,900		9,800		0		9,800
Byung-Jo Choi		April 26, 2003		4/27/2005		4/26/2010		102,900		9,800		0		9,800
Sang-Young Lee		April 26, 2003		4/27/2005		4/26/2010		102,900		9,800		0		9,800
Hyun-Uck Sung		April 26, 2003		4/27/2005		4/26/2010		102,900		9,800		0		9,800
Han-Yong Park		April 26, 2003		4/27/2005		4/26/2010		102,900		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, 2003.


		Number of
Shareholders		Shares Owned		Percentage

Pohang University of Science and Technology			2,905,000		3.3	%
Nippon Steel Corp.(1)			2,894,435		3.3
Government of Singapore			2,858,209		3.2
SK Telecom			2,481,310		2.8
National Pension Corporation			2,471,097		2.8
Employee Stock Ownership Association			1,507,236		1.7
Directors and executive officers as a group			7,153		0.0
Public(2)			65,588,505		73.7
POSCO (held in the form of treasury stock)			8,258,210		9.3

	Total issued shares of common stock		88,966,155		100.0	%


(1)	Held in the form of ADRs.

(2)	Includes 16,361,649 shares of common stock, representing 18.4% of the total issued shares of common stock, in the form of ADRs.

Item 7B. Related Party Transactions

We have issued guarantees of W531 billion as of December 31, 2001, W403 billion as of December 31, 2002 and W425 billion as of December 31, 2003, 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, 2001, 2002 and 2003, 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-74.

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 in a potential anti-competitive action by us.

On April 12, 2001, the Fair Trade Commission determined that we engaged in anti-competitive action by refusing to sell our hot rolled coils to Hyundai HYSCO. In addition to ordering us to stop

engaging in anti-competitive action against Hyundai HYSCO, the Fair Trade Commission imposed on us a surcharge of W1.6 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 or safeguard measures in the United States, China and the European Union. The U.S., China and European Union anti-dumping and countervailing proceedings or safeguard measures 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, China or the European Union 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 88,966,155 shares of common stock were issued at the end of 2003. Of these shares, 80,707,945 shares were outstanding and 8,258,210 shares were held by us in treasury. 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.



	Cash Dividends
	per Share of
Period	Common Stock


1999		W1,750	$	1.54
2000		2,500		1.97
2001		2,500		1.90
2002		3,500		2.95
2003		6,000		5.10

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 2004, 7% notes due 2005 and 7% notes due 2006 (collectively, the “notes”) 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 Korea Stock Exchange. Our common stock, which is in registered form and has a par value of W5,000 per share, has been listed on the first section of the Korea Stock 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 Korea Stock Exchange for our common stock since January 1, 1999.


						Average
		Price				Daily
						Trading
		High		Low		Volume

						(Number of
		(in W)				Shares)
1999
	First Quarter		69,300		52,100		216,188
	Second Quarter		141,000		69,600		508,838
	Third Quarter		183,500		133,000		425,493
	Fourth Quarter		168,500		114,500		482,011
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
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
			101,000		120,000		333,111
2002
	First Quarter		117,500		160,000		303,579
	Second Quarter		139,000		133,500		323,772
	Third Quarter		130,000		106,500		309,501
	Fourth Quarter		130,500		103,500		257,180


							Average
			Price				Daily
							Trading
			High		Low		Volume

							(Number of
			(in W)				Shares)
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		131,500		345,274
		November		148,000		138,000		344,553
		December		163,000		144,000		305,324
2004
	First Quarter			181,000		156,500		312,764
		January		171,000		156,500		303,737
		February		173,000		157,500		243,394
		March		181,000		157,500		341,796
	Second Quarter (through June 21)			177,000		130,000		417,242
		April		177,000		143,500		453,996
		May		145,000		131,000		470,248
		June (through June 21)		144,000		130,000		301,088


	*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, 2003, 77,024,336 ADSs were outstanding. 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, 1999.


						Average
		Price				Daily
						Trading
		High		Low		Volume

						(Number of
		(in US$)				ADSs)
1999
	First Quarter		20.81		13.00		398,374
	Second Quarter		33.75		18.00		585,998
	Third Quarter		42.19		30.94		623,911
	Fourth Quarter		39.19		30.25		383,006
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


							Average
			Price				Daily
							Trading
			High		Low		Volume

							(Number of
			(in US$)				ADSs)
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
		November		31.16		29.20		413,168
		December		33.97		30.52		601,932
2004
	First Quarter			38.43		33.55		578,866
		January		37.00		33.81		702,430
		February		37.29		33.78		472,942
		March		38.43		33.55		558,922
	Second Quarter (through June 18)			34.67		29.48		1,013,389
		April		39.01		30.75		875,938
		May		32.52		27.97		1,287,215
		June (through June 18)		32.47		29.73		877,015


Item 9B.	*Plan of Distribution*

Not Applicable


Item 9C.	*Markets*

The Korean Securities Market

The Korea Stock Exchange began its operations in 1956. Currently it is the only stock exchange in Korea. It has a single trading floor located in Seoul. The Korea Stock Exchange is a non-profit making organization privately managed by its members, consisting of most of Korean securities companies and some Korean branches of foreign securities companies.

As of December 31, 2003, the aggregate market value of equity securities listed on the Korea Stock Exchange was approximately W355 trillion. The average daily trading volume of equity securities for 2003 was approximately 237 million shares with an average transaction value of W2,217 billion.

The Korea Stock 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 Stock 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 Stock Exchange publishes the Korea Composite Stock Price Index (“KOSPI”) every thirty seconds, which is an index of all equity securities listed on the Korea Stock 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.


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

									(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		97.9		165.9		93.1		131.3		13.2			3.1
1982		123.6		134.48		106.00		128.99		10.5			3.4
1983		122.52		134.46		115.59		121.21		6.9			3.8
1984		115.25		142.46		115.25		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
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(	3)		18.6	(3)
2001		520.95		704.50		468.76		693.70		2.0(	3)		14.2	(3)
2002		724.95		937.61		584.04		627.55		1.4(	3)		17.8	(3)
2003		633.03		824.26		512.30		810.71		2.2(	3)		10.9	(3)
2004 (through June 23)		816.26		939.52		716.95		749.30		2.1(	3)		12.8	(3)

Source: The Korea Stock 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 Korea Stock Exchange. Excludes classified companies, companies which did not submit annual reports to the Korea Stock 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 listed 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 Korea Stock Exchange to 15% of the previous day’s closing price of the shares, rounded down as set out below:


	Rounded
	Down To
Previous Day’s Closing Price (Won)	(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 Korea Stock 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 Stock Exchange. See “Item 10. Additional Information — Item 10E. Taxation — Korean Taxation”.

The number of companies listed on the Korea Stock 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



	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)

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		432,432		1,813,704		1,390,557
2002		683		258,680,756		216,071,436		857,245		3,041,595		2,540,590
2003		684		355,362,967		298,123,294		385,852		2,026,774		1,700,314
2004 (through June 23)		677		328,623,361		275,690,739		368,500		1,967,997		1,651,004

Source: The Korea Stock 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 Korea Stock 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 Korea Stock Exchange or registered on the KOSDAQ, 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 Korea Stock Exchange nor registered on the KOSDAQ 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 Stock Exchange and this securities company places a sell order with another securities company which is a member of the Korea Stock 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 Stock 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 Stock Exchange breaches its obligation in connection with a buy order, the Korea Stock 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 W50 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 W5,000 per share (“Common Shares”) and shares of non-voting stock, par value W5,000 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, 2003, 88,966,155 Common Shares were issued, of which 7,346,200 shares were held by us in treasury and an additional 912,010 shares were held by our treasury stock fund. In 2003, we cancelled 1,815,640 shares in treasury. 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, 2003, approximately 1.7% 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 Stock 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 Stock 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 Stock 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 Stock 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 Stock 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, investment 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 Stock Exchange or through a tender-offer. In addition, we may acquire interests in our own Shares through agreements with trust companies, securities investment trust companies and securities investment 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 of the holdings to the FSC and the Korea Stock Exchange within five business days after reaching the 5% ownership interest. In addition, any 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 Stock 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 Stock 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 Stock 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 Korea Stock Exchange or registered on the KOSDAQ, unless prohibited by specific laws. Foreign investors may trade shares listed on the Korea Stock Exchange or registered on the KOSDAQ only through the Korea Stock Exchange or the KOSDAQ, 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 Stock Exchange or the KOSDAQ 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 Stock Exchange or the KOSDAQ 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 Stock Exchange or the KOSDAQ (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 Stock Exchange or the KOSDAQ, 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 Stock 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 Stock Exchange or the KOSDAQ 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, investment trust 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, investment trust 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.


	*Notes*


	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 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. In addition, in order to obtain the benefit of a tax exemption available under applicable tax treaties, you should submit an application for exemption prior to the time of the first dividend payment, together with a certificate verifying your tax residence issued by a competent authority of your country. 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 Stock 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 Special Tax Treatment Control Law of Korea (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 Korea Stock Exchange or KOSDAQ 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 Stock 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 Stock 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 Stock 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) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company (“PFIC”), 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 our audited financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC, FPHC or FIC for U.S. federal income tax purposes with respect to our 2003 taxable year. In addition, based on our audited financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC, FPHC or FIC for our 2004 taxable year.

Based on existing guidance, it is not entirely clear whether dividends received with respect to the common stock will be treated as qualified dividends, because the common shares are not themselves listed for trading on a U.S. exchange. In addition, the U.S. Treasury has announced its intention to promulgate rules pursuant to which holders of ADSs or common stock and intermediaries though whom such securities are held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Because such procedures have not yet been issued, it is not clear whether we will be able to comply with them. You should consult your own tax advisers regarding the availability of the reduced dividend tax rate in the light of your own particular circumstances.

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 maximum rate of 20%.


	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.

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 market value of the common shares of SK Telecom and Powercomm Corporation. 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.

The following discussion and tables, which constitute “forward looking statements” that involve risks and uncertainties, summarize our market-sensitive financial instruments including fair value, maturity and contract terms. These tables address market risk only and do not present other risks which we face in the normal course of business, including country risk, credit risk and legal risk.

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 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 also 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 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, 2003, we and our consolidated subsidiaries had entered into five currency forward contracts, from which we recognized in 2003 an aggregate valuation gain of W2.8 billion and an aggregate valuation loss of W1.1 billion, as well as an aggregate transaction gain of W2.5 billion and an aggregate transaction loss of W1.7 billion.

As of December 31, 2003, we had entered into one currency swap contract. We recognized valuation loss of W29.7 billion in 2003 from this currency swap contract.

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, 2003, 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, 2003 which are sensitive to exchange rates and/or interest rates. The information is presented in Won, which is our reporting currency.



				Maturities


																						December 31, 2003					December 31, 2002

																									Fair					Fair
				2004			2005			2006			2007			2008			Thereafter			Total			Value		Total			Value


				(in Won millions except rates)
Local currency:
	Fixed rate				746,549			749,443			472,147			1,765			1,383			1,657			1,972,944			2,014,015		2,364,155			2,450,815
	Average weighted rate(1)				5.63	%		5.98	%		5.89	%		4.48	%		4.29	%		4.92	%		5.82	%		—		6.73	%		—
	Variable rate				—			—			—			—			—			—			—			—		—			—
	Average weighted rate(1)				—			—			—			—			—			—			—			—		—			—

		Sub-total			746,549			749,443			472,147			1,765			1,383			1,657			1,972,944			2,014,015		2,364,155			2,450,815

Foreign currency, principally Dollars and Yen
	Fixed rate				818.292			364,024			689,508			13,060			589,714			31,990			2,506,588			2,576,839		2,370,535			2,448,548
	Average weighted rate(1)				3.18	%		5.43	%		4.26	%		2.95	%		0.05	%		2.18	%		3.06	%		—		4.11	%		—
	Variable rate				189,763			10,093			10,093			10,093			10,093			15,140			245,275			245,275		391,438			391,438
	Average weighted rate(1)				2.62	%		3.50	%		3.50	%		3.50	%		3.50	%		3.50	%		2.82	%		—		2.10	%		—

		Sub-total			1,008,055			374,117			699,601			23,153			599,807			47,130			2,751,863			2,822,114		2,761,973			2,839,986

			Total		1,754,604			1,123,560			1,171,748			24,918			601,190			48,787			4,724,807			4,836,129		5,126,128			5,290,801


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

Equity Price Risk

We are exposed to equity price risk primarily from changes in the stock price of SK Telecom and Powercomm Corporation. We currently hold a 5.0% interest in SK Telecom and a 3.0% interest in Powercomm Corporation. We have not entered into any contract to hedge against the fluctuations in the stock price of these entities.


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*

As of December 31, 2003, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial and Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. 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 and as of the date of our evaluation, our Chief Executive Officer and Chief Financial and Accounting Officer concluded that the disclosure controls and procedures are 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 2003 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 2004, our shareholders elected the following four members of the Audit Committee: E. Han Kim, Hyun-Shik Yoo, Jeffrey D. Jones and Yoon-Suk Suh. 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 and Accounting Officer, as well as to our directors, other officers and employees. Our Code of Conduct is available on our web site at www.posco.kr. If we amend the provisions of our Code of Conduct that apply to our Chief Executive Officer or Chief Financial and Accounting Officer, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our web site.


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, 2002 and 2003:



		Year ended
		December 31,

		2002		2003


		(In millions of Won)
Audit fees		W	770	W	2,076
Audit-related fees			230		177
Tax fees			76		62
Other fees			51		68

	Total fees		1,127		2,383

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, as well as re-audit of our annual financial statements for the fiscal years ended December 31, 2000 and 2001. 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, comforting of financial information disclosed on our annual report filed with the Ministry of Finance and Economy 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*

Not Applicable

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, 2002 and 2003		F-2
Consolidated Statements of Income for the Years Ended December 31, 2001, 2002 and 2003		F-4
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2001, 2002 and 2003		F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2002 and 2003		F-7
Notes to Consolidated Financial Statements		F-9


Item 19.	*Exhibits*


1.1	—	Articles of incorporation of POSCO (English translation)
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	—	Certifications 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, 2002 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, 2003. 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, 2002 and 2003, and the results of their operations and their cash flows for the three years in the period ended December 31, 2003, 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.

Seoul, Republic of Korea

March 5, 2004

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, 2002 and 2003


							(Note 2)

			2002		2003		2003


			(in millions of Korean Won and
			thousands of US Dollars)
ASSETS
Current assets
	Cash and cash equivalents, net of government grants (Notes 3 and 27)		W	267,380	W	592,602	$	497,149
	Short-term financial instruments (Notes 3 and 27)			258,132		695,169		583,195
	Trading securities (Note 4)			1,192,204		1,321,301		1,108,474
	Current portion of held-to-maturity securities (Note 7)			27,845		250,481		210,135
	Trade accounts and notes receivable, net of allowance for doubtful accounts and present value discount (Notes 5, 13, 27 and 28)			1,739,605		2,308,445		1,936,615
	Other accounts and notes receivable, net of allowance for doubtful accounts and present value discount (Notes 5, 27 and 28)			72,739		95,564		80,171
	Inventories (Notes 6 and 29)			1,671,446		2,068,371		1,735,210
	Other current assets, net of allowance for doubtful accounts (Note 11)			185,499		289,665		243,008

		Total current assets		5,414,850		7,621,598		6,393,957
Property, plant and equipment, net (Notes 8, 13, 14 and 29)				10,324,574		9,845,777		8,259,880
Investment securities (Notes 7 and 29)				2,528,438		2,318,830		1,945,327
Intangible assets, net (Notes 9 and 29)				474,812		474,496		398,067
Long-term loans, net of allowance for doubtful accounts and present value discount (Notes 5, 27 and 29)				117,260		82,877		69,528
Long-term trade accounts and notes receivable, net of allowance for doubtful accounts and present value discount (Notes 5 and 29)				44,863		43,665		36,632
Deferred income tax assets (Notes 25 and 29)				51,659		43,324		36,346
Guarantee deposits (Notes 27 and 29)				25,577		31,067		26,063
Long-term financial instruments (Notes 3, 27 and 29)				20,574		18,002		15,102
Other long-term assets, net of allowance for doubtful accounts and present value discount (Notes 11 and 29)				74,242		288,913		242,377

Total assets			W	19,076,849	W	20,768,549	$	17,423,279

F-2

POSCO and Subsidiaries

Consolidated Balance Sheets — (Continued)

December 31, 2002 and 2003


									(Note 2)

			2002			2003			2003


			(in millions of Korean Won and
			thousands of US Dollars, except per share amounts)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
	Trade accounts and notes payable (Notes 27 and 28)		W	689,745		W	917,495		$	769,710
	Short-term borrowings (Notes 12, 27 and 28)			587,955			731,781			613,910
	Current portion of long-term debt, net of discount on debentures issued (Notes 12, 13 and 27)			1,319,531			1,020,865			856,430
	Accrued expenses (Note 27)			225,932			346,186			290,425
	Other accounts and notes payable (Note 27)			146,567			187,610			157,391
	Withholdings (Note 27)			66,048			82,770			69,438
	Income tax payable			415,429			572,860			480,587
	Dividends payable			8,690			2,505			2,101
	Other current liabilities (Note 16)			260,376			309,846			259,939

		Total current liabilities		3,720,273			4,171,918			3,499,931
Long-term debt, net of current portion and discount on debentures issued (Notes 12, 13, 27 and 28)				3,194,015			2,952,384			2,476,832
Accrued severance benefits, net (Note 15)				103,472			162,662			136,462
Deferred income tax liabilities (Note 25)				135,564			119,979			100,654
Other long-term liabilities (Note 16)				103,879			112,039			93,991

		Total liabilities		7,257,203			7,518,982			6,307,870

Commitments and contingencies (Note 17)
Shareholders’ equity
	Common stock, W5,000 par value, authorized 200 million shares: issued and outstanding 90,781,795 shares in 2002 and 88,966,155 shares in 2003			482,403			482,403			404,701
	Capital surplus (Note 18)			3,797,737			3,828,773			3,212,058
	Retained earnings (Note 19)			8,464,715			9,875,080			8,284,463
	(Net income: W845,679 million in 2001 and W1,089,288 million in 2002 and W1,995,983 million in 2003 Losses in excess of minority interest: W2,037 million in 2001 and W2,495 million in 2002 and W3,163 million in 2003)
	Capital adjustments, net (Note 20)			(1,204,374	)		(1,229,988	)		(1,031,869	)

				11,540,481			12,956,268			10,869,353

Minority interest
	Common stock			130,888			142,678			119,696
	Capital surplus and retained earnings			148,277			150,621			126,360

				279,165			293,299			246,056

		Total shareholders’ equity		11,819,646			13,249,567			11,115,409

Total liabilities and shareholders’ equity			W	19,076,849		W	20,768,549		$	17,423,279

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, 2001, 2002 and 2003


									(Note 2)

		2001			2002		2003		2003


		(in millions of Korean Won and
		thousands of US Dollars, except per share amounts)
Sales		W	13,121,097		W	14,354,918	W	17,789,237	$	14,923,857
Cost of goods sold			10,679,735			11,338,260		13,450,786		11,284,217

Gross profit			2,441,362			3,016,658		4,338,451		3,639,640
Selling and administrative expenses (Note 23)			854,069			966,791		1,075,470		902,240

Operating income			1,587,293			2,049,867		3,262,981		2,737,400
Non-operating income
	Interest and dividend income		134,934			72,792		97,233		81,572
	Gain on foreign currency transactions		118,947			132,276		84,459		70,855
	Gain on foreign currency translation		90,191			128,844		6,415		5,382
	Gain on valuation of trading securities		11,505			6,366		6,387		5,358
	Gain on disposal of trading securities		41,886			49,938		35,993		30,196
	Gain on disposal of property, plant and equipment		10,435			22,361		8,061		6,763
	Gain on derivatives transaction (Note 22)		13,826			13,160		2,481		2,081
	Gain on valuation of derivatives (Note 22)		168			569		2,849		2,390
	Gain on recovery of allowance for doubtful accounts		9,344			—		12,798		10,737
	Gain on disposal of investments		2,851			6,454		11,099		9,312
	Gain on disposal of scrap		26,213			52,221		27,440		23,020
	Others		88,640			58,463		64,162		53,825

			548,940			543,444		359,377		301,491

Non-operating expenses
	Interest expense		450,546			331,776		250,319		210,000
	Other bad debt expense		—			178,476		—
	Loss on foreign currency transactions		101,390			96,976		77,979		65,419
	Loss on foreign currency translation		118,024			28,768		118,231		99,187
	Loss on valuation of equity method investments (Note 7)		29,047			128,769		4,523		3,794
	Donations (Note 24)		83,195			50,147		103,191		86,570
	Loss on disposal of property, plant and equipment		25,008			38,215		43,217		36,256
	Loss on valuation of derivatives (Note 22)		535			11,775		30,781		25,823
	Loss on impairment of investment securities (Note 7)		12,575			27,041		10,651		8,935
	Loss on impairment of property, plant and equipment (Note 8)		53,951			139,833		150,750		126,468
	Loss on valuation of inventories		21,231			1,178		4,580		3,842
	Others		66,058			52,920		80,866		67,840

			961,560			1,085,874		875,088		734,134

Net income before income tax expense and minority interest			1,174,673			1,507,437		2,747,270		2,304,757

Income tax expense (Note 25)			337,463			398,305		730,270		612,642

Net income before minority interest			837,210			1,109,132		2,017,000		1,692,115

Minority interest in income (losses) of consolidated subsidiaries			(8,469	)		19,844		21,017		17,632

Net income (Note 26)		W	845,679		W	1,089,288	W	1,995,983	$	1,674,483

Basic and diluted earnings per share (Note 26) (in Korean Won and US Dollar)		W	10,366		W	13,295	W	24,496	$	20.55

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

F-4

POSCO and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

Year Ended December 31, 2001, 2002 and 2003



	Common stock
						Capital			Retained			Capital			Minority
	Shares			Amount		surplus			earnings			adjustments			interest			Total


	(in millions of Korean Won)
Balance as of January 1, 2001		96,480,625		W	482,403	W	3,860,756		W	6,758,350		W	(1,539,953	)	W	159,623		W	9,721,179
Net income for 2001		—			—		—			845,679			—			—			845,679
Effect of change in percentage of ownership of investees		—			—		(4,890	)		3,288			—			10,850			9,248
Dividends		—			—		—			(203,681	)		—			(8,093	)		(211,774	)
Change in losses in excess of minority interest		—			—		—			284			—			(284	)		—
Retirement of treasury stock		(2,891,140	)		—		—			(290,071	)		290,071			—			—
Change in treasury stock		—			—		—			—			(4,572	)		—			(4,572	)
Overseas operations translation adjustment		—			—		—			—			(6,594	)		15,234			8,640
Valuation gain (loss) on investment securities		—			—		—			—			135,374			(75	)		135,299
Minority interest in income consolidated subsidiaries		—			—		—			—			—			(8,469	)		(8,469	)
Others		—			—		3,163			15,587			670			(615	)		18,805

Balance as of December 31, 2001		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

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

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, 2001, 2002 and 2003



	Common stock
						Capital			Retained			Capital			Minority
	Stock			Amount		surplus			earnings			adjustments			interest			Total


	(in millions of Korean Won)
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



	Common stock
						Capital			Retained			Capital			Minority
	Stock			Amount		surplus			earnings			adjustments			interest			Total


	(in thousands US Dollars)
Balance as of January 1, 2003		90,781,795		$	404,701	$	3,186,021		$	7,101,271		$	(1,010,381	)	$	234,199		$	9,915,811
Net income for 2003		—			—		—			1,674,483			—			—			1,674,483
Effect of change in percentage of ownership of investees		—			—		(6,162	)		—			—			2,725			(3,437	)
Dividends		—			—		—			(274,215	)		—			(6,324	)		(280,539	)
Loss on prior period unadjusted equity method		—			—		—			(13,527	)		—			—			(13,527	)
Change in losses in excess of minority interest		—			—		—			(561	)		—			561			—
Retirement of treasury stock		(1,815,640	)		—		—			(212,568	)		212,568			—			—
Change in treasury stock		—			—		18,150			—			(147,278	)		—			(129,128	)
Overseas operations translation adjustment		—			—		—			—			37,329			(844	)		36,485
Valuation loss on investment securities		—			—		—			—			(127,591	)		(4,327	)		(131,918	)
Minority interest in income consolidated subsidiaries		—			—		—			—			—			17,632			17,632
Others		—			—		14,049			9,580			3,484			2,434			29,547

Balance as of December 31, 2003		88,966,155		$	404,701	$	3,212,058		$	8,284,463		$	(1,031,869	)	$	246,056		$	11,115,409

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, 2001, 2002 and 2003


												(Note 2)

			2001			2002			2003			2003


			(in millions of Korean Won and thousands of US Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income			W	845,679		W	1,089,288		W	1,995,983		$	1,674,483

Adjustments to reconcile net income to net cash provided by operating activities
	Depreciation and amortization			1,316,516			1,453,253			1,568,057			1,315,483
	Accrual of severance benefits			86,878			119,091			165,018			138,438
	Provision (reversal of allowance) for doubtful accounts			(56	)		184,887			(3,843	)		(3,225	)
	Unrealized foreign exchange losses (gains)			8,468			(105,716	)		111,736			93,738
	Gain on valuation of trading securities			(11,505	)		(6,366	)		(5,756	)		(4,829	)
	Loss on valuation of derivatives, net			367			11,206			27,932			23,433
	Loss (gain) on derivatives transaction, net			7,219			(9,784	)		(821	)		(688	)
	Gain on disposal of trading securities and investments, net			(42,334	)		(52,713	)		(39,738	)		(33,337	)
	Loss on disposal of property, plant and equipment, net			14,573			15,854			35,156			29,493
	Loss on valuation of inventories			21,231			1,178			4,580			3,842
	Loss on impairment of investment securities and property, plant and equipment			66,526			166,874			161,402			135,403
	Loss on valuation of equity method investments, net			23,961			128,769			4,523			3,794
	Minority interest in income of consolidated subsidiaries			(8,469	)		19,844			21,017			17,632
	Stock compensation expense			1,790			6,497			18,894			15,851
	Others			58,587			672			91,413			76,692

				1,543,752			1,933,546			2,159,570			1,811,720

CHANGES IN OPERATING ASSETS AND LIABILITIES
	Increase in trade accounts and notes receivable			367,157			(151,351	)		(502,944	)		(421,933	)
	Decrease (increase) in inventories			173,755			69,950			(392,255	)		(329,073	)
	Increase in trade accounts and notes payable			(170,118	)		151,699			89,220			74,849
	Decrease (increase) in other accounts and notes receivable			67,312			28,938			(23,233	)		(19,491	)
	Increase in other accounts and notes payable			(453,022	)		11,588			83,506			70,055
	Increase (decrease) in accrued expenses			(121,445	)		(61,507	)		120,087			100,744
	Increase in income tax payable			(280,363	)		271,347			149,376			125,315
	Deferred income tax, net			12,828			(137,771	)		(2,164	)		(1,816	)
	Payment of severance benefits			(9,168	)		(14,469	)		(25,045	)		(21,011	)
	Others			(66,886	)		22,081			(153,504	)		(128,777	)

				(479,950	)		190,505			(656,956	)		(551,138	)

		Net cash provided by operating activities		1,909,481			3,213,339			3,498,597			2,935,065

F-7

POSCO and Subsidiaries

Consolidated Statements of Cash Flows — (Continued)

Year Ended December 31, 2001, 2002 and 2003


												(Note 2)

			2001			2002			2003			2003


			(in millions of Korean Won and thousands of US Dollars)
CASH FLOWS FROM INVESTING ACTIVITIES
	Disposal of trading securities		W	9,058,501		W	11,547,221		W	10,800,373		$	9,060,715
	Acquisition of trading securities			(8,582,000	)		(12,150,384	)		(10,881,694	)		(9,128,938	)
	Disposal of short-term financial instruments			3,640,112			1,317,099			1,940,605			1,628,025
	Acquisition of short-term financial instruments			(3,621,042	)		(1,140,400	)		(2,365,200	)		(1,984,228	)
	Acquisition of property, plant and equipment			(1,495,961	)		(1,688,840	)		(1,298,848	)		(1,089,638	)
	Disposal of property, plant and equipment			35,175			91,238			69,886			58,629
	Acquisition of investment securities			(661,248	)		(117,790	)		(726,766	)		(609,703	)
	Disposal of investment securities			139,159			109,523			234,038			196,340
	Proceeds from short-term loans			34,949			147,650			45,512			38,181
	Short-term loans provided			(29,239	)		(56,910	)		(52,401	)		(43,961	)
	Long-term loans provided			(68,654	)		(46,162	)		(30,192	)		(25,329	)
	Acquisition of intangible assets			(97,547	)		(96,676	)		(103,828	)		(87,104	)
	Others			89,059			(61,133	)		233,246			195,678

		Net cash used in investing activities		(1,558,736	)		(2,145,564	)		(2,135,269	)		(1,791,333	)

CASH FLOWS FROM FINANCING ACTIVITIES
	Payment of cash dividends			(228,736	)		(214,277	)		(325,961	)		(273,457	)
	Proceeds from (payment of) short-term borrowings			(656,673	)		(85,565	)		102,131			85,681
	Proceeds from long-term debt			1,450,904			646,848			656,071			550,395
	Repayment of current portion of long-term debt			(1,234,520	)		(1,299,970	)		(1,314,762	)		(1,102,989	)
	Repayment of long-term debt			(149,417	)		(278,086	)		(2,129	)		(1,786	)
	Proceeds from minority interest			14,513			54,107			4,033			3,383
	Acquisition of treasury stock			—			(91,143	)		(263,351	)		(220,932	)
	Disposal of treasury stock			—			95,187			43,885			36,816
	Others			(19,700	)		(5,351	)		53,919			45,235

		Net cash used in financing activities		(823,629	)		(1,178,250	)		(1,046,164	)		(877,654	)

Effect of exchange rate changes on cash and cash equivalents				6,365			(12,862	)		9,107			7,640

Net decrease in cash and cash equivalents from changes in consolidated subsidiaries				(6,543	)		(16,097	)		—			—

		Net increase (decrease) in cash and cash equivalents		(473,062	)		(139,434	)		326,271			273,718
Cash and cash equivalents at the beginning of the year				880,171			407,109			267,675			224,559

Cash and cash equivalents at the end of the year			W	407,109		W	267,675		W	593,946		$	498,277

Supplemental disclosure of cash flow information:
	Cash paid during the year for interest		W	423,809		W	327,575		W	255,762		$	214,566

	Cash paid during the year for income tax		W	604,998		W	264,729		W	589,052		$	494,171

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

F-8

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 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 twelve other domestic subsidiaries and twenty-one overseas subsidiaries, whose accounts are included in the consolidated financial statements, and fourteen 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 28,700 thousand tons; 12,870 thousand tons at the Pohang mill and 15,830 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 one branch and six 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 200,000,000 shares of common stock (par value of W5,000 per share). As of December 31, 2003, 88,966,155 shares of common stock were issued. In addition, the Company retired 2,891,140 and 2,807,690 shares of treasury stock with the approval of the Board of Directors on August 25, 2001 and November 20, 2002, respectively. The Company has decided to retire 1,815,640 shares of treasury stock with the approval of the Board of Directors on July 22, 2003. The aforementioned treasury shares were retired on October 16, 2003. Accordingly, total issued shares reduced to 88,966,155 in 2003 from 90,781,795 in 2002.

As of December 31, 2003, POSCO’s shareholders are as follows:


	Number of		Percentage of
	shares		shares (%)

Pohang University of Science and Technology		2,905,000		3.27
Nippon Steel Corporation		2,894,435		3.25
SK Telecom Co.		2,481,310		2.79
Government of Singapore		2,858,209		3.21
National Pension Corporation		2,471,097		2.78
Others		75,356,104		84.70

		88,966,155		100.00

As of December 31, 2002 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, 2002 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, 2003.


		Capital
		(in millions of		Number of		Number of shares						Percentage of			Percentage of
		Korean Won)		outstanding								ownership			ownership of
Subsidiaries	Primary business	(c)		shares		POSCO		Subsidiaries		Total		(%)(a)		Location	subsidiaries (%)

Domestic:
POSCO E & C (POSEC)	Engineering and construction	W	722,171		30,000,000		27,281,080		—		27,281,080		90.94	Pohang	—
Posteel Co., Ltd.	Steel sales and service		257,008		18,000,000		17,155,000		—		17,155,000		95.31	Pohang	—
POSCON Co., Ltd.	Electronic control devices manufacturing		77,961		3,435,000		3,098,610		—		3,098,610		90.21	Pohang	—
Pohang Coated Steel Co., Ltd.	Coated steel manufacturing		252,363		6,000,000		4,000,000		—		4,000,000		66.67	Pohang	—
POSCO Machinery & Engineering Co., Ltd.	Steel work maintenance		31,976		1,700,000		1,700,000		—		1,700,000		100.00	Pohang	—
POSDATA Co., Ltd.	Computer hardware and software distribution		104,070		6,155,160		4,000,000		—		4,000,000		64.99	Sungnam	—
POSCO Research Institute	Economic research and consulting		22,559		3,800,000		3,800,000		—		3,800,000		100.00	Seoul	—
Seung Kwang Co., Ltd.	Athletic facilities operation		42,644		4,145,000		2,737,000		1,208,000		3,945,000		92.53	Suncheon	POSCO E&C (29.14)
POS-AC Co., Ltd.	Architecture and consulting		7,411		130,000		130,000		—		130,000		100.00	Seoul	—
Changwon Specialty Steel Co., Ltd.	Specialty steel manufacturing		355,270		30,000,000		26,000,000		4,000,000		30,000,000		99.04	Changwon	Posteel (6.67), POSCON (6.67)
POSCO Machinery Co., Ltd.	Machinery installation		23,239		1,000,000		1,000,000		—		1,000,000		100.00	Gwangyang	—
POSTECH Venture Capital Co., Ltd.	Investment in venture companies		33,307		6,000,000		5,700,000		—		5,700,000		95.00	Pohang	—
POSCO Refractories & Environment (POSREC)	Manufacturing		85,992		5,907,000		3,544,200		—		3,544,200		60.00	Pohang	—

F-10

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

Capital

(in millions of

Number of

Number of shares

Percentage of

Korean Won)

outstanding

ownership

ownership of

Subsidiaries

Primary business

(c)

shares

POSCO

Subsidiaries

Total

(%)(a)

Location

subsidiaries (%)

Foreign:

POSCO America Corp. (POSAM)

Steel trading

153,544

308,610

306,855

1,755

308,610

99.97

U.S.A.

POSCAN (0.57)

POSCO Australia Pty. Ltd. (POSA)

Steel trading

55,834

761,775

—

761,775

100.00

Australia

—

POSCO Canada Ltd. (POSCAN)

Coal trading

44,511

1,099,885

—

1,099,885

95.31

Canada

Posteel (100.00)

POSCO Asia Co., Ltd. (POA)

Steel trading

13,542

9,360,000

—

9,360,000

100.00

Hongkong

—

POSCO International Osaka, Inc. (PIO)

Steel trading

10,523

800

—

800

100.00

Japan

—

VSC POSCO Steel Corporation (VPS)

Steel manufacturing

15,199

N/A

39.77

Vietnam

Posteel (5.00)(b)

DALIAN POSCO — CFM Coated Steel Co., Ltd.

Coated steel manufacturing

36,467

N/A

54.30

China

Posteel (15.00)(b)

POS-Tianjin Coil Center Co., Ltd.

Steel service center

13,466

N/A

67.19

China

Posteel (60.00)(b)

POSMETAL Co., Ltd.

Steel service center

5,069

6,000

—

3,000

47.66

Japan

Posteel (50.00)

Shanghai Real Estate Development Co., Ltd.

Real estate rental

68,582

N/A

90.94

China

POSCO E & C (100.00)(b)

IBC Corporation

Real estate rental

13,963

N/A

54.56

Vietnam

POSCO E & C (60.00)(b)

POSLILAMA Steel Structure Co., Ltd.

Steel structure fabrication and sales

(7,359

)

N/A

64.10

Vietnam

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

Zhangjiagang Pohang Stainless Steel Co., Ltd.

Stainless steel manufacturing

239,659

N/A

82.48

China

—(b)

SHUNDE Pohang Coated Steel Co., Ltd.

Coated steel manufacturing

30,973

N/A

93.80

China

—(b)

POS-THAI Service Steel Center Co., Ltd.

Steel service center

8,028

4,091,570

477,288

2,136,208

2,613,496

61.43

Thailand

Posteel (52.21)

Qingdao Pohang Stainless Steel Co., Ltd.

Stainless steel manufacturing

42,130

N/A

80.00

China

—(b)

Myanmar-POSCO Co., Ltd.

Steel manufacturing

7,351

19,200

13,440

—

13,440

70.00

Myanmar

—

Zhangjiagang POSHA Steel Port Co., Ltd.

Depot service

9,878

N/A

76.35

China

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

F-11

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

Capital

(in millions of

Number of

Number of shares

Percentage of

Korean Won)

outstanding

ownership

ownership of

Subsidiaries

Primary business

(c)

shares

POSCO

Subsidiaries

Total

(%)(a)

Location

subsidiaries (%)

POSCO Investment Co., Ltd.

Finance

36,937

2,000,000

—

2,000,000

100.00

Hongkong

—

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

Steel service center

18,981

N/A

100.00

China

—(b)

POS-Qingdao Coil Center Co., Ltd.

Steel service center

10,328

N/A

65.84

China

Posteel (69.08)(b)


(a)	Percentage of ownership is the sum of direct and indirect ownership.

(b)	No shares have been issued in accordance with the local laws or regulations.

(c)	Capital of the Company’s overseas subsidiaries are translated at the exchange rate as of the balance sheet date.

F-12

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


	*Equity Method Investees*

The following table sets forth certain information with regard to equity method investees as of December 31, 2003.

Capital

(in millions of

Number of shares

Percentage of

Korean Won)

ownership

ownership of

Investees

Primary business

(e)

POSCO

Subsidiaries

Total

(%)(a)

Location

subsidiaries (%)

Domestic:

eNtoB Corporation

E-business

14,357

560,000

180,000

740,000

21.94

Seoul

POSDATA and others (5.00)

MIDUS Information Technologies Co., Ltd.

Engineering

8,802

—

866,190

23.57

Seoul

POSCO E & C (25.92)(d)

Foreign:

KOBRASCO

PELLET

2,514

2,010,719,185

—

2,010,719,185

50.00

Brazil

—(c)

Fujiura Butsuryu Center Co., Ltd.

Warehousing

1,660

—

600

30.00

Japan

PIO (30.00)

USS — POSCO Industries (UPI)

Material processing

191,314

N/A

49.99

U.S.A.

POSAM (50.00)(b)(c)

Suzhou Dongshin Color Metal Sheet Co., Ltd.

Coloring

13,553

N/A

28.59

China

Posteel (30.00)(b)

POSCHROME

Fe-Cr

26,845

21,675

—

21,675

25.00

Republic of South Africa

—

Shunde Xingpu Steel Center Co., Ltd.

Metal processing

15,672

N/A

20.51

China

Posteel (10.50)(b)

POS-HYUNDAI STEEL

Metal processing

6,381

2,345,558

4,573,838

6,919,396

28.58

India

Posteel (19.50)

POSCO Bioventures LP.

Investment in companies in the bio-tech industry

31,119

N/A

79.98

U.S.A.

POSAM (80.00)(b)(c)

PT POSMI STEEL Indonesia

Steel service center

2,453

743

2,229

2,972

35.40

Indonesia

Posteel (27.52)(c)

Posmmit Steel Centre SDN BHD (POS-MMIT)

Steel service center

8,494

4,200,000

—

4,200,000

30.00

Malaysia

—

POSVINA Co., Ltd.

Steel manufacturing

7,940

N/A

50.00

Vietnam

—(b)(c)(d)

POSVEN

Steel manufacturing

Negative Capital

4,480

2,240

6,720

58.63

Venezuela

POSCO E&C (10.00) POSTEEL (10.00)


(a)	Percentage of ownership is the sum of direct and indirect ownership.

(b)	No shares have been issued in accordance with the local laws or regulations.

(c)	The Company owns over 30 % of equity interest in KOBRASCO, UPI, and PT POSMI STEEL Indonesia, however, the Company is not the major shareholder of these companies. The Company owns over 79.98 % and 50 % of equity interest in POSCO Bioventures LP. and POSVINA Co., Ltd., 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.

(d)	Total asset exceeded W7,000 million as of December 31, 2002, accordingly, it is included in consolidated subsidiaries in 2003.

(e)	Capital of the Company’s overseas subsidiaries are translated at the exchange rate as of the balance sheet date.

F-13

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


	*Subsidiaries Excluded from the Consolidated Financial Statements*

The following companies have been excluded from consolidation and are accounted for under the cost method:

Shareholders’

Number of shares

Percentage of

equity

ownership

ownership of

Subsidiaries

Primary business

(e)

POSCO

Subsidiaries

Total

(%)(a)

Location

subsidiaries (%)

(in millions of Korean Won)

Domestic:

POSCO Terminal Co., Ltd.

Distribution and warehousing

2,882

51,000

—

51,000

51.00

Gwangyang

—(b)

Foreign:

PT. POSNESIA Stainless
Steel Industry

STS/CR

2,537

29,610,000

—

29,610,000

70.00

Indonesia

—(c)

POSEC-HAWAII Inc.

Construction

8,260

—

18,100

90.94

U.S.A.

POSCO E & C (100.00)(c)

POS-ORE Pty. Ltd.

Soft coal

16,205

—

17,500,001

100.00

Australia

POSA (100.00)(d)


(a)	Percentage of ownership is the sum of direct and indirect ownership.

(b)	Capital investment is less than W7,000 million (newly incorporated).

(c)	As of December 31, 2003, the company’s operations have been suspended for more than one year.

(d)	The total assets of POS-ORE Pty. Ltd. are less than W7,000 million as of December 31, 2002.

(e)	Capital of the Company’s oversea subsidiaries is translated at the exchange rate as of the balance sheet date.


	*Change in Scope of Consolidation*

The consolidated financial statements include the accounts of Qingdao Pohang Stainless Steel Co., Ltd., which was excluded from consolidation as of December 31, 2002, due to the increase in total assets exceeding W7,000 million as of December 31, 2003. Also, the consolidated financial statements include the accounts of POSCO (SUZHOU) Automotive Processing Center Co., Ltd., which was newly incorporated in 2003, since the Company has an actual controlling financial interest in POSCO (SUZHOU) Automotive Processing Center Co., Ltd.


2.	Summary of Significant Accounting Policies

The significant accounting policies followed by the Company in the preparation of its consolidated financial statements, in accordance with the Financial Accounting Standards of the Republic of Korea and Statements of Korean Financial Accounting Standards (“SKFAS”), including SKFAS No. 1 through No. 9, 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 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

F-14

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

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.

The Company has already adopted SKFAS No. 12 “Construction-Type Contracts” covering periods beginning after December 31, 2002. The adoption of this statement had no material impact on the Company’s financial position or results of operations.


	*Accounting Estimates*

The preparation of the consolidated financial statements in conformity with GAAP 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 be different 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.


	*Cash and Cash Equivalents*

Cash and cash equivalents include cash on hand and on deposit and highly liquid, temporary cash investments with original maturities of three months or less. Investments which are readily convertible into cash within four to twelve months of purchase are classified in the consolidated balance sheet as short-term financial instruments. The cost of these investments approximates fair value.


	*Revenue Recognition*

Revenue is generally recognized when products are delivered. 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.

F-15

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


	*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*

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 determined using the specific identification method. 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 (see “Significant accounting policies of POSCO and its controlled subsidiaries”).

If the net realizable value of inventories is lower than its cost, the carrying amount is reduced to the net realizable value and the difference between the cost and revalued amount is charged to current operations.


	*Investment Securities*

Investment securities are classified into trading securities, available-for-sale securities or held-to-maturity securities in accordance with the intention of the Company.

Investment securities are initially carried at cost, including incidental expenses, with cost determined by the moving-average method. Trading and available-for-sale securities are reported at fair value, including incidental expenses. Securities that are not publicly traded and which the fair value cannot be reasonably measured are recorded at acquisition cost. Held-to-maturity securities are reported at cost. Differences between the initial cost and face value are amortized using the effective interest rate over its term. Unrealized gains and losses from trading securities are reported as part of the results of operations, whereas unrealized gains and losses from available-for-sale securities are reported as a capital adjustment in the statement of changes in shareholders’ equity. The accumulated amount in shareholders’ equity is reported in current operations when the relevant securities are disposed or losses are recognized. If the collectible amount of the securities is less than its cost, such losses are recognized in current operations.

Investments in equity securities of companies over which the Company has the ability to exercise a significant influence are recorded using the equity method of accounting. Differences between the initial purchase price and the Company’s initial proportionate ownership of the net book value of the investee are amortized over the estimated useful life using the straight-line method. Under the equity method, the original investment is recorded at cost and adjusted by the Company’s share of the net book value of the investee with a corresponding charge to current operations, a separate component of shareholders’ equity, or retained earnings, depending on the nature of the underlying change in the net book value of the investee. All significant unrealized profits resulting from intercompany transactions of inventories and property, plant and equipment are eliminated.

Foreign currency financial statements of equity method investees are translated into Korean Won using the basic exchange rates 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. Depreciation is

F-16

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

computed using the straight-line method or declining-balance method over the estimated useful lives of the assets, as follows (see “Significant accounting policies of POSCO and its controlled subsidiaries”):


	Estimated useful lives
	(years)

Buildings and structures		5 - 60
Machinery and equipment		3 - 25
Tools		4 - 10
Vehicles		4 - 10
Furniture and fixtures		4 - 20

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 expenditure shall be recognized as an expense in the period in which it is incurred.


	*Long-Lived Assets*

Long-lived assets, including certain identifiable intangibles with finite-lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If an asset is determined to be impaired, the loss is measured based on differences between the carrying value and quoted market price in active markets, if available, with resulting impairment loss charged to current operations. If quoted market price is not available, the net realized value is based on various valuation techniques, including a discounted value of estimated future cash flows and fundamental analysis. The Company reports an asset to be disposed of at the lower of its carrying value or fair value less cost to sell.


	*Intangible Assets*

Intangible assets are stated at cost, net of accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives as described below.


	Estimated useful lives
	(years)

Goodwill		5 - 10
Negative goodwill		5
Intellectual property rights		5 - 50
Port facilities usage rights		2 - 33	(c)
Land usage rights		25 - 50
Internally used software		4 - 20	(b)
Deferred development expenses			(a)
Others		3 - 50


(a)	The costs incurred in relation to the development of new products and new technologies are recognized and recorded as development costs only if it is probable that future economic benefits that

F-17

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


	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 twenty years from the date when the asset is available for use.

(b)	The costs directly relating to the development of internally used software, of which the estimated future benefits are probable, are capitalized as internally used software. Internally used software systems that are part of production line are amortized over the estimated useful lives of twenty years.

(c)	Port facilities usage rights, which represent rights to use certain port facilities, are stated at cost less accumulated amortization and are amortized over the term of the rights.


	*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*

The government grants related to fixed assets are accounted for as reduction of the cost of the related asset or deferred credits and amortized over the life of the assets. Other government grants without any specified condition are accounted for as other income.


	*Valuation of Assets and Liabilities at Present Value*

Long-term loans receivable and long-term trade accounts and notes receivable are valued 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. Deferred income tax assets and liabilities are recognized for the temporary differences between the amount reported for financial reporting and income tax purposes.


	*Accrued Severance Benefits*

Employees and directors with one year or more of service are entitled to receive a lump-sum payment upon termination of their employment with POSCO or most of its subsidiaries, 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.

The domestic companies 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 to the accrued severance benefits liability. Subsequent accruals are to be funded at the discretion of the companies.

In accordance with the National Pension Act of the Republic of Korea, a certain portion of accrued severance benefits is deposited with the National Pension Fund and deducted from the accrued severance benefits liability.

F-18

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


	*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 Transactions and Translation*

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.


	*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.


	*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).


	*Derivative Instruments*

The Company enters into derivative transactions to hedge against financial risks. Derivatives are classified into: cash flow hedges, fair market value hedges and derivatives for trading purposes. In case of cash flow hedges, unrealized holding gains and losses are recorded as capital adjustments in the consolidated balance sheet. In case of hedging for fluctuations in fair market value, unrealized holding gains and losses are recorded in the statement of income. If the contract expires, the gains and losses from derivative transactions are presented in the statement of income in case of hedges for fluctuations in fair market value, and are offset against the purchasing price of inventories in case of cash flow hedging. Derivative financial instruments for trading purposes are valued at estimated market price, and resulting unrealized gains or losses are recognized in current operations.


	*Earnings Per Share*

Earnings per share are computed by dividing net income by the weighted-average number of shares of common stock outstanding (excluding the number of shares held by the Company as treasury stock).

F-19

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


	*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 are 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 official accounting records are maintained in Korean Won. The U.S. dollar amounts are provided herein as supplementary information solely for the convenience of the reader. Korean Won amounts are expressed in U.S. dollars at the rate of W1192.0: US$ 1, the US Federal Reserve Bank of New York noon buying exchange rate in effect on December 31, 2003. The U.S. dollar amounts are unaudited and are not presented in accordance with generally accepted accounting principles in either Korea or the United States of America, and should not be construed as a representation that the Korean Won amounts shown could be converted, realized or settled in US dollar at this or any other rate.


	*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 and Supervisory Board. SKFAS No. 2 through No. 9 became effective for the Company on January 1, 2003. The balance sheet as of December 31, 2002, presented herein for comparative purposes, 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.

The Company plans to adopt SKFAS No. 10 “Inventory” and other statements in its financial statements for the year ending December 31, 2004.

Significant Accounting Policies of POSCO and its Controlled Subsidiaries


		Depreciation of property, plant
Company	Inventories (a)	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

F-20

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


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

POSTECH Venture Capital Co., Ltd.	N/A	Declining-balance method
POSCO Refractories & Environment (POSREC)	First-in, First-out, Moving-average method	Straight-line method, declining-balance 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
POSCO International Osaka, Inc. (PIO)	Gross average method	Straight-line 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.	Specific identification method, 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
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.	N/A	Straight-line method
POS-Qingdao Coil Center Co., Ltd.	N/A	Straight-line method


(a)	Specific identification method is used for goods in-transit.

F-21

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 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, 2002 and 2003 consist of the following:


	Annual interest
	rates (%) as of
	December 31,
	2003		2002			2003


			(in millions of Korean
			Won)
Cash and cash equivalents
Cash on hand and bank deposits		0.01 - 3.00	W	9,382		W	9,732
Corporate bank deposits		0.10 - 5.00		6,060			37,874
Checking accounts		—		3,397			4,704
Time deposits in foreign currency and others		0.00 - 6.00		118,658			351,430
Maintained by overseas affiliates		0.01 - 5.28		130,178			190,206

				267,675			593,946
Government grants				(295	)		(1,344	)

			W	267,380		W	592,602

Short-term financial instruments
Time deposits		1.00 - 6.00	W	171,643		W	285,850
Installment accounts		5.00 - 6.00		6,887			77,276
Time deposits in foreign currency		0.55 - 0.85		199			2,463
Money in trust		3.70 - 3.90		46,979			2,121
Negotiable certificates of deposit		4.40 - 4.80		—			259,000
Commercial Paper		5.60 - 6.72		—			42,109
Others		3.00 - 5.10		32,005			10,322
Maintained by overseas affiliates		—		419			16,028

			W	258,132		W	695,169

Long-term financial instruments
Installment accounts		1.00 - 5.00	W	6,898		W	498
Guarantee deposits for opening accounts		—		120			113
Time deposits in foreign currency and others		4.00 - 5.80		13,556			17,391

			W	20,574		W	18,002

As of December 31, 2002, the Company’s financial assets amounting to W14,953 million are pledged as collateral and, accordingly, withdrawal of such financial assets is restricted. The financial assets pledged as collateral include cash and cash equivalents amounting to W3,000 million in relation to performance guarantee deposits, short-term financial instruments amounting to W11,833 million in relation to collateral deposits for long-term borrowings and long-term financial instruments amounting to W120 million in relation to collateral deposits for opening checking accounts (Note 13).

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

F-22

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

W8,000 million and W142 million in relation to performance guarantee deposits, 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, 2002 and 2003 are as follows:


	2002		2003


	(in millions of Korean Won)
Beneficiary certificates(*)	W	1,192,204	W	1,147,219
Mutual funds		—		174,082

	W	1,192,204	W	1,321,301


(*)	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, 2002 and 2003 are as follows:


		2002			2003


		(in millions of Korean Won)
Trade accounts and notes receivable		W	1,762,701		W	2,332,737
Less: Allowance for doubtful accounts			(22,834	)		(23,327	)
	Present value discount		(262	)		(965	)

		W	1,739,605		W	2,308,445

Other accounts and notes receivable		W	125,480		W	152,053
Less: Allowance for doubtful accounts(*)			(52,741	)		(56,489	)

		W	72,739		W	95,564

Long-term trade accounts and notes receivable		W	69,203		W	61,734
Less: Allowance for doubtful accounts			(5,737	)		(2,090	)
	Present value discount		(18,603	)		(15,979	)

		W	44,863		W	43,665

Long-term loans		W	117,429		W	83,346
Less: Allowance for doubtful accounts			(49	)		(384	)
	Present value discount		(120	)		(85	)

		W	117,260		W	82,877


(*)	The litigation in relation to a severance payment was decided in favor of the Company in August 2001. As a result, the Company recorded other receivables amounting to W43,378 million and allowances for doubtful accounts amounting to W41,724 million for receivables with uncertain collectibility.

F-23

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

Accounts stated at present value under rescheduled payment and long-term deferred payment 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	32		W	127			2017		7.54
		Others		260			53			207			2006		7.54

				419			85			334
	Other long-term assets (Note 11)	Cointop Software Corp.		183			44			139			2008		6.50

				183			44			139

			W	602		W	129		W	473

Rescheduled payment:
	Long-term trade accounts and notes receivable	BNG Steel Co., Ltd.	W	61,338		W	16,053		W	45,285			2005 – 2009		8.00 – 8.62
		Hanbo Iron and Steel Co., Ltd. and others		2,284			891			1,393			2004 – 2017		4.97 – 10.00

				63,622			16,944			46,678
	Less: Current portion			(8,957	)		(965	)		(7,992	)

				54,665			15,979			38,686
	Other long-term assets (Note 11)	Dong Sung Construction Co., Ltd. and others		368			45			323			2005 – 2018		7.54

				368			45			323

			W	55,033		W	16,024		W	39,009

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-24

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

Valuation and qualifying accounts for allowance for doubtful accounts for the years ended December 31, 2001, 2002 and 2003 are as follows:

Additions

Balance at

Charged to

beginning of

costs and

other

Balance at the

Description

period

expenses

accounts(b)

Deductions(a)

end of period

(in millions of Korean Won)

Year ended December 31, 2003:

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

Allowance for doubtful accounts

321,534

8,955

—

5,302

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

Year ended December 31, 2001:

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

Allowance for doubtful accounts

56,724

10,951

—

23,628

44,047


(a)	Deduction for allowance for doubtful accounts includes recoveries of bad debts and amount written off as uncollectible.

(b)	Includes W104 billion related to the consolidation adjustment resulting from the change in scope of consolidation.


6.	Inventories

Inventories as of December 31, 2002 and 2003 consist of the following:


	2002		2003


	(in millions of Korean Won)
Finished goods	W	312,915	W	340,814
By-products		2,309		3,226
Semi-finished goods		390,827		457,954
Raw materials		637,456		699,970
Materials in-transit		269,744		513,645
Others		58,195		52,762

	W	1,671,446	W	2,068,371

F-25

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


7.	Investment Securities

Investment securities as of December 31, 2002 and 2003 consist of the following:


	2002		2003


	(in millions of Korean Won)
Available-for-sale securities	W	2,254,609	W	2,147,013
Held-to-maturity securities		110,817		17,481
Equity method investments		163,012		154,336

	W	2,528,438	W	2,318,830


	*Available-For-Sale Securities*

Available-for-sale securities as of December 31, 2002 and 2003 consist of the following:


	2002		2003


	(in millions of Korean Won)
Marketable equity securities	W	1,619,928	W	1,647,038
Non-marketable equity securities		605,145		226,793
Debt security investments		12		243,691
Others		29,524		29,491

	W	2,254,609	W	2,147,013

Investments in marketable equity securities as of December 31, 2002 and 2003 are as follows:



			Percentage of		2002		2003
			ownership (%) as
	Number of		of December 31,				Acquisition		Book value
	shares		2003		Book value		cost		(c)


					(in millions of Korean Won)
Hanil Iron Steel Co., Ltd.(a)		206,798		10.14	W	2,215	W	2,412	W	2,337
HISTEEL Co., Ltd.(a)		123,052		9.95		1,477		1,608		1,053
MunBae Steel Co., Ltd.(b)		1,849,380		9.02		1,219		3,588		1,840
Chohung Bank		135,394		0.02		555		3,757		529
Hana Bank		4,617,600		2.34		75,267		29,998		101,587
SK Telecom Co.(d)		5,794,924		7.04		1,327,037		1,657,348		1,153,190
Samjung P&A Co., Ltd.		270,000		9.00		2,295		2,714		1,866
DongYang Steel Pipe Co., Ltd.		1,564,250		2.46		579		3,911		508
Nippon Steel Corporation		147,876,000		2.17		208,193		285,102		380,794
Others		—		—		1,091		3,373		3,334

					W	1,619,928	W	1,993,811	W	1,647,038


(a)	On January 1, 2003, Hanil Iron Steel Co., Ltd. was split-off into HISTEEL Co., Ltd. and Hanil Iron Steel Co., Ltd.

(b)	Munbae Steel Co., Ltd had stock splits of 1:5.

(c)	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.

F-26

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


(d)	1,696,428 SK Telecom Co. shares classified as available-for-sale securities have been placed as a collateral for exchangeable bonds (Notes 13 and 16).

Investments in non-marketable equity securities as of December 31, 2002 and 2003 are as follows:



			Percentage of		2002		2003
			ownership (%) as
	Number of		of December 31,				Acquisition		Net asset
	shares		2003		Book value		cost		value(a)		Book value


					(in millions of Korean Won)
Dae Kyeong Special Steel Co., Ltd.		1,786,000		19.00	W	8,930	W	8,930	W	4,422	W	8,930
Kihyup Corporation		600,000		10.34		3,000		3,000		3,441		3,000
Powercomm		7,500,000		5.00		246,000		246,000		68,407		68,407
The Siam United Steel		9,000,000		10.00		26,640		26,640		8,174		26,640
PT-POSNESIA Stainless Steel Industry(b)		29,610,000		70.00		9,474		9,474		2,537		2,537
Keo Yang Shipping Co., Ltd.		150,000		0.88		780		780		1,191		780
Korea Economic Daily		57,456		0.46		309		309		169		308
Daewoo Commercial Vehicle Co., Ltd.		10,185		0.06		51		51		50		51
POSCO Terminal Co., Ltd.(c)		204,000		51.00		—		1,020		1,470		1,020
Global Unity Ltd.		70,649		10.00		710		710		540		710
Korea Daily News(c)		1,614,000		19.40		—		18,520		8,611		9,551
Incheon Airport Train Co., Ltd.		8,978,468		11.87		30,525		44,892		34,794		44,892
CENIX		1,460,344		6.00		1,509		12,829		903		903
POS-Ore Pty Ltd.		17,500,001		100.00		680		15,697		16,205		15,697
POSEC-HAWAII Inc.		18,100		90.94		8,617		10,132		8,515		8,260
SK IMT(d)		—		—		192,002		—		—		—
Others		—		—		75,918		43,268		20,941		35,107

					W	605,145	W	442,252	W	180,370	W	226,793


(a)	The net asset value of the non-marketable equity securities is determined based on the investee companies’ most recent available financial information, which has not been reviewed or audited, except for POSCO Terminal Co., Ltd, as of December 31, 2003. Powercomm shares were based on the discounted cash flow method, and the difference between the acquisition cost and the discounted cash flow (W177,593 million) was accounted for as a capital adjustment. Except for Powercomm, shares without an objective market value were based on acquisition costs.

(b)	As of December 31, 2003, the operation of PT-POSNESIA Stainless Steel Industry has been suspended for more than one year.

(c)	POSCO Terminal Co., Ltd, having initial capital less than W7,000 million, and Korea Daily News, in which the Company no longer has a significant interest, were eliminated from the equity method.

(d)	The shares of SK IMT held by the Company are fully disposed and accordingly no shares of SK IMT are held by the Company as of December 31, 2003.

F-27

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

Debt security investments as of December 31, 2002 and 2003 are as follows:



			2002		2003
	Maturity
	(year)		Book value		Acquisition cost		Book value


			(in millions of Korean Won)
Government and municipal bonds		1 - 5	W	12	W	210,220	W	211,503
		5 - 10		—		124		124
Other bonds		1 - 5		—		32,231		32,064

			W	12	W	242,575	W	243,691

Other investments as of December 31, 2002 and 2003 are as follows:



		2002		2003

		Book value		Acquisition cost		Book value


		(in millions of Korean Won)
Investments in capital
	Stock Market Stabilization Fund	W	4,343	W	1,184	W	3,542
	Contractor Financial Fund		12,472		12,167		12,167
	POSTEC Venture Fund 2 and others		12,709		13,727		13,782

		W	29,524	W	27,078	W	29,491

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
	SK Telecom Co.		(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		(332	)		293			(39	)

			(371,933	)		25,160			(346,773	)

Non-marketable equity securities:
	Powercomm		—			(177,593	)		(177,593	)
	Others		—			(5,411	)		(5,411	)

			—			(183,004	)		(183,004	)

Total		W	(371,933	)	W	(157,844	)	W	(529,777	)

F-28

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


	*Held-To-Maturity Securities*

Held-to-maturity securities as of December 31, 2002 and 2003 are as follows:



			2002		2003
		Maturity
		(year)	Book value		Acquisition cost		Book value


			(in millions of Korean Won)
Current portion of held-to-maturity securities:
	Government and municipal bonds	Within one year	W	386		W141,898	W	141,163
	Bonds with stock warrants	“		432		—		—
	Financial bonds	“		—		99,668		97,966
	Corporate bonds in foreign currency	“		15,925	US$	9,400,000		11,352
	Others	“		11,102		—		—

						W241,566
				27,845	US$	9,400,000		250,481

Held-to-maturity securities:
	Financial bonds	1 - 5		49,668		W—		—
	Government and municipal bonds	“		5,082		15,232		15,232
	Corporate bond in foreign currency	5 - 10		—	US$	1,000,000		1,207
	Government and municipal bonds	“		11,486		W583		583
	Others	—		44,581		459		459

						W16,274
				110,817	US$	1,000,000		17,481

						W257,840
			W	138,662	US$	10,400,000	W	267,962

The Company provided certain financial bonds, amounting to W31,400 million, to the Pusan municipal government as deposits for a performance guarantee in relation to the development of a waste disposal area (Note 13).

F-29

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


	*Equity Method Investments*

Details of equity method investees as of December 31, 2002 and 2003 are as follows:



			Percentage of		2002		2003
			ownership (%) as of
	Number of		December 31,				Acquisition		Net asset
	shares		2003(d)		Book value		cost		value(e)		Book value


			(in millions of Korean Won)
Korea Daily News(a)		—		—	W	13,750	W	—	W	—	W	—
eNtoB Corporation		740,000		21.94		2,579		3,700		3,150		3,295
KOBRASCO(c)		2,010,719,185		50.00		—		32,950		1,257		562
POSCHROME		21,675		25.00		4,379		4,859		6,711		6,711
Shunde Xingpu Steel Center Co., Ltd.(b)		—		20.51		2,992		1,852		3,214		3,291
POS-HYUNDAI STEEL		6,919,396		28.58		1,379		3,136		1,824		1,883
POS-MMIT		4,200,000		30.00		2,308		2,308		2,548		2,625
PT POSMI STEEL Indonesia		2,972		35.40		1,467		1,467		868		1,572
POSVINA Co.,Ltd.(b)		—		50.00		—		1,527		3,970		3,970
Fujiura Butsuryu Center Co., Ltd.		600		30.00		553		632		498		538
Suzhou Dongshin Color Metal Sheet Co., Ltd.(b)		—		28.59		3,606		2,547		3,875		4,066
MIDUS Information Technologies Co., Ltd.		866,190		23.57		—		433		2,075		2,281
POSCO Bioventures LP.(b)		—		79.98		10,020		18,368		24,889		24,889
USS-POSCO Industries(b)		—		49.99		119,979		234,293		95,638		98,653
POSVEN(f)		6,720		58.63		—		66,876	Negative capital			—

					W	163,012	W	374,948	W	150,517	W	154,336


(a)	In November 2003, the Company donated 3% of its Korea Daily News holdings to Kumho Culture Center, resulting in the loss of its significant influence over Korea Daily News. As a result, its holding was accounted as part of available-for-sale securities.

(b)	No shares have been issued in accordance with the local laws or regulations.

(c)	As of December 31, 2002, the Company discontinued using the equity method of accounting for investments in KOBRASCO. However, as of December 31, 2003, KOBRASO has recovered its net asset value and as a result, it has been applied with the equity method. Accordingly, unaccounted equity method valuation loss of W16,124 million during the year ended December 31, 2002 was deducted, during the current year from retained earnings before appropriations.

(d)	Percentage of ownership is the sum of direct and indirect ownership.

(e)	Due to the delay in closing and settlement of closing differences, the equity method of accounting is applied based on the most recent available financial information, which has not been audited or reviewed as of December 31, 2003.


(f)	POSVEN had a negative capital during the prior period and is under going the liquidating process. As a result, the Company has suspended to applied the equity method.

F-30

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

Details of equity method valuation for the year ended December 31, 2002 and 2003 are as follows:


			Valuation								Valuation
	2002		gain or loss			Other			2002		gain or loss			Other			2003
	Beginning		using equity			increase or			Ending		using equity			increase or			Ending
	balance		method			decrease(a)			balance		method			decrease(a)			balance


	(in millions of Korean won)
POSVEN	W	—	W	(134,501	)	W	134,501		W	—	W	—		W	—		W	—
Korea Daily News		23,718		(3,415	)		(6,553	)		13,750		(2,874	)		(10,876	)		—
eNtoB Corporation		2,704		(225	)		100			2,579		812			(96	)		3,295
KOBRASCO		13,292		(15,827	)		2,535			—		21,447			(20,885	)		562
POSCHROME		3,127		922			330			4,379		695			1,637			6,711
Shunde Xingpu Steel Center Co., Ltd.		2,664		608			(280	)		2,992		137			162			3,291
POS-HYUNDAI STEEL		1,243		232			(96	)		1,379		377			127			1,883
POS-MMIT		—		—			2,308			2,308		322			(5	)		2,625
PT POSMI STEEL Indonesia		—		—			1,467			1,467		817			(712	)		1,572
POSVINA Co., Ltd.		—		—			—			—		2,263			1,707			3,970
Fujiura Butsuryu Center Co., Ltd.		636		(84	)		1			553		(102	)		87			538
Suzhou Dongshin Color Metal Sheet Co., Ltd		2,783		1,127			(304	)		3,606		413			47			4,066
MIDUS Information Technologies Co., Ltd.		—		—			—			—		1,706			575			2,281
POSCO Bioventures LP.		—		(284	)		10,304			10,020		(2,186	)		17,055			24,889
USS-POSCO Industries		124,832		22,678			(27,531	)		119,979		(28,350	)		7,024			98,653
POSREC		18,199		—			(18,199	)		—		—			—			—

Total	W	193,198	W	(128,769	)	W	98,583		W	163,012	W	(4,523	)	W	(4,153	)	W	154,336


(a)	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.

Details on the elimination of unrealized gain or loss for the years ended December 31, 2002 and 2003 are as follows:



	2002						2003

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


	(in millions of Korean Won)
eNtoB Corporation	W	11	W	—	W	11	W	10	W	15	W	25
Fujiura Butsuryu Center Co., Ltd.		6		—		6		—		—		—
KOBRASCO		—		—		—		655		—		655
UPI		—		—		—		6,237		—		6,237
POSCHROME		93		—		93		—		—		—

	W	110	W	—	W	110	W	6,902	W	15	W	6,917

F-31

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


8.	Property, Plant and Equipment

Property, plant and equipment as of December 31, 2002 and 2003 consist of the following:


	2002			2003


	(in millions of Korean Won)
Buildings and structures	W	4,751,118		W	5,040,909
Machinery and equipment		17,863,238			18,995,021
Tools		299,925			347,664
Vehicles		150,986			166,062
Furniture and fixtures		165,046			195,602

		23,230,313			24,745,258
Less: Accumulated depreciation		(15,698,572	)		(17,147,340	)
Less: Accumulated impairment		(2,786	)		(2,786	)

		7,528,955			7,595,132

Land		1,250,851			1,212,850
Less: Accumulated impairment		(566	)		(566	)

		1,250,285			1,212,284

Construction in-progress		1,785,348			1,121,978
Less: Accumulated impairment		(240,014	)		(83,617	)

		1,545,334			1,038,361

	W	10,324,574		W	9,845,777

The value of land based on the posted price issued by the Korean tax authority amounted to W2,666,325 million and W2,796,338 million as of December 31, 2002 and 2003, respectively.

As of December 31, 2002 and 2003, property, plant and equipment are insured against fire and other casualty losses up to W4,538,778 million and W4,568,357 million, respectively. In addition, the Company carries general insurance for vehicles and accident compensation insurance for its employees.

Construction in-progress included in property, plant and equipment 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. Previously recognized impairment loss on the buildings and machinery in Gwangyang No. 2 Minimill amounted to W4,795 million and W235,219 million, respectively, as of December 31, 2002. In June 2003, due to a continuing unfavorable market condition, the Company amended its plan and concluded that only a portion of buildings of the No. 2 Minimill will be used for the TWB project. In addition, with the approval of Board of Directors, the Company is negotiating the terms of sales agreement and the selling price for the machinery of the No. 2 Minimill with a third party as of December 31, 2003. Accordingly, the Company recognized an additional impairment loss on the area of the buildings, which would not be used for the TWB project, and machinery based on the net realizable value and estimated selling price, respectively. For the year ended December 31, 2003, the Company

F-32

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

recognized an impairment loss on the buildings and machinery amounting to W78,822 million and W71,928 million, respectively. Accumulated impairment loss on the buildings and machinery as of December 31, 2003 amounted to W83,617 million and W307,147 million, respectively. As of December 31, 2003, the Company has reclassified related machinery held to be disposed in the future as other investment assets.

The Company has reclassified Bloom equipment held be disposed as other investment assets. As of December 31, 2003, the differences between carrying value and net realizable value, amounting to W619 million, are accounted for as impairment loss on investment assets.

The changes in the carrying value of property, plant and equipment for the year ended December 31, 2003 are as follows:


	As of											Elimination of			As of
	December 31,											intercompany			December 31,
	2002		Acquisition		Disposal		Depreciation		Other(a)			transactions			2003


	(in millions of Korean Won)
Land	W	1,250,285	W	3,756	W	49,414	W	—	W	3,213		W	4,444		W	1,212,284
Buildings		2,223,336		254,983		30,159		158,032		10,767			13,163			2,314,058
Structures		956,068		71,674		3,015		75,613		(6,981	)		(28,569	)		913,564
Machinery and equipment		4,192,877		1,320,043		12,893		1,264,247		(1,729	)		(55,334	)		4,178,717
Vehicles		20,979		23,074		516		11,251		47			1,534			33,867
Tools		92,982		66,820		7,125		55,536		(289	)		4,321			101,173
Furniture and equipment		42,713		30,418		506		26,417		197			7,349			53,754
Construction in-progress		1,545,334		960,468		137,843		—		(1,427,760	)		98,161			1,038,360

	W	10,324,574	W	2,731,236	W	241,471	W	1,591,096	W	(1,422,535	)	W	45,069		W	9,845,777


(a)	Including foreign currency translation adjustment and transfers of an asset.


9.	Intangible Assets

Intangible assets, net of accumulated amortization, as of December 31, 2002 and 2003 consist of the following:


	2002			2003


	(in millions of
	Korean Won)
Goodwill	W	3,674		W	234
Negative goodwill		(2,358	)		(914	)
Intellectual property rights		266			523
Port facilities usage rights		134,209			129,698
Organization costs		2,609			—
Development costs		44,991			18,272
Internally used software		189,829			233,000
Land usage rights		42,017			12,750
Others		59,575			80,933

	W	474,812		W	474,496

F-33

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

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 W16,307 million for the year ended December 31, 2003.

As of December 31, 2002 and 2003, accumulated amortization of intangible assets amounts to W535,479 million and W433,138 million, respectively.

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


	(in millions of
	Korean Won)

2004	W	122,490
2005		96,656
2006		67,989
2007		45,260
Thereafter		11,613

	W	344,008


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, 2002 and 2003 are as follows:


	2002			2003


	(in millions of
	Korean Won)
Beginning balance	W	274,899		W	294,395
Increase		110,185			125,069
Decrease(*)		79,532			78,087
Foreign exchange		(11,157	)		(9,172	)

Ending balance	W	294,395		W	332,205


(*)	Decrease consists of amortization and dispositions.

The Company expensed research and development costs amounting to W202,102 million and W255,696 million for the years ended December 31, 2002 and 2003, respectively. For the years ended December 31, 2002 and 2003, the Company recorded research and development costs as cost of goods sold amounting to W161,475 million and W198,871 million, respectively, and selling and administrative expenses amounting to W40,627 million and W56,825 million, respectively.

F-34

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


11.	Other Assets

Other assets as of December 31, 2002 and 2003 consist of the following:


			2002			2003


			(in millions of
			Korean Won)
Other current assets
	Short-term loans		W	37,456		W	85,027
	Accrued income			41,548			60,440
	Advance payments			59,472			125,754
	Prepaid expenses			7,746			10,498
	Others			42,003			13,059
	Less: Allowance for doubtful accounts			(2,726	)		(5,113	)

			W	185,499		W	289,665

Other long-term assets
	Other investment assets		W	311,748		W	526,784
	Less: Allowance for doubtful accounts			(237,447	)		(237,782	)
		Present value discount		(59	)		(89	)

			W	74,242		W	288,913


12.	Short-Term Borrowings and Current Portion of Long-Term Debt

Short-term borrowings as of December 31, 2002 and 2003 consist of the following:


		Annual
		interest rate (%)
		as of December 31,
Financial institutions		2003		2002		2003


				(in millions of
				Korean Won)
Won currency borrowings:
	Korea Development Bank and others		4.00 - 5.00	W	84,442	W	164,931
Foreign currency borrowings:
	Thai Farmers Bank		1.00		211		10,221
	Bank of America and others		1.00 - 3.00		503,302		556,629

					503,513		566,850

				W	587,955	W	731,781

F-35

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

Current portion of long-term debt as of December 31, 2002 and 2003 consist of the following:


		Annual
		interest rate (%)
		as of December 31,
Financial institutions		2003		2002			2003


				(in millions of Korean Won)
Debentures:
	Domestic and foreign debentures		1.00 - 8.00	W	1,255,671		W	789,405
	Less: Discount on debentures issued				(4,321	)		(1,958	)

					1,251,350			787,447
Won currency borrowings:
	Korea Development Bank and others		2.00 - 7.00		2,052			1,618
Foreign currency borrowings:
	Citibank and others		1.00 - 6.97		65,157			230,493
Lease obligations:
	IBM Korea and others		5.00		972			1,307

					68,181			233,418

				W	1,319,531		W	1,020,865

F-36

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


13.	Long-Term Debt

Long-term borrowings as of December 31, 2002 and 2003 are as follows:


		Annual
		interest rate (%)
		as of December 31,
Financial institutions		2003		2002			2003


				(in millions of Korean Won)
Won currency borrowings:
	Korea Development Bank and others		1.00 - 9.90	W	12,730		W	11,953
	Less: Current portion				(2,052	)		(1,618	)

					10,678			10,335
Foreign currency borrowings:
	Development Bank of Japan and others		0.75 - 8.28
			LIBOR + 0.60		474,928			504,863
	Less: Current portion				(65,157	)		(230,493	)

					409,771			274,370

Debentures:
	Domestic debentures		5.00 - 9.00		2,266,010			1,796,060
	Foreign bonds		0.54 - 7.40		1,783,533			1,098,331
	Exchangeable bonds(*)		—		—			577,960

					4,049,543			3,472,351
	Less: Current portion		1.84 - 8.00		(1,255,671	)		(789,405	)
	Discount on debentures issued		—		(20,306	)		(15,267	)

					2,773,566			2,667,679

				W	3,194,015		W	2,952,384

Certain current assets, investments and property, plant and equipment are pledged as collateral for the above borrowings (Note 17).


(*)	The Company issued exchangeable bonds on August 20, 2003. It is exchangeable with 15,267,837 SK Telecom Co. ADSs (American Depository Shares).

Details of exchangeable bonds as of December 31, 2003 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 0%

Face value:		JPY 51,622,000,000

Issuance price:		JPY 51,880,110,000

Exchangeable price:		JPY 3,398/ ADS

F-37

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


Exercise period

Call:		Commencing ten business days following the issuance date until ten business days prior to maturity date

Put:		Exactly three years following the issuance date

On August 20, 2003, the Company has disposed 1,696,428 shares of SK Telecom Co. to Zeus (Cayman), an exempted company formed with limited liability under the laws of the Cayman Islands (the “Issuer”). Zeus (Cayman), then issued JPY51,622 million “Zero Coupon Guaranteed Exchangeable Notes” due 2008 of which are fully and unconditionally guaranteed by the Company. The notes do not bear interest and are exchangeable at the option of the holders into SK Telecom Co. ADSs. In accordance with the Korean generally accepted accounting principles, considering the substance of transaction, the Company has accounted above transaction as a borrowing transaction.

The notes will be redeemable on August 21, 2006 at the option of holders thereof at their early redemption amount, and upon exercise of such option, the Company will have the right to purchase the notes at their early redemption amount. The notes will be redeemable at the option of the Issuer, in whole or in part, at their early redemption amount at any time on or after August 21, 2006 in the event that the market price per SK Telecom Co. ADS has been at least 120% of the exchange price then in effect for a certain period as set forth herein. The notes may also be redeemed by the Issuer at their early redemption amount in the event of the imposition of certain Korean or Cayman Islands taxes or in the event that at least 90% of the original issued principal amount of the notes has been redeemed, exchanged or purchased and cancelled. In addition, the holder of any note, at its election, may cause the Issuer to purchase such note at the early redemption amount on August 21, 2006 or upon the occurrence of any of certain events, including a change of control of SK Telecom Co. or a delisting of the SK Telecom Co. ADSs.

Contractual maturities of long-term debt outstanding as of December 31, 2003 are as follows:


			Local currency		Foreign currency
Year	Debentures		borrowings		borrowings		Total


	(in millions of Korean Won)
2005	W	987,431	W	3,433	W	131,325	W	1,122,189
2006		1,117,556		2,097		50,915		1,170,568
2007		—		1,765		23,153		24,918
2008		577,959		1,383		21,847		601,189
Thereafter		—		1,657		47,130		48,787

	W	2,682,946	W	10,335	W	274,370	W	2,967,651

F-38

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

Details of assets pledged as collateral for short-term and long-term borrowings as of December 31, 2002 and 2003 are as follows:


	Financial institutions	2002		2003


		(in millions of
		Korean Won)
Land	Shinhan Bank and others	W	43,261	W	52,851
Buildings and structures	Kookmin Bank and others		25,710		46,540
Machinery and equipment	Industrial and Commercial Bank of China and others		67,061		8,583
Cash and cash equivalents	Kyongnam Bank and others		6,355		4,000
Trade accounts and notes receivable	Comerica Bank and others		124,191		70,574
Available-for-sale securities	Exchangeable Bond Creditor		—		337,589
Others(*)	Korea Development Bank and others		41,142		36,050

		W	307,720	W	556,187


(*)	The Company provided the financial bonds of Industrial Bank of Korea, amounting to W31,400 million, to the Pusan municipal government as deposits for a performance guarantee in relation to the development of a waste disposal area (Note 7).

Details of loans from foreign financial institutions covered by guarantees provided by financial institutions as of December 31, 2002 and 2003 are as follows:

2002

2003

Foreign

Won

Foreign

Won

Financial institutions

currency

equivalent

currency

equivalent

(in millions of Korean Won, except for foreign currencies)

Korea Development Bank

US$ 695,761

835

—

JPY

161,834,050

1,639

—

EUR 8,502,876

10,691

EUR

7,900,852

11,872

13,165

11,872

F-39

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


14.	Capital Lease and Operating Lease Agreement


	*Capital Lease*

As of December 31, 2003, the Company acquired certain tools and vehicles under capital lease agreements, with acquisition cost amounting to W4,082 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, 2003 amounted to W349 million.

Future minimum lease payments under capital lease agreements are as follows:


	Principal		Interest		Total


	(in millions of Korean Won)
2004	W	1,307	W	157	W	1,464
2005		1,371		93		1,464
2006		1,181		26		1,207

	W	3,859	W	276	W	4,135


	*Operating Lease*

As of December 31, 2003, 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 W8,705 million for the year ended December 31, 2003. Future lease payments under the above lease agreements are as follows:


	(in millions of
	Korean Won)

2004	W	6,328
2005		4,597
2006		1,449

	W	12,374


15.	Accrued Severance Benefits

The changes in the carrying value of accrued severance benefits for the year ended December 31, 2003 are as follows:


						Group
	Accrued		National			severance
	severance		Pension			insurance
	benefits		Fund			deposits			Total


	(in millions of Korean Won)
Beginning balance	W	255,125	W	(2,117	)	W	(149,536	)	W	103,472
Increase		165,018		(8	)		(90,472	)		74,538
Decrease		25,045		(136	)		(7,449	)		17,460
Foreign currency adjustment and others		2,331		—			(219	)		2,112

Ending balance	W	397,429	W	(1,989	)	W	(232,778	)	W	162,662

F-40

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


16.	Other Liabilities

Other liabilities as of December 31, 2002 and 2003 consist of the following:


		2002		2003


		(in millions of
		Korean Won)
Other current liabilities
	Advances received	W	230,273	W	215,489
	Unearned revenue		2,226		2,082
	Others		27,877		92,275

		W	260,376	W	309,846

Other long-term liabilities
	Reserve for allowance	W	12,068	W	16,553
	Others		91,811		95,486

		W	103,879	W	112,039

F-41

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


17.	Commitments and Contingencies

As of December 31, 2003, contingent liabilities for outstanding guarantees provided between the related companies for the repayment of loans of affiliated companies are as follows:

Amount

Won

Grantors

Entity being guaranteed

Financial institutions

guaranteed

equivalent

(in millions of Korean Won

and thousands of U.S.

Dollars)

POSCO

VPS

Credit Lyonnais

US$

1,642

1,967

POS-HYUNDAI STEEL

India Development Bank and others

162

194

POS-Investment

Industrial & Commercial Bank of China and others

132,000

158,109

Zhangjiagang Pohang Stainless Steel Co., Ltd.

Bank of China

12,000

14,374

POSMI

Korea Exchange Bank

1,800

2,156

POSCO
E & C

IBC Corporation

The Export-Import Bank of Korea and others

67,780

81,187

POSLILAMA Steel Structure Co., Ltd.

The Export-Import Bank of Korea and others

17,000

20,363

Shanghai Real Estate Development Co., Ltd.

Korea Development Bank and others

36,000

43,121

Posteel Co., Ltd.

POS-Tianjin Coil Center Co., Ltd.

Shinhan Bank

W 6,348

6,348

POS-THAI Service

Hana Bank

8,434

Steel Center Co., Ltd. POSMI

Korea Exchange Bank

6,468

POS-HYUNDAI STEEL

Industrial Development Bank of India

1,182

POSCO Investment Co., Ltd.

Qingdao Pohang Stainless Steel Co., Ltd.

Bank of Tokyo-Mitsubishi

67,077

POSVINA Co.,Ltd.

Shinhan Bank

1,797

PIO

Fujiura Butsuryu Center Co., Ltd.

Korea Exchange Bank and others

12,540

US$

268,384

W 103,846

425,317

As of December 31, 2002, contingent liabilities for outstanding guarantees provided between the related companies for the payment of loans of affiliated companies amount to W402,672 million.

F-42

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 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,

thousands of Japanese Yen and

thousands of U.S. Dollars)

POSCO

S U S

J-BIC

US$ 10,000

11,978

Dae Kyeong Special Steel

Korea Development

3,249

3,892

Co., Ltd.

Bank

W 4,318

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

W 94,500

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

JPY

51,622,000

W 230,731

824,561

As of December 31, 2002, contingent liabilities for outstanding guarantees provided to non-affiliated companies for the repayment for loans amount to W159,072 million.

The Company is named as a defendant in various domestic and foreign legal actions arising from the normal course of business. The aggregate amounts of domestic and foreign claims with the Company as the defendant amounted to approximately W107,440 million and US$10,497 thousand in fifteen cases, respectively, which are pending as of December 31, 2003. The Company believes that the outcome of these matters is uncertain but, in any event, they would not result in a material ultimate loss for the Company.

POSCO E & C entered into an agreement with Arabia Corporation (“ARCO”) to build a plant. However, due to the disputes over technical issues the issuance of Performance Acceptance Certificate and Final Acceptance Certificate are being delayed by ARCO. Accordingly, the payment is also being delayed by ARCO and the dispute between POSCO E & C and ARCO, with respect to settlement of final payment, was submitted to the international arbitration committee and was pending as of December 31, 2002. In relation to the performance guarantees for the construction contracts, P-Bond deposits amounting to W16,444 million was deposited in the Bank of New York, and the safeguarding of this deposit is being requested to the arbitration committee. However, due to the uncertain collectibility and uncertainty of court decision, the Company recorded related receivables and P-Bond deposits amounting to W26,078 million, net of performance reserve, as an allowance for doubtful accounts. However, during 2003, the full amount of performance bonds was recovered due to the favorable outcome of the court decision and in accordance with the resolution of the international arbitration committee, the Company has

F-43

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

paid related brokerage and legal fees amounting to W21,981 million for the year ended December 31, 2003.

The Company entered into long-term contracts to purchase iron ore, coal, nickel, chrome and stainless steel scrap. These contracts generally have terms of five to ten years and provide for periodic price adjustments to the market price. As of December 31, 2003, 146 million tons of iron ore and 55 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, 2001, an affiliate which is 58.63 % 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.

In addition, pursuant to a resolution during the general meeting of shareholders on December 23, 2002, the liquidation of POSVEN was approved. Accordingly, the payment amounting to W236,858 million made on behalf of POSVEN and recorded as other investments, was fully reserved as part of allowance for doubtful accounts as of December 31, 2003.

POSCO guaranteed the usage of bulk carriers with Keo Yang Shipping Co., Ltd. in order to ensure the transportation of raw materials through 2010.

On August 14, 2003, the Company entered into an agreement with Tangguh LNG in Indonesia to purchase LNG commencing from the year 2005. In accordance with the agreement, 550,000 tons of LNG will be purchased annually for a period of 20 years.

As of December 31,2003, POSCO entered into a bank overdraft agreement with Woori Bank amounting to W160,000 million. In addition, POSCO has provided one blank promissory note to Bank of China as collateral for outstanding loans of overseas subsidiaries and three blank promissory notes and others to Development Bank collateral for outstanding foreign loans.

POSCO E & C has provided seven blank promissory notes and other eight notes, amounts equivalent to approximately W318,831 million, to other financial institutions as collateral for agreements and outstanding loans. As of December 31, 2003, POSCO E & C has an outstanding balance of endorsed notes amounting to W45,000 million.

As of December 31, 2003 Posteel Co., Ltd. has an unsettled delivery acceptance balance in relation to exports amounting to JPY 437,642,114 and US$ 29,816,933 and delivery payments amounting to JPY 41,032,324. In addition, Posteel Co., Ltd. entered into credit limit agreement with Hana Bank up to W559,644 million.

POSDATA Co., Ltd. has an outstanding balance of discounted accounts receivable (purchase card) amounting to W4,948 million as of December 31, 2003.

Changwon Specialty Steel Co., Ltd. entered into electronic factoring agreements for trade accounts receivable up to W30,000 million with Woori Bank. In addition, Changwon Specialty Steel Co., Ltd. entered into an agreement with Korea First Bank in relation to the opening of letters of credit amounting to W30,000 million and US$ 60,000,000.

In common with certain other Asian countries, the economic environment in the Republic of Korea continues to be volatile. In addition, the Korean government and the private sector continue to implement structural reforms to historical business practices, including corporate governance. The Company may be either directly or indirectly affected by these volatile economic conditions and the reform program

F-44

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

described above. The accompanying financial statements reflect management’s assessment of the impact to date of the economic environment on the financial position and results of operations of the Company. Actual results may differ materially from management’s current assessment.


18.	Capital Surplus

Capital surplus as of December 31, 2002 and 2003 consist of the following:


	2002		2003


	(in millions of Korean Won)
Revaluation surplus	W	3,220,275	W	3,213,414
Additional paid-in capital		463,825		463,825
Others		113,637		151,534

	W	3,797,737	W	3,828,773


19.	Retained Earnings

Retained earnings as of December 31, 2002 and 2003 consist of the following:


		2002		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		654,867		746,667
	Voluntary reserve		5,102,023		6,263,545
Unappropriated			1,548,324		1,705,367

		W	8,464,715	W	9,875,080


	*Legal Reserve*

The Commercial Code of the Republic 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

F-45

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

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.


	*Additional Losses of Minority Interest*

Accumulated deficit of POSLILAMA Steel Structure Co., Ltd., an affiliate included in the consolidated financial statements, resulted in losses in excess of minority interest amounting to W2,495 million and W3,164 million, for the years ended December 31, 2002 and 2003, respectively. 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 POSLILAMA Steel Structure Co., Ltd. to the controlling company’s equity until it recovers the amount of loss in excess of minority interest.


	*Dividends*

The Company declared interim dividends, which were approved through a resolution of the Board of Directors on July 22, 2003. Details of interim and year-end dividends for the years ended December 31, 2001, 2002 and 2003 are as follows:


		2001		2002		2003


		(in millions of Korean Won)
Interim cash dividends:
	Number of shares		81,601,759		81,683,875		81,648,519
	Dividend ratio		10%		10%		20%
	Dividend amount	W	40,800	W	40,842	W	81,649


		2001		2002		2003


		(in millions of Korean Won)
Year-end cash dividends:
	Number of shares		81,623,759		81,738,519		80,707,945
	Dividend ratio		40%		60%		100%
	Dividend amount	W	163,248	W	245,216	W	403,540

Details of the dividend payout ratio and dividend yield ratio for the years ended December 31, 2001, 2002 and 2003 are as follows:

2001

2002

2003

Dividend

payout ratio

yield ratio

payout ratio

yield ratio

payout ratio

yield ratio

Common shares

24.13%

2.05%

26.26%

2.85%

24.31%

3.68%

F-46

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


20.	Capital Adjustments

Capital adjustments as of December 31, 2002 and 2003 consist of the following:


	2002			2003


	(in millions of Korean Won)
Treasury stock	W	(915,995	)	W	(838,169	)
Valuation loss on investment securities		(386,346	)		(538,435	)
Cumulative foreign currency translation adjustment		97,967			142,463
Others		—			4,153

	W	(1,204,374	)	W	(1,229,988	)

For the stabilization of the stock price, retirement of stock and completion of privatization, the Company holds 7,346,200 shares of its own common stock amounting to W737,055 million and 912,010 shares of specified money in trust amounting to W101,114 million as of December 31, 2003. The treasury stock is carried at acquisition cost.

The Company restricts the voting rights of treasury stock in accordance with the Korean Commercial Code as of December 31, 2003. In addition, the Company sold 875,066 shares of its treasury stock to the association of employee stock ownership on July 23, 2003 with the approval of the Board of Directors on July 22, 2003 with the differences between the fair value and the proceeds, amounting to W74,687 million, being charged to welfare expenses.

Treasury stocks sold to the association of employee stock ownership are treated as outstanding in computing the Company’s earnings per share. In addition, dividends on treasury stocks held by the association of employee stock ownership are charged to retained earnings. As of December 31, 2003, 1,507,236 treasury stocks, amounting to W181,622 million, are held by the association of employee stock ownership.

Details of treasury stock for the years ended December 31, 2001, 2002 and 2003 are as follows:



	2001						2002						2003

	Shares			Amount			Shares			Amount			Shares			Amount


	(in millions of Korean Won and thousands of share)
Beginning balance		15,042		W	1,470,903			11,966		W	1,185,404			9,043		W	915,995
Decrease, net		(3,076	)		(285,499	)		(2,923	)		(269,409	)		(785	)		(77,826	)

Ending balance		11,966		W	1,185,404			9,043		W	915,995			8,258		W	838,169

F-47

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


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

Before the modifications(*):

Number of shares

488,000 shares

60,000 shares

22,000 shares

141,500 shares

Exercise price

W98,400 per share

W135,800 per share

W115,600 per share

W102,900 per share

After the modifications(*):

Grant date

July 23, 2001

April 27, 2002

Sept. 18, 2002

April 26, 2003

Exercise price

W98,900 per share

W136,400 per share

W116,100 per share

W102,900 per share

Number of shares

421,979 shares

57,036 shares

20,913 shares

138,670 shares

Exercise period

July 24, 2003 -

April 28, 2004 -

Sept. 19, 2004 -

April 27, 2005 -

July 23, 2008

April 27, 2009

Sept. 18, 2009

April 26, 2010

Settlement method

Cash or stock compensation for the difference between the exercise price and fair market value of the option


(*)	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 and October 17, 2003.

POSCO applied the intrinsic value method to calculate the compensation cost related to the stock appreciation rights, and such compensation costs are amortized over the vesting period of the stock grants. 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 compensation costs for stock appreciation rights granted to employees and executives recognized for the year ended December 31, 2003 and for the future periods are as follows:


	1st Grant		2nd Grant		3rd Grant		4th Grant		Total


	(in millions of Korean Won)
Prior periods	W	8,267	W	—	W	20	W	—	W	8,287
Current year		15,306		770		469		2,349		18,894
Future periods		—		148		272		4,529		4,949

	W	23,573	W	918	W	761	W	6,878	W	32,130

F-48

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

The following table summarizes information about appreciation rights granted and expense recognized at the award date:



	2002					2003

	Number of			Weighted-		Number of			Weighted-
	stock			average		stock			average
	appreciation			exercise price		appreciation			exercise price
Stock appreciation rights outstanding,	rights			per share		rights			per share


	(in Korean Won)
Beginning of year		580,000		W	102,921		570,000		W	103,001
Granted		—			—		141,500			102,900
Exercised		—			—		(18,788	)		98,900
Canceled		(10,000	)		98,400		(9,221	)		98,900
Forfeited		—			—		(44,893	)		95,565

Stock appreciation rights outstanding, end of year		570,000		W	103,001		638,598		W	103,681

Exercisable at the year end		—		W	—		421,979		W	98,900

Weighted-average fair value at grant date	W	95,179				W	95,641

The following table summarizes information about stock appreciation rights outstanding at December 31, 2003:



	Appreciation rights outstanding

			Weighted-average		Weighted-average
			remaining		exercise price
Exercise prices	Shares		contractual Life		per share

					(in Korean Won)
98,900		421,979		4.56 years	W	98,900
136,400		57,036		5.33 years		136,400
116,100		20,913		5.72 years		116,100
102,900		138,670		6.32 years		102,900

		638,598		5.05 years	W	103,681


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 hedge the fluctuation risk of future cash

F-49

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

flows. The gains and losses on currency swap and currency forward contracts for the year ended December 31, 2001 and related contracts outstanding as of December 31, 2001 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

Bank of America and others

—

12,462

—

POSCO

Currency forward

Cash flow hedge or trading

Bank of America and others

652

—

20,981

Posteel Co., Ltd.

Currency forward

Trading

Koram Bank

Pohang Coated Steel Co., Ltd.

Currency forward

Fair market value hedge

Shinhan Bank

163

510

1,324

—

820

535

13,826

21,045

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

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

F-50

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

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

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

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

Korea First Bank

—

7,002

30,781

2,481

1,660

The net loss of fair value hedges’ ineffectiveness, amounting to W2,865 million, are recognized in current operations for the year ended December 31, 2003.

F-51

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


23.	Selling and Administrative Expenses

Selling and administrative expenses for the years ended December 31, 2001, 2002 and 2003 consist of the following:


	2001		2002		2003


	(in millions of Korean Won)
Transportation and storage	W	406,182	W	404,771	W	445,723
Salaries		101,889		130,226		142,400
Welfare		48,906		62,002		75,730
Depreciation and amortization		63,726		72,049		65,384
Research and development expenses		30,658		40,627		56,825
Fees and charges		40,551		53,417		54,662
Advertising		23,860		36,886		40,681
Severance benefits		11,334		16,058		21,217
Stock compensation expense (Note 21)		1,790		6,497		18,894
Sales commissions		17,515		18,324		18,759
Travel		13,289		14,822		16,075
Rent		6,608		12,430		12,554
Training		8,047		10,919		11,835
Taxes and public dues		9,244		8,072		11,534
Repairs		5,235		8,149		9,159
Provision for doubtful accounts		9,289		6,410		8,955
Sales promotions		3,953		5,769		6,333
Vehicle expenses		4,754		5,828		5,983
Entertainment		5,153		6,595		5,796
Office supplies		6,528		6,819		5,660
Membership fees		5,800		5,590		5,294
Communications		3,463		3,767		3,823
Subscriptions and printing		2,916		3,072		3,757
Insurance		1,495		1,844		2,572
Utilities		2,000		1,733		1,864
Others		19,884		24,115		24,001

	W	854,069	W	966,791	W	1,075,470

F-52

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


24.	Donations

Donations contributed by the Company for the years ended December 31, 2001, 2002 and 2003 consist of the following:


	2001		2002		2003


	(in millions of Korean Won)
POSCO Educational Foundation	W	36,500	W	37,800	W	38,800
Pohang University of Science and Technology		—		3,000		2,267
Employees’ welfare Fund		33,000		—		51,100
Support for local community and others		13,695		9,347		11,024

	W	83,195	W	50,147	W	103,191


25.	Income Taxes

The statutory income tax rate applicable to the Company, including resident tax surcharges, was approximately 30.8% in 2001 and 29.7 % in 2002 and 2003.

Income tax expense for the years ended December 31, 2001, 2002 and 2003 consists of the following:


	2001		2002			2003


	(in millions of Korean Won)
Current income tax	W	313,328	W	527,381		W	746,482
Deferred income tax		24,135		(129,076	)		(16,212	)

	W	337,463	W	398,305		W	730,270

POSAM and fifteen other overseas subsidiaries recorded taxes payable for the year ended December 31, 2003 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:


	2001			2002			2003


	(in millions of Korean Won)
Net income before income tax expense	W	1,174,673		W	1,507,437		W	2,747,270
Statutory tax rate (%)		30.80			29.70			29.70

Income tax expense computed at statutory rate		361,799			447,709			815,939
Tax credit of POSCO		(61,258	)		(87,628	)		(22,482	)
Others, net		36,922			38,224			(63,187	)

Income tax expense	W	337,463		W	398,305		W	730,270

Effective rate (%)		28.73			26.42			26.58

F-53

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

26. Earnings 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 period.


			Number of			Number of		Weighted
	Number of		shares in			days		number
Period	shares issued		*treasury stock()**			outstanding		of shares

Jan 1, 2003 - March 31, 2003		90,781,795		(9,105,054	)		90		7,350,906,690
April 1, 2003 - June 30, 2003		90,781,795		(9,133,276	)		91		7,430,015,229
July 1, 2003 - Sept 30, 2003		90,781,795		(8,903,778	)		92		7,532,777,564
Oct 1, 2003 - Oct 15, 2003		90,781,795		(9,894,117	)		15		1,213,315,170
Oct 16, 2003 - Dec 31, 2003		88,966,155		(8,258,210	)		77		6,214,511,765

							365		29,741,526,418


(*)	Weighted-average


Period		Weighted-average number of common shares
2001		29,776,820,815 ÷ 365 = 81,580,331

Period		Weighted-average number of common shares
2002		29,905,210,535 ÷ 365 = 81,932,084

Period		Weighted-average number of common shares
2003		29,741,526,418 ÷ 365 = 81,483,634

Earnings per share for the years ended December 31, 2001, 2002 and 2003 are calculated as follows:

2001

2002

2003

(in millions of Korean Won except for per share

amount)

Net income

845,679

1,089,288

1,995,983

Weighted-average number of shares of common stock

81,580,331

81,932,084

81,483,634

Earnings per share

10,366

13,295

24,496


	*Diluted Earnings Per Share*

Diluted earnings per share for the years ended December 31, 2001, 2002 and 2003 are the same as basic earnings per share, since there is no dilutive effect resulting from the stock option plan as of December 31, 2001, 2002 and 2003.

F-54

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

27. Foreign Currency Translation

Monetary assets and liabilities denominated in foreign currencies as of December 31, 2003 are as follows:



		Foreign currency(c)		Won equivalent



		(in millions of Korean Won, except for foreign currencies)
Assets:
	Cash and cash equivalents(a)	US$	80,818,103	W	96,804
		JPY	17,130,996,104		191,799
		EUR	19,659		30
		Overseas subsidiaries	172,176,896		206,234
	Trade accounts and notes receivable	US$	205,789,975		246,495
		JPY	1,998,415,701		22,374
		EUR	3,322,846		4,993
		Overseas subsidiaries	200,952,723		240,701
	Other accounts and notes receivable	US$	30,522,047		36,559
		JPY	4,608,475		52
		Overseas subsidiaries	2,916,498		3,493
	Short-term & Long-term loans	US$	1,900,000		2,276
		Overseas subsidiaries	97,664,714		116,982
	Long-term trade accounts and notes receivable	Overseas subsidiaries	70,513		84
	Investment securities	US$	10,482,213		12,556
		Overseas subsidiaries	29,374,172		35,184
	Guarantee deposits	US$	535,696		642
		Overseas subsidiaries	1,571,166		1,882

		US$	834,774,716
		JPY	19,134,020,280
		EUR	3,342,505	W	1,219,140

F-55

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003



		Foreign currency(c)		Won equivalent



		(in millions of Korean Won, except for foreign currencies)
Liabilities:
	Trade accounts and notes payable	US$	163,706,585	W	196,088
		JPY	2,222,139,387		24,879
		EUR	130,245,785		195,705
		Overseas subsidiaries	108,186,414		129,586
	Other accounts and notes payable	US$	820,897		983
		JPY	37,853,352		424
		EUR	—		—
		Overseas subsidiaries	16,965,921		20,322
	Accrued expenses	US$	111,607,366		133,683
		JPY	—		—
		EUR	—		—
		Overseas subsidiaries	10,764,620		12,894
	Short-term borrowings	US$	500,918		600
		JPY	—		—
		Overseas subsidiaries	472,741,791		566,250
	Withholdings	US$	2,171,835		2,601
		JPY	—		—
		EUR	2,144,806		3,223
		Overseas subsidiaries	1,074,512		1,287
	Long-term debt(b, d)	US$	640,605,000		767,317
		JPY	81,187,477,671		908,974
		Overseas subsidiaries	—		—
	Foreign currency loans(d)	US$	—		—
		JPY	5,500,535,906		61,584
		Overseas subsidiaries	141,410,774		169,382
	Loans from foreign financial institutions(d)	US$	183,032,109		219,236
		JPY	942,165,425		10,548
		EUR	29,357,589		44,113

		US$	1,853,588,742
		JPY	89,890,171,741
		EUR	161,748,180	W	3,469,679


(a)	Cash and cash equivalents, short-term financial instruments and long-term financial instruments are included.

(b)	Represented at face value.

(c)	Currencies other than US$, JPY, and EUR have been converted into US$ and the amounts of overseas subsidiaries are converted into US$.

(d)	Includes current portion of long-term debt.

F-56

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003


28.	Related Party Transactions

Significant transactions, which occurred in the ordinary course of business, with consolidated subsidiaries for the years ended December 31, 2001, 2002 and 2003, and the related account balances as of December 31, 2002 and 2003, are as follows:



	Sales and others(a)						Purchases and others(a)

Company	2001		2002		2003		2001		2002		2003


	(in millions of Korean Won)
POSCO E & C	W	3,020	W	3,089	W	4,834	W	623,874	W	863,525	W	314,456
Posteel Co., Ltd.		1,617,591		1,431,012		870,792		2,111		2,969		35,681
POSCON Co., Ltd.		44		40		72		124,859		146,872		167,642
Pohang Coated Steel Co., Ltd.		227,154		233,474		251,137		2,125		1,279		1,576
POSCO Machinery & Engineering Co., Ltd.		220		67		65		85,757		87,852		102,099
POSDATA Co., Ltd.		872		753		857		145,403		167,782		206,562
POSCO Research Institute		1		—		—		10,429		10,232		11,694
Seung Kwang Co., Ltd.		—		—		—		—		4		60
POS-AC Co., Ltd.		384		408		450		10,533		14,054		9,150
Changwon Specialty Steel Co., Ltd.		4,796		417		77		66,206		62,141		57,557
POSCO Machinery Co., Ltd.		41		40		126		64,778		72,194		80,908
POSAM		220,935		—		—		338		473		107
POSA		—		—		—		77,168		72,714		157,641
POSCAN		—		—		—		62,060		41,932		39,664
POA		25		149,590		367,998		52,803		68,047		111,889
PIO		229		114,561		226,276		1,550		7,066		10,922
Zhangjiagang Pohang Stainless Steel Co., Ltd.		—		29		349,723		—		—		—
POSTECH Venture Capital Co., Ltd.		—		50		54		—		10		—
POSCO Refractories & Environment		54		36		122		133,317		149,185		154,404
Others		137		916		33,110		91		1,211		—

	W	2,075,503	W	1,934,482	W	2,105,693	W	1,463,402	W	1,769,542	W	1,462,012

F-57

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003



	Receivables(b)				Payables(b)

Company	2002		2003		2002		2003


	(in millions of Korean Won)
POSCO E & C	W	8,495	W	247	W	72,310	W	29,888
Posteel Co., Ltd.		186,335		46,543		900		5
POSCON Co., Ltd.		4,399		3		15,741		20,297
Pohang Coated Steel Co., Ltd.		25,477		23,613		121		169
POSCO Machinery & Engineering Co., Ltd.		2,119		6		6,795		13,858
POSDATA Co., Ltd.		118		1		26,908		28,370
POSCO Research Institute		—		—		3,370		4,006
Seung Kwang Co., Ltd.		583		477		1		1
POS-AC Co., Ltd.		—		—		481		330
Changwon Specialty Steel Co., Ltd.		79		65		12,879		7,580
POSCO Machinery Co., Ltd.		317		2		9,561		10,477
POSA		—		17		587		4,618
POSCAN		—		17		—		4,074
POA		16,965		6,492		2,960		5,605
PIO		3,092		5,153		231		111
Zhangjiagang Pohang Stainless Steel Co., Ltd.		—		10,770		—		—
POSTECH Venture Capital Co., Ltd.		—		—		42		—
POSCO Refractories & Environment		4		5		16,271		17,263
Others		—		91		277		—

	W	247,983	W	93,502	W	169,435	W	146,652


(a)	Sales and others include sales and non-operating income; purchases and others include purchases and overhead expenses.

(b)	Receivables include trade accounts receivable and other accounts receivable; payables include trade accounts payable and other accounts payable.

F-58

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

Significant transactions, which occurred in the ordinary course of business, with equity method investees for the years ended December 31, 2001, 2002 and 2003, and related account balances as of December 31, 2002 and 2003, are as follows:



	Sales and others(a)						Purchases and others(a)

Company	2001		2002		2003		2001		2002		2003


	(in millions of Korean Won)
KOBRASCO	W	—	W	—	W	—	W	88,744	W	94,038	W	99,498
UPI		—		291,528		239,294		—		—		16
POSCHROME		3		—		—		29,581		22,937		33,267
Shunde Xingpu Steel Center Co., Ltd		—		—		219		—		—		—
eNtoB Corporation		—		—		—		7,487		15,383		69,072
POSVINA Co., Ltd.		—		—		7,281		—		—		—
POSMMIT		—		—		480		—		—		—
MIDUS Information Technologies Co., Ltd.		—		—		—		—		—		99
POSVEN		—		—		—		3,071		—		—

	W	3	W	291,528	W	247,274	W	128,883	W	132,358	W	201,952



	Receivables(b)				Payables(b)

Company	2002		2003		2002		2003


	(in millions of Korean Won)
KOBRASCO	W	—	W	—	W	5,065	W	6,145
eNtoB Corporation		—		—		1,728		3,029
POSVEN		172,996		—		—		—

	W	172,996	W	—	W	6,793	W	9,174


(a)	Sales and others include sales and non-operating income; purchases and others include purchases and overhead expenses.

(b)	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, 2001 are as follows:


	Millions of			Millions of
Revenues	Korean Won		Expenses	Korean Won

Sales	W	4,900,603	Cost of goods sold	W	4,814,717
Interest income		6,472	Interest expense		6,888
Rental income		685	Selling and administrative expenses		73,523
Others		6,999	Others		19,631

	W	4,914,759		W	4,914,759

F-59

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

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 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 significant inter-company receivables and payables for the years ended December 31, 2002 and 2003 are as follows:



2002

	Millions of			Millions of
Classification	Korean Won		Classification	Korean Won

Trade accounts and notes payable	W	353,444	Trade accounts and notes receivable	W	484,969
Short-term borrowings		—	Short-term loans		4,754
Other accounts and notes payable		140,880	Other accounts and notes receivable		12,529
Long-term debt		43,551	Long-term loans		38,797
Other liabilities		26,877	Other assets		23,703

	W	564,752		W	564,752



2003

	Millions of			Millions of
Classification	Korean Won		Classification	Korean Won

Trade accounts and notes payable	W	213,137	Trade accounts and notes receivable	W	361,569
Short-term borrowings		38,434	Short-term loans		1,198
Other accounts and notes payable		101,846	Other accounts and notes receivable		12,658
Long-term debt		26,927	Long-term loans		34,353
Other liabilities		100,202	Other assets		70,768

	W	480,546		W	480,546

F-60

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 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, 2001:


									Reconciling
			Steel		Trading		Others		adjustments			Consolidated


			(in millions of Korean Won)
Statement of income:
	Net sales:
		External customers	W	10,614,745	W	2,196,105	W	310,247	W	—		W	13,121,097
		Inter-segment		2,245,314		964,793		1,690,496		(4,900,603	)		—

			W	12,860,059	W	3,160,898	W	2,000,743	W	(4,900,603	)	W	13,121,097

	Operating income		W	1,538,188	W	20,960	W	96,039	W	(67,894	)	W	1,587,293

Balance sheet:
	Inventories		W	1,563,656	W	26,335	W	156,516	W	(9,256	)	W	1,737,251
	Investments			4,636,043		342,381		629,536		(2,255,036	)		3,352,924
	Property, plant and equipment			9,922,585		187,868		878,287		(387,974	)		10,600,766
	Intangible assets			394,588		4,898		146,747		(55,525	)		490,708

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:
	Net sales:
		External customers	W	11,516,625	W	1,898,282	W	940,011	W	—		W	14,354,918
		Inter-segment		2,076,385		686,250		1,847,417		(4,610,052	)		—

			W	13,593,010	W	2,584,532	W	2,787,428	W	(4,610,052	)	W	14,354,918

	Operating income		W	1,972,379	W	21,789	W	191,174	W	(135,475	)	W	2,049,867

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

F-61

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 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, 2003:


									Reconciling
			Steel		Trading		Others		adjustments			Consolidated


			(in millions of Korean Won)
Statement of income:
	Net sales:
		External customers	W	14,261,631	W	1,785,337	W	1,742,269	W	—		W	17,789,237
		Inter-segment		2,241,755		599,615		1,273,865		(4,115,235	)		—

			W	16,503,386	W	2,384,952	W	3,016,134	W	(4,115,235	)	W	17,789,237

	Operating income		W	3,125,632	W	8,721	W	116,766	W	11,862		W	3,262,981

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

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, 2001, 2002 and 2003 are as follows:



	2001

			Non-current
	Sales		assets


	(in millions of Korean Won)
Korea	W	8,507,086	W	13,195,547
Japan		692,072		55,196
China		2,037,185		486,185
Asia/ Pacific, excluding Japan and China		821,662		178,322
North America		385,889		176,106
Others		677,203		353,042

	W	13,121,097	W	14,444,398



	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

F-62

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003



	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


30.	Operating Results for the Final Interim Period

Significant operating results for the three-month period ended December 31, 2003 are as follows:


	(in millions of Korean Won,
	except per share amount)

Sales	W	5,101,288
Cost of sales		3,942,239
Operating income		870,180
Net income		460,451
Earnings per share		5,651


31.	Reclassification of Prior Year Financial Statement Presentation

Certain amounts in the financial statements as of and for the year ended December 31, 2002 have been reclassified to conform to the 2003 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 January 1, 2004, in order to strengthen its investment conditions and operations in China, the Company has restructured offices located in China and is planning to incorporate POSCO-China Holding Corp. POSCO-China Holding Corp. is 100% owned by the Company, with its capital amounting to US$35,000,000. As of December 31, 2003, the Company’s total investments in POSCO-China Holding Corp., amounting to W17,937 million, are accounted for as other investment assets. The remaining amounts of investment will be invested within two years from the date of incorporation.

In accordance with the approval of the Board of Directors on February 19, 2004, the Company donated W39,500 million to POSCO Educational Foundation and provided guarantees, amounting to US$329,924,800, to Zhanjiagang Pohang Coated Steel Co., Ltd. for the payment of loans in relation to the extension of Stainless Steel (STS) facilities.


	*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

F-63

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

(“U.S. GAAP”). Application of U.S. GAAP would have affected the balance sheets as of December 31, 2002 and 2003 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) Fixed asset revaluation and Special Depreciation

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.

In addition, special depreciation recognized prior to 1995 under Korean GAAP for certain energy saving and productivity promotion facilities and equipment is recognized on a straight-line method over the life of the assets under U.S. GAAP.

(b) Salvage Value

Pursuant to a 1994 tax reform and in accordance with Korean GAAP, the Company elected to depreciate the 10 % salvage value of all depreciable assets that were fully depreciated at December 31, 1993 over a three-year period starting in 1994. Under U.S. GAAP, property, plant and equipment, net of estimated salvage value, were depreciated over their estimated useful lives.

Effective July 1,1995, the Company revised the estimated salvage value of substantially all its fixed assets from 10 % to zero. This change in estimate was necessitated by changes in technology and estimated removal costs associated with such assets. Amounts previously attributed to salvage value were depreciated over a three-year period for Korean GAAP. A three-year period was chosen in order to conform the financial accounting for this item to the Company’s tax accounting, which used a three-year period as allowed by the Corporate Income Tax Law of Korea. Conforming the financial and tax accounting for the depreciation of amounts previously attributed to salvage value is permitted under Korean GAAP. Under U.S. GAAP, amounts previously attributed in salvage value have been depreciated over the estimated remaining useful lives of the related assets.

In 1999, Korean GAAP was again changed to require that all amounts previously attributed to salvage value be written off during 1999. The Company’s accounting under U.S. GAAP was unaffected.

(c) 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. Net capitalized foreign exchange gains and losses amounted to W30,298 million, W20,611 million and W20,611 million in 2001, 2002 and 2003, respectively.

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

F-64

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

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, 2001, 2002 and 2003 are as follows:


	2001			2002			2003


	(in millions of Korean Won)
Capitalized interest	W	69,315		W	64,788		W	54,386
Depreciation of capitalized interest		(73,629	)		(73,254	)		(54,857	)

Net income impact	W	(4,314	)	W	(8,466	)	W	(471	)

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, 2001, 2002 and 2003 are as follows:

2001

2002

2003

(in millions of Korean Won)

Net income impact

(9,140

)

12,347

(3,953

)

(d) Reserve for Repairs and Capitalized repairs

Prior to 2002, Korean GAAP permitted the establishment of a reserve for future repair costs associated with the Company’s furnaces to be provided for over the estimated replacement cycle of such facilities. Costs of repairs are then charged to this reserve and are expensed as incurred under Korean GAAP, regardless of the nature of the expenditure. As a result of a change in Korean GAAP in 2002, the Company reversed all previously recorded reserve for repairs to beginning retained earnings and commenced expensing such expenditures as incurred. 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.

(e) 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, 2003, the guarantees issued or modified after December 31, 2002 by the Company for the repayment of loans amounts to W177,490 million, excluding guarantees issued either between parents and their subsidiaries or between corporations under

F-65

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

common control (Note 17). The Company has recognized the fair value of liabilities amounting to W2,396 million for the year ended December 31, 2003.

(f) 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, 2001, 2002 and 2003 are as follows:

2001

2002

2003

(in millions of Korean Won)

Stock compensation expense

2,604

4,298

24,894

(g) 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 Korean 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, securities with not readily determinable market value are accounted for as cost method investments and carried at cost.

F-66

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

Information with respect to trading securities and available-for-sale debt and equity securities as of December 31, 2001, 2002 and 2003 is as follows:


	*Trading Securities:*


	Carrying		Net unrealized		Impairment
Period	value		gains/losses		loss		Fair value


	(in millions of Korean Won)
2001	W	518,917	W	11,486	W	—	W	530,403
2002		1,185,838		6,366		—		1,192,204
2003		1,314,914		6,387		—		1,321,301


	*Available-for-Sale Securities:*


	2001			2002			2003


	(in millions of Korean Won)
Book value	W	2,421,822		W	2,580,290		W	2,315,508
Unrealized gains and losses		132,744			(298,640	)		(157,844	)
Permanent impairment loss		(12,575	)		(27,041	)		(10,651	)

Fair value (Korean GAAP)		2,541,991			2,254,609			2,147,013
Other-than-temporary impairment		(19,323	)		(191,435	)		(38,118	)

Fair value (US GAAP)	W	2,522,668		W	2,063,174		W	2,108,895

(h) 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-67

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

(i) Reconciliation of net income from Korean GAAP to U.S. GAAP


				2001			2002			2003


				(in millions of Korean Won)
Net income under Korean GAAP				W	845,679		W	1,089,288		W	1,995,983
	Adjustments:
		Property, plant and equipment:
			Fixed asset revaluation		28,769			28,667			26,351
			Special depreciation		(13,250	)		(6,972	)		(377	)
			Salvage value		5,524			1,435			—
		Capitalized costs			25,984			52,543			20,140
		Reserve for repairs			46,278			—			—
		Capitalized repairs			(5,870	)		(11,466	)		(9,721	)
		Impairment loss on investment securities			—			(177,532	)		(22,557	)
		Others, net(*)			(9,140	)		12,436			(12,349	)
		Income tax effect			(16,281	)		30,017			(442	)

					62,014			(70,872	)		1,045

Net income as adjusted in accordance with U.S. GAAP				W	907,693		W	1,018,416		W	1,997,028

Basic and diluted earnings per share, as adjusted, in accordance with U.S. GAAP				W	11,126		W	12,430		W	24,455

Weighted-average shares outstanding (in thousands)					81,580,331			81,932,084			81,662,552


(*)	Others consist of intangible assets, guarantees and stock compensation expenses.

F-68

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

(j) Reconciliation of shareholders’ equity from Korean GAAP to U.S. GAAP


				2001			2002			2003


				(in millions of Korean Won)
Shareholders’ equity before minority interest under Korean GAAP(*)				W	10,514,035		W	11,819,646		W	13,249,567
Minority interest					(168,171	)		(279,165	)		(293,299	)

					10,345,864			11,540,481			12,956,268

	Adjustments:
		Property, plant and equipment:
			Fixed asset revaluation		(289,165	)		(247,823	)		(221,472	)
			Special depreciation		7,349			377			—
			Salvage value		(1,435	)		—			—
		Capitalized costs			164,451			216,994			237,134
		Reserve for repairs			1,020,640			—			—
		Capitalized repairs			39,645			28,179			18,458
		Impairment loss on investment securities			(19,323	)		(191,435	)		(36,732	)
		Others, net			(22,248	)		(9,813	)		(22,162	)
		Income tax effect			(285,856	)		44,031			34,517
		Deferred taxes related to OCI			(19,865	)		82,734			52,306

					594,193			(76,756	)		62,049

Shareholders’ equity, as adjusted, in accordance with U.S. GAAP				W	10,940,057		W	11,463,725		W	13,018,317

(*)

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, 2001 and 2002, was restated in accordance with SKFAS No. 6. As a result, the dividends payable, previously recorded as current liabilities, decreased by W163,248 million and W245,216 million and the balance of retained earnings increased by same amount as of December 31, 2001 and 2002, respectively.

F-69

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

(k) 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, 2002 and 2003, computed under U.S. GAAP, and a description of the financial statement items that created these differences are as follows:


		2002			2003


		(in millions of
		Korean Won)
Deferred tax assets:
	Fixed asset revaluation	W	48,375		W	37,545
	Capitalized foreign exchange losses		17,644			8,574
	Capitalized costs		(58,549	)		—
	Unrealized loss (gain) on valuation of securities		55,424			55,845
	Impairment loss on fixed assets		71,284			116,057
	Impairment loss on investment securities		59,771			10,912
	Allowance for doubtful accounts		99,479			78,706
	Depreciation expense		16,890			15,510
	Capital expenditures		9,580			8,876
	Research and development expense		13,476			9,768
	Deferred taxes related to OCI		82,734			52,306
	Others		65,708			279,358

Total deferred tax assets			481,816			673,457

Deferred tax liabilities:
	Earnings from equity-method investees		13,999			32,572
	Reserve for repairs		154,132			140,267
	Accrued income		11,028			15,748
	Reserve for technology		228,977			255,379
	Capitalized repairs		8,369			5,076
	Capitalized costs		—			65,212
	Others		22,451			149,035

Total deferred tax liabilities			438,956			663,289

Net deferred tax assets (liabilities)		W	42,860		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

F-70

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

owners, including certain items not included in the current year’s results of operations. Comprehensive income for the years ended December 31, 2001, 2002, and 2003 is summarized as follows:


		2001			2002			2003


		(in millions of Korean Won)
Net income as adjusted in accordance with U.S. GAAP		W	907,693		W	1,018,416		W	1,997,028
Other comprehensive income, net of tax:
	Foreign currency translation adjustments		(3,532	)		(28,789	)		34,414
	Unrealized gains (losses) on investments		93,834			(214,059	)		23,520

Comprehensive income, as adjusted, in accordance with U.S. GAAP		W	997,995		W	775,568		W	2,054,962

Accumulated other comprehensive income as of December 31, 2002 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, January 1, 2001	W	101,193		W	(144,476	)	W	(43,283	)
Foreign currency translation adjustments, net of tax benefit of W3,780 million		(3,532	)		—			(3,532	)
Unrealized gains (losses) on investments, net of tax expense of W(42,911) million		—			93,834			93,834

Current period change		(3,532	)		93,834			90,302

Balance, December 31, 2001	W	97,661		W	(50,642	)	W	47,019
Foreign currency translation adjustments, net of tax benefit W12,163 million		(28,789	)		—			(28,789	)
Unrealized gains (losses) on investments, net of tax benefit of W90,436 million		—			(214,059	)		(214,059	)

Current period change		(28,789	)		(214,059	)		(242,848	)

Balance, December 31, 2002	W	68,872		W	(264,701	)	W	(195,829	)
Foreign currency translation adjustments, net of tax benefit W(10,081) million		34,414			—			34,414
Unrealized gains (losses) on investments, net of tax benefit of W(20,347) million		—			23,520			23,520

Current period change		34,414			23,520			57,934

Balance, December 31, 2003	W	103,286		W	(241,181	)	W	(137,895	)

F-71

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 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, accounts and notes receivable, accounts and notes payable, short-term borrowings and accounts payable


	The carrying amount approximates fair value due to the short-term nature of those instruments.


	(ii) Marketable and 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, a reasonable estimate of fair value could not be made without incurring excessive costs.


	(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, 2002 and 2003 are summarized as follows:



		2002				2003

		Carrying		Fair		Carrying		Fair
		amount		value		amount		value


		(in millions of Korean Won)
Cash and cash equivalents		W	267,380	W	267,380	W	592,602	W	592,602
Short-term financial instruments			258,132		258,132		695,169		695,169
Trading securities			1,192,204		1,192,204		1,321,301		1,321,301
Accounts receivable, including other receivables			1,857,207		1,857,207		2,447,674		2,447,674
Investment securities:
	Estimated fair value		1,619,928		1,619,928		1,647,038		1,647,038
	Not practicable		908,510		—		671,792		—
Short-term borrowings			587,955		587,955		731,781		731,781
Trade accounts and notes payable			689,745		689,745		917,495		917,495
Long-term debt, including current portion			4,516,895		4,656,941		3,973,900		4,100,490

F-72

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

(c) Minority interest

Minority interests in consolidated subsidiaries are disclosed within the shareholders’ equity section of the balance sheet. Under U.S. GAAP, minority interests are recorded between the liability section and the shareholders’ equity section in the consolidated balance sheet.

(d) Classification differences

Under Korean GAAP, certain income and expense items considered as non-operating or extraordinary would be considered as operating items under U.S. GAAP. In addition, Korean GAAP does not require cash balances that are restricted in use to be separately disclosed. Under U.S. GAAP such restricted cash balances would need to be separately presented on the face of the balance sheet. These reclassifications would have no impact on the shareholders’ equity, net income or earnings per share amounts reported under U.S. GAAP.

35. Recent Accounting Pronouncements


	*U.S. GAAP*

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FIN 46 (revised December 2003), “Consolidation of Variable Interest Entities, and interpretation of ARB No. 51,” (FIN 46R) which addresses consolidation by business enterprises of variable interest entities that do not have sufficient equity investment to permit the entity to finance its activities without additional subordinated financial support from other parties or whose equity investors lack the characteristics of a controlling financial interest. The F-15 Interpretation provides guidance related to identifying variable interest entities and determining whether such entities should be consolidated. It also provides guidance related to the initial and subsequent measurement of assets, liabilities and noncontrolling interests in newly consolidated variable interest entities and requires disclosures for both the primary beneficiary of a variable interest entity and other beneficiaries of the entity. FIN 46R must be applied to all entities subject to this Interpretation as of March 31, 2004. However, prior to the required application of this Interpretation, FIN 46R must be applied to those entities that are considered to be special-purpose entities as of December 31, 2003. As indicated in note 13, on August 20, 2003, the Company has disposed 1,696,428 shares of SK Telecom Co. to Zeus (Cayman), an exempted company formed with limited liability under the laws of the Cayman Islands. Zeus (Cayman), then issued JPY51,622 million “Zero Coupon Guaranteed Exchangeable Notes” due 2008 of which are fully and unconditionally guaranteed by the Company. The notes do not bear interest and are exchangeable at the option of the holders into SK Telecom Co. ADSs. In accordance with the Korean generally accepted accounting principles, considering the substance of transaction, the Company has accounted above transaction as a borrowing transaction and accordingly, the adoption of this statement, consolidation of Zeus (Cayman), has no impact on the Company’s financial position or results of operation.

In May 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. Some of the provisions of this Statement are consistent with the current definition of liabilities in FASB Concepts Statement No. 6, “Elements of Financial Statements.” The remaining provisions of this Statement are consistent with the Board’s proposal to revise that definition to encompass certain obligations that a reporting entity can or must settle by issuing its own equity shares, depending on the nature of the relationship established between the holder and the issuer. This Statement

F-73

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2002 and 2003

is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not hold any financial instruments with characteristics of both liabilities and equity and accordingly, the adoption of this statement had no initial impact on the Company’s financial position or results of operations.


	*Korean GAAP*

In October 2002, the Koran Accounting Standards Boards (“KASB”) issued Statements of Korean Financial Accounting Standards (“SKFAS”) No. 10, “Inventories.” This statement prescribes the standards on accounting treatment and disclosure of inventories and requires valuation loss incurred when the market value of an inventory falls below its carrying amount shall be reported as a contra inventory account and added to the cost of goods sold. When circumstances that previously caused valuation loss of inventory on the application of lower of cost or market cease to exist, so as to cause an increase of the market value above the carrying amount, the valuation loss shall be reversed up to the extent amount of previously recognized valuation loss with resulting valuation gain charged to cost of goods sold. This statement becomes effective for financial statements covering periods beginning on or after December 31, 2003. However, early adoption of this statement is allowed. The Company does not expect the adoption of this statement to have a material impact on its financial position or results of operations.

In December 2003, KASB issued SKFAS 13, “Debt Restructurings.” This statement establishes standards of financial accounting and reporting by the debtor and by the creditor for a troubled receivable or payable (collectively referred to as debt) restructuring. For the purpose of this statement, a restructuring of a debt constitutes a troubled debt restructuring if the creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider. That concession either stems from an agreement between the creditor and the debtor or is imposed by law or a court. Under this statement, a debt restructuring is not necessarily a troubled debt restructuring if the debtor issues in exchange for its debt new marketable debt having an effective interest rate based on its market price that is at or near the current market interest rates of debt with similar maturity dates and stated interest rates issued by nontroubled debtors. In general, a debtor that can obtain funds from sources other than the existing creditor at market interest rates at or near those for nontroubled debt is not involved in a troubled debt restructuring. This statement becomes effective for financial statements covering periods beginning on or after December 31, 2003. However, early adoption of this statement is allowed. The Company does not expect the adoption of this statement to have a material impact on its financial position or results of operations.

F-74

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, 2004