POSCO Form 6-K
 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15D-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934

For the month of April, 2003
Commission File Number: 1-13368

POSCO
(Translation of registrant’s name into English)

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

(Address of principal executive office)

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

Form 20-F [   x   ]                           Form 40-F [         ]

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

Yes [  ]                           No [x]

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

 


 

POSCO is furnishing under cover of Form 6-K:

     
Exhibit 99.1:   An English-language translation of documents with respect to the POSCO and Subsidiaries Audit Report for the Fiscal Year 2002.

 


 

POSCO
AND SUBSIDIARIES

Audit Report 2002

As of December 31, 2001 and 2002 and for the three-year period ended December 31, 2002

 


 

REPORT OF INDEPENDENT ACCOUNTANTS

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, 2001 and 2002, 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, 2002. 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 auditing standards generally accepted in the United States of America. 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, 2001 and 2002, and the results of its operations and its cash flows for the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the Republic of Korea.

Continued;

 


 

As discussed in Note 2 the Company changed its method of accounting for special repairs.

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. The application of the latter, after the restatement referred to in Note 30, would have affected the determination of consolidated net income for each of the three years in the period ended December 31, 2002 and determination of consolidated shareholders’ equity at December 31, 2001 and 2002 to the extent summarized in Note 30 to the consolidated financial statements.

Samil Accounting Corp.
Seoul, Korea
March 6, 2003

 


 

POSCO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2002


                             
                        Thousands of US
        Millions of Korean Won   Dollars (Note 2)
       
 
        2001   2002   2002
       
 
 
ASSETS
                       
Current assets:
                       
 
Cash and cash equivalents (Notes 3, 12 and 27)
    407,109       267,380     $ 225,390  
 
Short-term financial instruments (Notes 3, 12 and 27)
    424,224       258,132       217,594  
 
Marketable securities (Note 4)
    530,403       1,202,676       1,013,804  
 
Trade accounts and notes receivable, net of allowance for doubtful accounts and present value discount (Notes 5, 12,and 27)
    1,479,911       1,739,605       1,466,413  
 
Other accounts and notes receivable, net of allowance for doubtful accounts and present value discount (Notes 5 and 27)
    105,793       72,739       61,316  
 
Inventories (Notes 6 and 29)
    1,737,251       1,671,446       1,408,957  
 
Other current assets, net of allowance for doubtful accounts (Note 10)
    276,245       185,499       156,368  
 
 
   
     
     
 
   
Total current assets
    4,960,936       5,397,477       4,549,842  
Property, plant and equipment, net (Notes 8, 12, 13 and 29)
    10,600,766       10,324,573       8,703,172  
Investment securities (Notes 7 and 29)
    2,960,449       2,545,812       2,146,009  
Intangible assets, net (Notes 9 and 29)
    490,708       474,812       400,248  
Long-term loans, net of allowance for doubtful accounts and present value discount (Notes 5 and 27)
    86,107       117,260       98,845  
Long-term trade accounts and notes receivable, net of allowance for doubtful accounts and present value discount (Note 5)
    51,310       44,863       37,817  
Deferred income tax assets (Note 25)
    98,101       51,659       43,546  
Guarantee deposits (Note 27)
    35,132       25,577       21,560  
Long-term financial instruments (Notes 3, 12 and 27)
    34,711       20,574       17,343  
Other long-term assets, net of allowance for doubtful accounts and present value discount (Note 10)
    87,114       74,242       62,583  
 
 
   
     
     
 
TOTAL ASSETS
    19,405,334       19,076,849     $ 16,080,965  
 
 
   
     
     
 

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

     Continued;

3


 

POSCO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
December 31, 2001 and 2002


                             
                        Thousands of US
        Millions of Korean Won   Dollars (Note 2)
       
 
        2001   2002   2002
       
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                       
Current liabilities:
                       
 
Trade accounts and notes payable (Note 27)
    509,563       689,745     $ 581,425  
 
Short-term borrowings (Notes 11 and 27)
    718,054       587,955       495,621  
 
Current portion of long-term debt, net of discount on debentures issued (Notes 11, 13 and 27)
    1,405,369       1,319,531       1,112,308  
 
Accrued expenses (Note 27)
    280,772       225,932       190,451  
 
Other accounts and notes payable (Note 27)
    162,041       146,567       123,550  
 
Withholdings (Note 27)
    46,359       66,048       55,675  
 
Income tax payable
    143,651       415,429       350,189  
 
Dividends payable
    166,151       253,906       214,032  
 
Other current liabilities (Note 15)
    186,958       260,376       219,486  
 
 
   
     
     
 
   
Total current liabilities
    3,618,918       3,965,489       3,342,737  
Long-term debt, net of current portion and discount on debentures issued (Notes 12 and 27)
    4,235,456       3,194,015       2,692,417  
Accrued severance benefits, net (Note 14)
    68,845       103,472       87,222  
Reserve for special repairs (Note 2)
    1,020,640              
Deferred income tax liabilities (Note 25)
    16,899       135,564       114,275  
Other long-term liabilities (Note 15)
    93,788       103,879       87,566  
 
 
   
     
     
 
   
Total liabilities
    9,054,546       7,502,419     $ 6,324,217  
 
 
   
     
     
 

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

     Continued;

4


 

POSCO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
December 31, 2001 and 2002


                             
                        Thousands of US
        Millions of Korean Won   Dollars (Note 2)
       
 
        2001   2002   2002
       
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY, Continued
                       
Commitments and contingencies (Note 16)
                       
Shareholders’ equity:
                       
 
Common stock, Won 5,000 par value, authorized 200 million shares; issued and outstanding 93,589,485 shares in 2001 and 90,781,795 shares in 2002
    482,403       482,403     $ 406,645  
 
Capital surplus (Note 17)
    3,859,029       3,797,737       3,201,329  
 
Retained earnings (Note 18)
    6,966,189       8,219,499       6,928,685  
 
(Net income: Won 1,633,667 million in 2000, Won 845,679 million in 2001 and Won 1,089,288 million in 2002 Losses in excess of minority interest:
                       
 
Won 2,321 million in 2000, Won 2,037 million in 2001 and Won 2,495 million in 2002)
                       
Capital adjustments, net (Note 20)
    (1,125,004 )     (1,204,374 )     (1,015,235 )
 
 
   
     
     
 
 
    10,182,617       11,295,265       9,521,424  
 
 
   
     
     
 
Minority interest
    168,171       279,165       235,324  
 
 
   
     
     
 
   
Total shareholders’ equity
    10,350,788       11,574,430       9,756,748  
 
 
   
     
     
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
    19,405,334       19,076,849     $ 16,080,965  
 
 
   
     
     
 

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

5


 

POSCO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 2000, 2001 and 2002


                                     
                                Thousands of US
        Millions of Korean Won   Dollars (Note 2)
       
 
        2000   2001   2002   2002
       
 
 
 
Sales (Note 29)
    13,776,214       13,121,097       14,354,918     $ 12,100,580  
Cost of goods sold
    10,751,648       10,679,735       11,338,260       9,557,667  
 
   
     
     
     
 
Gross profit
    3,024,566       2,441,362       3,016,658       2,542,913  
Selling and administrative expenses (Note 23)
    718,103       854,069       966,791       814,963  
 
   
     
     
     
 
Operating income (Note 29)
    2,306,463       1,587,293       2,049,867       1,727,950  
Non-operating income:
                               
 
Interest and dividend income
    134,029       134,934       72,792       61,361  
 
Foreign exchange gains
    167,860       209,138       261,120       220,113  
 
Gain on valuation of marketable securities
    10,847       11,505       6,366       5,366  
 
Gain on disposal of marketable securities
    69,409       41,886       49,938       42,096  
 
Gain on disposal of property, plant and equipment
    5,401       10,435       22,361       18,849  
 
Gain on derivatives transaction (Note 22)
    180       13,826       13,160       11,094  
 
Gain on valuation of derivatives (Note 22)
    14,966       168       569       480  
 
Gain on valuation of equity method investments (Note 7)
    13,719       5,086              
 
Gain on disposal of investments
    45,384       2,851       6,454       5,440  
 
Gain on disposal of scrap
    23,449       26,213       52,221       44,020  
 
Others
    75,768       94,560       67,324       56,751  
 
   
     
     
     
 
   
Total non-operating income
    561,012       550,602       552,305       465,570  
 
   
     
     
     
 
Non-operating expenses:
                               
 
Interest expense
    463,614       450,546       331,776       279,673  
 
Other bad debt allowance (Note 16)
    3,222       1,662       187,337       157,917  
 
Loss on impairment of property, plant and equipment (Note 8)
    49,814       53,951       139,833       117,873  
 
Foreign exchange losses
    340,904       219,414       125,744       105,997  
 
Loss on valuation of equity method investments (Note 7)
    4,452       29,047       128,769       108,547  
 
Donations (Note 24)
    448,847       83,195       50,147       42,272  
 
Loss on disposal of property, plant and equipment
    24,990       25,008       38,215       32,214  
 
Loss on valuation of derivatives (Note 22)
    49,183       535       11,775       9,926  
 
Loss on impairment of investment securities (Note 7)
    4,666       12,575       27,041       22,794  
 
Loss on derivatives transaction (Note 22)
    44       21,045       3,376       2,846  
 
Loss on valuation of inventories
    3,570       21,231       1,178       993  
 
Others
    89,509       45,013       49,544       41,763  
 
   
     
     
     
 
   
Total non-operating expense
    1,482,815       963,222       1,094,735       922,815  
 
   
     
     
     
 

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

     Continued;

6


 

POSCO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME, Continued
For the years ended December 31, 2000, 2001 and 2002


                                 
                            Thousands of US
    Millions of Korean Won   Dollars (Note 2)
   
 
    2000   2001   2002   2002
   
 
 
 
Ordinary income
    1,384,660       1,174,673       1,507,437     $ 1,270,705  
Extraordinary gain (Note 7)
    959,110                    
Extraordinary loss
    12,689                    
 
   
     
     
     
 
Net income before income tax expense and minority interest
    2,331,081       1,174,673       1,507,437       1,270,705  
Income tax expense (Note 25)
    688,731       337,463       398,305       335,754  
 
   
     
     
     
 
Net income before minority interest
    1,642,350       837,210       1,109,132       934,951  
Minority interest in income (losses) of consolidated subsidiaries
    8,683       (8,469 )     19,844       16,728  
 
   
     
     
     
 
Net income
    1,633,667       845,679       1,089,288     $ 918,223  
 
   
     
     
     
 
Basic and diluted earnings per share (Note 26) (in Korean Won and US Dollar)
    19,131       10,366       13,295     $ 11.21  
 
   
     
     
     
 

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

7


 

POSCO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the years ended December 31, 2000, 2001 and 2002


                                                         
    Millions of Korean Won
   
    Common stock                                        
   
  Capital   Retained   Capital   Minority        
    Shares   Amount   surplus   earnings   adjustments   interest   Total
   
 
 
 
 
 
 
Balance at January 1, 2000
    96,480,625       482,403       3,799,991       5,193,185       (396,829 )     121,333       9,200,083  
Net income for 2000
                      1,633,667                   1,633,667  
Effect of change in percentage of ownership of investees
                5,197       (38,692 )     1,005       29,070       (3,420 )
Asset revaluation of consolidated subsidiaries
                60,954                         60,954  
Dividends (Note 19)
                      (204,704 )           (1,949 )     (206,653 )
Losses in excess of minority interest
                      (2,047 )           2,047        
Change in treasury stock
                            (996,952 )           (996,952 )
Overseas operations translation adjustment
                            36,713             36,713  
Valuation gain (loss) on investment securities
                            (183,930 )           (183,930 )
Minority interest in income of consolidated subsidiaries
                                  8,683       8,683  
Others
                (5,386 )     14,061       40       439       9,154  
 
   
     
     
     
     
     
     
 
Balance as of December 31, 2000
    96,480,625       482,403       3,860,756       6,595,470       (1,539,953 )     159,623       9,558,299  
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 (Note 19)
                      (204,048 )           (8,093 )     (212,141 )
Losses in excess of minority interest
                      284             (284 )      
Retirement of treasury stock (Note 20)
    (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 losses of consolidated subsidiaries
                                  (8,469 )     (8,469 )
Others
                3,163       15,587       670       (615 )     18,805  
 
   
     
     
     
     
     
     
 
Balance as of December 31, 2001
    93,589,485       482,403       3,859,029       6,966,189       (1,125,004 )     168,171       10,350,788  
 
   
     
     
     
     
     
     
 

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

     Continued;

8


 

POSCO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY, Continued
For the years ended December 31, 2000, 2001 and 2002


                                                         
    Millions of Korean Won
   
    Common stock                                        
   
  Capital   Retained   Capital   Minority        
    Shares   Amount   surplus   earnings   adjustments   interest   Total
   
 
 
 
 
 
 
Balance as of January 1, 2002
    93,589,485       482,403       3,859,029       6,966,189       (1,125,004 )     168,171       10,350,788  
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 )     13,573             106,833       49,987  
Dividends (Note 19)
                      (286,058 )           (13,751 )     (299,809 )
Losses in excess of minority interest
                      (458 )           458        
Retirement of treasury stock (Note 20)
    (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       1,153       (652 )     (779 )     8,849  
 
   
     
     
     
     
     
     
 
Balance as of December 31, 2002
    90,781,795       482,403       3,797,737       8,219,499       (1,204,374 )     279,165       11,574,430  
 
   
     
     
     
     
     
     
 

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

     Continued;

9


 

POSCO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY, Continued
For the years ended December 31, 2000, 2001 and 2002


                                                         
    Thousands of US Dollars (Note 2)
   
    Common stock                                        
   
  Capital   Retained   Capital   Minority        
    Shares   Amount   surplus   earnings   adjustments   interest   Total
   
 
 
 
 
 
 
Balance as of January 1, 2002
    93,589,485     $ 406,645     $ 3,252,996     $ 5,872,198     $ (948,331 )   $ 141,761     $ 8,725,269  
Net income for 2002
                      918,223                   918,223  
Cumulative effect of accounting policy change
                      604,831                   604,831  
Effect of change in percentage of ownership of investees
                (59,360 )     11,441             90,056       42,137  
Dividends (Note 19)
                      (241,134 )           (11,591 )     (252,725 )
Losses in excess of minority interest
                      (386 )           386        
Retirement of treasury stock
    (2,807,690 )                 (237,460 )     237,460              
Change in treasury stock
                            (10,359 )           (10,359 )
Overseas operations translation adjustment
                            (34,521 )     (842 )     (35,363 )
Valuation loss on investment securities
                            (258,935 )     (516 )     (259,451 )
Minority interest in income of consolidated subsidiaries
                                  16,728       16,728  
Others
                7,693       972       (550 )     (657 )     7,458  
 
   
     
     
     
     
     
     
 
Balance as of December 31, 2002
    90,781,795     $ 406,645     $ 3,201,329     $ 6,928,685     $ (1,015,236 )   $ 235,325     $ 9,756,748  
 
   
     
     
     
     
     
     
 

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

     Continued;

10


 

POSCO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2000, 2001 and 2002


                                   
                              Thousands
                              of US Dollars
      Millions of Korean Won   (Note 2)
     
 
      2000   2001   2002   2002
     
 
 
 
Cash flows from operating activities:
                               
Net income
    1,633,667       845,679       1,089,288     $ 918,223  
Adjustments to reconcile net income to net cash provided by operating activities:
                               
 
Depreciation and amortization
    1,240,070       1,316,516       1,453,253       1,225,029  
 
Accrual of severance benefits
    246,547       86,878       119,091       100,389  
 
Provision for doubtful accounts
    20,162       (56 )     184,887       155,851  
 
Loss (gain) on foreign currency translation, net
    198,347       8,468       (105,716 )     (89,115 )
 
Gain on valuation of marketable securities
    (10,847 )     (11,505 )     (6,366 )     (5,366 )
 
Loss on valuation of derivatives, net
    34,217       367       11,206       9,446  
 
Loss (gain) on derivatives transaction, net
    (136 )     7,219       (9,784 )     (8,248 )
 
Gain on disposal of marketable securities and investments, net
    (98,153 )     (42,334 )     (52,713 )     (44,434 )
 
Loss on disposal of property, plant and equipment, net
    19,589       14,573       15,854       13,365  
 
Loss on valuation of inventories
    3,570       21,231       1,178       993  
 
Loss on impairment of investment securities and property, plant and equipment
    54,480       66,526       166,874       140,667  
 
Loss (gain) on valuation of equity method investments, net
    (9,267 )     23,961       128,769       108,547  
 
Minority interest in income (loss) of consolidated subsidiaries
    8,683       (8,469 )     19,844       16,728  
 
Stock compensation expense
          1,790       6,497       5,477  
 
Reserve for special repairs
    137,362       46,278              
 
Extraordinary income
    (956,583 )                  
 
Others
    27,077       12,309       672       567  
 
   
     
     
     
 
 
    915,118       1,543,752       1,933,546       1,629,896  
 
   
     
     
     
 

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

     Continued;

11


 

POSCO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2000, 2001 and 2002


                                   
                              Thousands
                              of US Dollars
      Millions of Korean Won   (Note 2)
     
 
      2000   2001   2002   2002
     
 
 
 
Changes in operating assets and liabilities:
                               
 
Decrease (increase) in trade accounts and notes receivable
    163,511       367,157       (151,351 )   $ (127,583 )
 
Decrease (increase) in inventories
    (230,762 )     173,755       69,950       58,965  
 
Increase (decrease) in trade accounts and notes payable
    (110,347 )     (170,118 )     151,699       127,876  
 
Decrease (increase) in other accounts and notes receivable
    (18,761 )     67,312       28,938       24,394  
 
Increase (decrease) in other accounts and notes payable
    40,726       (453,022 )     11,588       9,768  
 
Decrease (increase) in accrued expenses
    62,226       (121,445 )     (61,507 )     (51,848 )
 
Increase (decrease) in income tax payable
    (26,859 )     (280,363 )     271,347       228,734  
 
Deferred income tax, net
    12,558       12,828       (137,771 )     (116,135 )
 
Payment of severance benefits
    (1,088,159 )     (9,168 )     (14,469 )     (12,197 )
 
Decrease (increase) in group retirement deposits
    736,727       (189 )            
 
Others
    (35,137 )     (66,697 )     22,081       18,614  
 
 
   
     
     
     
 
 
    (494,277 )     (479,950 )     190,505       160,588  
 
 
   
     
     
     
 
Net cash provided by operating activities
    2,054,508       1,909,481       3,213,339       2,708,707  
 
 
   
     
     
     
 
Cash flows from investing activities:
                               
 
Disposal of marketable securities
    11,375,253       9,058,501       11,547,221       9,733,812  
 
Acquisition of marketable securities
    (11,041,246 )     (8,582,000 )     (12,150,384 )     (10,242,252 )
 
Disposal of short-term financial instruments
    3,687,669       3,640,112       1,317,099       1,110,258  
 
Acquisition of short-term financial instruments
    (3,671,484 )     (3,621,042 )     (1,140,400 )     (961,308 )
 
Acquisition of property, plant and equipment
    (874,271 )     (1,495,961 )     (1,688,840 )     (1,423,620 )
 
Disposal of property, plant and equipment
    43,075       35,175       91,238       76,909  
 
Acquisition of investment securities
    (2,172,650 )     (661,248 )     (117,790 )     (99,292 )
 
Disposition of investment securities
    1,806,450       139,159       109,523       92,323  
 
Proceeds from short-term loan
    20,410       34,949       147,650       124,462  
 
Short-term loans provided
    (4,215 )     (29,239 )     (56,910 )     (47,973 )
 
Proceeds from long-term loan
    132,499       61,444       3,019       2,545  
 
Long-term loans provided
    (1,576 )     (68,654 )     (46,162 )     (38,912 )
 
Acquisition of intangible assets
    (119,851 )     (97,547 )     (96,676 )     (81,494 )
 
Others
    20,227       27,615       (64,152 )     (54,077 )
 
 
   
     
     
     
 
Net cash used in investing activities
    (799,710 )     (1,558,736 )     (2,145,564 )     (1,808,619 )
 
 
   
     
     
     
 

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

     Continued;

12


 

POSCO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
For the years ended December 31, 2000, 2001 and 2002


                                   
                              Thousands of
                              US Dollars
      Millions of Korean Won   (Note 2)
     
 
      2000   2001   2002   2002
     
 
 
 
Cash flows from financing activities:
                               
 
Payment of cash dividends
    (239,732 )     (228,736 )     (214,277 )   $ (180,627 )
 
Proceeds (payment) of short-term borrowings, net
    177,666       (656,673 )     (85,565 )     (72,128 )
 
Proceeds from long-term debt
    1,683,754       1,450,904       646,848       545,266  
 
Repayment of current portion of long-term debt
    (1,383,717 )     (1,234,520 )     (1,299,970 )     (1,095,819 )
 
Repayment of long-term debt
    (160,318 )     (149,417 )     (278,086 )     (234,415 )
 
Proceeds from minority interest
    26,501       14,513       54,107       45,610  
 
Purchase of treasury stock
    (1,003,873 )           (91,143 )     (76,830 )
 
Others
    12,696       (19,700 )     89,835       75,728  
 
 
   
     
     
     
 
Net cash used in financing activities
    (887,023 )     (823,629 )     (1,178,251 )     (993,215 )
 
 
   
     
     
     
 
Effect of exchange rate changes on cash and cash equivalents
    15,104       6,365       (13,156 )     (11,090 )
Net decrease in cash and cash equivalents from changes of consolidated subsidiaries
    (20,745 )     (6,543 )     (16,097 )     (13,569 )
 
 
   
     
     
     
 
Net decrease (increase) in cash and cash equivalents
    362,134       (473,062 )     (139,729 )     (117,786 )
Cash and cash equivalents, beginning of year
    518,037       880,171       407,109       343,176  
 
 
   
     
     
     
 
Cash and cash equivalents, end of year
    880,171       407,109       267,380     $ 225,390  
 
 
   
     
     
     
 
Supplemental disclosure of cash flow information:
                               
 
Cash paid during the year for interest
    433,920       423,809       327,575     $ 276,131  
 
 
   
     
     
     
 
 
Cash paid during the year for income taxes
    703,032       604,998       264,729     $ 223,155  
 
 
   
     
     
     
 

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

13


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   Consolidated Companies:
 
    General descriptions of POSCO, the controlling company, and its controlled subsidiaries (collectively referred to as the “Company”), including POSCO E & C and twelve other domestic subsidiaries and nineteen overseas subsidiaries, whose accounts are included in the consolidated financial statements, and thirteen 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 28,000 thousand tons; 12,200 thousand tons at the Pohang mill and 15,800 thousand tons at the Kwangyang 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.
 
    In accordance with the approval of shareholders on March 15, 2002, POSCO changed its name from POHANG IRON & STEEL Co., Ltd. to POSCO.
 
    As of December 31, 2002, POSCO’s shareholders are as follows:
                 
            Percentage of
    Number of shares   shares (%)
   
 
Pohang University of Science and Technology
    3,028,200       3.34  
Nippon Steel Corporation
    2,894,435       3.19  
National Pension Corporation
    2,126,767       2.34  
The Industrial Bank of Korea
    2,125,461       2.34  
Treasury stock
    9,043,276       9.96  
Other foreign investors
    52,902,442       58.27  
Other domestic investors
    18,661,214       20.56  
 
   
     
 
 
    90,781,795       100.00  
 
   
     
 

    As of December 31, 2002, 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.

     Continued;

14


 

POSCO AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


1.   Consolidated Companies, Continued:
 
    Consolidated Subsidiaries -
 
    The following table sets forth certain information with regard to consolidated subsidiaries as of December 31, 2002.
                                                                             
                Capital   Number of   Number of shares   Percentage of           Percentage of
                (Millions of   outstanding  
  ownership           ownership of
Subsidiaries   Primary business   Korean Won)   shares   POSCO   Subsidiaries   Total   (%)(a)   Location   subsidiaries

 
 
 
 
 
 
 
 
 
Domestic:
                                                                       
 
POSCO E & C
  Engineering and                                                                
   
(POSEC)
  construction     693,640       30,000,000       27,281,080             27,281,080       90.94     Pohang      
 
Posteel Co.,
  Steel sales and                                                                
   
Ltd.
  service     281,311       18,000,000       17,155,000             17,155,000       95.31     Pohang      
 
POSCON Co.,
  Electronic
control devices
                                                               
   
Ltd.
  manufacturing     75,720       3,435,000       3,098,610             3,098,610       90.21     Pohang      
 
Pohang Coated
                                                                   
   
Steel Co., Ltd.
  Coated steel
manufacturing
    238,663       6,000,000       4,000,000             4,000,000       66.67     Pohang      
 
POSCO Machinery & Engineering
  Steel work                                                                
   
Co., Ltd.
  maintenance     29,502       1,700,000       1,700,000             1,700,000       100.00     Pohang      
 
  Computer                                                                
 
  hardware and                                                                
   
POSDATA Co., Ltd.
  software
distribution
    96,408       6,155,160       4,000,000             4,000,000       64.99     Sungnam      
 
POSCO Research
  Economic
research and
                                                          POSCO E & C (1.25),
POSTEEL (2.50),
   
Institute
  consulting     23,435       4,000,000       3,800,000       200,000       4,000,000       99.33     Seoul   POSDATA (1.25)

     Continued;

15


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


1.   Consolidated Companies, Continued:
 
    Consolidated Subsidiaries, Continued -
                                                                             
                Capital   Number of   Number of shares   Percentage of           Percentage of
                (Millions of   outstanding  
  ownership           ownership of
Subsidiaries   Primary business   Korean Won)   shares   POSCO   Subsidiaries   Total   (%)(a)   Location   subsidiaries

 
 
 
 
 
 
 
 
 
 
Seung Kwang
  Athletic facilities                                                           POSCO E & C
   
Co., Ltd.
  operation     40,329       4,145,000       2,737,000       1,208,000       3,945,000       92.53     Suncheon   (29.14)
 
POS-AC
  Architecture and                                                                
   
Co., Ltd.
  consulting     7,018       130,000       130,000             130,000       100.00     Seoul      
 
Changwon
                                                              POSTEEL (6.67),
   
Specialty Steel
Co., Ltd.
  Specialty steel
manufacturing
    354,935       30,000,000       26,000,000       4,000,000       30,000,000       99.04     Changwon   POSCON (6.67)
 
POSCO Machinery
  Machinery                                                                
   
Co., Ltd.
  installation     20,207       1,000,000       1,000,000             1,000,000       100.00     Kwangyang      
 
POSTECH
                                                                   
   
Venture Capital
  Investment in
venture
                                                               
   
Co., Ltd.
  companies     33,962       6,000,000       5,700,000             5,700,000       95.00     Pohang      
 
POSCO Refractories & Environment (POSREC)
  Manufacturing     74,757       5,907,000       3,544,200             3,544,200       60.00     Pohang      
Foreign:
                                                                       
 
POSCO America Corp. (POSAM)
  Steel trading     148,780       283,284       281,529       1,755       283,284       99.97       U.S.A     POSCAN (0.62)
 
POSCO Australia Pty. Ltd. (POSA)
  Steel trading     49,566       761,775       761,775             761,775       100.00     Australia      

     Continued;

16


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


1.   Consolidated Companies, Continued:
 
    Consolidated Subsidiaries, Continued -
                                                                               
              Capital   Number of   Number of shares   Percentage of           Percentage of    
              (Millions of   outstanding  
  ownership           ownership of    
Subsidiaries   Primary business   Korean Won)   shares   POSCO   Subsidiaries   Total   (%)(a)   Location   subsidiaries    

 
 
 
 
 
 
 
 
 
   
POSCO Canada
                                                                  POSTEEL    
 
Ltd. (POSCAN)
  Coal mining     41,229       1,099,885             1,099,885       1,099,885       95.31     Canada   (100.00)    
POSCO Asia Co., Ltd. (POA)
  Steel trading     9,305       9,360,000       9,360,000             9,360,000       100.00     Hongkong          
POSCO International
                                                                  POSTEEL    
 
Osaka, Inc. (PIO)
  Steel trading     4,606       800             800       800       95.31     Japan   (100.00)    
VSC POSCO Steel
  Steel                                                           POSTEEL    
 
Corporation (VPS)
  manufacturing     17,663       N/A       N/A       N/A       N/A       39.77     Vietnam   (5.00)   (b)
DALIAN POSCO-CFM Coated Steel Co.,
  Coated steel                                                           POSTEEL    
 
Ltd.
  manufacturing     47,943       N/A       N/A       N/A       N/A       54.30     China   (15.00)   (b)
POS-Tianjin Coil
  Steel service                                                           POSTEEL    
 
Center Co., Ltd.
  center     12,471       N/A       N/A       N/A       N/A       67.19     China   (60.00)   (b)
POSMETAL Co.,
  Steel service                                                           PIO    
 
Ltd.
  center     4,573       6,000             3,000       3,000       47.66     Japan   (50.00)    

     Continued;

17


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


1.   Consolidated Companies, Continued:
 
    Consolidated Subsidiaries, Continued -
                                                                                 
                Capital   Number of   Number of shares   Percentage of           Percentage of    
                (Millions of   outstanding  
  ownership           ownership of    
Subsidiaries   Primary business   Korean Won)   shares   POSCO   Subsidiaries   Total   (%)(a)   Location   subsidiaries    

 
 
 
 
 
 
 
 
 
   
 
Shanghai Real Estate Development Co., Ltd.
  Real estate rental     61,743       N/A       N/A       N/A       N/A       90.94     China   POSCO
E & C (100.00)
  (b)
 
IBC Corporation
  Real estate rental     11,522       N/A       N/A       N/A       N/A       54.56     Vietnam   POSCO
E & C (60.00)
  (b)
POSLILAMA Steel
  Steel structure
fabrication
                                                          POSCO
E & C (60.00),
POSTEEL
   
   
Structure Co., Ltd.
  and sales     (6,951 )     N/A       N/A       N/A       N/A       64.10     Vietnam   (10.00)   (b)
 
Zhangjiagang Pohang Stainless
  Stainless steel                                                                    
   
Steel Co., Ltd.
  manufacturing     178,033       N/A       N/A       N/A       N/A       82.48     China         (b)
 
SHUNDE Pohang Coated Steel Co.,
  Coated steel                                                                    
   
Ltd.
  manufacturing     33,203       N/A       N/A       N/A       N/A       93.50     China         (b)
 
POS-THAI Service Steel
  Steel service                                                           POSTEEL    
   
Center Co., Ltd.
  center     6,329       4,091,570       477,288       2,136,208       2,613,496       61.43     Thailand   (52.21)    

     Continued;

18


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


1.   Consolidated Companies, Continued:
 
    Consolidated Subsidiaries, Continued -
                                                                               
              Capital   Number of   Number of shares   Percentage of           Percentage of    
      Primary   (Millions of   outstanding  
  ownership           ownership of    
Subsidiaries   business   Korean Won)   shares   POSCO   Subsidiaries   Total   (%)(a)   Location   subsidiaries    

 
 
 
 
 
 
 
 
 
   
Qingdao Pohang Stainless Steel
  Stainless steel                                                                    
 
Co., Ltd.
  manufacturing     10,999       N/A       N/A       N/A       N/A       80.00     China         (b)
Myanmar-POSCO
  Steel                                                                    
 
Co., Ltd.
  manufacturing     6,558       19,200       13,440             13,440       70.00     Myanmar          
 
                                                                  POSCO
E & C (25.00),
   
Zhangjiagang
                                                                  Zhangjiagang Pohang    
 
POSHA Steel
                                                                  Stainless Steel    
 
Port Co., Ltd.
  Depot service     8,818       N/A       N/A       N/A       N/A       76.35     China   (65.00)   (b)
POSCO Investment Co., Ltd.
  Finance     33,816       2,000,000       2,000,000             2,000,000       100.00     Hongkong          


(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.

     Continued;

19


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


1.   Consolidated Companies, Continued:
 
    Equity Method Investees -
 
    The following table sets forth certain information with regard to equity method investees as of December 31, 2002.
                                                                         
                Capital   Number of shares   Percentage of           Percentage of    
        Primary   (Millions of  
  ownership           ownership of    
Investees   business   Korean Won)   POSCO   Subsidiaries   Total   (%)(a)   Location   subsidiaries    

 
 
 
 
 
 
 
 
   
Domestic:
                                                                   
 
Korea Daily News
  Newspaper     58,139       1,863,949             1,863,949       22.40     Seoul          
 
                                                          POSDATA (5.00)    
 
eNtoB Corporation
  E-business     10,918       560,000       160,000       720,000       21.57     Seoul   and others    
Foreign:
                                                                   
 
                                                          POSCO
E & C (10.00),
   
 
POSVEN
  Steel     (145,714 )     4,480       2,240       6,720       58.63     Venezuela   POSTEEL (10.00)   (c)
 
  manufacturing                                                            
 
KOBRASCO
  PELLET     (36,432 )     2,010,719,185             2,010,719,185       50.00     Brazil         (d)
 
Fujiura Butsuryu Center Co., Ltd.
  Warehousing     1,856             600       600       28.59     Japan   PIO (30.00)    
 
USS -POSCO
  Material                                                            
   
Industries (UPI)
  processing     239,956       N/A       N/A       N/A       49.99       U.S.A     POSAM (50.00)   (b)(d)
 
Suzhou Dongshin Color Metal Sheet Co., Ltd.
  Coloring     12,194       N/A       N/A       N/A       28.59     China   POSTEEL (30.00)   (b)
 
                                                  Republic            
 
                                                  of South            
 
POSCHROME
  Fe-Cr     18,595       21,675             21,675       25.00     Africa          

     Continued;

20


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


1.   Consolidated Companies, Continued:
 
    Equity Method Investees, Continued -
                                                                       
              Capital   Number of shares   Percentage of           Percentage of    
      Primary   (Millions of  
  ownership           ownership of    
Investees   business   Korean Won)   POSCO   Subsidiaries   Total   (%)(a)   Location   subsidiaries    

 
 
 
 
 
 
 
 
   
Shunde Xingpu Steel
  Industrial                                                   POSTEEL    
 
Center Co., Ltd.
  processing     15,047       N/A       N/A       N/A       20.51     China     (10.50 )   (b)
POS-HYUNDAI
  Industrial                                                   POSTEEL    
 
STEEL
  processing     4,824       2,345,558       4,573,838       6,919,396       28.58     India     (19.50 )    
 
  Investment in                                                            
POSCO Bioventures
  bio-tech                                                   POSAM    
 
LP
  ventures     10,020       N/A       N/A       N/A       79.98       U.S.A       (80.00 )   (b)(d)
Marubeni Steel Processing
  Steel service                                                   POSTEEL    
 
Indonesia (MSPI)
  center     1,644       743       2,229       2,972       35.40     Indonesia     (27.52 )   (d)
Posmmit Steel Centre SDN BHD
  Steel service                                                            
 
(POS-MMIT)
  center     7,418       4,200,000             4,200,000       30.00     Malaysia          


(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)   POSVEN was excluded from the consolidated financial statements since the company is undergoing liquidation procedures as of December 31, 2002.
 
(d)   The Company owns over 30% of equity interest in KOBRASCO, UPI, and MSPI, however, the Company is not the major shareholder of these companies. The Company owns over 79.98% of equity interest in POSCO Bioventures. LP., however, due to an agreement with POSCO Bioventures. LP., which prohibits the Company to engage in management activities, POSCO Bioventures. LP. was excluded from consolidation.

     Continued;

21


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


1.   Consolidated Companies, Continued:
 
    Change of Scope in Consolidation -
 
    The consolidated financial statements include the accounts of POSCO and its controlled subsidiaries.
 
    The consolidated financial statements include the accounts of POSREC, which was excluded from consolidation as of December 31, 2001, due to the acquisition of additional shares of POSREC representing over 50% ownership in 2002. Also, the consolidated financial statements include the accounts of Qingdao Pohang Stainless Steel Co., Ltd., which was excluded from consolidation as of December 31, 2001, since the company was newly incorporated in 2002. The consolidated financial statements exclude POSVEN, which was included in consolidation as of December 31, 2001, since the company is undergoing liquidation procedures as of December 31, 2002.

     Continued;

22


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


1.   Consolidated Companies, Continued:
 
    Subsidiaries Excluded from the Consolidated Financial Statements -
 
    The following companies have been excluded from the consolidation and are accounted for under the cost method:
                                                                         
                Shareholders' equity   Number of shares   Percentage of           Percentage of    
        Primary   (Millions of  
  ownership           ownership of    
Subsidiaries   business   Korean Won)   POSCO   Subsidiaries   Total   (%)(a)   Location   subsidiaries    

 
 
 
 
 
 
 
 
   
Domestic:
                                                                   
 
MIDUS Information Technologies Co., Ltd.
  Engineering     6,651             86,619       86,619       23.57     Seoul   POSCO
E & C (25.92)
  (b)
Foreign:
                                                                   
 
PT. POSNESIA Stainless Steel Industry
  STS/CR     16,432       29,610,000             29,610,000       70.00     Indonesia         (c)
 
POSVINA Co., Ltd.
  Steel
manufacturing
    6,324       N/A       N/A       N/A       50.00     Vietnam         (b)(d)
 
POSEC-HAWAII Inc.
  Construction     9,651             18,100       18,100       90.94     Hawaii   POSCO
E & C (100.00)
  (c)
 
POSCO Qingdao Coil
  Steel service                                                   POSTEEL    
   
Center
  center     1,680       N/A       N/A       N/A       95.31     China   (100.00)   (d)(e)


(a)   Percentage of ownership is the sum of direct and indirect ownership.
 
(b)   Total assets was less than Won 7,000 million as of December 31, 2001.
 
(c)   As of December 31, 2002, the company's operations has been suspended for more than one year.
 
(d)   No shares have been issued in accordance with the local laws or regulations.
 
(e)   Capital investment is less than Won 7,000 million (newly incorporated).

     Continued;

23


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


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 the Statements of Korean Financial Accounting Standards No. 5 are summarized below:
 
    Basis of Consolidated Financial Statements Presentation –
 
    POSCO and its domestic subsidiaries maintain their official 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. The accompanying consolidated financial statements have been condensed, restructured and translated into English from the Korean language consolidated financial statements. 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 (“GAAP”) in other countries. Accordingly, these consolidated financial statements are intended for use by those who are informed about Korean accounting principles and practices. Certain supplementary information included in the statutory of Korean language financial statements, but are not required for a fair presentation of POSCO and its domestic subsidiaries’ financial position, results of operations and cash flows, are not presented in the accompanying consolidated financial statements.
 
    Use of Estimates –
 
    The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results may differ from those estimates.

     Continued;

24


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


2.   Summary of Significant Accounting Policies, Continued:
 
    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 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 for long-term service contract is deferred and recognized over the life of the contract.

     Continued;

25


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


2.   Summary of Significant Accounting Policies, Continued:
 
    Allowance for Doubtful Accounts -
 
    The Company provides an allowance for doubtful accounts based on management’s estimate of the collectibility of individual accounts and prior year collection experience.
 
    Marketable Securities -
 
    Marketable securities held for short-term cash management purposes are stated at fair market value, and valuation gains or losses are reported in current operations.
 
    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 is 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 net realizable value and the difference between cost and revalued amount is charged to current operation.
 
    Investment Securities -
 
    Equity securities held for investment (excluding those accounted for using the equity method discussed in the next paragraph) that are not actively traded (non-marketable security) are stated at acquisition cost, determined by the moving average method. Actively traded securities (marketable security), including those traded over-the-counter, are stated at fair value based on quoted marker price, with the resulting valuation gain or loss reported as a capital adjustment within shareholders’ equity. If the fair value of a listed equity security or the net equity value of an unlisted security held for investment declines compared to acquisition cost and is not expected to recover (impaired investment security), the carrying value of the equity security is adjusted to fair value or net equity value, with the resulting valuation loss charged to current operations. If the net equity value or fair value subsequently recovers, in the case of an unlisted security, the increase in value is recorded in current operations, up the amount of the previously recognized impairment loss, and in the case of a listed security, the recovered amount is charged to capital adjustments within shareholders’ equity.

     Continued;

26


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


2.   Summary of Significant Accounting Policies, Continued:
 
    Investment Securities, Continued -
 
    Investments in debt securities are initially carried at cost, including incidental expenses, with cost determined using the weighted average method. Premiums and discounts on debt securities are amortized over the term of the debt using the effective interest rate method. Investments in debt securities, which the Company has the intent and ability to hold to maturity, are generally carried at cost, adjusted for the amortization of discounts or premiums (amortized cost). Other investments in debt securities are carried at fair value. Temporary differences between fair value and amortized cost are accounted for in the capital adjustments account, a component of shareholders’ equity. Declines in the fair value of debt securities which are anticipated to be permanent are recorded in current operations. Subsequent recoveries are also recorded in current operations up to the original cost of the investment.
 
    Investments in equity securities of companies over which the Company has the ability to exercise 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 live 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. All significant unrealized profits resulting from intercompany transactions of inventories and property, plant and equipment have been 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.

     Continued;

27


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


2.   Summary of Significant Accounting Policies, Continued:
 
    Property, Plant and Equipment -
 
    Property, plant and equipment are stated at cost, except for certain assets subject to upward revaluations in accordance with the Asset Revaluation Law. Depreciation is 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
    3 ~ 10  
Vehicles
    3 ~ 8  
Furniture and fixtures
    3 ~ 20  

      Routine maintenance and repairs are charged to expense as incurred. Expenditures which enhance the value or extend the useful lives of the related assets are capitalized.
 
      When the book value of an asset exceeds its recoverable value due to obsolescence, physical damage or a sharp decline in market value, an impairment loss is recognized to reduce the carrying value of the asset to its net realized value, with the resulting impairment loss charged to current operations.
 
      The Company capitalizes interest costs, discount expenses and other finance charges, including certain foreign exchange translation gains and losses on the borrowings associated with the manufacture, purchase, or construction of property, plant and equipment, incurred prior to completing the acquisition, as part of the cost of such assets.

     Continued;

28


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


2.   Summary of Significant Accounting Policies, Continued:
 
    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. In addition, the Company changed the useful life of certain port facilities usage rights from 133 years to 20 years due to the change of the enterprise environment. As a result of this change, net income for the year ended December 31, 2002 decreased by Won1,573 million.
         
    Estimated useful lives (years)
   
Goodwill
    5 ~ 20  
Intellectual property rights
    5 ~ 10  
Port facilities usage rights
    2 ~ 37  
Land usage rights
    40  
Organization cost
    5  
Internally used software(*)
    4 ~ 20  
Development costs
    4 ~ 20  
Others
    4 ~ 20  


    (*) Internally used software systems that are part of production line are amortized over the estimated useful lives of twenty years.

     Continued;

29


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


2.   Summary of Significant Accounting Policies, Continued:
 
    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 interest expense.
 
    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 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 accounting and income tax purpose.
 
    Accrued Severance Benefits -
 
    Employees and directors with more than one year 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 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.

     Continued;

30


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


2.   Summary of Significant Accounting Policies, Continued:
 
    Reserve for Special Repairs -
 
    An allowance for repairs of various furnaces is established and adjusted annually, based on the replacement cost of the furnaces and future expected rate of inflation over the fifteen-year replacement cycle such facilities. Expenditures in relation to special repairs are charged to expense as incurred. In accordance with the Statements of Korean Financial Accounting Standards No. 5 effective January 1, 2002, the Company reversed previously recorded reserve for repairs, amounting to Won1,020,640 million, to beginning retained earnings and recorded the deferred income tax liability amounting to Won303,130 million. The net effect of these accounting changes increased the beginning balance of retained earnings by Won717,510 million. In addition, reserve for special repairs provided by the Company for the year ended December 31, 2001 amounted to Won53,911 million.
 
    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.

     Continued;

31


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


2.   Summary of Significant Accounting Policies, Continued:
 
    Derivative Instruments -
 
    The Company enters into derivative transactions to hedge against financial risks. Derivatives are classified into: cash flow hedge, fair market value hedge and derivatives for trading. In case of cash flow hedge, unrealized holding gains and losses are recorded as capital adjustments in the balance sheet. In case of hedging for fluctuations in fair market value, unrealized holding gains and losses are recorded in the statement of earnings. If the contract expires, the gains and losses from derivative transactions are presented in the statement of earnings 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 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).
 
    Impairment of Assets -
 
    The Company recognizes an impairment loss when the carrying amount of an asset exceeds its recoverable amount. The impairment loss is recognized in the income statement and is deducted from the book value of the impaired asset.
 
    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 Won1,186.3: US$ 1, the US Federal Reserve Bank of New York noon buying exchange rate in effect on December 31, 2002. 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.

     Continued;

32


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


2.   Summary of Significant Accounting Policies, Continued:
 
    Reclassification of Prior Year Financial Statement Presentation -
 
    Certain amounts in the 2001 financial statements have been reclassified to conform to the 2002 presentation. These reclassifications had no effect on previously reported net income or shareholders’ equity.
 
    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 becomes effective for the Company on January 1, 2003. The Company has already adopted SKFAS No. 5 starting from the year 2002, and plans to adopt other statements in its financial statements for the year ending December 31, 2003.

     Continued;

33


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


2.   Summary of Significant Accounting Policies, Continued:
 
    Significant Accounting Policies of POSCO and its Controlled Subsidiaries -
             
            Depreciation of
    Investment and marketable       property, plant and
Company   securities   Inventories(*)   equipment

 
 
 
POSCO   Gross average method, moving average method   Moving average method   Straight-line method
POSCO E & C   Gross average method   Moving average method   Straight-line method
Posteel Co., Ltd.   Moving average method   Moving average method   Straight-line method
POSCON Co., Ltd.
  Gross average method   Moving average method   Straight-line method, declining balance
method
Pohang Coated Steel Co., Ltd.
  Gross average method, moving average method   Gross average method   Straight-line method
POSCO Machinery & Engineering Co., Ltd.
  Gross average method, moving average method   Moving average method   Straight-line method
POSDATA Co., Ltd.
  Gross average method, moving average method   Moving average method   Straight-line method
POSCO Research Institute
  N/A   N/A   Straight-line method
Seung Kwang Co., Ltd.
  Gross average method   Gross average method   Straight-line method, declining-balance
method
POS-AC Co., Ltd.
  Gross average method   N/A   Straight-line method, declining-balance
method
Changwon Specialty Steel Co., Ltd.
  Gross average method, moving average method   Moving average method   Straight-line method
POSCO Machinery Co., Ltd.
  Gross average method   Moving average method   Straight-line method
POSTECH Venture Capital Co., Ltd.
  Moving average method   N/A   Declining-balance method
POSCO Refractories &
Environment (POSREC)
  Moving average method   First-in, First-out,
moving average method
  Straight-line method, declining-balance method
POSCO America Corp. (POSAM)
  N/A   Moving average method   Straight-line method
POSCO Australia Pty. Ltd. (POSA)
  Gross average method   Gross average method   Straight-line method
POSCO Canada Ltd. (POSCAN)
  N/A   Gross average method   Straight-line method
POSCO Asia Co., Ltd. (POA)
  N/A   N/A   Declining-balance method

     Continued;

34


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


2.   Summary of Significant Accounting Policies, Continued:
 
    Significant Accounting Policies of POSCO and its Controlled Subsidiaries, Continued -
             
            Depreciation of
    Investment and marketable       property, plant and
Company   securities   Inventories(*)   equipment

 
 
 
POSCO International Osaka, Inc. (PIO)
  Moving average method   Gross average method   Straight-line method
VSC POSCO Steel Corporation
(VPS)
  N/A   Moving average method   Straight-line method
DALIAN POSCO — CFM Coasted Steel Co., Ltd.
  N/A   Moving average method   Straight-line method
POS-Tianjin Coil Center Co., Ltd.
  N/A   Specific identification method, moving average method   Straight-line method
POSMETAL Co., Ltd.
  N/A   Moving average method   Straight-line method
Shanghai Real Estate Development Co., Ltd.
  N/A   N/A   Straight-line method
IBC Corporation
  N/A   Specific identification method   Straight-line method
POSLILAMA Steel Structure Co., Ltd.
  N/A   Moving average method   Straight-line method
Zhangjiagang Pohang Stainless Steel Co., Ltd.
  N/A   Moving average method   Straight-line method
SHUNDE Pohang Coated Steel Co., Ltd.
  N/A   Moving average method   Straight-line method
POS-THAI Service Steel Center Co., Ltd.
  N/A   Moving average method   Straight-line method
Qingdao Pohang Stainless Steel Co., Ltd.
  N/A   Moving average method   Straight-line method
Myanmar-POSCO Co., Ltd.
  N/A   Moving average method   Straight-line method
Zhangjiagang POSHA Steel Port Co., Ltd.
  N/A   Moving average method   Straight-line method
POSCO Investment Co., Ltd.
  N/A   N/A   Straight-line method


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

35


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


3.   Cash and Cash Equivalents and Financial Instruments:
 
    Cash and cash equivalents, short-term and long-term financial instruments as of December 31, 2001 and 2002 consist of the following:
                         
    Annual interest   Millions of Korean Won
    rates (%)  
    2002   2001   2002
   
 
 
Cash and cash equivalents
                       
Cash on hand
          601       8  
Bank deposits
    0.50 ~ 4.00       5,711       9,079  
Corporate bank deposits
    0.50 ~ 4.00       15,860       6,060  
Checking account
          2,401       3,397  
Time deposits in foreign currency and others
    0.00 ~ 5.00       263,964       118,658  
Maintained by overseas affiliates
    0.00 ~ 2.75       118,572       130,178  
 
           
     
 
 
            407,109       267,380  
 
           
     
 
Short-term financial instruments
                       
Time deposits
    4.40 ~ 6.30       128,919       171,643  
Installment accounts
    5.00 ~ 8.50       4,964       6,887  
Time deposits in foreign currency
    1.30 ~ 1.80       148,921       199  
Money in trust
    5.20 ~ 5.80       104,670       46,979  
Others
    0.50 ~ 6.30       36,750       32,005  
Maintained by overseas affiliates
    1.18 ~ 1.30             419  
 
           
     
 
 
            424,224       258,132  
 
           
     
 
Long-term financial instruments
                       
Installment accounts
    5.10 ~ 8.50       3,194       6,898  
Guarantee deposits for opening account
          117       120  
Time deposits in foreign currency and others
    1.10 ~ 6.20       31,400       13,556  
 
           
     
 
 
            34,711       20,574  
 
           
     
 

     Continued;

36


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


3.   Cash and Cash Equivalents and Financial Instruments, Continued:
 
    As of December 31 2002, the Company’s financial assets amounting to Won14,953 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 Won3,000 million in relation to performance guarantee deposits, short-term financial instruments amounting to Won11,833 million in relation to borrowings and others, and long-term financial instruments amounting to Won120 million in relation to collateral deposits for opening checking accounts (see Note 12).
 
4.   Marketable Securities:
 
    Marketable securities as of December 31, 2001 and 2002 are as follows:
                 
    Millions of Korean Won
   
    2001   2002
   
 
Beneficiary certificates(*)
    526,084       1,192,204  
Government and public bonds
    4,319       5,468  
Corporate bonds
          5,004  
 
   
     
 
 
    530,403       1,202,676  
 
   
     
 


    (*) Beneficiary certificates mainly consist of money market fund.

37


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


5.   Accounts and Notes Receivable and Others:
 
    Accounts and notes receivable and their allowance for doubtful accounts and others as of December 31, 2001 and 2002 are as follows:
                   
      Millions of Korean Won
     
      2001   2002
     
 
Trade accounts and notes receivable
    1,504,956       1,762,701  
Less: Allowance for doubtful accounts
    (24,637 )     (22,834 )
 
Present value discount
    (408 )     (262 )
 
   
     
 
 
    1,479,911       1,739,605  
 
   
     
 
Other accounts and notes receivable
    108,261       125,480  
Less: Allowance for doubtful accounts(*)
    (2,406 )     (52,741 )
 
Present value discount
    (62 )      
 
   
     
 
 
    105,793       72,739  
 
   
     
 
Long-term loans
    89,378       117,429  
Less: Allowance for doubtful accounts
    (3,121 )     (49 )
 
Present value discount
    (150 )     (120 )
 
   
     
 
 
    86,107       117,260  
 
   
     
 
Long-term trade accounts and notes receivable
    86,200       69,203  
Less: Allowance for doubtful accounts
    (13,367 )     (5,737 )
 
Present value discount
    (21,523 )     (18,603 )
 
   
     
 
 
    51,310       44,863  
 
   
     
 


    (*) 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 Won42,267 million and allowances for bad debts amounting to Won40,011 million for receivable with uncertain collectibility.

    As of December 31, 2002, trade accounts and notes receivable and others amounting to Won124,191 million are pledged as collateral for various borrowings from financial institutions (see Note 12).

     Continued;

38


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


5.   Accounts and Notes Receivable and Others, Continued:
 
    Accounts stated at present value under rescheduled payment and long-term deferred payment are as follows:
                                                     
                Millions of Korean Won                
               
               
                        Present value           Maturity   Discount rate
Accounts   Company   Face value   discount   Book value   (year)   (%)

 
 
 
 
 
 
Long-term deferred payment:
                                               
 
Long-term loans
  Employees     216       51       165       2017       7.54  
 
  Others     260       69       191       2006       8.42  
 
           
     
     
                 
 
            476       120       356                  
 
           
     
     
                 
Rescheduled payment:
                                               
 
Long-term trade accounts
  Hanbo Iron and Steel                                        
   
and notes receivable
  Co., Ltd     3,061       1,057       2,004       2018       8.00 ~ 10.45  
 
  BNG Steel Co., Ltd     54,500       17,017       37,483       2009       8.62  
 
  Jindo Corp. and others     3,930       791       3,139       2004~2014       7.54 ~ 9.95  
 
           
     
     
                 
 
            61,491       18,865       42,626                  
 
           
     
     
                 
 
  Dong Sung                                        
 
Other long-term assets
  Construction                                        
   
(Note 10)
  Co., Ltd     369       59       310       2018       7.54  
 
Less: Current portion
            (3,624 )     (262 )     (3,362 )                
 
           
     
     
                 
 
            58,712       18,782       39,930                  
 
           
     
     
                 

    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.

39


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


6.   Inventories:
 
    Inventories as of December 31, 2001 and 2002 consist of the following:
                 
    Millions of Korean Won
   
    2001   2002
   
 
Finished goods
    376,453       312,915  
By-products
    4,669       2,309  
Semi-finished goods
    330,189       390,827  
Raw materials
    657,072       637,456  
Materials in-transit
    307,526       269,744  
Others
    61,342       58,195  
 
   
     
 
 
    1,737,251       1,671,446  
 
   
     
 

7.   Investment Securities:
 
    Investment securities as of December 31, 2001 and 2002 consist of the following:
                 
    Millions of Korean Won
   
    2001   2002
   
 
Marketable equity securities(*)
    1,902,747       1,619,928  
Non-marketable equity securities(*)
    607,041       605,145  
Equity method investments
    193,198       163,012  
Debt security investments
    225,272       128,203  
Others
    32,191       29,524  
 
   
     
 
 
    2,960,449       2,545,812  
 
   
     
 


    (*) Excludes equity method securities.

     Continued;

40


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


7.   Investment Securities, Continued:
 
    Marketable Equity Securities -
 
    Investments in marketable equity securities as of December 31, 2001 and 2002 are as follows:
                                                 
                    Millions of Korean Won
                   
    2002   2001   2002
   
 
 
    Number of   Percentage of   Book   Acquisition   Fair market   Book
    shares   ownership (%)   value   cost   value   value
   
 
 
 
 
 
Hanil Iron Steel Co., Ltd.
    307,631       9.95       2,769       4,020       3,692       3,692  
MoonBae Steel Co., Ltd.
    369,876       9.02       1,387       3,588       1,219       1,219  
Chohung Bank
    135,394       0.03       560       3,757       555       555  
Hana Bank
    4,617,600       2.34       75,036       29,998       75,267       75,267  
SK Telecom
    5,794,924       6.50       1,553,040       1,657,348       1,327,037       1,327,037  
Samjung Packing & Aluminum Co., Ltd.
    270,000       9.00       2,295       2,714       2,295       2,295  
DongYang Steel Pipe Co., Ltd.
    1,564,250       2.48       1,705       3,911       579       579  
Nippon Steel Corporation
    147,876,000       2.17       261,871       285,103       208,193       208,193  
Others
                    4,084       1,423       1,091       1,091  
 
                   
     
     
     
 
 
                    1,902,747       1,991,862       1,619,928       1,619,928  
 
                   
     
     
     
 

    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.

     Continued;

41


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


7.   Investment Securities, Continued:
 
    Non-marketable Equity Securities -
 
    Investments in non-marketable equity securities as of December 31, 2001 and 2002 are as follows:
                                                 
                    Millions of Korean Won
                   
    2002   2001   2002
   
 
 
    Number of   Percentage of   Book   Acquisition   Net asset   Book
    shares   ownership (%)   value   cost   value(a)   value
   
 
 
 
 
 
Dae Kyeong Special Steel Co., Ltd.
    1,786,000       19.00       8,930       8,930       3,768       8,930  
Kihyup Corporation
    600,000       10.34       3,000       3,000       3,370       3,000  
SK IMT
    7,200,000       12.00       192,002       192,002       198,511       192,002  
The Siam United Steel
    9,000,000       10.00       26,640       26,640       4,115       26,640  
Powercomm
    7,500,000       5.00       246,000       246,000       40,705       246,000  
ARAB Co. for Special Steel(b)
    N/A       8.93       8,561       8,561       6,394       8,561  
New Airport Highway Co., Ltd.
    6,018,012       6.93       30,090       30,090       26,925       30,090  
Inchon Int’l. Airport Railroad
    6,104,904       11.26       12,100       30,525       29,787       30,525  
Cenix(d)
    1,460,344       5.76       12,829       12,829       1,105       1,509  
PT-POSNESIA Stainless Steel Industry(c)
    29,610,000       70.00       9,474       9,474       10,427       9,474  
POSVINA Co., Ltd.(b,c)
    N/A       50.00       1,527       1,527       3,162       1,527  
POSEC-HAWAII Inc.(c,d)
    18,100       90.94       18,878       18,879       8,777       8,617  
POSCO Qingdao Coil Center(b,c)
    N/A       95.31             1,744       1,601       1,680  
Others(b,c,d)
                    37,010       43,199       41,520       36,590  
 
                   
     
     
     
 
 
                    607,041       633,400       380,167       605,145  
 
                   
     
     
     
 


(a)   The net asset value of the non-marketable equity securities is applied based on the non-marketable companies’ most recent available financial information, which have not been audited as of December 31, 2002.
 
(b)   No shares have been issued in accordance with the local laws or regulations.
 
(c)   The investments in PT-POSNESIA Stainless Steel Industry and POSEC-HAWAII Inc., whose operations have been suspended for more than one year, was excluded from the equity method of accounting. Investments in POSVINA Co., Ltd., MIDUS Information Technologies Co., Ltd., and POSCO-Qingdao Coil Center, whose total assets as of December 31, 2002 are less than Won7,000 million, are stated at cost, in accordance with financial accounting standards generally accepted in the Republic of Korea, where the amount of difference had the investments been recorded using the equity method is not significant.
 
(d)   Declines in net asset value of Cenix and other non-marketable equity securities anticipated to be permanent, amounting to Won27,041 million, were recorded for the year ended December 31, 2002.

     Continued;

42


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


7.   Investment Securities, Continued:
 
    Equity Method Investments -
 
    Details of equity method investees are as follows:
                                                 
                    Millions of Korean Won
                   
    2002   2001   2002
   
 
 
    Number of   Percentage of   Book   Acquisition   Fair market   Book
    shares   ownership (%)(a)   value   cost   value   value
   
 
 
 
 
 
POSVEN(d)
                          66,876              
Korea Daily News(b)
                    23,718       19,999       13,023       13,750  
eNtoB Corporation
    720,000       21.57       2,704       3,700       2,355       2,579  
KOBRASCO(f)
    2,010,719,185       50.00       13,292       32,950              
Fujiura Butsuryu Center Co., Ltd.(b)
    600       28.59       636       632       531       553  
USS-POSCO Industries(c)
    N/A       49.99       124,832       234,293       119,954       119,979  
Suzhou Dongshin Color Metal Sheet Co., Ltd.(c)
    N/A       28.59       2,783       2,547       3,486       3,606  
POSCHROME
    21,675       25.00       3,127       4,859       4,649       4,379  
Shunde Xingpu Steel Center Co., Ltd.(c)
    N/A       20.51       2,664       1,852       3,086       2,992  
POS-HYUNDAI STEEL
    6,919,396       28.58       1,243       3,136       1,379       1,379  
POSCO Bioventures. LP.(c)
    N/A       79.98             10,292       8,014       10,020  
MSPI
    2,972       35.40             1,466       582       1,467  
POS-MMIT
    4,200,000       30.00             2,308       2,225       2,308  
POSREC(e)
                18,199                    
 
                   
     
     
     
 
 
                    193,198       384,910       159,284       163,012  
 
                   
     
     
     
 


(a)   Percentage of ownership is the sum of direct and indirect ownership.
 
(b)   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 have not been audited as of December 31, 2002.
 
(c)   No shares have been issued in accordance with the local laws or regulations.
 
(d)   In accordance with a resolution during the general meeting of shareholders on December 22, 2002, the liquidation of POSVEN was determined, and accordingly, POSVEN was excluded from the consolidated financial statements. In addition, the equity method of accounting has been suspended due to its negative equity resulting from the accumulated deficit for the current year. However, unrecognized loss arising form the discontinuation of the equity method is recorded as allowance for doubtful accounts (see Note 16).
 
(e)   Due to the acquisition of significant influence by purchasing additional shares during the current year, POSREC was included in the consolidation.
 
(f)   Equity method is not applied to KOBRASCO due to its negative net asset value as of December 31, 2002. Unrecognized loss arising from the discontinuation of the equity method amount to Won8,951 million.

     Continued;

43


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


7.   Investment Securities, Continued:
 
    Equity Method Investments, Continued -
 
    The details of equity method valuation are as follows:
                                                         
    Millions of Korean Won
   
            Valuation                                        
    2001   gain or loss   Other   2001   Valuation gain   Other   2002
    Beginning   using equity   increase or   Ending   or loss using   increase or   Ending
    balance   method   decrease(*)   balance   equity method   decrease(*)   balance
   
 
 
 
 
 
 
POSVEN
                            (134,501 )     134,501        
Korea Daily News
    37,726       (16,549 )     2,541       23,718       (3,415 )     (6,553 )     13,750  
eNtoB Corporation
    3,508       (804 )           2,704       (225 )     100       2,579  
KOBRASCO
          (1,162 )     14,454       13,292       (15,827 )     2,535        
Fujiura Butsuryu Center Co., Ltd.
    737       (44 )     (57 )     636       (84 )     1       553  
USS-POSCO Industries
    126,467       (8,079 )     6,444       124,832       22,678       (27,531 )     119,979  
Suzhou Dongshin Color Metal Sheet Co., Ltd.
    2,078       584       121       2,783       1,127       (304 )     3,606  
POSCHROME
    3,688       639       (1,200 )     3,127       922       330       4,379  
Shunde Xingpu Steel Center Co., Ltd.
    2,477       50       137       2,664       608       (280 )     2,992  
POS-HYUNDAI STEEL
    1,126       108       9       1,243       232       (96 )     1,379  
POSCO Bioventures LP
                            (284 )     10,304       10,020  
MSPI
                                  1,467       1,467  
POS-MMIT
                                  2,308       2,308  
POSREC
          1,296       16,903       18,199             (18,199 )      
 
   
     
     
     
     
     
     
 
Total
    177,807       (23,961 )     39,352       193,198       (128,769 )     98,583       163,012  
 
   
     
     
     
     
     
     
 


    (*) Other increase or decrease represent fluctuation of investment securities due to acquisition (disposition) in the current period, dividend received, valuation gain or loss on investment securities, changes in retained earnings and others.

     Continued;

44


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


7.   Investment Securities, Continued:
 
    Equity Method Investments, Continued -
 
    Details on the elimination of unrealized gain or loss are as follows:
                                                 
    Millions of Korean Won
   
    2001   2002
   
 
    Current   Tangible and           Current   Tangible and        
    assets   intangible assets   Total   assets   intangible assets   Total
   
 
 
 
 
 
eNtoB Corporation
    3             3       11             11  
KOBRASCO
    1,236             1,236                    
Fujiura Butsuryu Center Co., Ltd.
    12             12       6             6  
Suzhou Dongshin Color Metal Sheet Co., Ltd.
    50             50                    
POSCHROME
    228             228       93             93  
 
   
     
     
     
     
     
 
 
    1,529             1,529       110             110  
 
   
     
     
     
     
     
 

    Debt Security Investments -
 
    Investments in debt securities as of December 31, 2001 and 2002 are as follows:
                 
    Millions of Korean Won
   
    2001   2002
   
 
Government and municipal bonds
    11,406       11,486  
Bonds of financial institutions
    213,866       116,717  
 
   
     
 
 
    225,272       128,203  
 
   
     
 

    The Company provided certain financial bonds, amounting to Won31,400 million, to the Pusan municipal government as deposits for a performance guarantee in relation to the development of a waste disposal area (see Note 12).

     Continued;

45


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


7.   Investment Securities, Continued:
 
    Other investments as of December 31, 2001 and 2002 are as follows:
                             
        Millions of Korean Won
       
        2001   2002
       
 
        Book value   Acquisition cost   Book value
       
 
 
Investments in capital
    7,775       6,153       4,343  
   
Stock Market Stabilization Fund(*)
    7,775       6,153       4,343  
   
Contractor Financial Fund
    12,167       12,472       12,472  
 
POSTEC Venture Fund 2 and others
    12,249       12,709       12,709  
 
   
     
     
 
 
    32,191       31,334       29,524  
 
   
     
     
 


    (*) Due to the recovery of an impairment on its investments, the Company recorded a gain on investments amounting to Won758 million for the year ended December 31, 2002.

    POSCO transferred its existing 25.26 percent of Shinsegi Telecomm’s stock, which was acquired before December 20, 1999, to SK Telecom on January 3, 2000 and transferred an additional 2.4 percent of Shinsegi Telecomm’s stock which was acquired from Korea Electric Power Corporation and Korea Highway Corporation on January 31, 2000, to SK Telecom on February 1, 2000. POSCO received 5,795 thousand shares, or 6.5 percent, of SK Telecom’s stock in return on April 27, 2000. POSCO’s accounting policy is to use average cost basis to compute the gain and loss on sales of securities. POSCO acquired its initial shares in Shinsegi Telecomm in 1994. The application of the average cost basis on this transaction resulted in a gain on disposal of investments (extraordinary income)of Won952,644 million, computed based on the market price of SK Telecom’s stock as of the transaction closing date. Prior to the above transaction, under an investment agreement, POSCO acquired 23.527 percent of Shinsegi Telecomm’s stock from Kolon Group on December 20, 1999 and sold it to SK Telecom on December 21, 1999, which resulted in a gain on disposal of investments of approximately Won500.9 billion, based on the average cost of all shares held as of that date.

46


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


8.   Property, Plant and Equipment:
 
    Property, plant and equipment as of December 31, 2001 and 2002 consist of the following:
                 
    Millions of Korean Won
   
    2001   2002
   
 
Buildings and structures
    4,662,782       4,751,118  
Machinery and equipment
    17,310,023       17,863,238  
Tools
    243,398       299,925  
Vehicles
    150,636       150,986  
Furniture and fixtures
    185,046       165,045  
 
   
     
 
 
    22,551,885       23,230,312  
Less: Accumulated depreciation
    (14,745,442 )     (15,698,572 )
Less: Accumulated impairment
    (2,786 )     (2,786 )
 
   
     
 
 
    7,803,657       7,528,954  
 
   
     
 
Land
    1,263,404       1,250,850  
Less: Accumulated impairment
    (565 )     (565 )
 
   
     
 
 
    1,262,839       1,250,285  
 
   
     
 
Construction in progress
    1,634,451       1,785,348  
Less: Accumulated impairment
    (100,181 )     (240,014 )
 
   
     
 
 
    1,534,270       1,545,334  
 
   
     
 
 
    10,600,766       10,324,573  
 
   
     
 

     Continued;

47


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


8.   Property, Plant and Equipment, Continued:
 
    The value of land based on the posted price issued by the Korean tax authority amounted to Won2,687,951 million and Won2,657,498 million as of December 31, 2001 and 2002, respectively.
 
    As of December 31, 2001 and 2002, property, plant and equipment are insured against fire and other casualty losses up to Won4,562,308 million and Won4,538,778 million, respectively. In addition, the Company carries general insurance for vehicles and accident compensation insurance for its employees.
 
    In accordance with the Asset Revaluation Law, POSCO and certain subsidiaries revalued a substantial portion of its property, plant and equipment by Won4,008 billion as of December 31, 1989 and December 31, 2000, respectively. The revaluation surplus, net of related tax and transfers to retained earnings amounting to Won788 billion, were credited to capital surplus, a component of shareholders’ equity (see Note 17).
 
    Construction in-progress included in property, plant and equipment includes capital investments in Kwangyang No. 2 Minimill. By a resolution of the Board of Directors at a meeting held in May 1998, the construction on the Minimill has been ceased due to the economic situation in the Republic of Korea and the Asia Pacific region. The Company recognized impairment loss on capital investment in Kwangyang No. 2 Minimill amounting to Won53,951 million and Won139,833 million for the years ended December 31, 2001 and 2002, respectively.

48


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


9.   Intangible Assets:
 
    Intangible assets, net of accumulated amortization, as of December 31, 2001 and 2002 consist of the following:
                 
    Millions of Korean Won
   
    2001   2002
   
 
Goodwill
    11,658       1,316  
Intellectual property rights
    328       266  
Port facilities usage rights
    148,911       134,209  
Organization costs
    9,396       2,609  
Development costs
    27,004       44,991  
Internally used software
    197,624       189,829  
Land usage rights
    45,852       42,017  
Others
    49,935       59,575  
 
   
     
 
 
    490,708       474,812  
 
   
     
 

    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 Kwangyang, Pohang, Pyoungtaek and Masan.
 
    Details of intangible assets for the years ended December 31, 2001 and 2002 are as follows:
                 
    Millions of Korean Won
   
    2001   2002
   
 
Beginning balance(*)
    454,108       491,045  
Increase
    97,547       96,676  
Decrease
    60,947       112,909  
 
   
     
 
Ending balance
    490,708       474,812  
 
   
     
 


    (*) In addition, due to inclusion of POSREC in the consolidated financial statements during the current year, other intangible assets amounting to Won337 million are included in the beginning balance of intangible assets for the year ended December 31, 2002.
 
    As of December 31, 2001 and 2002, accumulated amortization of intangible assets amounts to Won446,054 million and Won535,479 million, respectively.
 
    The Company expensed research and development costs amounting to Won199,790 million and Won202,102 million for the years ended December 31, 2001 and 2002, respectively. For the years ended December 31, 2001 and 2002, the company recorded research and development costs as cost of goods sold amounting to Won169,132 million and Won161,475 million, respectively, and selling and administrative expenses, amounting to Won30,658 million and Won40,627 million, respectively.

49


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


10.   Other Assets:
 
    Other assets as of December 31, 2001 and 2002 consist of the following:
                     
        Millions of Korean Won
       
        2001   2002
       
 
Other current assets
               
 
Short-term loans
    111,118       37,456  
 
Accrued income
    91,359       41,548  
 
Advance payments
    44,115       59,472  
 
Prepaid expenses
    13,227       7,746  
 
Others
    16,626       42,003  
 
Less: Allowance for doubtful accounts
    (200 )     (2,726 )
 
 
   
     
 
 
    276,245       185,499  
 
 
   
     
 
Other long-term assets
               
 
Group severance insurance deposits
    479        
 
Others (Note 16)
    98,902       311,748  
 
Less: Allowance for doubtful accounts(*)
    (315 )     (237,447 )
   
Present value discount
    (11,952 )     (59 )
 
 
   
     
 
 
    87,114       74,242  
 
 
   
     
 


    (*) The significant increase in allowance for doubtful accounts in 2002 is due to the payments made by the Company on behalf of POSVEN (see Note 16).

50


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


11.   Short-term Borrowings and Current Portion of Long-term Debt:
 
    Short-term borrowings as of December 31, 2001 and 2002 consist of the following:
                           
      2002   Millions of Korean Won
     
 
      Annual interest                
Financial institutions   rate (%)   2001   2002

 
 
 
Won currency borrowings:
                       
 
Korea Development Bank and others
    4.13 ~ 6.14       41,440       84,442  
 
           
     
 
Foreign currency borrowings:
                       
 
Thai Farmers Bank
    7.25       734       211  
 
Bank of America and others
    0.60 ~ 8.00       675,880       503,302  
 
  LIBOR + 0.50 ~ 1.10                
 
           
     
 
 
            676,614       503,513  
 
           
     
 
 
            718,054       587,955  
 
           
     
 

    Current portion of long-term debt as of December 31, 2001 and 2002 consist of the following:
                           
      2002   Millions of Korean Won
     
 
      Annual interest                
Financial institutions   rate (%)   2001   2002

 
 
 
Debentures:
                       
 
Domestic and foreign debentures
    0.54 ~ 9.00       1,201,811       1,255,671  
 
Less: Discount on debentures issued
            (2,834 )     (4,321 )
 
           
     
 
 
            1,198,977       1,251,350  
Won currency borrowings:
                       
 
Korea Development Bank and others
    1.00 ~ 9.90       1,816       2,052  
Foreign currency borrowings:
                       
 
Citibank and others
    0.96 ~ 8.28       202,826       65,157  
 
  LIBOR + 0.60 ~ 0.80                
Lease payment:
                       
 
IBM Korea and others
    5.90       1,750       972  
 
           
     
 
 
            1,405,369       1,319,531  
 
           
     
 

    Certain current assets, investments and property, plant and equipment are pledged as collateral for the above borrowings (see Notes 3, 5, and 12).

51


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


12.   Long-term Debt:
 
    Long-term borrowings as of December 31, 2001 and 2002 are as follows:
                                     
        2002           Millions of Korean Won
       
         
        Annual interest                        
Financial institutions   rate (%)   Maturity   2001   2002

 
 
 
 
Won currency borrowings:
                               
 
Shinhan Bank
    4.25 ~ 5.50       2007-2010       1,153       4,382  
 
Korea Development Bank
    1.00 ~ 9.90       2003-2008       4,117       5,139  
 
Korea Exchange Bank
    5.53       2010       2,008       2,497  
 
Others
    3.00 ~ 9.90       2003-2019       1,032       712  
 
Less: Current portion
                    (1,816 )     (2,052 )
 
                   
     
 
 
                    6,494       10,678  
 
                   
     
 
Foreign currency borrowings:
                               
 
Citibank (US$)
  LIBOR+0.6
    2004       464,135       180,060  
 
Sumitomo Bank (US$ and EUR)
  LIBOR+0.8
    2010       81,129       69,677  
 
Commerzbank and others (US$, JPY and EUR)
    2.00 ~ 6.97       2004-2007       80,291       49,699  
 
Bank of China (CNY)
  LIBOR+0.85
    2003-2006       49,712       28,509  
 
I.B.J. (JPY)
    3.03 ~ 4.90       2004-005       48,270       33,162  
 
Hanmi Bank (JPY)
    1.61       2005             19,944  
 
Development Bank of Japan (JPY)
    4.60       2009       15,504       13,613  
 
Others (US$, JPY and EUR)
    0.75 ~ 8.28,                          
 
  LIBOR+0.6 ~ 0.625
    2003-2006       163,741       80,264  
 
                   
     
 
 
                    902,782       474,928  
 
Less: Current portion
                    (202,826 )     (65,157 )
 
                   
     
 
 
                    699,956       409,771  
 
                   
     
 
Debentures:
                               
 
Domestic debentures
    5.00 ~ 9.00       2003-2007       2,576,000       2,266,010  
 
Yankee bonds
    6.63 ~ 7.38       2003-2006       1,377,233       972,224  
 
Samurai bonds
    1.44 ~ 1.84       2003-2006       807,520       810,296  
 
Others
    0.54       2004       1,009       1,013  
 
                   
     
 
 
                    4,761,762       4,049,543  
 
Less: Current portion
                    (1,201,811 )     (1,255,671 )
   
Discount on debentures issued
                    (30,945 )     (20,306 )
 
                   
     
 
 
                    3,529,006       2,773,566  
 
                   
     
 
 
                    4,235,456       3,194,015  
 
                   
     
 

    Certain current assets, investments, and property, plant and equipment are pledged as collateral for the above borrowings (see Notes 3, 5, 8 and 16).

     Continued;

52


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


12.   Long-term Debt, Continued:
 
    Contractual maturities of long-term debt outstanding as of December 31, 2002 are as follows:
                                   
      Millions of Korean Won
     
              Local currency   Foreign currency        
Year   Debentures   borrowings   borrowings   Total

 
 
 
 
 
2003
    1,255,671       2,052       65,157       1,322,880  
 
2004
    789,750       1,558       236,788       1,028,096  
 
2005
    987,958       3,014       96,200       1,087,172  
 
2006
    1,016,164       1,745       21,336       1,039,245  
 
2007
          4,239       21,747       25,986  
Thereafter
          122       33,700       33,822  
 
   
     
     
     
 
 
    4,049,543       12,730       474,928       4,537,201  
 
   
     
     
     
 

     Continued;

53


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


12.   Long-term Debt, Continued:
 
    Details of assets pledged as collateral for short-term and long-term borrowings as December 31, 2001 and 2002 are as follows:
                           
              Millions of Korean Won
             
      Financial institutions   2001   2002
     
 
 
Land
  Shinhan Bank and others     32,842       43,261  
Buildings and structures
  Kookmin Bank and others     16,440       25,710  
Machinery and equipment
  Industrial and                
 
  Commercial                
 
  Bank of China and                
 
  others     48,376       67,061  
Cash and cash equivalents(*)
  Woori Bank and others     38,951       6,355  
Trade accounts and notes
  Comerica Bank and                
 
receivable
  others     123,970       124,191  
Others(**)
  Korea Development                
 
  Bank and others           41,142  
 
           
     
 
 
            260,579       307,720  
 
           
     
 


    (*) Includes short-term and long-term financial instruments provided as collateral.
 
    (**) The Company provided financial bonds of Industrial Bank of Korea, amounting to Won31,400 million, to the Pusan municipal government as deposits for a performance guarantee in relation to the development of a waste disposal area (see Note 7).

    Details of loans from foreign financial institutions covered by guarantees provided by financial institutions as December 31, 2001 and 2002 are as follows:
                                 
    Amount guaranteed
   
    2001   2002
   
 
            Won equivalent           Won equivalent
Financial institutions   Foreign currency   (In Millions)   Foreign currency   (In Millions)

 
 
 
 
Korea Development Bank
  US$2,021,582     2,681     US$695,761     835  
 
  JPY 470,220,000     4,746     JPY 161,834,050     1,639  
 
  EUR 9,055,039     10,618     EUR 8,502,876     10,691  
 
           
             
 
 
            18,045               13,165  
 
           
             
 
Korea Exchange Bank
  JPY 246,090,961     2,484              
 
  US$1,058,001     1,403              
 
           
             
 
 
            3,887                
 
           
             
 
 
            21,932               13,165  
 
           
             
 

54


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


13.   Capital Lease and Operating Lease Agreement:
 
    Capital Lease -
 
    As of December 31, 2002, the Company acquired certain tools and equipment under capital lease agreements, with acquisition cost amounting to Won6,143 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 expenses, with respect to above lease agreement, for the year ended December 31, 2002 amounted to Won1,536 million.
 
    Future minimum lease payments under capital lease agreements amounting to Won972 million, net of interest amounting to Won20 million, will be fully paid in 2003 at its maturity.
 
    Operating Lease -
 
    As of December 31, 2002, the Company acquired certain tools and equipment under operating lease agreements from Macquarie IT KOREA Lease Company and others. Future lease payments under the above lease agreements are as follows:
           
      Millions of Korean Won
     
 
2003
    24,649  
 
2004
    14,556  
 
2005
    5,831  
 
2006
    235  
 
2007
    235  
Thereafter
    257  
 
   
 
 
    45,763  
 
   
 

55


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


14.   Accrued Severance Benefits:
 
    Details of accrued severance benefits for the year ended December 31, 2002 are as follows:
                                 
    Millions of Korean Won
   
    Accrued severance   National Pension   Group severance        
    benefits   Fund   insurance deposits   Total
   
 
 
 
Beginning balance(*)
    150,257       (2,268 )     (78,539 )     69,450  
Increase
    119,337       (1 )     (76,961 )     42,375  
Decease
    14,469       (152 )     (5,964 )     8,353  
 
   
     
     
     
 
Ending balance
    255,125       (2,117 )     (149,536 )     103,472  
 
   
     
     
     
 


    (*) In addition, due to the inclusion of POSREC in the consolidated financial statements during the current year, the beginning balance of accrued severance benefits, net of National Pension Fund and group severance insurance deposits, amounting to Won605 million are included in the beginning balance of the consolidated financial statements for the year ended December 31, 2002.

15.   Other Liabilities:
 
    Other liabilities as of December 31, 2001 and 2002 consist of the following:
                   
      Millions of Korean Won
     
      2001   2002
     
 
Other current liabilities
               
 
Advances received
    156,248       230,273  
 
Unearned revenue
    1,452       2,226  
 
Others
    29,258       27,877  
 
 
   
     
 
 
    186,958       260,376  
 
 
   
     
 
Other long-term liabilities
               
 
Reserve for allowance
    10,093       12,068  
 
Others
    83,695       91,811  
 
 
   
     
 
 
    93,788       103,879  
 
 
   
     
 

56


 

POSCO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


16.   Commitments and Contingencies:
 
    As of December 31, 2001 and 2002, contingent liabilities for outstanding guarantees provided between the related companies for the repayment of loans of affiliated companies are as follows:
                                           
                      2001   2002
                     
 
                              Amount guaranteed        
                      Won equivalent   (In U.S. Dollars and in   Won equivalent
Grantors   Entity being guaranteed   Financial institutions   (In Millions)   Millions of Korean Won)   (In Millions)

 
 
 
 
 
POSCO
  KOBRASCO
  Citibank and others
    53,044     US$13,333,333       16,005  
 
  VPS
  Credit Lyonnais
    4,355       2,463,709       2,957  
 
  POSAM
  Bank of America
    99,458       35,000,000       42,014  
 
  POS-HYUNDAI STEEL
  India Development Bank and others
    649       242,043       291  
 
  POS-Investment
  Sumitomo Bank and others
    94,731       55,177,826       66,235  
 
  Zhangjiagang Pohang
                               
 
  Stainless Steel Co., Ltd.
  Bank of China
    29,729       22,418,649       26,911  
 
  Changwon Specialty Steel
                               
 
  Co., Ltd.
          773              
 
  POSVEN
          35,274              
POSCO E & C
  IBC Corporation
  Shinhan Bank and others
    91,448       72,309,000       86,800  
 
  Shanghai Real Estate
                               
 
  Development Co., Ltd.
  Korea Development Bank
    70,450       46,000,000       55,218  
 
  POSLILAMA Steel
                               
 
  Structure Co., Ltd.
  Korea Development Bank
    1,652       2,000,000       2,401  
POSTEEL
  Suzhou Dongshin Color
                               
 
  Metal Sheet Co., Ltd.
  Woori Bank
          6,902       6,902  
 
  PIO
  Korea Exchange Bank and others
    27,142       50,644       50,644  
 
  POS-Tianjin Coil Center
                               
 
  Co., Ltd.
  Shinhan Bank
    7,050       6,362       6,362  
 
  CCL
          921              
 
  POS-HYUNDAI STEEL
  Industrial Development Bank of India
    870       1,125       1,125  
 
  POS-THAI Service
                               
 
  Steel Center Co., Ltd.
  Hana Bank
    4,284       7,751       7,751  
POSCO Investment
  SHUNDE Pohang
  Industrial & Commercial
                       
 
Co., Ltd.
  Coated Steel Co., Ltd.
  Bank of China
        US$15,000,000       18,006  
 
  Zhangjiagang Pohang
                               
 
  Stainless Steel Co., Ltd.
  BOA
          5,000,000       6,002