DOOSAN HEAVY INDUSTRIES & CONSTRUCTION CO., LTD. AND SUBSIDIARIES

Transcription

1 DOOSAN HEAVY INDUSTRIES & CONSTRUCTION CO., LTD. AND SUBSIDIARIES Consolidated Financial Statements As of and For the Year Ended December 31, 2016 ATTACHMENT: Independent Auditor s Report DOOSAN HEAVY INDUSTRIES & CONSTRUCTION CO., LTD.

2 Deloitte Anjin LLC 9F., One IFC, 10, Gukjegeumyung-ro, Youngdeungpo-gu, Seoul 07326, Korea Tel: +82 (2) Fax: +82 (2) INDEPENDENT AUDITOR S REPORT English Translation of Independent Auditor s Report Originally Issued in Korean on March 23, 2017 To the Shareholders and Board of Directors of Doosan Heavy Industries & Construction Co., Ltd. We have audited the accompanying consolidated financial statements of Doosan Heavy Industries & Construction Co., Ltd. (the Company ) and its subsidiaries (the Group ), which comprise the consolidated statements of financial position as of December 31, 2016 and the consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in shareholders equity and consolidated statements of cash flows, all expressed in Korean won, for the year ended December 31, 2016 and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Korean International Financial Reporting Standards ( K- IFRS ) and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an audit opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Korean Standards on Auditing ( KSAs ). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. Please see for a more detailed description of DTTL and its member firms For information, contact Deloitte Anjin LLC

3 Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Doosan Heavy Industries & Construction Co., Ltd as of December 31, 2016 and its financial performance and its cash flows for the year ended December 31, 2016 in accordance with K-IFRS. Emphasis of matter Although our opinion is not modified in respect of this matter, we draw attention to the note 26 to the financial statements on the following matters. (1) Emphasis matters related to production to order industry and others In accordance with Auditing practice guidance in the Republic of Korea, we noted this matter requires significant attention per our professional judgement and from communication with those charged with governance. These matters were addressed in respect to our review of the interim consolidated financial statements as a whole, and we do not provide a separate opinion on these matters. In forming an audit opinion on the consolidated financial statements of Doosan Heavy Industries & Construction Co., Ltd., we incorporated the results of the audit procedures performed on the significant audit areas as follows: 1) General matters The general matters applicable to order industry described in this report that requires significant attention are as follows. The Group recognizes contract revenue and contract cost associated with the construction contract when the outcome of a contract can be reliably measured by stage of completion of the contract activity at the end of the reporting year. However, when the outcome of a construction contract cannot be estimated reliably, revenue is recognized only to the extent the contract costs have incurred that is probable that it will be recoverable and contract costs is recognized as expenses in the period in which they are incurred. When the uncertainties that prevented the outcome of the contract being estimated reliably no longer exist, revenue and expenses associated with the construction contract shall be recognized as revenue and expenses respectively by stage of completion of the contract activity at the end of the reporting period. When an uncertainty arises on the collectability of an amount already included in contract revenue, and already recognized in profit or loss, the uncollectible amount or the amount of which the is no longer probable is recognized as an expense rather than as an adjustment to the amount of contract revenue. In case the Group is able to estimate the outcome of a construction contract reliably, the Group shall determine the stage of completion of a contract. The Group uses the method that reliably measures the work performed, depending on the nature of the contract. As of December 31, 2016, the Group determined that using the rate of accumulated costs incurred until the end of the reporting period in comparison with total estimated costs per individual contract is the most reliable method to measure the work performed, and therefore the Group uses the stage of completion to calculate the contract costs incurred to date and recognizes contract revenue and contract cost accordingly.

4 When contract costs incurred to date plus recognized profits(less recognized losses) exceed the progress billing, the surplus is shown as amounts due from customers for contract work. For contracts where progress billings exceed contract the costs incurred to date plus recognized profits(less recognized losses), the surplus is shown as the amounts due to customers for contract work. 2) Adequacy of revenue recognition based on the stage of contract completion by input method In case the Group recognizes revenues and costs based on the stage of contract completion when the outcome of a construction contract cannot be estimated reliably, there is a risk of misstatement on revenues and costs. Additionally, when the Group uses the method to measure stage of completion which does not reflect the work performed, there is a risk of material misstatement on revenues and costs. Therefore, we determined revenue recognition based on the stage of contract completion by input method to require significant attention. We conducted the following main procedures to review the adequacy of revenue recognition based on the stage of contract completion by input method. We inquired and documented our inspection whether major projects meet all criteria to measure the outcome of a construction contract can be estimated reliably. We performed inquiries about whether the input method that the Group used is able to reliably measure the work performed. We performed inquiries whether the outcome of a construction contract can still be estimated reliably for delaying projects exist. We performed inquiries and analytical procedures to confirm whether the outcome of a construction contract can still be reliably estimate a project that the Group recognizes allowances of accounts receivable or due from the customers for contract work. 3) The uncertainty of the estimated total contract cos As disclosed in notes 26 to the financial statements, the impact on current and future profit and loss due to changes in estimated total contract cost is KRW 118,995 million and KRW 128,912 million respectively and impact on the balance of due from (to) customers for contract work amounts to KRW 118,995 million. As such, in case the Group changes estimates of total contract cost, the stage of contract completion could be revised resulting in changes in current and future profit and loss and the balance of due from (to) the customers for contract work. As such, we determined that the uncertainty of the estimated total contract cost that reflects management's judgment requires significant attention. We performed the following main audit procedures in order to identify the impact on financial statements due to the uncertainty of estimate of the estimated total contract cost. We performed inspection about the summation logic of entity s system and procedures to measure the estimated total contract costs. We performed inspection about the interface by verifying whether the actual costs are equal to the estimated total contract costs which is calculated by Group s system or not. We performed inspection about the interface by comparing the Group s system with the contract party s system.

5 We performed inquiries about reason for projects that the proportion that estimated total contract costs bear to the total contract revenue has been changed significantly compared to prior period. We performed inquiries about reason for significant change of the estimated total contract cost compared to prior period. We performed inquiries for a reason for projects that are finalized during current period and actual cost to revenue ratio is departed from estimated cost to revenue ratio. We have compared the estimated total contract costs at the end of this period against estimated total contract costs in the Group s system about major project. We have performed comparison and analytical procedures between estimated total contract costs at the end of this period and estimated total contract costs after the end of this period about major project. We performed comparison and analytical procedures between future estimated costs in the end of this period and the detail of awarding contract after the end of this period about a part of project. 4) Adequacy of the calculation of stage of contract completion. As disclosed in notes 3 to the financial statements (significant accounting judgements and key sources of estimation uncertainties), there is a risk of misstatements that could adjust the future balance of assets and liabilities if the Group recognizes revenue based on the stage of contract completion. Additionally, when the Group measures the stage of completion of a contract based on the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs, there is a risk of misstatements on revenue and cost if the Group includes costs those contract costs that does not reflect work performed when the Group measure the stage of contract completion resulting in inadequate calculation. Therefore we determined that adequacy of the calculation of stage of contract completion requires significant attention. We performed the following main audit procedures to identify adequacy of the calculation of stage of contract completion. We performed recalculation of the stage of contract completion. We performed inquiries about whether contract costs reflect work performed were included in costs incurred to date and policies implemented to identify contract costs which should be excluded in calculation of stage of contract completion. We performed inquiries about projects that the stage of contract completion changed significantly compared to prior period. We performed comparative review between the stage of contract completion and the stage of progress completion about major projects. We documented our inspection results about the sample extracted from major projects about contract cost incurred.

6 5) Collectability of amount due from customers for contract work The amount due from customers is KRW 1,930,663 million and KRW 1,898,305 million, as of December 31, 2016 and 2015, respectively, which is increased by 1.7% compared to the end of prior period. We determined that the collectability of amount due from customers for contract work requires significant attention, given there are overstatement risks of misstatement on the amount of due from customers in case the Group fails to recognize appropriate amount of allowance resulting from inappropriate collectability valuation. Since there is an uncertainty over the estimation of collectable amount due from customers for contract work, we determined that collectability of amount due from costumers for contract work requires significant attention. We performed the following main audit procedures to identify the collectable amount due from customers for contract work. We performed inquiries and analytic procedures on slow-moving due from the customers for contract work. We documented our inspection results on long-term due from the customers for contract work. We performed inquiries and analytical procedures about collectability in case there are projects which the Group recognized allowances on the account receivable and have outstanding due from customers for contract work. We performed inquiries and analytical procedures about collectability of due from customers for contract work related to delaying projects. 6) Adequacy of accounting treatment of variations in contract work The Group includes the impact of variations in contract work to contract revenue only if it is probable that the customer will approve the variation and the amount of revenue arising from the variation and the amount of revenue can be reliably measured. And the revenue could be increased by a claim that is an amount that the contractor seeks to collect from the customer or another party as reimbursement for costs not included in the contract price. The Group only includes the impact of a claim to the contract revenue when negotiations have reached an advanced stage such that it is probable that the customer will accept the claim and it is probable the amount will be accepted by the customer and such can be measured reliably. Additionally, the amount of contract revenue may decrease as a result of penalties arising from delays caused by the contractor in the completion of the contract when it is probable that the penalty will incur and the penalty can be reasonably measured. Since there is a risk of misstatement of revenue when the Group reflect change orders, claims and penalty to the contract revenue inappropriately, we determined that the accounting treatment of variations in contract work requires significant attention. We performed the following main audit procedures to identify adequacy of accounting treatment of variations in contract work We performed inquiries about adequacy of accounting treatment of variations in contract work and penalties. We performed inquiries about reason for significant variation of the estimated total contract revenue.

7 Others We performed inquiries about reason for projects that the proportion that estimated total contract costs bear to the total contract revenue has been changed significantly compared to prior period. We performed analytical procedure and document inspection for cut-off related significant variation of contract revenue after December 31, We performed inquiries and analytical procedures for projects that the Group recognizes penalties. We performed inquiries about whether there are any exposures to liquidated damages for late delivery of contract works. The accompanying consolidated statements of financial position as of December 31, 2015, and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended were audited by other auditors in accordance with the KSAs and an unqualified opinion was expressed on March 17, March 23, 2017 Notice to Readers This report is effective as of March 23, 2017, the independent auditors review report date. Certain subsequent events or circumstances may have occurred between the independent auditors review report date and the time independent auditors review report is read. Such events or circumstances could significantly affect the accompanying consolidated financial statements and may result in modifications to the independent auditors review report.

8 DOOSAN HEAVY INDUSTRIES & CONSTRUCTION CO., LTD. AND SUBSIDIARIES (the Group ) CONSOLIDATED FINANCIAL STATEMENTS As of and For the Years Ended December 31, 2016 and 2015 The accompanying consolidated financial statements, including all footnote disclosures, were prepared by, and are the responsibility of, the Group. Ji Taik Chung Chief Executive Officer DOOSAN HEAVY INDUSTRIES & CONSTRUCTION CO., LTD. -1-

9 DOOSAN HEAVY INDUSTRIES & CONSTRUCTION CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2016 AND 2015 ASSETS Notes December 31, 2016 December 31, 2015 (In Korean won) CURRENT ASSETS: Cash and cash equivalents 4,5,10 1,369,500,991,930 1,893,007,747,878 Short-term financial instruments 4,5,10,34 213,506,823, ,822,932,100 Short-term investments in securities 4,6,10 141,391,168, ,994,129 Trade receivables, net 4,7,10,26,34,35 2,077,740,448,109 2,512,793,814,167 Due from customers for contract work, net 7,26 1,930,663,406,075 1,898,305,160,818 Other receivables, net 4,7,10,35 310,731,723, ,866,374,113 Prepayments 7 509,753,411, ,000,416,576 Prepaid expenses 101,614,362,264 80,051,592,909 Short-term loans, net 4,7,10,35 114,094,313, ,384,058,498 Derivative financial assets 4,9,10 24,494,373,789 24,409,004,032 Firm commitment assets 9 108,462,686, ,500,155,075 Inventories, net 8,34 1,730,606,651,053 2,196,491,764,508 Assets classified as held-for-sale ,771,988, ,220,470,226 Other current assets 4,7,10 237,819,498, ,111,159,002 Total Current Assets 9,035,151,846,465 10,724,405,644,031 NON-CURRENT ASSETS: Long-term financial instruments 4,5,7,10 31,395,752,125 77,402,476,564 Long-term investments in securities 4,6,10,34 286,332,778, ,420,094,063 Investments in associates and joint ventures 11,34 80,681,100,934 62,411,138,388 Long-term loans, net 4,7,10,35 910,287,291,842 1,019,229,605,248 Property, plant and equipment, net 12,34 6,381,539,477,026 7,206,578,365,565 Intangible assets, net 13 6,646,199,554,028 6,657,774,324,948 Investment properties ,299,018,663 30,516,385,496 Derivative financial assets 4,9,10 80,958,564,225 63,996,129,207 Firm commitment assets 9 80,039,145,810 73,771,115,605 Guarantee deposits, net 4,5,7,10 320,258,434, ,322,937,601 Deferred tax assets ,043,930, ,988,943,041 Other non-current assets 4,7,10 68,381,295, ,323,450,501 Total Non-Current Assets 15,797,416,343,890 16,535,734,966,227 TOTAL ASSETS 24,832,568,190,355 27,260,140,610,258 (Continued) -2-

10 DOOSAN HEAVY INDUSTRIES & CONSTRUCTION CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2016 AND 2015 LIABILITIES AND EQUITY Notes December 31, 2016 December 31, 2015 (In Korean won) CURRENT LIABILITIES: Trade payables 4,10,35 2,452,138,916,210 2,259,960,866,728 Short-term borrowings 4,10,15,34 2,892,687,287,708 3,943,165,035,852 Asset-backed loans 4,10,15 432,987,691, ,044,438,739 Other payables 4,10,35 853,291,882, ,731,063,373 Advanced received 358,558,830, ,939,985,983 Due to customers for contract work ,668,479,628 1,200,598,386,238 Withholdings 71,843,985,942 84,990,443,174 Accrued expenses ,867,768, ,421,166,491 Income tax payable 31 47,638,985,415 35,923,644,791 Current portion of long-term debt 4,10,15,34 2,531,345,860,669 2,252,663,857,555 Derivative financial liabilities 9,10 174,733,740, ,439,689,022 Firm commitment liabilities 9 11,617,547,945 16,325,825,501 Other provisions ,561,044, ,417,938,027 Debt classified as held-for-sale 37 24,706,942,176 - Other current liabilities 4,10 214,167,916, ,873,537,768 Total Current Liabilities 11,581,816,879,143 12,455,495,879,242 NON-CURRENT LIABILITIES: Bonds 4,10,15 1,753,691,202,152 2,547,984,215,918 Long-term borrowings 4,10,15,34 2,534,990,813,266 3,282,290,330,730 Long-term asset-backed loans 4,10,15 246,974,997, ,408,282,978 Long-term other payables 4,10 35,611,850,491 41,882,360,478 Employee benefits liability ,404,829, ,192,936,968 Deposits received ,263,467, ,617,695,614 Derivative financial liabilities 9,10 128,882,334, ,638,954,643 Firm commitment liabilities 9 18,966,908,638 28,734,919,118 Deferred tax liabilities ,072,101, ,224,240,213 Other provisions ,110,602, ,242,092,508 Other non-current liabilities 4,10 236,951,287, ,321,029,716 Total Non-current Liabilities 6,427,920,395,176 7,778,537,058,884 Total Liabilities 18,009,737,274,319 20,234,032,938,126 (Continued) -3-

11 DOOSAN HEAVY INDUSTRIES & CONSTRUCTION CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2016 AND 2015 Notes December 31, 2016 December 31, 2015 (In Korean won) EQUITY: Equity attributable to owners of the Parent: Capital stock 1,18 596,808,980, ,808,980,000 Capital surplus 19 1,652,835,160,666 1,563,917,672,526 Other components of equity 20 (17,273,121,037) (105,157,160,978) Accumulated other comprehensive income 9,10,21 538,782,208, ,011,506,902 Retained earnings ,507,685,246 1,013,088,220,397 Subtotal 3,475,660,913,667 3,580,669,218,847 Non-controlling interests Hybrid equity instruments ,535,153, ,695,963,991 Other non-controlling interests 23 2,505,634,849,117 2,603,742,489,294 Subtotal 3,347,170,002,369 3,445,438,453,285 Total Equity 6,822,830,916,036 7,026,107,672,132 TOTAL LIABILITIES AND EQUITY 24,832,568,190,355 27,260,140,610,258 (Concluded) See Notes -4-

12 DOOSAN HEAVY INDUSTRIES & CONSTRUCTION CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 Notes (In Korean won) SALES 24,25,26,35 13,892,680,512,183 14,470,549,808,958 COST OF SALES 26,27,35 11,477,492,314,794 12,283,242,564,168 GROSS PROFIT 2,415,188,197,389 2,187,307,244,790 Selling and administrative expenses 10,27,28 1,624,015,375,186 2,214,638,986,828 OPERATING PROFIT ,172,822,203 (27,331,742,038) Finance income 10,29 1,016,003,108,731 1,203,283,247,735 Finance expenses 10,29 1,563,194,963,292 1,898,601,312,784 Other non-operating income 10,30 108,705,659,500 93,211,050,263 Other non-operating expenses 10,30 584,176,245, ,586,608,247 Share of loss in associates and joint ventures 11 (14,607,721,727) (81,659,482,860) Loss before tax from continuing operations 31 (246,097,340,180) (1,612,684,847,931) INCOME TAX EXPENSE 131,564,646, ,052,374,555 INCOME (LOSS) FROM CONTINUING OPERATIONS (377,661,986,781) (1,743,737,222,486) INCOME FROM DISCONTINUED OPERATIONS ,137,200,834 (7,162,107,023) NET INCOME 24 (215,524,785,947) (1,750,899,329,509) Attributable to: Owners of the Parent (170,750,790,211) (1,038,543,220,644) Non-controlling interests (44,773,995,736) (712,356,108,865) EARNINGS PER SHARE 32 Basic earnings per common share (1,777) (10,631) Basic earnings per share from continuing operations (2,611) (10,210) Basic earnings per share from discontinued operations 834 (421) Diluted earnings per share (1,777) (10,631) Diluted earnings per share from continuing operations (2,611) (10,210) Diluted earnings per share from discontinued operations 834 (421) (Concluded) See Notes -5-

13 DOOSAN HEAVY INDUSTRIES & CONSTRUCTION CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 Note (In Korean won) NET INCOME (215,524,785,947) (1,750,899,329,509) OTHER COMPREHENSIVE INCOME (LOSS) 21 (28,495,650,754) 319,962,397,817 Items that will not be reclassified subsequently to profit or loss: (96,116,788,148) 378,588,917,167 Remeasurements of net defined benefit liabilities 16 (68,268,654,681) 18,841,106,569 Net gain (loss) on revaluation of land 12 (27,848,133,467) 359,747,810,598 Items that may be reclassified subsequently to profit or loss: 67,621,137,394 (58,626,519,350) Net change in unrealized fair value of available-for-sale financial assets 10 19,919,849,838 (3,104,626,549) Effective portion of changes in fair value of cash flow hedges 9,10 20,130,625,897 12,063,776,264 Equity adjustments in equity method (debit) (108,837,338) 1,340,919,348 Net loss on translation of foreign operations 27,679,498,997 (68,926,588,413) Total other comprehensive income (loss) (244,020,436,701) (1,430,936,931,692) COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO: Owners of the Parent (191,711,547,908) (726,791,363,904) Non-controlling interests (52,308,888,793) (704,145,567,788) (Concluded) See Notes -6-

14 DOOSAN HEAVY INDUSTRIES & CONSTRUCTION CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 Capital stock Capital surplus Other components of equity Accumulated other comprehensive income Retained earnings Non-controlling interests Total (In Korean won) Balance at January 1, ,808,980,000 1,828,284,636,585 (101,795,674,821) 220,918,859,061 2,115,202,768,057 3,017,582,151,050 7,677,001,719,932 Total comprehensive income: Loss of the period (1,038,543,220,644) (712,356,108,865) (1,750,899,329,509) Remeasurement of the net defined benefit liabilities ,500,483,847 15,340,622,722 18,841,106,569 Net change in unrealized fair value of AFS financial assets (30,340,636,819) - 27,236,010,270 (3,104,626,549) Effective portion of changes in fair value of cash flow hedges ,555,208,269 - (43,491,432,005) 12,063,776,264 Equity adjustments in equity method (debit) ,183,896,859 - (842,977,511) 1,340,919,348 Net loss on translation of foreign operations (16,612,368,911) - (52,314,219,502) (68,926,588,413) Net gain on revaluation of land ,306,548,443 17,158,725,052 62,282,537, ,747,810,598 Subtotal ,092,647,841 (1,017,884,011,745) (704,145,567,788) (1,430,936,931,692) Dividends (84,230,535,915) - (84,230,535,915) Stock option - 2,100,996,093 (1,116,157,779) ,838,314 Changes in the scope of consolidation ,080,996,843 1,080,996,843 Capital increase by issuing new shares of subsidiaries - - (231,156,754) ,908,916, ,677,759,896 Dividends of the subsidiaries (85,494,554,491) (85,494,554,491) Stock option of the subsidiaries - 1,928,367,105 (1,731,065,518) ,353, ,655,488 Transactions of treasury stock by subsidiaries - 23,860,561, (33,858,304,362) (9,997,743,330) Issuance and exercise of convertible bonds by subsidiaries - (65,478,549,444) ,988,016,531 40,509,467,087 Transfer of business between subsidiaries - - (283,106,106) ,106,106 - Changes of the non-controlling interest - (226,778,338,845) ,778,338,845 - Balance at December 31, ,808,980,000 1,563,917,672,526 (105,157,160,978) 512,011,506,902 1,013,088,220,397 3,445,438,453,285 7,026,107,672,132 (Continued) -7-

15 DOOSAN HEAVY INDUSTRIES & CONSTRUCTION CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 Capital stock Capital surplus Other components of equity Accumulated other comprehensive income Retained earnings Non-controlling interests Total (In Korean won) Balance at January 1, ,808,980,000 1,563,917,672,526 (105,157,160,978) 512,011,506,902 1,013,088,220,397 3,445,438,453,285 7,026,107,672,132 Total comprehensive income: Loss of the period (170,750,790,211) (44,773,995,736) (215,524,785,947) Remeasurement of the net defined benefit liabilities (69,873,976,427) 1,605,321,746 (68,268,654,681) Net change in unrealized fair value of AFS financial assets ,157,202,176-4,762,647,662 19,919,849,838 Effective portion of changes in fair value of cash flow hedges ,543,444,308-11,587,181,589 20,130,625,897 Equity adjustments in equity method (debit) (52,099,346) - (56,737,992) (108,837,338) Net profit(loss) on translation of foreign operations ,097,951,303 - (7,418,452,306) 27,679,498,997 Net gain(loss) on revaluation of land (36,361,223,176) 26,527,942,918 (18,014,853,209) (27,848,133,467) Subtotal ,385,275,265 (214,096,823,720) (52,308,888,246) (244,020,436,701) Dividends (94,483,711,431) - (94,483,711,431) Stock option - 2,015,482,504 (1,690,789,528) ,692,976 Disposal of treasury stock - 53,023,096,674 90,260,916, ,284,012,957 Acquisition of investments in subsidiaries - (9,541,315,814) (59,899,143) - - (448,432,336,102) (458,033,551,059) Reduction of capital stock of subsidiaries without any refund - 860,011, (862,871,474) (2,860,448) Capital stock increase by issuing new shares of subsidiaries - 584,932,605 8,050,624, (7,961,277,354) 674,279,285 Dividends of the subsidiaries (53,324,066,352) (53,324,066,352) Stock option of the subsidiaries - 1,524,014,014 (1,912,830,727) - - (21,735,404) (410,552,117) Transactions of treasury shares by subsidiaries - 6,256,086,126 (739,097) - - (18,581,712,073) (12,326,365,044) Exercising of convertible bonds by subsidiaries - (4,791,047,084) ,112,878,144 2,321,831,060 Disposal of share of investments in subsidiaries - 35,715,299,969 (6,763,241,881) 4,385,426, ,281,455, ,618,940,574 Changes in consolidation scope ,906,000 12,906,000 Bond with warrant increase by issuing and exercising of subsidiaries - 4,453,082, ,638,266,627 12,091,348,793 Others - (1,182,154,046) ,929,457 (1,003,224,589) Balance at December 31, ,808,980,000 1,652,835,160,666 (17,273,121,037) 538,782,208, ,507,685,246 3,347,170,002,369 6,822,830,916,036 (Concluded) See Notes -8-

16 DOOSAN HEAVY INDUSTRIES & CONSTRUCTION CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 Notes (In Korean won) CASH FLOWS FROM OPERATING ACTIVITIES: Cash generated from operations 36 1,491,876,388, ,940,588,916 Net income(loss) (215,524,785,947) (1,750,899,329,509) Adjustments 1,667,514,803,768 2,796,807,824,518 Changes in operating assets and liabilities 39,886,371,165 (479,967,906,093) Interest received 39,862,994,719 41,862,736,122 Interest paid (495,762,417,342) (576,553,756,935) Dividends received 303,597,150 1,716,215,002 Income tax paid (68,713,777,552) (107,337,929,391) Net cash flows provided by (used in) operating activities 967,566,785,961 (74,372,146,286) CASH FLOWS FROM INVESTING ACTIVITIES: Cash inflows from investing activities: Decrease in short-term financial instruments 297,898,738, ,203,565,224 Disposal of short-term investment in securities - 80,499,361,714 Collection of short-term loans 65,275,787, ,894,172,141 Disposal of long-term financial instruments 63,611,006,170 11,158,450,670 Disposal of long-term investment in securities 2,435,824,713 15,745,912,830 Collection of long-term loans 229,701,707, ,493,369,838 Disposal of investment in subsidiaries - 5,999,506,443 Disposal of investments in associates - 126,667,468,493 Disposal of property, plant and equipment 69,257,010,540 30,891,342,577 Disposal of intangible assets 1,636,717,701 2,863,652,101 Disposal of investment property 1,173,000,000 1,577,382,829 Disposal of non-current assets classified as held-for-sale 84,419,819,225 - The sales of business unit 1,154,821,544, ,317,226,465 Subtotal 1,970,231,156, ,311,411,325 Cash outflows for investing activities: Increase in short-term financial instruments (95,091,693,985) (79,222,803,135) Acquisition of short-term investments in securities (127,937,629,145) (3,955,604,933) Increase in short-term loans (27,800,272,132) (155,702,429,216) Acquisition of long-term financial instruments (16,895,446,044) (56,094,727,889) Acquisition of long-term investments in securities (131,466,690,976) (12,416,609,062) Increase in long-term loans (179,347,198,041) (212,259,140,998) Acquisition of investments in associates and joint ventures (9,791,807,060) (1,108,000,000) Acquisition of shares in subsidiaries (31,841,144,402) (54,940,467,860) Acquisition of property, plant and equipment (290,902,622,062) (388,747,759,099) Acquisition of intangible assets (248,694,126,605) (253,851,630,523) Acquisition of investment property (1,122,000,000) (3,727,430,450) The sales of business unit (4,573,742,849) - Subtotal (1,165,464,373,301) (1,222,026,603,165) Net cash provided by (used in) investing activities 804,766,783,274 (379,715,191,840) (Continued) -9-

17 DOOSAN HEAVY INDUSTRIES & CONSTRUCTION CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND (In Korean won) CASH FLOWS FROM FINANCING ACTIVITIES: Cash inflows from financing activities: Net increase in short-term borrowings - 1,172,995,994,644 Increase in short-term bonds 180,000,000,000 - Increase in asset-backed loans 714,113,619,260 1,294,518,541,269 Issuance of bonds 735,232,370, ,193,878,690 Increase in long-term borrowings 886,199,800, ,556,421,012 Disposals of treasury stock 160,218,812,676 - Disposals of investment stock in subsidiaries 365,449,720,215 - Capital increase by issuing new shares of subsidiaries 694,701, ,677,759,896 Changes in non-controlling interests - 1,080,996,843 Subtotal 3,041,909,023,273 4,838,023,592,354 Cash outflows for financing activities: Net decrease in short-term borrowings (865,054,268,013) - Repayment of current portion of long-term debt (2,189,786,666,558) (1,255,456,228,592) Decrease in asset-backed loans (682,900,000,000) (1,203,450,000,000) Repayment of bonds (300,602,677,526) (45,694,643,604) Repayment of long-term borrowings (636,852,572,778) (1,094,394,528,323) Repayment of financial lease liabilities (149,982,177) (660,278,141) Acquisition of additional shares in subsidiaries (458,033,551,059) - Dividend (94,483,711,431) (84,230,535,915) Dividend of subsidiaries (53,324,066,352) (85,494,554,491) Acquisition of treasury stock by subsidiaries (12,326,365,036) (9,997,743,330) Capital increase with consideration in subsidiaries (11,253,730) - Fees paid in capital stock reduction without consideration in subsidiaries (2,860,448) - Subtotal (5,293,527,975,108) (3,779,378,512,396) Net cash provided by (used in) financing activities (2,251,618,951,835) 1,058,645,079,958 EFFECT OF EXCHANGE RATE CHANGES IN CASH AND CASH EQUIVALENTS (41,177,184,921) (9,110,207,916) CLASSIFICATION AS HELD FOR SALE ASSETS (3,044,188,427) - NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (523,506,755,948) 595,447,533,916 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 1,893,007,747,878 1,297,560,213,962 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 1,369,500,991,930 1,893,007,747,878 (Concluded) See Notes -10-

18 DOOSAN HEAVY INDUSTRIES & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2016 AND ORGANIZATION AND DESCRIPTION OF THE BUSINESS: (1) The Parent company Doosan Heavy Industries & Construction Co., Ltd. (the Company ) was incorporated on September 20, 1962, with its headquarters in Changwon, Korea. Since its incorporation, the Company has grown to become one of the leading global manufacturers of advanced power generation equipment. The Company engages in manufacturing a range of thermal and nuclear power generation equipment including boilers, turbines and generators. It also engages in engineering, procurement and construction of thermal power plants. The Company also supplies seawater desalination and water treatment solutions to its clients. (2) Consolidated subsidiaries The details of consolidated subsidiaries as of December 31, 2016 and 2015 are as follows: Subsidiary Type of business Location Ownership ratio of the Group (%) (*1) December December 31, , 2015 Financial closing date(*2) Doosan Asset Management Company Co., Ltd. Property development Korea December 31 Manufacturing of Doosan Heavy Industries Vietnam Co., Ltd. machinery & equipment Vietnam December 31 HF Controls Corp. Manufacturing USA December 31 Doosan HF Controls Asia Co.,Ltd. Manufacturing Korea December 31 PT. Doosan Heavy Industries Indonesia Manufacturing Indonesia December 31 Doosan Heavy Industries Japan Corp. Sales Japan December 31 S.C Doosan IMGB S.A. Manufacturing Romania December 31 Doosan Enpure Ltd. Engineering & Services UK December 31 Doosan Construction Site Solutions Vietnam Co., Ltd. Equipment lease Vietnam December 31 Doosan Power Systems India Private Ltd. Engineering & Services India March 31 Doosan Heavy Industries Muscat LLC Manufacturing Oman December 31 Doosan Power Systems Arabia Company Limited Manufacturing services Saudi Arabia December 31 Azul Torre Construction Corporation (*3) Manufacturing Philippines 40 - December 31 Doosan Heavy Industries America Holdings LLC Holdings Company USA December 31 Doosan Hydro Technology LLC Manufacturing USA December 31 Doosan Engineering & Services LLC Engineering & Services USA December 31 Doosan Heavy Industries America LLC Sales USA December 31 Doosan ATS America, LLC Engineering & Services USA December 31 Doosan Power Service America, LLC Engineering & Services USA December 31 Doosan GridTech Inc. Software & System engineering USA December 31 Doosan GridTech LLC Software & System engineering USA December 31 Doosan GridTech CA LLC Software & System engineering USA December 31 Doosan Skoda Power s.r.o Manufacturing Czech December 31 Skoda Power Private Ltd. Engineering India March 31 Doosan Power Systems Pension Trustee Company Ltd. Professional services UK December 31 Doosan Power Systems Overseas Investments Ltd. Holdings Company UK December 31 Doosan Babcock Ltd. Engineering & Services UK December

19 Subsidiary Type of business Location Ownership ratio of the Group (%) (*1) December December 31, , 2015 Financial closing date(*2) Doosan Power Systems Holdings Ltd. Holdings Company UK December 31 Doosan Power Systems Europe Limited GmbH Engineering & Services Germany December 31 Engineering & Services, Doosan Power Systems Americas LLC Sales USA December 31 Doosan Lentjes UK Limited Professional services UK December 31 Doosan Lentjes GmbH Engineering & Services Germany December 31 Doosan Power Systems S.A. ( DPS S.A. ) Holdings Company Luxembourg December 31 Doosan Babcock Energy Technologies (Shanghai) Ltd. Engineering & Services China December 31 Doosan Babcock Energy Services (Overseas) Ltd. Engineering & Services UK December 31 Doosan Babcock Energy Polska Sp z.o.o Engineering & Services Poland December 31 Doosan Babcock Energy Germany GmbH Engineering & Services Germany December 31 Doosan Lentjes Czech s.r.o Professional services Czech December 31 AE & E Lentjes Belgie N.V. Dormant Belgium December 31 Doosan Power Systems (Scotland) Ltd. Partnership Real estate UK December 31 Doosan Babcock General Maintenance Services LLC (*3) Professional services UAE December 31 Doosan Babcock WLL(*3) Professional services Qatar December 31 KDPP 1st Co.,Ltd. (*4) Asset Securitization Korea - - December 31 KDPP 2nd Co.,Ltd. (*4) Asset Securitization Korea - - December 31 KDPP 3rd Co.,Ltd. (*4) Asset Securitization Korea - - December 31 Happy Tomorrow 20th Co., Ltd.(*4) Asset Securitization Korea - - December 31 Happy Tomorrow 25th Co., Ltd.(*4) Asset Securitization Korea - - December 31 Happy Tomorrow 27th Co., Ltd.(*4) Asset Securitization Korea - - December 31 Doosan Cuvex Co., Ltd.(*5) Operation of resort and golf club Korea December 31 Manufacturing of Doosan Infracore Co., Ltd. ( DI ) and subsidiaries (*6) Doosan Engineering & Construction Co., Ltd. ( DEC ) and subsidiaries Doosan Engine Co., Ltd. ( DE ) and subsidiaries (*6) machinery & equipment Korea, etc December 31 Construction and manufacturing Korea, etc December 31 Manufacturing of machinery & equipment Korea, etc December 31 (*1) The ownership percentage represents the equity interest held by the Company (theparent) in each respective subsidiary, except Doosan Heavy Industries Vietnam Co., Ltd. of which 24.76% of equity interest are owned by Doosan Engineering & Construction Co., Ltd. (DEC) and Doosan Cuvex Co., Ltd. of which 19.87%, 22.22%, 2.99% of equity interest are owned by Doosan Infracore Co., Ltd. ( DI ), Doosan Engineering & Construction Co., Ltd. (DEC), Doosan Engine Co., Ltd. ( DE ), respectively. Overall, the Group has an effective ownership interest of 95.15% of the Doosan Heavy Industries Vietnam Co., Ltd. and 52.66% of Doosan Cuvex., Ltd. (*2) Where the reporting date of subsidiaries is not consistent with that of the Company based on local laws, adjustments have been made to conform to the Company s reporting date for preparation of consolidated financial statements. (*3) Although the Company s ownership does not exceed 50%, it is classified as a consolidated subsidiary since the Group is considered to have the voting rights in the equity s board of directors, and others. (*4) The Company assessed that it exercises control over the special purpose entity as the entity s activities are substantively governed by the Company. (*5) Doosan Cuvex Co., Ltd., subsidiary of DEC, is reclassified as the Company s direct subsidiaries by stock trading within the Group for the year ended December 31, (*6) Although the Company s ownership interest in the investee is less than a majority, the Company assessed that it exercises control over the investee based on its holdings relative to the size and dispersion of ownership interests held by other equity holders and the voting patterns in previous shareholders meetings. -12-

20 (3) Main subsidiary s financial information Condensed financial information of the Group s significant consolidated subsidiaries (or intermediate parent) as of and for the year ended December 31, 2016, is as follows (in millions of Korean won): Subsidiary Assets Liabilities Sales Net income(loss) Total comprehensive income(loss) Doosan Heavy Industries Vietnam Co., Ltd. 516, , ,323 (8,553) (8,553) HF Controls Corp. 24,296 9,347 14, Doosan Heavy Industries Japan Corp. 26,496 23,458 2, S.C. Doosan IMGB S.A. 141, ,666 86,136 (2,335) (2,335) Doosan Construction Site Solutions Vietnam Co., Ltd. 10, (1,833) (1,833) Doosan Power Systems India Private Ltd. 467, , ,454 1,223 1,508 Doosan Heavy Industries Muscat LLC 22,090 22,136 31,552 (409) (409) Doosan Heavy Industries America Holdings LLC 207,432 38,770 2,060 6,529 6,529 Doosan Hydro Technology LLC 34,704 63,572 28,517 (4,595) (4,595) Doosan Heavy Industries America Corp. 16,248 10,242 3, Doosan Skoda Power s.r.o 611, , ,168 66,719 64,873 Doosan Power Systems Overseas Investments Ltd. 75,586 88,747 - (2,865) (2,865) Doosan Babcock Ltd. 1,044, , ,507 (24,578) (86,361) Doosan Power Systems Europe Limited GmbH 185, ,467 - (2,042) (2,042) Doosan Lentjes GmbH 71,833 58,151 32,988 (26,810) (29,488) DPS S.A. 1,319, ,265-22,786 22,786 Doosan Babcock Energy Polska Sp z.o.o. 17,959 9,312 29,159 (2,419) (2,540) Doosan Power Systems (Scotland) Ltd. Partnership 32,174 1,735-1,878 1,878 Doosan Cuvex Co., Ltd. 219,043 79,613 27, (100) Doosan Infracore Co., Ltd. ( DI ) and subsidiaries 10,026,809 6,578,432 5,729, , ,897 Doosan Engineering & Construction Co., Ltd. ( DEC ) and subsidiaries 3,030,035 1,965,359 1,274,566 (357,034) (347,450) Doosan Engine Co., Ltd. ( DE ) and subsidiaries 1,356, , ,917 (181,226) (40,406) (4) Changes in the scope of consolidation Changes in the scope of consolidation for the year ended December 31, 2016, are as follows: Doosan Power Service America, LLC Azul Torre Construction Corporation KDPP 2nd Co., Ltd. KDPP 3rd Co., Ltd. Happy Tomorrow 25th Co., Ltd. Happy Tomorrow 27th Co., Ltd. Yongin Samga Project 1st LLC DM BEST 2nd Co., Ltd. DM BEST 3rd Co., Ltd. DM BEST 4th Co., Ltd. Description Incorporation of new connections Incorporation of new connections Incorporation of new connections Incorporation of new connections Incorporation of new connections Incorporation of new connections Incorporation of new connections Incorporation of new connections Incorporation of new connections Incorporation of new connections Reason Establishment of new corporation Establishment of new corporation Establishment of new corporation Establishment of new corporation Establishment of new corporation Establishment of new corporation Establishment of new corporation Establishment of new corporation Establishment of new corporation Establishment of new corporation -13-

21 Doosan GridTech Inc. Doosan GridTech LLC Doosan GridTech CA LLC Doosan Infracore North America LLC GB-DIBH private placement securities investment trust 1st Doosan Infracore Portable Power (Shanghai) Co., Ltd. Doosan International China Co., Ltd. Doosan International Manufacturing China Co., Ltd. Doosan Holdings International Ltd. Doosan Infracore International, Inc. Doosan Infracore Machine Tools Yantai Co., Ltd. Doosan Infracore Germany GmbH. Doosan Infracore America Corp. SD 1st Co., Ltd. DS Changwon 1st LLC DS-Bliss 1st Co., Ltd. Doosan Cuvex 1st Securitization Specialty LLC SD 5th Co., Ltd. DS Public 1st Co., Ltd. DS Public 2nd Co., Ltd. Incorporation of new connections Incorporation of new connections Incorporation of new connections Incorporation of new connections Incorporation of new connections, Excluded from consolidation Excluded from consolidation Excluded from consolidation Excluded from consolidation Excluded from consolidation Excluded from consolidation Excluded from consolidation Excluded from consolidation Excluded from consolidation Excluded from consolidation Excluded from consolidation Excluded from consolidation Excluded from consolidation Excluded from consolidation Excluded from consolidation Excluded from consolidation Acquisition of equity Acquisition of equity Establishment of new corporation Establishment of new corporation (*1) Merger Merger Liquidation Merger Merger Disposals of business unit Disposals of business unit Disposals of business unit The settlement of repayment The settlement of repayment The settlement of repayment The settlement of repayment The settlement of repayment The settlement of repayment The settlement of repayment (*1) DI, subsidiary, assessed that it exercises control over the trust as the trust s majority of profits is vested in DI and it is the company which influences the profits the most. And it is excluded from consolidation due to disposal as Doosan bobcat s initial public offering on November

22 (5) Significant non-controlling interests Financial information of subsidiaries attributable to significant non-controlling interests is as follows (in millions of Korean won): Subsidiary Net loss attributable to non-controlling interests Cumulative noncontrolling interests Dividends allocated to non-controlling interests Doosan Infracore Co., Ltd. and subsidiaries 67,511 2,749,591 (18,289) Doosan Engineering &Construction Co., Ltd. and subsidiaries (71,266) 108,064 (26,000) Doosan Engine Co., Ltd. and subsidiaries. (49,562) 119,127 - Doosan Cuvex Co., Ltd ,091 - (6) Cash flow information for subsidiaries with significant non-controlling interests Cash flow information for subsidiaries with significant non-controlling interests is as follows (in millions of Korean won): 2016 DI and subsidiaries DEC and subsidiaries DE and subsidiaries Doosan Cuvex Ⅰ. Net cash flows provided by (used in) operating activities 512,993 (100,498) 4, Ⅱ. Net cash flow provided by (used in) investing activities 909, ,365 41, Ⅲ. Net cash flows provided (used in) by financing activities (1,454,380) (465,268) (18,651) (11,997) Ⅳ. Net foreign exchange difference 10, Ⅴ. Net increase (decrease) in cash and cash equivalents (Ⅰ+Ⅱ+Ⅲ+Ⅳ) (21,425) (28,315) 27,339 (10,538) Ⅵ. Cash and cash equivalents as at January 1 560, ,204 45,482 19,077 Ⅶ. Cash and cash equivalents as at December ,578 79,889 72,821 8,

23 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The Group maintains its official accounting records in Korean won and prepares consolidated financial statements in conformity with Korean International Financial Reporting Standards ( K-IFRS ), in the Korean language (Hangul). (1) Basis of consolidated financial statements The Company and its subsidiaries (the Group ) has prepared the consolidated financial statements in accordance with the Korean International Financial Reporting Standards ( K-IFRS ). The principal accounting policies are set out below. Except for the effect of the Amendments to K-IFRS and new interpretations set out below, the principal accounting policies used to prepare the consolidated financial statements as of and for the year ended December 31, 2016 are consistent with the accounting policies used to prepare the consolidated financial statements as of and for the year ended December 31, The accompanying consolidated financial statements have been prepared on the historical cost basis except for certain non-current assets and financial instruments that are measured at fair values, as explained in the accounting policies below. Historical cost is based on the fair values of the consideration given. 1) Accounting standards and interpretations that were newly applied for the year ended December 31, 2016, and changes in the Group s accounting policies are as follows: Amendments to K-IFRS 1110 Consolidated Financial Statements & K-IFRS 1112 Disclosure of interests in other entities & K-IFRS 1028 Investment in associates The amendments clarify that in applying the equity method of accounting to an associate or a joint venture that is an investment entity, an investor may retain the fair value measurements that the associate or joint venture used for its subsidiaries. The application of these amendments has no material impact on the disclosures or the amounts recognized in the Group s consolidated financial statements. Amendments to K-IFRS 1111 Accounting for Acquisitions of Interests in Joint Operations The amendments to K-IFRS 1111 provide guidance on how to account for the acquisition of a joint operation that constitutes a business as defined in K-IFRS 1103 Business Combinations. A joint operator is also required to disclose the relevant information required by K-IFRS 1103 and other standards for business combinations. The application of these amendments has no material impact on the disclosures or the amounts recognized in the Group s consolidated financial statements. -16-