Daewoo International Corporation. Non-consolidated Financial Statements Years ended December 31, 2008 and 2009 with independent auditors report

Non-consolidated Financial Statements Years ended with independent auditors report

Contents Page Independent auditors report 1-2 Statements of financial position 3-4 Statements of income 5 Statements of appropriations of retained earnings 6 Statements of changes in equity 7 Statements of cash flows 8-9 Notes to financial statements 10-67 Internal control over financial reporting review report 68 Report on the operations of the internal control over financial reporting 69

Non-consolidated statements of financial position As of Assets in thousands Korean won in millions (Note 2) 2008 2009 2009 Current assets: Cash and cash equivalents less government subsidies of 177 million in 2008 and 94 million in 2009 (Notes 9 and 20) 289,342 929,175 US$ 795,799 Short-term financial instruments (Notes 3 and 20) 8,959 7,796 6,677 Short-term investment securities (Note 6) 55 5 4 Trade accounts receivable (Notes 4 and 20) 363,328 344,999 295,477 Other accounts receivable (Notes 4 and 20) 20,739 22,204 19,017 Accrued income (Note 4) 74 52 44 Advance payments (Notes 4 and 20) 53,754 85,859 73,535 Prepaid expenses (Note 4) 1,071 765 655 Short-term loans receivable (Notes 4 and 20) 4,115 8,160 6,989 Currency forwards contracts (Note 17) 11,439 20,640 17,677 Commodity futures contracts (Note 17) 13,112 20,030 17,155 Firm commitment contracts (Note 17) 8,770 12,471 10,681 Short-term guarantee deposits (Note 20) 696 280 240 Deferred income tax assets (Note 21) 59,116 37,601 32,204 Inventories (Note 5) 211,826 267,384 229,003 Total current assets 1,046,396 1,757,421 1,505,157 Non-current assets: Long-term financial instruments (Note 3) 16 18 15 Long-term investment securities (Note 6) 67,416 80,029 68,541 Equity method investments (Notes 7 and 15) 922,227 1,256,128 1,075,820 Long-term trade accounts receivable (Notes 4, 14 and 20) 8,749 8,349 7,151 Long-term other accounts receivable (Notes 4, 14 and 20) 13,785 12,599 10,791 Long-term guarantee deposits (Note 20) 12,256 16,473 14,109 Natural resources exploration investments (Note 8) 389,785 458,812 392,953 Long-term loans receivable (Notes 4 and 20) 7,114 40,172 34,406 Property, plant and equipment (Notes 9, 15 and 25) 159,295 209,245 179,209 Intangible assets (Notes 10 and 25) 48,218 45,930 39,337 Total non-current assets 1,628,861 2,127,755 1,822,332 Total assets 2,675,257 3,885,176 US$ 3,327,489 (Continued) See accompanying notes. 3

Non-consolidated statements of financial position (cont'd) As of Liabilities and equity Korean won in millions in thousands (Note 2) 2008 2009 2009 Current liabilities: Trade accounts payable (Note 20) 506,651 975,392 US$ 835,382 Short-term borrowings (Notes 11 and 20) 248,484 139,359 119,355 Other accounts payable (Note 20) 157,918 163,242 139,810 Advances received 31,690 39,082 33,472 Withholdings (Note 20) 50,087 25,802 22,098 Accrued expenses (Note 20) 3,077 7,651 6,553 Income taxes payable 37,725 11,918 10,207 Current portion of long-term debt (Notes 12, 14 and 20) 38,410 17,445 14,941 Guarantee deposits received (Note 20) 214 223 191 Currency forwards contracts (Note 17) 15,217 26,682 22,852 Commodity futures contracts (Note 17) 37,584 37,945 32,498 Firm commitment contracts (Note 17) 3,789 4,857 4,160 Total current liabilities 1,130,846 1,449,598 1,241,519 Non-current liabilities: Bonds (Note 13) - 149,488 128,030 Convertible bonds (Note 13) - 355,963 304,867 Long-term debt (Notes 13, 14 and 20) 157,463 151,245 129,535 Long-term other accounts payable (Notes 14 and 20) 2,311 - - Long-term accrued expenses (Note 18) 29 25 21 Long-term withholdings (Note 8) 165,456 163,304 139,863 Long-term guarantee deposits received 7,349 7,268 6,226 Deferred income tax liabilities (Note 21) 46,076 130,500 111,768 Severance and retirement benefits (Note 16) 662 381 326 Provision for contingencies (Notes 17 and 20) 92,498 83,723 71,705 Provision for restoration (Note 20) 2,067 3,950 3,383 Total non-current liabilities 473,911 1,045,847 895,724 Total liabilities 1,604,757 2,495,445 2,137,243 Equity: Capital stock (Note 19) 474,944 489,192 418,972 Capital surplus (Notes 7, 13 and 19) 1,402 19,245 16,483 Capital adjustments(note 19) 829 294 252 Accumulated other comprehensive income (Notes 6, 7, 9, 19 and 27) 40,510 225,023 192,723 Retained earnings (Note 19) 552,815 655,977 561,816 Total equity 1,070,500 1,389,731 1,190,246 Total liabilities and equity 2,675,257 3,885,176 US$ 3,327,489 See accompanying notes. 4

Non-consolidated statements of income Years ended Korean won in millions 2008 2009 in thousands (Note 2) 2009 Sales (Note 25) 11,045,768 11,147,952 US$ 9,547,749 Cost of sales 10,284,465 10,390,672 8,899,171 Gross profit 761,303 757,280 648,578 Selling and administrative expenses 604,972 585,943 501,835 Operating income (Note 25) 156,331 171,337 146,743 Other income (expenses): Interest income 10,197 9,783 8,379 Interest expense (13,317) (37,563) (32,171) Dividend income 1,826 136 116 Loss on disposal of trade accounts receivable (70,093) (65,106) (55,761) Reversal of allowance for doubtful accounts 1,628 3,831 3,281 Gain on disposal of long-term investment securities 10,606 - - Gain on disposal of natural resources exploration investments, net - 14,104 12,079 Loss on impairment of equity method investments (Note 7) (6,956) - - Loss on impairment of natural resources exploration investments (Note 8) (3,470) (19,323) (16,549) Equity in earnings of equity method investments, net (Note 7) 88,084 97,890 83,839 Loss on valuation of currency forwards contracts, net (Note 17) (3,778) (6,017) (5,153) Loss on valuation of commodity futures contracts, net (Note 17) (24,416) (17,715) (15,172) Gain on valuation of firm commitment contracts, net (Note 17) 38,273 53,048 45,433 Gain on settlement of currency forwards contracts, net 7,646 26,680 22,850 Loss on settlement of commodity futures contracts, net (24,365) (46,738) (40,029) Reversal of (contribution to) provision for contingencies, net (Note 17) (2,611) 3,566 3,054 Rental income 26 16 14 Commission income 33 34 29 Loss on foreign currency transactions, net (66,320) (22,547) (19,311) Gain (loss) on foreign currency translation, net (17,783) 17,540 15,022 Gain on disposal of property, plant and equipment, net 93 295 253 Loss from early repayment of debt (110) (757) (648) Donations (565) (2,055) (1,760) Others, net 24,087 (1,581) (1,354) (51,285) 7,521 6,441 Income before income taxes 105,046 178,858 153,184 Provision for income taxes (Note 21) 17,045 54,244 46,458 Net income 88,001 124,614 US$ 106,726 Earnings per share: Basic earnings per share (Note 22) (Korean won and US$ in units) 899 1,274 US$ 1.09 Diluted earnings per share (Note 22) (Korean won and US$ in units) 898 1,273 US$ 1.09 See accompanying notes. 5

Non-consolidated statements of appropriations of retained earnings Years ended in thousands Korean won in millions (Note 2) 2008 2009 2009 Retained earnings before appropriations: Unappropriated retained earnings carried forward from the prior year 1,501 3,133 US$ 2,683 Cumulative effect of changes in accounting policies 1,235 - - Changes due to valuation of equity method (Note 7) (3,132) (2,455) (2,103) Net income for the year 88,001 124,614 106,726 87,605 125,292 107,306 Appropriations (2009 proposed): Legal reserve (Note 19) 475 489 419 Reserve for business expansion 65,000 103,000 88,215 Amortization of discount on stock issuance - 82 70 Cash dividends (Note 28) 4,749 4,892 4,190 Stock dividends (Note 28) 14,248 14,676 12,569 84,472 123,139 105,463 Unappropriated retained earnings to be carried forward to the next year 3,133 2,153 US$ 1,843 See accompanying notes. 6

Non-consolidated statements of changes in equity Years ended Korean won in millions in thousands (Note 2) Capital stock Capital surplus Capital adjustments Accumulated other comprehensive income Retained earnings Total Total Balance as of Jan. 1, 2008 474,944 1,294 1,170 10,938 499,957 988,303 US$ 846,440 Dividends - - - - (33,246) (33,246) (28,473) Cumulative effect of changes in accounting policies (Note 2) - - - - 1,235 1,235 1,058 Net income for the year - - - - 88,001 88,001 75,369 Changes due to valuation of equity method (Note 7) - - - - (3,132) (3,132) (2,682) Changes due to debt-forequity-swap (Note 19) - - (341) - - (341) (292) Acqusition of subsidiary's share (Note 7) - 108 - - - 108 92 Loss on valuation of investment securities (Notes 6 and 27) - - - (1,405) - (1,405) (1,203) Equity adjustment arising from equity method investments, net (Notes 7 and 27) - - - 29,436-29,436 25,211 Foreign currency translation adjustments (Note 27) - - - 1,541-1,541 1,319 Balance as of Dec. 31, 2008 474,944 1,402 829 40,510 552,815 1,070,500 US$ 916,839 Balance as of Jan. 1, 2009 474,944 1,402 829 40,510 552,815 1,070,500 US$ 916,839 Dividends 14,248 - - - (18,997) (4,749) (4,067) Discount on stock issuance - - (82) - - (82) (70) Net income for the year 124,614 124,614 106,726 Changes due to valuation of equity method (Note 7) - - - - (2,455) (2,455) (2,103) Changes to debt-forequity-swap (Note 19) - - (453) - - (453) (388) Equity component of conversion rights (Note 13) - 17,843 - - - 17,843 15,282 Gain on valuation of investment securities (Notes 6 and 27) - - - 7,953-7,953 6,811 Equity adjustment arising from equity method investments, net (Notes 7 and 27) - - - 125,661-125,661 107,623 Gain on revaluation of property, plant and equipment (Notes 9 and 27) - - - 42,005-42,005 35,976 Foreign currency translation adjustments (Note 27) - - - 8,894-8,894 7,617 Balance as of Dec. 31, 2009 489,192 19,245 294 225,023 655,977 1,389,731 US$ 1,190,246 See accompanying notes. 7

Non-consolidated statements of cash flows Years ended Cash flows from operating activities: in thousands Korean won in millions (Note 2) 2008 2009 2009 Net income 88,001 124,614 US$ 106,726 Adjustments to reconcile net income to net cash provided by operating activities: Loss (gain) on valuation of inventories 3,433 (5,405) (4,629) Depreciation 10,582 9,915 8,492 Amortization 4,341 4,638 3,972 Share-based compensation expense, net (101) 12 10 Provision for severance and retirement benefits 13,542 9,815 8,406 Interest income (702) (669) (573) Interest expense 11,891 17,103 14,648 Loss (gain) on foreign currency translation, net 9,649 (17,541) (15,023) Loss on disposal of trade accounts receivable 70,093 65,106 55,761 Reversal of allowance for doubtful accounts (1,628) (3,831) (3,281) Gain on disposal of long-term investment securities (10,606) - - Gain on disposal of natural resources exploration investments, net - (14,104) (12,079) Equity in earnings of equity method investments, net (88,084) (97,890) (83,839) Gain on disposal of property, plant and equipment, net (93) (295) (253) Loss on valuation of currency forwards contracts, net 3,778 6,017 5,153 Loss on valuation of commodity futures contracts, net 24,416 17,715 15,172 Gain on valuation of firm commitment contracts, net (38,273) (53,048) (45,433) Gain on settlement of currency forwards contracts, net (7,646) (26,680) (22,850) Loss on settlement of commodity futures contracts, net 24,365 46,738 40,029 Loss from early repayment of debt 110 757 648 Loss on impairment of equity method investments 6,956 - - Loss on impairment of natural resources exploration investments 3,470 19,323 16,549 Contribution to (reversal of) provision for contingencies, net 2,611 (3,566) (3,054) Others 381 2,921 2,502 Changes in operating assets and liabilities: Trade accounts receivable (154,287) (56,873) (48,709) Other accounts receivable (1,571) (2,906) (2,489) Accrued income (1) 22 19 Advance payments (20,916) (30,895) (26,460) Prepaid expenses 434 306 262 Inventories (74,437) (50,153) (42,954) Dividend income from equity method investments 38,561 27,681 23,708 Deferred income taxes (33,743) 45,516 38,983 Trade accounts payable 77,087 480,373 411,419 Other accounts payable 86,677 7,878 6,747 Advances received 4,732 7,392 6,331 Withholdings 10,517 (24,173) (20,703) Accrued expenses 701 5,185 4,441 Income tax payable 37,725 (25,807) (22,103) Long-term accrued expense (1,135) (16) (14) Payment of severance benefits (10,983) (13,676) (11,713) Foreign currency translation adjustments 1,540 8,894 7,617 Firm commitment contracts 35,815 50,415 43,178 Others, net (182) 3,965 3,396 Total adjustments 39,019 410,159 351,284 Net cash provided by operating activities 127,020 534,773 458,010 (Continued) See accompanying notes. 8

Non-consolidated statements of cash flows (cont'd) Years ended in thousands Korean won in millions (Note 2) 2008 2009 2009 Cash flows from investing activities: Proceeds from short-term financial instruments, net 67,098 973 US$ 833 Increase in short-term loans receivable, net (59) (2,530) (2,167) Proceeds from disposal of short-term investment securities 27 55 47 Settlement of currency forwards contracts, net 7,906 22,928 19,637 Settlement of commodity futures contracts, net (31,024) (71,010) (60,817) Proceeds from disposal of investment securities 11,825 3,638 3,116 Acquisition of investment securities (17,732) (2,465) (2,111) Acquisition of equity-method investments (30,481) (79,634) (68,203) Decrease (increase) in guarantee deposits, net 997 (3,849) (3,297) Proceeds from disposal of property, plant and equipment 164 912 781 Increase in long-term loans receivable, net - (6,719) (5,755) Acquisition of property, plant and equipment (7,529) (6,738) (5,771) Acquisition of intangible assets (5,629) (411) (352) Additions to natural resources exploration investments (144,129) (143,033) (122,502) Proceeds from disposal of natural resources exploration investments - 16,437 14,078 Derease in long-term other accounts receivable - 6,586 5,641 Net cash used in investing activities (148,566) (264,860) (226,842) Cash flows from financing activities: Proceeds from issuance of bonds - 149,308 127,876 Proceeds from issuance of convertible bonds - 373,322 319,734 Increase (decrease) in short-term borrowings, net 178,907 (109,126) (93,462) Decrease in long-term guarantee deposits received - (80) (69) Repayment of current portion of long-term debt (78,244) (66,674) (57,103) Proceeds from long-term debt 6,352 30,153 25,825 Increase (decrease) in long-term withholdings 38,766 (2,152) (1,843) Decrease in government subsidies, net (174) (84) (72) Payment of dividends (33,246) (4,749) (4,067) Stock issuance cost - (82) (70) Net cash provided by financing activities 112,361 369,836 316,749 Net increase in cash and cash equivalents 90,815 639,749 547,917 Cash and cash equivalents at the beginning of the year 198,704 289,519 247,961 Cash and cash equivalents at the end of the year 289,519 929,268 US$ 795,878 See accompanying notes. 9

1. Corporate information Daewoo International Corporation (the Company ) was incorporated as a spin-off company on December 27, 2000 as a result of a spin-off by Daewoo Corporation on certain of its business activities. The Company had been placed under a work-out agreement with the Creditor Financial Institutions Council ( Creditor Council ), which was terminated on December 30, 2003. The Company is engaged in various business activities, such as providing export services, export agent services, intermediary trading, manufacturing, distribution and natural resource development. The primary products sold by the Company include various industrial grade steel, metals, chemicals, transportation equipment, machinery, ships, plants, electronics, textiles and other specialty goods. The Company listed its shares on the Korea Exchange on March 23, 2001,. The Company s common stock outstanding as of December 31, 2009 amounted to 489,192 million. As of December 31, 2009, the Company s major stockholder is Non-Performing Asset Management Fund ( NPA Fund ), which owns 35.53% of the Company s total outstanding shares. NPA Fund is wholly invested and managed by Korea Asset Management Corporation ( KAMCO ). 2. Summary of significant accounting policies Basis of financial statement preparation The Company maintains its official accounting records in Korean won and prepares statutory financial statements in the Korean language in conformity with accounting principles generally accepted in the Republic of Korea ( Korean GAAP ). Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. For example, as noted in Note 7, equity in earnings of certain equity method investments, net of income tax effect, constituting 39.9% and 84.7% of the Company s net income for the years ended, respectively, was recorded based upon the unaudited financial information of the investees as submitted by the investees management. The procedures the Company performed with respect to the reliability on such unaudited financial information of the investee are limited to obtaining the reviewed financial statements (if available), analytical procedures, and making inquiries of the investees in accordance with Korean GAAP. Such accounting practice may be substantially less in scope than generally accepted practices in other jurisdictions. Accordingly, these non-consolidated financial statements are intended for use by those who are informed about Korean accounting principles and practices. In the event of any differences in interpreting the financial statements or the independent auditors report thereon, the Korean version, which is used for regulatory reporting purposes, shall prevail. The accompanying nonconsolidated financial statements have been condensed, restructured and translated into English from the Korean language financial statements. The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the Republic of Korea, including Statements of Korea Accounting Standards ( SKAS ) 1 to 23, and the summary of significant account policies used for the preparation of the financial statements are as follows: Adoption of revised Statements of Korea Accounting Standards ( SKAS ) The Company has adopted the following revised SKAS for the current financial year. SKAS 5 Amendments Property, Plant and Equipment SKAS 21 Amendments - Preparation and Presentation of Financial Statements 10

2. Summary of significant accounting policies (cont d) Adoption of revised Statements of Korea Accounting Standards ( SKAS ) (cont d) The principal effects of these changes are as follows: SKAS 5 Amendments Property, Plant and Equipment This revised standard allows an entity to choose either the revaluation model or cost model as its accounting policy to an entire class property, plant and equipment. The comparative 2008 financial statements shall not be restated. The Company has adopted the revised standard and revalued its land at fair value. As a result, the Company s net assets increased by 42,005 million as of December 31, 2009. The related disclosures are presented in Note 9. SKAS 21 Amendments - Preparation and Presentation of Financial Statements The revised standard requires an entity to replace the title balance sheet to statement of financial position. Financial statement translation The accompanying statements of financial position as of December 31, 2009 and the related statements of income, changes in equity, appropriation of retained earnings and cash flows for the year then ended are expressed in Korean won and, solely for the convenience of the reader, have been translated into United States dollars at the rate of 1,167.6 to US$1, the exchange rate on December 31, 2009. Such translation should not be construed as a representation that the Korean won amounts can actually be converted into United States dollars at the exchange rate used for the purpose of such translation. Revenue recognition Revenue from the sale of goods is recognized when significant risk and rewards of ownership of goods have passed to the buyer. Revenues from long-term plant construction projects are recognized using the percentage-of-completion method, measured principally by the percentage of costs incurred to date to the total estimated costs to complete the projects. Revenue received from transactions where the Company acts as an agent without assuming the risks and rewards of ownership of the goods is recognized on a net basis. Cash equivalents Highly liquid deposits and marketable securities with original maturities of three months or less, and which have no significant risk of loss in value by interest rate fluctuations, are considered as cash equivalents. Financial instruments Financial instruments, such as time deposits and restricted bank deposits, which are traded by financial institutions and are held for short-term cash management purposes or which will mature within one year, are accounted for as short-term financial instruments. Financial instruments other than cash equivalents and short-term financial instruments are recorded as long-term financial instruments. Disposal of accounts receivable The Company recognizes the difference between the book value and proceeds from disposal of accounts receivable as a non-operating expense when all the risks and rewards associated with the receivables are transferred to the transferee and the Company does not retain control of the receivables sold. 11

2. Summary of significant accounting policies (cont d) Allowance for doubtful accounts The Company provides an allowance for doubtful accounts based on the aggregate estimated collectibles of individual accounts and historical experience. The Company also recognized the difference between the present value of future cash flows and book value of receivables as bad debt expenses when the receivables are restructured by the Company through a work-out agreement, reorganization, and agreement between relevant parties. Inventories Inventories are valued at the lower of cost or net realizable value, with cost being determined using the first-in, first-out method, except for materials in-transit which are stated at cost by the specific identification method. Perpetual inventory system is used to record inventories, in which inventories are adjusted to physical inventory counts that are performed by periods. When a decline in the value of an inventory indicates that its cost exceeds net realizable value, a valuation loss will be recognized to write the inventory down to its net realizable value in cost of sales. If the circumstances that previously caused the inventories to be written down cease to exist or there is an increase in net realizable value, the amount of the write-down is reversed to the extent of the original write-down amount so that the new carrying amount is the lower of cost and revised net realizable value. The reversal is recognized as a deduction from cost of sales. Investments in securities Investments in securities within the scope of SKAS 8 Investments in Securities are classified as either held-to-maturity or available-for-sale securities, as appropriate, and are initially measured at cost, including incidental expenses, with cost being determined using the moving average method. The Company determines the classification of its investments after initial recognition, and, where allowed and appropriate, re-evaluates this designation at each fiscal year end. After initial measurement, available-for-sale securities are measured at fair value with unrealized gains or losses being recognized directly in equity as other comprehensive income. The fair value of available-for-sale securities that are traded actively in the open market (marketable securities) is measured at the closing price of those securities at the reporting date, except for non-marketable equity securities which are measured at cost subsequent to initial measurement if their fair values cannot be reliably estimated. Debt securities which carry fixed or determinable payments and fixed maturity are classified as held-to-maturity if the Company has the positive intention and ability to hold to maturity and are initially measured at cost being determined using the moving average method. Available-for-sale and held-to-maturity securities are classified as long-term investments, except that securities maturing within one year or are certain to be disposed of within one year from the reporting date are classified as short-term investments. The Company recognizes an impairment loss on its investments in securities if there is objective evidence that the securities are impaired. The impairment loss is charged to statement of income. 12

2. Summary of significant accounting policies (cont d) Equity method investments Investments in entities over which the Company has control or significant influence are accounted for using the equity method. Under the equity method of accounting, the Company s initial investment in an investee is recorded at acquisition cost. Subsequently, the carrying amount of the investment is adjusted to reflect the Company s share of income or loss of the investee in the statement of income and share of changes in equity that have been recognized directly in the equity of the investee in the related equity account of the Company on the statement of financial position. If the Company s share of losses of the investee equals or exceeds its interest in the investee, it suspends recognizing its share of further losses. However, if the Company has other long-term interests in the investee, it continues recognizing its share of further losses to the extent of the carrying amount of such longterm interests. At the date of acquisition, the excess of the cost of the investment over the Company s share of the net fair value of the investee s identifiable assets and liabilities is accounted for as goodwill which is amortized over its useful life using the straight-line method. Conversely, negative goodwill represents the excess of the Company s share in the net fair value of the investee s identifiable assets and liabilities over the cost of the investment. Negative goodwill is recorded to the extent of the fair value of acquired non-monetary assets and recognized as income using the straight-line method over the remaining weighted-average useful life of those acquired non-monetary assets. The amount of negative goodwill in excess of the fair value of acquired non-monetary assets is recognized as income immediately. The Company s share in the investee s unrealized profits and losses resulting from transactions between the Company and its investee are eliminated. In translating the financial statements of foreign investees into Korean won, assets and liabilities are translated at the exchange rate on the reporting date and income and expenses are translated at the weighted-average exchange rate for the period. All resulting exchange differences are recognized as equity adjustment arising from equity method investments in other comprehensive income within equity. Joint venture investments A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control, and a jointly controlled entity is a joint venture that involves the establishment of a separate entity in which each venturer has an interest. Investments in jointly-controlled entities are accounted for in the financial statements by using the equity method of accounting as stated in accounting policy for equity method investments described above. 13

2. Summary of significant accounting policies (cont d) Natural resources exploration investments Investment in exploration and development of natural resources such as natural gas and mineral reserves are initially accounted for at cost as part of non-current investment in the statement of financial position. When the reserves are proved to have commercially producible quantities of reserves, the exploration investment account is transferred to mining rights as an intangible asset and is amortized over its expected period of commercial production. Borrowings that are directly attributable to exploration investments are initially accounted for as part of long-term withholdings. When the reserves are proved to have commercially producible quantities of reserves, the Company transfers such borrowings to long-term debt and recognizes the cumulative interest expense from the date when such borrowings were first obtained up to the date when the reserve were proved. Conversely, in case of a failure in commercial production, the Company deducts such borrowings from the amount of exploration investment and recognizes any remaining balance as a loss in the current period. Borrowing costs directly attributable to the exploration investments of mining rights are capitalized as part of the cost of those assets. Such capitalized borrowing costs amounted to 17,137 million and 20,245 million for the years ended, respectively. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation. Maintenance and repairs are expensed in the year in which they are incurred. Expenditures which enhance the value or extend the useful life of the related assets are capitalized. Depreciation is computed using the straight-line method or declining balance method as appropriate, over the estimated useful life of the assets as follows: Depreciation method Years Buildings Straight-line method 20~54 Structures Straight-line method 15~40 Others Declining balance method 2~8 The Company has adopted the amended SKAS 5 Property, Plant and Equipment and chosen the revaluation model as its accounting policy for its land for the financial period beginning January 1, 2009. Valuation is performed frequently enough to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. If an asset s carrying amount is increased as a result of a revaluation, the increase shall be credited directly to other comprehensive income. However, the increase shall be recognized in the statement of income to the extent that it reverses a revaluation decrease of the same asset previously recognized in the statement of income. If an asset s carrying amount is decreased as a result of a revaluation, the decrease shall be recognized in the statement of income. However, the decrease shall be debited directly to other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset. Intangible assets Intangible assets of the Company consist of development costs, distributorship, mining rights and other intangible assets, which are stated at cost less accumulated amortization. Amortization is recognized as an expense based on the straight-line method over the estimated useful life of the assets as follows: Years Development costs 5 Distributorship 5 Mining rights 20 Other intangible assets 5~20 14

2. Summary of significant accounting policies (cont d) Convertible bonds When issuing convertible bonds, the value of the conversion rights (equity component) is recognized separately. The portion allocable to the conversion rights is measured by deducting the present value of the debt at the time of issuance from the gross proceeds from issuance of convertible bonds, with the present value of the debt being computed by discounting the expected future cash flow using the effective interest rate applied to ordinary debt of the Company at the issue date. The portion allocable to the conversion rights is accounted for as a capital surplus and the redemption premium payable at maturity of the bonds is accounted for as an addition to the face value of the bond with a corresponding conversion rights adjustment which is deducted from the related bonds. Such conversion rights adjustment is amortized to interest expense using the effective-interest-rate method over the redemption period of the convertible bonds. Provision for restoration The present value of the estimated costs of restoring the a mining field where the Company conducts its mining activity and assumes the restoration responsibility is reflected as part of the carrying amount of the mining rights recorded in intangible assets, if the cost of restoration meet the recognition criteria for provisions. Subsequent to initial recognition, any changes in the measurement of the estimated restoration costs are recognized in the statement of income as part of non-operating income or expense as appropriate. Derivative financial instruments Derivative financial instruments are presented as assets or liabilities valued principally at the fair value of the rights or obligations associated with the derivative contracts. The unrealized gain or loss from a derivative transaction with the purpose of hedging the exposure to changes in the fair value of a recognized asset or liability or unrecognized firm commitment is recognized in current operations. For a derivative instrument with the purpose of hedging the exposure to the variability of cash flows of a recognized asset or liability or a forecasted transaction, the hedge-effective portion of the derivative instrument s gain or loss is deferred as an other comprehensive income in equity. The ineffective portion of the gain or loss is charged or credited to current operations. Derivative instruments that do not meet the criteria for hedge accounting, or contracts for which the Company has not elected hedge accounting are measured at fair value with unrealized gains or losses reported in current operations. Severance and retirement benefits In accordance with the Employee Retirement Benefit Security Act ( ERBSA ) and the Company s employee benefits policy, employees terminating their employment with at least one year of service are entitled to severance and retirement benefits, based on the rates of pay in effect at the time of termination, years of service and certain other factors. The provision for the years ended December 31, 2008 and 2009 is sufficient to state the liability at the estimated obligation arising from services performed to and at rates of pay in effect as of. Separate funding of this liability is not required by Korean law. The Company has deposited a portion of its severance and retirement benefits obligation with an insurance company, and such deposit has been offset against the Company s liability for severance and retirement benefits as of the reporting date. 15

2. Summary of significant accounting policies (cont d) Severance and retirement benefits (cont d) In accordance with the Korean National Pension Law prior to revision, the Company had prepaid a portion of its severance and retirement benefits obligation to the National Pension Service ( NPS ) at the rate of 3% of payroll expense up through March 31, 1999. Such prepayments have been offset against the Company s liability for severance and retirement benefits. In accordance with a revision in the Korean National Pension Law, additions to these prepayments are no longer required effective from April 1, 1999. Income taxes Current income tax assets and liabilities for the current and prior period are measured at the amount expected to be recovered from or paid to the tax authorities. Deferred income taxes are provided using the liability method for the tax effect of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred income tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse, and are classified as current or non-current, respectively, based on the classification of the related asset or liability in the statement of financial position. In addition, current tax and deferred tax are charged or credited directly to equity if the tax relates to items that are credited or charged directly to equity. Valuation of receivables (payables) at present value Receivables (payables) arising from long-term installment transactions are stated at present value. The difference between the carrying amount and present value of the receivables (payables) is amortized using the effective-interest-rate method and credited (charged) to statement of income over the installment period. Foreign currency translation Transactions involving foreign currencies are recorded at the exchange rates prevailing at the time the transactions are made. Monetary assets and liabilities denominated in foreign currencies are translated into Korean won at the appropriate exchange rates on the reporting date. The resulting unrealized foreign currency translation gains or losses are credited or charged to current operations. Translation of overseas financial statements stated in a foreign currency Financial statements of overseas business locations are maintained in the currencies of the countries in which they conduct their operations. In translating the foreign currency financial statements of these foreign business branches or offices into Korean won, assets and liabilities are translated at the current exchange rate on the reporting date and income and expenses are translated at the average exchange rate during the year. All resulting exchange gains or losses are recognized as foreign currency translation adjustments in accumulated other comprehensive income within equity. Such foreign currency translation losses amounted to 10,313 million and 1,419 million as of, respectively. Leases A lease is accounted for as either a capital lease or an operating lease. A lease is recognized as a capital lease if it transfers substantially to the Company all the risks and rewards incidental to ownership of the leased asset. An asset acquired by way of a capital lease arrangement is stated in the statement of financial position at the lower of the fair value or the present value of minimum lease payments at the inception of the lease. The corresponding liability is included in the statement of financial position as a capital lease obligation. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Capitalized lease assets are depreciated in the same manner as other depreciable property, plant and equipment. Operating lease payments are recognized as an expense on a straight-line basis over the lease term. 16

2. Summary of significant accounting policies (cont d) Share-based payment For equity-settled share-based payment transactions, the Company measures the goods or services received, and the corresponding increase in equity at the fair value of the goods or services received or the equity instruments granted over the vesting period. For cash-settled sharebased payment transactions, the Company measures the goods or services acquired and the liability incurred at the fair value of the liability, and re-measures the fair value of the liability at each reporting date, with any changes in value recognized in profit or loss for the period. For sharebased payment transactions in which the terms of the arrangement provide the supplier of goods or services with a choice of whether the Company settles the transaction in cash or by issuing equity instruments, the Company accounts for that transaction, or the components of that transaction, as a cash-settled share-based payment transaction if, and to the extent that, the Company has incurred a liability to settle in cash (or other assets), or as an equity-settled share-based payment transaction if, and to the extent that, no such liability has been incurred. Share-based payment transactions implemented before the effective date of SKAS 22 are accounted in accordance with Korea Financial Accounting Standards Interpretations 39-35 Accounting for Stock Options. Provision and contingent liabilities When there is a probability that an outflow of economic benefits will occur due to a present obligation resulting from a past event, and which is reasonably estimable, a corresponding amount of provision is recognized in the financial statements. However, when such an outflow is dependent on a future event, is not certain to occur, or cannot be reliably estimated, a contingent liability is disclosed, but not recognized in the financial statements. Government subsidy Government subsidy, which is required to be repaid, is recorded as a liability in the statement of financial position. Government subsidy with no repayment obligation, which is used to purchase a designated asset or to develop a certain technology, is accounted for as a deduction from the acquisition cost of the acquired assets. Such subsidy amount is offset against the depreciation or amortization of the acquired assets during such assets useful life. Government subsidy, contributed to compensate for specific expenses, is offset against the related expenses as incurred. Per share amounts Basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share measures the performance of the Company over the reporting period while giving effect to all potential common shares, such as options, warrants and convertible bonds, that are dilutive and outstanding during the period. Debt to be converted into equity Debt to be converted into equity, specifically into the Company s common stock, is recorded as a capital adjustment. Significant judgments and accounting estimates The preparation of financial statements in accordance with Korean GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 17

3. Restricted deposits Restricted deposits as of are as follows: Korean won in millions in thousands (Note 2) 2008 2009 2009 Short-term financial instruments: Time deposits and others 1,891 1,994 US$ 1,708 Long-term financial instruments: Guarantee deposits 16 18 15 1,907 2,012 US$ 1,723 4. Receivables The Company s receivables, including trade accounts receivable, as of December 31, 2008 and 2009 are as follows (Korean won in millions): Gross amount 2008 Allowance for doubtful accounts Carrying value Trade accounts receivable 410,147 (46,819) 363,328 Other accounts receivable 67,322 (46,583) 20,739 Accrued income 74-74 Advance payments 58,276 (4,522) 53,754 Prepaid expense 2,933 (1,862) 1,071 Short-term loans receivable 4,115-4,115 Long-term trade accounts receivable 11,232 (2,483) 8,749 Long-term other accounts receivable 22,635 (8,850) 13,785 Long-term loans receivable 7,114-7,114 583,848 (111,119) 472,729 Gross amount 2009 Allowance for doubtful accounts Carrying value Trade accounts receivable 388,067 (43,068) 344,999 Other accounts receivable 32,930 (10,726) 22,204 Accrued income 52-52 Advance payments 89,078 (3,219) 85,859 Prepaid expenses 2,627 (1,862) 765 Short-term loans receivable 8,160-8,160 Long-term trade accounts receivable 10,429 (2,080) 8,349 Long-term other accounts receivable 20,423 (7,824) 12,599 Long-term loans receivable 40,172-40,172 591,938 (68,779) 523,159 in thousands (Note 2) US$ 506,971 US$ (58,906) US$ 448,065 18

5. Inventories Inventories as of are as follows: Korean won in millions in thousands (Note 2) 2008 2009 2009 Merchandise 176,541 232,821 US$ 199,402 Finished goods 3,812 3,146 2,694 Work-in-process 4,760 4,710 4,034 Raw materials 9,768 9,503 8,139 Supplies 212 172 147 Materials-in-transit 22,573 17,467 14,960 217,666 267,819 229,376 Less: allowance for obsolescence (5,840) (435) (373) 211,826 267,384 US$ 229,003 6. Investment securities Investment securities as of are as follows: in thousands Korean won in millions (Note 2) 2008 2009 2009 Short-term investment securities: Held-to maturity 55 5 US$ 4 Long-term investment securities: Held-to maturity 28 23 19 Available-for-sale capital investments 2,845 2,845 2,437 Available-for-sale marketable equity securities 4,273 2,861 2,450 Available-for-sale non-marketable equity securities 60,270 74,300 63,635 67,416 80,029 68,541 67,471 80,034 US$ 68,545 19

6. Investment securities (cont d) Available-for-sale securities Available-for-sale securities as of are as follows (Korean won in millions): 2009 2008 2009 Number of shares Ownership (%) Book value Acquisition cost Fair value / Net asset value Book value Capital investments: Nok-san Dyeing Association - - 2,845 2,845 2,179 2,845 Securities Market Stabilization Fund - - - - - - 2,845 2,845 2,179 2,845 Marketable securities: Maruichi Steel Tube Ltd. 120,000 0.12 4,196 2,933 2,814 2,814 Korea Vietnam 15-1 Oil Overseas Resources Development Fund 32,006 0.08 77 51 47 47 4,273 2,984 2,861 2,861 Non-marketable securities: The Korea Economics Daily 178,881 0.96 975 1,952 1,132 975 Korea Delphi Automotive Systems Corp. 1,835,520 7.70 39,240 9,178 50,805 50,805 Hanil Daewoo Cement Mfg Co., Ltd. 300,000 15.00 135 135-135 Shinpoong Daewoo Pharma Co., Ltd. - 4.64 343 343 353 343 Chemcross Com., Inc. 200,000 1.17 226 226 288 226 CJ Philippines Incorporation 109,200 10.00 349 349 2,044 349 VSC-Posco Steel Corp. - - 1 - - - Daewoo Motors Beneficiary Certificate - - 670 671 671 671 Daewoo Motors Co., Ltd. 305,289 0.32 29 29 29 29 3Eye System Co., Ltd. 38,400 16.00-800 - - The Institute for Social Development and Policy Research 2,000 1.67-20 - - Nara Investment Banking Corp. - - - - - - Nara Investment Banking Corp. (preferred shares) - - - - - - Daewoo (Malaysia) Sdn. Bhd. 380,000 100.00-48 98 - Daewoo Canada Ltd. 4,000 100.00-17 - - N. I. Co., Ltd. - 50.00-3,099 - - Daewoo (Thailand) Co., Ltd. 24,500 49.00-83 - - 20

6. Investment securities (cont d) Available-for-sale securities (cont d) 2009 2008 2009 Number of shares Ownership (%) Book value Acquisition cost Fair value / Net asset value Book value Non-marketable securities: Daewoo El Salvador S.A. De C. V. 31,262 88.00-3,021 - - K. K. Korea Kamchatka Co., Ltd. 328 10.00 - - 368 - CES Co., Ltd. 156,000 5.34 600 600 318 600 KNOC Inam., Ltd. 10 10.00 - - - - Posco-Malaysia Sdn. Bhd. 1 2,700,000 10.00 2,730 2,730-2,730 TK-Chemical Co.,Ltd 800,000 10.00 14,818 14,818 5,084 14,818 Daewoo Energy Central Asia - 100.00 154 154 154 154 Central Corporation 100,474 11.16-1,859 5,355 1,859 Rheoforge Co., Ltd. 600,000 12.24-600 416 600 Korea Investment Private Placement KEXIM Carbon Credit Special Asset Fund No. 1-0.04-6 6 6 60,270 40,738 67,121 74,300 67,388 46,567 72,161 80,006 in thousand (Note 2) US$ 39,883 US$ 61,803 US$ 68,522 1 Above number of shares for Posco-Malaysia Sdn. Bhd. excludes preferred stock amounting to 7,714,000 shares. Investments in marketable securities, Maruichi Steel Tube Ltd. and Korea Vietnam 15-1 Oil Overseas Resources Development Fund, were stated at fair value as of December 31, 2009. Investment in Korea Delphi Automotive Systems Corp. ( KDASC ), a non-marketable security, was valued at fair value at 27,679 per share by using the discounted cash flow method under the income approach. The resulting unrealized gains arising from fair value adjustments on availablefor-sale securities amounting to 32,374 million were recorded in other accumulated comprehensive income, net of deferred income tax effect (liability) of 9,131 million ( 24,422 million and 6,889 million, as of December 31, 2008). Available-for-sales securities other than marketable securities and investment in KDASC were recorded at cost since the fair value of those securities could not be measured reliably. 21

6. Investment securities (cont d) Held-to-maturity securities Held-to-maturity securities as of are as follows: Korean won in millions in thousands (Note 2) Maturity 2008 2009 2009 Less than 1 year 55 5 US$ 4 More than 1 year to 5 years 28 23 19 83 28 US$ 23 7. Equity method investments Investments in equity securities accounted for using the equity method as of December 31, 2008 and 2009 are as follows (Korean won in millions): 2009 2008 2009 Owner Proportionate Number of shares -ship (%) Book value Acquisition cost net asset value 3 Book value Kyobo Life Insurance Co., Ltd. 4,920,000 24.00 537,955 212,988 849,971 849,971 Myanmar Korea Timber International Ltd. 270 45.00 1,644 3,460 1,553 1,534 Shanghai Lansheng Daewoo Corporation - 49.00 8,490 4,828 7,965 7,957 Shanghai Waigaogiao Free Trade Zone Lansheng Daewoo Int l Trading Co., Ltd. - 49.00 895 299 877 876 Hanjung Power Pty. Ltd. 8,227,612 49.00 8,558-7,490 7,489 Korea LNG Ltd. 2,400 20.00 3,292-2,749 2,749 Daewoo International (America) Corporation 555,000 100.00 31,160-31,056 29,590 Daewoo International (Deutschland) GmbH - 100.00 3,200 5,933 2,227 1,944 Daewoo International (Japan) Corporation 9,600 100.00 5,875 4,809 6,200 4,729 Daewoo International Singapore Pte. Ltd. 3,500,000 100.00 3,611 2,371 3,711 3,711 Myanmar Daewoo International Ltd. 495 55.00 3,650 3,556 935 3,554 Daewoo Cement (Shandong) Co., Ltd. - 100.00 155,958 37,422 67,202 126,904 Gezira Tannery Co., Ltd. 6,000 60.00 - - - - Daewoo (China) Co., Ltd. - 100.00 52,858 15,099 29,373 29,374 Myanmar Daewoo Ltd. 2,826 100.00 6,262 976 6,104 6,104 Daewoo Textile Company - 100.00 19,603 - - - Daewoo Paper Manufacturing Co., Ltd. 64,023,958 20.76 21,630 9,666 2,163 18,126 Daewoo Italia S.R.L. 2,040,000 100.00 3,958 2,119 3,824 3,621 PT. Rismar Daewoo Apparel 40,000 100.00 6,242 511 1,431 6,826 22

7. Equity method investments (cont d) 2009 2008 2009 Proportionate Owner- Number of shares ship (%) Book value Acquisition cost net asset value 3 Book value Tianjin Daewoo Paper Manufacturing Co., Ltd. - 25.00-674 (3,451) - General Medicines Co., Ltd. 9,702 33.00 3,300 736 3,044 2,990 Daytek Electronics Corporation 1 6,725,000 100.00-5,111 (115) - Daewoo Apparel Vietnam Ltd. - 100.00 1,687 5,322 3,142 3,142 PT. International Steel Indonesia 4,983,578 51.00-4,959 1,782 1,498 Daewoo Textile Fergana LLC. - 100.00-8,262 (10,054) 5,856 DMSA, AMSA 2 630,096 2.75 16,404 36,619 36,938 36,938 Daewoo STC VINA Ltd. - - 2,395 - - - Posco Mexico Processing Center Holding LLC. - 29.00 6,705 9,251 7,569 6,755 POSCO Europe Steel Distribution Center Ltd. - 20.00 1,090 757 1,160 1,160 Daewoo Textile Bukhara LLC. - 100.00 15,360 21,585 18,741 18,598 Daewoo International Australia Pty. Ltd. - 100.00 445 61,197 61,197 61,197 Daewoo International Mexico S.A. de C.V. 53,078 100.00-2,568 2,905 2,905 iq Power Asia Co., Ltd. 2,000,000 20.00-4,000-3,950 KG Power(M) SDN. BHD 3,000,000 20.00-1,062-1,053 Daewoo AAPC 5,000 100.00-5,027 5,027 5,027 922,227 471,167 1,152,716 1,256,128 in thousands (Note 2) US$ 403,535 US$ 987,252 US$ 1,075,820 1 Daytek Electronics Corporation s number of shares and ownership interest exclude 584,877 shares of prefered stock held by the Company. 2 Although the Company s ownership interests in Dynatec Madagascar Societe Anonyme (DMSA) and Ambatovy Minerals Societe Anonyme (AMSA) are less than 20%, these investments were accounted for by using the equity mothod under SKAS 18 Interest in Joint Ventures as those investees are jointly controlled by the Company with other investors. 3 Proportionate net asset values are presented based on adjusted net assets values. The investments in Daewoo Cement (Shandong) Co., Ltd. (DCSCL), DMSA and AMSA have been pledged with respect to long-term debt and payment guarantees (see Note 15). 23