Edgar Filing: POSCO

POSCO

As filed with the Securities and Exchange Commission on June 12, 2006

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F


(Mark One)
o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the fiscal year ended December 31, 2005

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		Date of event requiring this shell company report

		For the transition period from to

Commission file number 1-13368

POSCO

(Exact name of Registrant as specified in its charter)

The Republic of Korea

(Jurisdiction of incorporation or organization)

Finance Division

POSCO Center

892 Daechi-4-dong, Gangnam-gu

Seoul, Korea

(Address of principal executive offices)

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


Title of Each Class		Name of Each Exchange On Which Registered

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

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

None

(Title of Class)

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

$300,000,000 7¹/8% Notes due 2006

(Title of Class)

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

80,090,770 shares of common stock, par value Won 5,000 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No þ

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

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

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

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


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

TABLE OF CONTENTS


			Page

Glossary				1
PART I				2
Item 1.	Identity of Directors, Senior Managers and Advisors			2
	Item 1.A.	Directors and Senior Management		2
	Item 1.B.	Advisers		2
	Item 1.C.	Auditors		2
Item 2.	Offer Statistics and Expected Timetable			2
Item 3.	Key Information			2
	Item 3.A.	Selected Financial Data		2
	Item 3.B.	Capitalization and Indebtedness		5
	Item 3.C.	Reasons for Offer and Use of Proceeds		5
	Item 3.D.	Risk Factors		5
Item 4.	Information on the Company			10
	Item 4.A.	History and Development of the Company		10
	Item 4.B.	Business Overview		11
	Item 4.C.	Organizational Structure		24
	Item 4.D.	Property, Plants and Equipment		24
Item 4A.	Unresolved Staff Comments			26
Item 5.	Operating and Financial Review and Prospects			26
	Item 5.A.	Operating Results		26
	Item 5.B.	Liquidity and Capital Resources		34
	Item 5.C.	Research and Development, Patents and Licenses, Etc.		40
	Item 5.D.	Trend Information		41
	Item 5.E.	Off-balance Sheet Arrangements		41
	Item 5.F.	Tabular Disclosure of Contractual Obligations		41
Item 6.	Directors, Senior Management and Employees			41
	Item 6.A.	Directors and Senior Management		41
	Item 6.B.	Compensation		44
	Item 6.C.	Board Practices		45
	Item 6.D.	Employees		47
	Item 6.E.	Share Ownership		48
Item 7.	Major Shareholders and Related Party Transactions			50
	Item 7.A.	Major Shareholders		50
	Item 7.B.	Related Party Transactions		50
	Item 7.C.	Interests of Experts and Counsel		51
Item 8.	Financial Information			51
	Item 8.A.	Consolidated Statements and Other Financial Information		51
	Item 8.B.	Significant Changes		52
Item 9.	The Offer and Listing			52
	Item 9.A.	Offer and Listing Details		52
	Item 9.B.	Plan of Distribution		54
	Item 9.C.	Markets		54


			Page

	Item 9.D.	Selling Shareholders		59
	Item 9.E.	Dilution		59
	Item 9.F.	Expenses of the Issuer		59
Item 10.	Additional Information			59
	Item 10.A.	Share Capital		59
	Item 10.B.	Memorandum and Articles of Association		59
	Item 10.C.	Material Contracts		64
	Item 10.D.	Exchange Controls		64
	Item 10.E.	Taxation		67
	Item 10.F.	Dividends and Paying Agents		73
	Item 10.G.	Statements by Experts		74
	Item 10.H.	Documents on Display		74
	Item 10.I.	Subsidiary Information		74
Item 11.	Quantitative and Qualitative Disclosures about Market Risk			74
Item 12.	Description of Securities Other than Equity Securities			76
	Item 12.A.	Debt Securities		76
	Item 12.B.	Warrants and Rights		76
	Item 12.C.	Other Securities		76
	Item 12.D.	American Depositary Shares		76
PART II				83
Item 13.	Defaults, Dividend Arrearages and Delinquencies			83
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds			83
Item 15.	Controls and Procedures			83
Item 16A.	Audit Committee Financial Expert			83
Item 16B.	Code of Ethics			83
Item 16C.	Principal Accountant Fees and Services			84
Item 16D.	Exemptions from the Listing Standards for Audit Committees			84
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers			85
PART III				86
Item 17.	Financial Statements			86
Item 18.	Financial Statements			86
Item 19.	Exhibits			86
EX-1.1
EX-7.1
EX-8.1
EX-12.1
EX-12.2
EX-13.1
EX-15.1

GLOSSARY


“ADR”		American Depositary Receipt evidencing ADSs.

“ADR depositary”		The Bank of New York.

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

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

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

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

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

“Government”		The government of the Republic of Korea.

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

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

“Gwangyang Works”		Gwangyang Steel Works.

“We”		POSCO.

“Pohang Works”		Pohang Steel Works.

“Republic”		The Republic of Korea.

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

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

“SEC”		The United States Securities and Exchange Commission.

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

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

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

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

PART I


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


Item 1.A.	*Directors and Senior Management*

Not applicable


Item 1.B.	*Advisers*

Not applicable


Item 1.C.	*Auditors*

Not applicable


Item 2.	*Offer Statistics and Expected Timetable*

Not applicable


Item 3.	*Key Information*


Item 3.A.	*Selected Financial Data*

The selected financial data presented below should be read in conjunction with our Consolidated Financial Statements and related notes thereto and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report. The selected financial data as of December 31, 2004 and 2005 and for each of the three years in the period ended December 31, 2005 is derived from our Consolidated Financial Statements included elsewhere in this annual report. Our Consolidated Financial Statements are prepared in accordance with Korean GAAP, which differ in significant respects from U.S. GAAP.

INCOME STATEMENT DATA


	For the Year Ended December 31,

	2001			2002		2003			2004		2005		2005(11)

	(in billions of Won and millions of Dollars, except per share data)
Korean GAAP:
Sales(1)	W	13,121		W	14,355	W	17,789		W	23,973	W	26,302	US$	26,041
Cost of goods sold(2)		10,680			11,338		13,451			17,361		18,767		18,581
Selling and administrative expenses		854			967		1,075			1,293		1,451		1,437
Operating income		1,587			2,050		3,263			5,319		6,083		6,023
Interest expense		451			332		250			192		149		148
Foreign exchange transaction and translation gains (losses), net		(10	)		135		(105	)		179		159		157
Donations(3)		83			50		103			170		153		152
Income taxes		337			398		730			1,502		1,482		1,468
Net earnings		846			1,089		1,996			3,814		4,012		3,972
Basic and diluted earnings per share of common stock(4)		10,366			13,295		24,496			47,185		50,652		50.15
Dividends per share of common stock		2,500			3,500		6,000			8,000		8,000		7.92
U.S. GAAP(5):
Operating income	W	1,588		W	2,021	W	3,235		W	5,299	W	5,671	US$	5,615
Net earnings		908			1,018		1,997			3,460		4,102		4,061
Basic and diluted earnings (loss) per share of common stock		11,126			12,430		24,508			42,806		51,789		51.28

BALANCE SHEET DATA


	For the Year Ended December 31,

	2001		2002		2003		2004		2005		2005(11)

	(in billions of Won and millions of Dollars, except per share data)
Korean GAAP:
Working capital(6)	W	1,342	W	1,695	W	3,450	W	5,493	W	5,759	US$	5,702
Property, plant and
equipment, net(7)		10,601		10,325		9,846		10,440		12,272		12,150
Total assets(7)		19,405		19,077		20,769		24,129		27,507		27,235
Long-term debt(8)(9)(10)		4,235		3,194		2,952		2,051		1,131		1,120
Total stockholders’ Equity(7)		10,351		11,820		13,250		16,386		19,867		19,670
U.S. GAAP(5):
Property, plant and equipment, net	W	10,522	W	10,322	W	9,880	W	10,541	W	12,420	US$	12,297
Total assets		19,285		19,000		20,838		24,279		27,525		27,252
Total shareholders’ Equity		10,940		11,464		13,018		16,208		19,498		19,305


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


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

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

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

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

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

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

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

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


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

(11)	Translated into U.S. Dollars at the rate of Won 1,010.00 to US$1.00, the noon buying rate of the Federal Reserve Bank of New York for Won in effect on December 31, 2005. This translation should not be construed as a representation that the Korean Won amounts represent, have been, or could be converted to U.S. Dollars at that rate or any other rate.

EXCHANGE RATE INFORMATION

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


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

		(per US$1.00)
2001			1,313.5		1,293.4		1,369.0		1,234.0
2002			1,186.3		1,242.0		1,332.0		1,160.6
2003			1,192.0		1,183.0		1,262.0		1,146.0
2004			1,035.1		1,139.3		1,195.1		1,035.1
2005			1,010.0		1,023.2		1,059.8		997.0
2006 (through June 9)			954.2		958.8		1,002.9		927.4
	January		958.9		981.4		1,002.9		958.9
	February		979.9		969.8		976.3		962.0
	March		971.4		974.7		982.0		966.8
	April		942.8		952.6		970.4		939.6
	May		945.3		940.8		951.5		927.4
	June (through June 9)		954.2		947.9		954.2		942.7

Source: Federal Reserve Bank of New York.


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

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

Item 3.B. Capitalization and Indebtedness

Not applicable

Item 3.C. Reasons for Offer and Use of Proceeds

Not applicable

Item 3.D. Risk Factors

You should carefully consider the risks described below.


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

We are incorporated in Korea, and most of our operations and assets are located in Korea. In addition, Korea is our most important market, accounting for 73.5% of our total sales volume of steel products in 2005. Domestic demand for our products is affected by the condition of major steel consuming industries, such as construction, shipbuilding, automobile, electrical appliances and downstream steel processors, and the Korean economy in general. As a result, we are subject to political, economic, legal and regulatory risks specific to Korea.

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

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


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

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

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

	•	a slowdown in consumer spending;

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

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

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


	•	social and labor unrest;

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

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

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

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

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

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

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


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

Our export sales accounted for 26.5% of our total sales volume for steel products in 2005. Our export sales to Asia, including China, Japan, Indonesia, Thailand and Malaysia, accounted for 74.4% of our total export sales volume for steel products in 2005, and we expect our sales to these countries, especially to China, to remain important in the future. Accordingly, adverse economic and financial developments in these countries may have an adverse effect on demand for our products. Economic weakness in Asia may also adversely affect our sales to the Korean companies that export to the region, especially companies in the construction, shipbuilding, automobile, electrical appliances and downstream steel processing industries. Weaker demand in these countries, combined with addition of new steel production capacity, particularly in China, may also reduce export prices in Dollar terms of our principal products. We attempt to maintain and expand our export sales to generate foreign currency receipts to cover our foreign currency purchases and debt service requirements. Consequently, any decrease in our export sales could also increase our foreign exchange risks.


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

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


	•	an increase in the amount of Won required for us to make interest and principal payments on our foreign currency-denominated debt, which accounted for approximately 64.6% of our total long-term debt (excluding discounts on debentures issued and including current portion) as of December 31, 2005;

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

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

appreciation of the Won (i.e., the reverse of the negative effects caused by the depreciation of the Won, as discussed above), appreciation of the Won generally has a positive impact on our results of operations.

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


	*We are dependent on imported raw materials.*

We purchase substantially all of the principal raw materials we use from sources outside Korea, including iron ore and coal. In 2005, we imported approximately 42.2 million tons of iron ore and 19.8 million tons of coal. Iron ore is imported primarily from Australia, Brazil and India. Coal is imported primarily from Australia, China, Canada and Russia. Although we have not experienced significant unanticipated supply disruptions in the past, supply disruptions, which could be caused by political or other events in the countries from which we import these materials, could adversely affect our operations.


	*We expect global steel production capacity to continue to expand in the near future, and over-capacity in the global steel industry may return.*

In recent years, driven in part by strong growth in steel consumption in China, the global steel industry has experienced renewed interest in expansion of steel production capacity. The International Iron and Steel Institute estimated the global crude steel production capacity to increase from 1,057 million tons in 2004 to 1,129 million tons in 2005 and expects that the production capacity to continue to increase further in 2006, primarily as a result of additions of new capacity in China, India and other Asian countries. Over-capacity in the global steel industry may return if increase in demand from developing countries that have experienced significant growth in the past several years does not meet this growth in production capacity. Over-capacity will affect our ability to expand export sales and to increase steel production in general, as well as reduce export prices in Dollar terms of our principal products.


	*Consolidation in the global steel industry may increase competition.*

In recent years, there has been a trend toward industry consolidation among our competitors, and smaller competitors in the global steel market today may become larger competitors in the future. For example, Aceralia, Arbed and Usinor merged in February 2002 to create Arcelor, and LNM Holdings NV and Ispat International NV merged in October 2004 to create Mittal Steel. Mittal Steel also launched a hostile takeover bid in the first half of 2006, which was raised to $33.0 billion in May 2006, for a controlling stake in Arcelor. If successful, it would create a company with approximately 10% of global steel production capacity. Competition from global steel manufacturers with expanded production capacity such as Mittal Steel and Arcelor, and new market entrants, especially from China, could result in significant price competition, declining margins and reductions in revenue. Our larger competitors may use their resources, which may be greater than ours, against us in a variety of ways, including by making additional acquisitions, investing more aggressively in product development and capacity and displacing demand for our export products.


	Expansion of our production operations abroad is important to our long-term success, and our limited experience in the operation of our business outside Korea increases the risk that our international expansion efforts will not be successful.

We have limited experience with operations outside Korea. We intend to expand our production operations internationally by carefully seeking out promising investment opportunities, particularly in China and India, in part to prepare for the eventual maturation of the Korean steel market. We may enter into joint ventures with foreign steel producers that would enable us to rely on these businesses to conduct our operations, establish local networks and coordinate our sales and marketing efforts abroad. To the extent

that we enter into these arrangements, our success will depend in part on the willingness of our partner companies to dedicate sufficient resources to their partnership with us.

In other situations, we may decide to establish manufacturing facilities by ourselves instead of relying on partners. For example, we entered into a memorandum of understanding with Orissa State Government of India in June 2005 for the construction of an integrated steel mill and the development of an iron ore mine in Orissa state. Under the memorandum of understanding, the project contemplates granting of iron ore mining leases for 30 years with possible renewal for an additional 20 years upon application by us. The project contemplates construction of a steel mill from 2007 to 2010 with an annual production capacity of 4 million tons of slab and hot rolled products and construction of additional facilities to increase its annual production capacity to 12 million tons. In addition, the project contemplates development of a mine for up to 600 million tons of iron ore. We estimate the aggregate costs of the initial round of construction and mine development to be approximately $3.7 billion and an additional approximately $8.3 billion in order to increase the annual production capacity to 12 million tons. In return, Orissa State Government will provide us a thirty-year mining lease to develop the mine for up to 600 million tons of iron ore to be used principally at the Orissa steel mill. In preparation of the project, we established POSCO-India Private Limited in August 2005 and made a capital contribution of $53.1 million in September 2005. POSCO-India Private Limited filed an application for a prospecting license to conduct analyses of the applicable iron ore mines on September 27, 2005 and the Orissa State Government approved the land acquisition of the steelworks site (in Jagatsinghpur District) on November 2, 2005. The demand and market acceptance for our products produced abroad are subject to a high level of uncertainty and are substantially dependent upon the market condition of the global steel industry. We cannot assure you that our international expansion plan will be profitable or that we can recoup the costs related to such investments.

Expansion of our production operations abroad requires management attention and resources. In addition, we face additional risks associated with our expansion outside Korea, including:


	•	challenges caused by distance, language and cultural differences;

	•	higher costs associated with doing business internationally;

	•	legal and regulatory restrictions, including foreign exchange controls that might prevent us from repatriating cash earned in countries outside Korea;

	•	longer payment cycles in some countries;

	•	credit risk and higher levels of payment fraud;

	•	currency exchange risks;

	•	potentially adverse tax consequences;

	•	political and economic instability; and

	•	seasonal reductions in business activity during the summer months in some countries.


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

In recent years, several of our products have been subject to anti-dumping and countervailing proceedings or safeguard measures, including in the United States and China. Further increases in or new imposition of anti-dumping duties, countervailing duties, quotas or tariffs on our sales in these markets may have a material adverse effect on our exports to these regions in the future. Exports to these regions accounted for 9.7% of our sales volume of steel products in 2005. See “Item 4. Information on the Company — Item 4B. Business Overview — Markets — Exports.”


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

Relations between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of current and future events. In recent years, there have been heightened security concerns stemming from North Korea’s nuclear weapons program and increased uncertainty regarding North Korea’s actions and possible responses from the international community.

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

North Korea returned to the six-party talks and a two-phased fourth round of the talks was held in Beijing, China during the summer and fall of 2005. In September 2005, North Korea agreed in principle to end its nuclear weapons program and the six participating nations signed a draft preliminary accord pursuant to which North Korea agreed to dismantle its existing nuclear weapons, abandon efforts to produce new weapons and readmit international inspectors to its nuclear facilities. Representatives of the six nations reconvened in Beijing in November 2005 for the first phase of the fifth-round of six-party talks, which concluded without further progress being made with respect to the implementation of the draft preliminary accord.

In addition, in October 2004, the United States and Korea agreed to a three-phase withdrawal of 12,500 US troops by the end of 2008, which represent approximately one-third of the U.S. troops stationed in Korea at the time of the agreement.

There can be no assurance that the level of tension on the Korean peninsula will not escalate. Any further increase in tension, including breakdown of high-level contacts between Korea and North Korea or occurrence of military hostilities, could have a material adverse effect on our operations and the market value of our securities.


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

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


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

The Commercial Code of Korea and our articles of incorporation require us, with some exceptions, to offer shareholders the right to subscribe for new shares in proportion to their existing ownership percentage

whenever new shares are issued. If we offer any rights to subscribe for additional shares of our common stock or any rights of any other nature, the ADR depositary, after consultation with us, may make the rights available to you or use reasonable efforts to dispose of the rights on your behalf and make the net proceeds available to you. The ADR depositary, however, is not required to make available to you any rights to purchase any additional shares unless it deems that doing so is lawful and feasible and:


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

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

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


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

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


Item 4.	*Information on the Company*


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

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

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


Item 4.B.	*Business Overview*

The Company

We are the largest and the only fully integrated steel producer in Korea, and one of the largest steel producers in the world, based on annual crude steel production in 2005. We produced over 30.5 million tons of crude steel in 2005, substantially all at Pohang Works and Gwangyang Works. Currently, Pohang Works has 13.3 million tons of annual crude steel and stainless steel production capacity, and Gwangyang Works has an annual crude steel production capacity of 16.7 million tons. We manufacture and sell a broad line of steel products, including hot rolled and cold rolled products, plates, wire rods, silicon steel sheets and stainless steel products.

We sell primarily to the Korean market, with domestic sales accounting for 73.5% of our total sales volume of steel products in 2005. We believe that we had an overall market share of approximately 48.5% of the total sales volume of steel products sold in Korea in 2005.

Our exports in 2004 and 2005 accounted for 25.8% and 26.5% of our total sales volume of steel products, respectively. Our major export market is Asia, with China accounting for 32.1%, Japan 22.4% and the rest of Asia 19.9% of our total steel export sales volume in 2005.

Business Strategy

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


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

We carefully seek out promising investment opportunities abroad, primarily in China and India, in part to prepare for the eventual maturation of the Korean steel market. We believe that China and India will continue to offer substantial growth opportunities, and we plan to selectively seek additional investment opportunities and expand our production base in China and India. In November 2003, we launched POSCO China Holding Corporation, a holding company for our investments in China. In June 2005, we also entered into a memorandum of understanding with Orissa State Government of India for the construction of an integrated steel mill and the development of an iron ore mine in Orissa state. Under the memorandum of understanding, the project contemplates granting of iron ore mining leases for 30 years with possible renewal for an additional 20 years upon application by us. The project currently contemplates construction of a steel mill from 2007 to 2010 with an annual production capacity of 4 million tons of slab and hot rolled products and construction of additional facilities to increase its annual production capacity to up to 12 million tons. In addition, the project contemplates development of a mine for up to 600 million tons of iron ore. We estimate the aggregate costs of the initial round of construction and mine development to be approximately $3.7 billion and an additional approximately $8.3 billion in order to increase the annual production capacity to 12 million tons. In return, Orissa State Government is expected to provide us a thirty-year mining lease to develop the mine for up to 600 million tons of iron ore to be used principally at the Orissa steel mill. In preparation of the project, we established POSCO-India Private Limited in August 2005 and made a capital contribution of $53.1 million in September 2005. POSCO-India Private Limited filed an application for a prospecting license to conduct analyses of the applicable iron ore mines on September 27, 2005 and the Orissa State Government approved the acquisition of the steelworks site (in Jagatsinghpur District) on November 2, 2005. We continue to seek investment opportunities abroad in addition to China and India.


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

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

We have also sought to enhance the quality of our products through continued modernization and rationalization of our facilities. Through our strategic alliance with Nippon Steel, we also participate in jointly sponsored research. Leveraging our leading technology, we plan to further increase the proportion of our sales of higher margin, higher value-added products such as cold-rolled products (including automotive steel sheets), silicon steel sheets and stainless steel products.


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

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


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

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


	*Continue to Expand Our Export Customer Base*

Although supplying the Korean domestic market is our priority, we intend to continue to supply a significant amount of our products to customers in overseas markets. Our export and overseas sales

represented 26.5% of our total sales volume in 2005, with 74.4% of our export and overseas sales volume to customers in nearby Asian markets in 2005. We intend to further strengthen our global market position by cultivating relationships with our existing overseas customers and assertively seeking out prospective new customers in the emerging markets for high value steel products. Our export sales provide a foreign currency hedge by generating foreign currency that can be used to service our foreign currency debt and to purchase key raw materials, most of which we source from overseas. Maintaining strong relationships with major export customers also provides us with the flexibility to reallocate sales to foreign markets in periods when domestic demand is weak.


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

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


	*Selectively Seek Opportunities in Growth Industries*

Our first priority is to maximize revenues and profits from our steel operations. We also selectively seek opportunities in growth industries, in part to prepare for the eventual maturation of the Korean steel market. When determining our diversification projects, we consider attractiveness of the industry and its future growth potential, as well as our capabilities to become competitive in such an industry. New businesses related to our steel operations include liquefied natural gas production and logistics. New businesses not related to our steel operations in which we intend to focus our efforts for diversification include power generation, advanced materials and alternative energy development. For example, we purchased a 50.0% interest in Korea Independent Energy Corporation for Won 291 billion in July 2005 and purchased the remaining 50.0% interest for Won 306 billion in March 2006. Korean Independent Energy Corporation is the largest private power generation company in Korea that operates power plants with total power generation capacity of 1,800 megawatts.

Major Products

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


	•	hot rolled products;

	•	plates;

	•	wire rods;

	•	cold rolled products;

	•	silicon steel sheets; and

	•	stainless steel products.

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


		Year Ended December 31,

		2001				2002				2003				2004				2005

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

Hot rolled products			3,125		24.8		3,416		25.4		4,185		26.1		5,449		25.1		5,877		25.0
Plates			1,242		9.9		1,237		9.2		1,320		8.2		1,987		9.1		2,253		9.6
Wire rods			1,149		9.1		1,178		8.7		1,064		6.6		1,351		6.2		1,528		6.5
Cold rolled products			4,055		32.2		4,310		32.0		5,208		32.4		6,564		30.2		7,527		32.0
Silicon steel sheets			304		2.4		347		2.6		431		2.7		531		2.4		688		2.9
Stainless steel products			2,076		16.5		2,278		16.9		3,172		19.7		4,920		22.6		4,543		19.3
Others			624		5.0		700		5.2		687		4.3		952		4.4		1,132		4.7

	Total		12,576		100.0		13,465		100.0		16,067		100.0		21,753		100.0		23,547		100.0


		Year Ended December 31,

		2001				2002				2003				2004				2005

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

Hot rolled products			11,381		37.9		11,461		37.8		11,514		37.6		10,966		34.5		10,330		33.2
Plates			3,146		10.5		3,060		10.1		3,047		9.9		3,385		10.6		3,193		10.3
Wire rods			2,802		9.3		2,808		9.3		2,777		9.1		2,503		7.9		2,366		7.6
Cold rolled products			9,425		31.3		9,503		31.3		9,770		31.9		10,242		32.2		10,468		33.6
Silicon steel sheets			591		2.0		589		1.9		671		2.2		705		2.2		737		2.4
Stainless steel products			1,266		4.2		1,394		4.6		1,778		5.8		2,069		6.5		1,919		6.2
Others			1,455		4.8		1,518		5.0		1,100		3.5		1,926		6.1		2,100		6.7

	Total		30,065		100.0		30,333		100.0		30,657		100.0		31,796		100.0		31,115		100.0

The sales revenues and sales volumes in the tables above represent the steel product sales of our consolidated entities which are steel-related companies but do not include the non-steel product sales of these entities. They include sales by our consolidated sales subsidiaries of steel products purchased by these subsidiaries from third parties, including trading companies to which we sell steel products. The sales of steel products purchased from third parties amounted to approximately 1.3 million tons in 2001, 1.2 million tons in 2002, 1.4 million tons in 2003, 1.0 million tons in 2004 and 1.0 million tons in 2005, accounting for Won 657 billion in 2001, Won 511 billion in 2002, Won 679 billion in 2003, Won 699 billion in 2004 and Won 807 billion in 2005, respectively.


	*Hot Rolled Products*

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

Our deliveries of hot rolled products amounted to 10.3 million tons in 2005, representing 33.2% of our total steel sales volume. The Korean market accounted for 8.4 million tons or 81.0% of our hot rolled product sales in 2005, representing a domestic market share of approximately 65.9%. The largest customers of our hot rolled products are downstream steelmakers in Korea who use the products to manufacture pipes and cold rolled products.

Hot rolled products constitute one of our two largest product categories in terms of sales volume and revenue. In 2005, our sales volume of hot rolled products decreased by 5.8% compared to 2004 primarily

due to an increase in the quantity set aside for use in the production of cold rolled products and a decrease in demand from the construction industry.


	*Plates*

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

Our deliveries of plates amounted to 3.2 million tons in 2005, representing 10.3% of our total steel sales volume. The Korean market accounted for 3.0 million tons or 92.8% of our plate sales in 2005, representing a domestic market share of approximately 36.9%. The Korean shipbuilding industry, which uses plates to manufacture chemical tankers, rigs, bulk carriers and containers, and the construction industry are our largest customers of plates.

In 2005, our sales volume of plates decreased by 5.7% compared to 2004 primarily due to a temporary suspension of our plates production facility for rationalization, which was partially offset by an increase in demand from the industrial machinery industry.


	*Wire Rods*

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

Our deliveries of wire rods amounted to 2.4 million tons in 2005, representing 7.6% of our total steel sales volume. The Korean market accounted for 2.0 million tons or 85.9% of our wire rod sales in 2005, representing a domestic market share of approximately 69.7%. The largest customers for our wire rods are manufacturers of wire and nails.

In 2005, our sales volume of wire rods decreased by 5.5% compared to 2004 primarily due to a decrease in demand from the construction industry, which more than offset an increase in demand from the automobile industry.


	*Cold Rolled Products*

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

Our deliveries of cold rolled products amounted to 10.5 million tons in 2005, representing 33.6% of our total steel sales volume. The Korean market accounted for 6.3 million tons or 60.4% of our cold rolled product sales in 2005, representing a domestic market share of approximately 55.1%.

Cold rolled products constitute one of our two largest product categories in terms of sales volume and revenue. Sales of cold rolled products in recent years have experienced growth due to increasing demand for higher quality products in the automobile, electrical appliances and other industries. In 2005, our sales volume of cold rolled products increased by 2.2% compared to 2004 primarily due to an increase in demand from the automobile industry.


	*Silicon Steel Sheets*

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

Our deliveries of silicon steel sheets amounted to 737 thousand tons in 2005, representing 2.4% of our total steel sales volume. The Korean market accounted for 475 thousand tons or 64.4% of our silicon steel sheet sales in 2005, representing a domestic market share of approximately 91.3%.

Our sales volume of silicon steel sheets showed strong growth in recent years following increased demand from manufacturers of power transformers and generators. In 2005, our sales volume of silicon steel sheets increased by 4.5% compared to 2004.


	*Stainless Steel Products*

Stainless steel products are used to manufacture household goods and are also used by the chemical industry, paper mills, the aviation industry, the automobile industry, the construction industry and the food processing industry.

Our deliveries of stainless steel products amounted to 1.9 million tons in 2005, representing 6.2% of our total steel sales volume. The Korean market accounted for 887 thousand tons or 46.2% of our stainless steel product sales in 2005, representing a domestic market share of approximately 48.9%.

Although sales of stainless steel products accounted for only 6.2% of our total sales volume in 2005, they represented 19.3% of our total revenues from sales of steel products in 2005. Our sales volume of stainless steel products decreased by 7.2% compared to 2004 due to a decrease in demand resulting from an oversupply of inventory caused by an increase in production from China.


	*Others*

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

Markets

Korea is our most important market. Domestic sales represented 73.5% of our total steel sales volume in 2005. Exports and overseas sales represented 26.5% of our total sales volume in 2005. Our sales strategy has been to devote our production primarily to satisfy domestic demand, while seeking export sales to utilize capacity to the fullest extent, to expand our international market presence and to earn foreign exchange.


	*Domestic Market*

The total Korean market for steel products amounted to 47.1 million tons in 2005. We sold a total of 22.9 million tons of steel products in Korea in 2005, maintaining an overall domestic market share of 48.5% for such period.

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


	Year Ended December 31,

	2001				2002				2003				2004				2005

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

POSCO’s sales		20,894		54.6		21,090		48.2		21,121		46.6		23,599		50.0		22,880		48.5
Other Korean steel companies’ sales		14,144		37.0		17,732		40.6		17,838		39.3		15,969		33.9		15,957		33.9
Imports(1)		3,235		8.5		4,898		11.2		6,411		14.1		7,595		16.1		8,287		17.6

Total domestic sales(1)		38,273		100.0		43,720		100.0		45,370		100.0		47,163		100.0		47,124		100.0


(1)	Source: 2005 Official Statistics, Korea Iron & Steel Association.

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

4.9 million tons. On the other hand, growth in our domestic sales volume slowed to 0.9% in 2002, and our market share dropped to 48.2% in 2002 from 54.6% in 2001.

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

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

In 2005, total domestic sales decreased by 0.1%, primarily due to a decrease in demand from the construction industry, which more than offset an increase in demand from the automobile and shipbuilding industries. Imports from foreign competitors, primarily from Japan, China, and Russia, showed strong growth as import sales volume increased by 9.1% in 2005 to 8.3 million tons. Growth in domestic sales volume of other Korean steel companies decreased by 0.1% in 2005 while our domestic sales volume decreased by 3.0% in 2005 to 22.9 million tons. Accordingly, our market share decreased to 48.5% in 2005 from 50.0% in 2004.

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

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


	*Exports*

Our exports and overseas sales represented 26.5% of our total sales volume of steel products in 2005, 74.4% of which was generated in exports and sales to Asian countries. Our exports in terms of sales volume increased by 0.4% to 8.2 million tons in 2005. The tables below set out our exports and sales of steel products in terms of sales volume by geographical market and by product for the periods indicated.


		Year Ended December 31,

		2001				2002				2003				2004				2005

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

China			2,976		32.4		2,828		30.6		3,510		36.8		3,138		38.3		2,640		32.1
Asia (other than China and Japan)			1,965		21.4		2,414		26.1		2,259		23.7		1,502		18.3		1,636		19.9
Japan			2,040		22.2		1,780		19.3		1,719		18.0		1,661		20.3		1,843		22.4
North America			665		7.2		978		10.6		715		7.5		737		9.0		761		9.2
Europe			313		3.4		294		3.2		236		2.5		116		1.4		34		0.4
Others			1,213		13.2		949		10.3		1,096		11.5		1,043		12.7		1,320		16.0

	Total		9,172		100.0		9,243		100.0		9,535		100.0		8,198		100.0		8,234		100.0


		Year Ended December 31,

		2001				2002				2003				2004				2005

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

Hot rolled products			2,225		24.3		2,224		24.1		2,464		25.8		2,049		25.0		1,960		23.8
Plates			318		3.5		300		3.2		363		3.8		295		3.6		229		2.8
Wire rods			672		7.3		679		7.3		598		6.3		252		3.1		333		4.1
Cold rolled products			4,923		53.7		4,694		50.8		4,649		48.8		4,139		50.5		4,142		50.3
Silicon steel sheets			134		1.5		161		1.7		223		2.3		245		3.0		262		3.2
Stainless steel products			646		7.0		706		7.6		795		8.3		1,019		12.4		1,032		12.5
Others			254		2.8		478		5.2		443		4.7		199		2.4		276		3.3

	Total		9,172		100.0		9,243		100.0		9,535		100.0		8,198		100.0		8,234		100.0

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


		Year Ended December 31,

Region		2003		2004		2005

		(in billions)
Korea		W	12,100	W	16,738	W	18,566
China			2,706		3,316		3,118
Asia (other than China and Japan)			1,079		1,257		1,502
Japan			771		1,164		1,372
North America			312		529		550
Other			822		969		1,194

	Total		17,789		23,973		26,302

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

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


	Year Ended December 31,

	2001			2002			2003			2004			2005

Apparent Crude Steel Use (million metric tons)		863			917			984			1,091			1,136
Percentage of annual increase (decrease)		1.4	%		6.3	%		7.3	%		10.9	%		4.1	%

Source: International Iron and Steel Institute.

In recent years, driven in part by strong growth in steel consumption in China, the global steel industry has experienced renewed interest in expansion of steel production capacity. The International Iron and Steel Institute estimated the global crude steel production capacity to increase from 1,057 million tons in 2004 to 1,129 million tons in 2005 and expects the production capacity to increase further in 2006, primarily as a result of additions of new capacity in China, India and other Asian countries. Over-capacity in the global steel industry may return if increase in demand from developing countries that have experienced significant growth in the past several years does not meet this growth in production capacity.

We distribute our export products mostly through Korean trading companies and our overseas sales subsidiaries. Our largest export market in 2005 was China, which accounted for 32.1% of our export volume of steel products, including sales by our overseas subsidiaries. The principal products exported to China are cold rolled products and stainless steel products. Our exports to China amounted to 3.5 million tons in 2003, 3.1 million tons in 2004 and 2.6 million tons in 2005. Exports to China increased by 24.1% in 2003 due to our increased marketing focus in this region but decreased by 10.6% in 2004 primarily due to our decision to focus on meeting increased domestic demand. Our exports to China further decreased in

2005 by 15.9% primarily due to unfavorable market conditions in China in the second half of 2005. Sales volume to Asian countries other than China and Japan decreased from 2.3 million tons in 2003 to 1.5 million tons in 2004 primarily due to our decision to focus on meeting increased domestic demand. In 2005, however, sales volume to Asian countries other than China and Japan increased to 1.6 million primarily due to an adjustment of our sales volume from China to other Asian countries with more favorable market price conditions. Our exports to Japan had decreased during the period between 2001 through 2004, from 2.0 million tons in 2001 to 1.7 million tons in 2004 due to a generally unfavorable Japanese market prices. However, sales volume to Japan recovered to 1.8 million in 2005 primarily due to a general increase in Japanese market prices for our products.

To offset the slowdown in the economies of Asian countries in the late 1990s, we focused our efforts on increasing exports to the United States and Europe during that period. However, from 1999 to 2004, sales volume to these regions decreased and remained at low levels, primarily due to our decision to export to Asian countries other than Japan that have higher profit margins. As a result, sales volume to the United States and Europe decreased to 795 thousand tons in 2005, representing only 9.6% of our export volume of steel products.

A significant part of our sales in North America are made to USS-POSCO Industries (“UPI”), a 50-50 joint venture between U.S. Steel Corporation and us. We sell hot rolled products to UPI, which uses such products to manufacture cold rolled and galvanized steel products for sale in the United States. Our sales to UPI were 539 thousand tons in 2003, 639 thousand tons in 2004 and 572 thousand tons in 2005, accounting for approximately 75% of our sales to North America in 2003, 87% in 2004 and 75% in 2005.

In the United States, a number of our products have been subject to anti-dumping and countervailing proceedings since 1992. As a result of these proceedings, our sales of corrosion resistant steel are subject to a countervailing duty of 1.15% and an anti-dumping duty of 2.06%, our sales of stainless steel plates are subject to an anti-dumping duty of 1.19% and our sales of stainless steel sheets are subject to an anti-dumping duty of 0.92%.

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

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

Pricing Policy

We determine the sales price of our products based on market conditions. In setting prices, we take into account our costs, including those of raw materials, supply and demand in the Korean market, exchange rates, and conditions in the international steel market.

Our export prices can fluctuate considerably over time, depending on market conditions and other factors. The export prices of our higher value-added steel products in the largest markets are determined considering the prices of the similar products charged by our competitors. Export prices in Dollar terms, after stabilizing in the first half of 2003, increased until the first half of 2005, primarily as a result of general recovery of the global economy and continued increase in steel consumption in China, as well as increases in transportation cost and price of raw materials. However, our export prices in Dollar terms increased in the first half of 2005 due to an increase in demand in China but decreased in the second half

of 2005 due to excessive supply of steel products from China. In the first half of 2006, our export prices in Dollar terms have increased due to the recovery of the global steel markets.

Raw Materials


	*Steel Production*

The principal raw materials used in producing steel through the basic oxygen steelmaking method are iron ore and coal. We import all of the coal and virtually all of the iron ore that we use. In 2005, we imported approximately 42.2 million tons of iron ore and 19.8 million tons of coal. Iron ore is imported primarily from Australia, Brazil and India. Coal is imported primarily from Australia, China, Canada and Russia.

In 2005, we purchased most of our iron ore and coal imports pursuant to long-term contracts. We purchased approximately 17% of our iron ore and coal imports in 2005 from foreign mines in which we have made an investment. The long-term contracts generally have terms of three to ten years and provide for periodic price adjustments to the then-market prices. The long-term contracts require us to purchase a minimum amount of the relevant raw materials each year, and to date the minimum purchase amounts have been equivalent to about 10% to 20% of our total yearly purchases under these contracts. We or the suppliers may cancel the long-term contracts only if performance under the contracts is prevented by causes beyond our or their control and these causes continue for a specified period.

The prices of coal and iron ore increased substantially in recent years. The average price of coal per ton (including transportation costs) increased from $49.12 in 2003 to $72.02 in 2004 and $112.15 in 2005. The average price of iron ore per ton (including transportation costs) increased from $26.10 in 2003 to $31.96 in 2004 and $44.22 in 2005. We currently do not depend on any single country or supplier for our coal or iron ore.

In April 2002, we entered into an agreement with BHP Billiton, Itochu Corporation and Mitsui Corporation and invested A$16.3 million to establish the largest iron ore development project in Australia. We have a 20% interest in the project, while BHP Billiton, Itochu and Mitsui have 65%, 8% and 7% interests, respectively. We are obligated under the agreement to purchase 3.0 million tons of iron ore each year, representing approximately 8% of our total annual iron ore procurement amount, for twenty-five years starting in 2003. The purchase price is determined based on the global market price at the time of purchase. We purchased 2.4 million tons of iron ore from this development project in 2004 and 3.2 million tons in 2005.

In 2004 and 2005, we made the following investments in Australia: (i) $38 million to acquire a 20% interest in a coal mine project in Foxleigh, Australia, securing 0.5 million tons of coal per year, (ii) $7.5 million to acquire a 5% interest in a coal mine in Glennies Creek, NSW, Australia, securing 0.5 million tons of coal per year, (iii) $9.4 million to acquire a 5% interest in a coal mine in Carborough Downs, Queensland, Australia, securing 0.8 million tons of coal per year, and (iv) Australian Dollar 3.0 million to acquire 10 million shares of Murchison Metals Ltd. to develop iron ore mines in the western region of Australia. In addition, we invested approximately $25 million to acquire a 2.5% stake in a coal mine project in Elkview, Canada, securing additional 0.7 million tons of coal per year. We continue to seek opportunities to enter into additional strategic relationships, particularly in Brazil, that would enhance our ability to meet our requirements for high quality raw materials.


	*Stainless Steel Production*

The principal raw materials for the production of stainless steel are wrought nickel, ferrochrome, stainless steel scrap and carbon steel scrap. We purchase a substantial portion of our requirements for wrought nickel from leading producers in Australia, Indonesia, New Caledonia, Russia and Japan, as well as Korea. A substantial portion of requirements for ferrochrome are purchased from producers in South Africa, India and Kazakhstan. Most of the requirements for stainless steel scrap are sourced from domestic and overseas suppliers in Japan, United States and Southeast Asian countries. As for the requirements for

carbon steel scrap, scrap from the Pohang Steelworks is also utilized. The average nickel price per ton increased from $9,634 in 2003 to $13,852 in 2004 and $15,230 in 2005.

In May 2005, we entered into a memorandum of understanding with Société Minière du Sud Pacifique (“SMSP”), a New Caledonian nickel mining company, to establish joint ventures to procure nickel ore deposits in New Caledonia and operate a ferro-nickel production plant in Korea with annual production capacity of approximately 30,000 metric tons of nickel. SMSP and we executed a joint venture agreement on April 5, 2006, whereby two joint venture companies were established in Korea and New Caledonia in May 2006 and June 2006, respectively. We expect to invest US$352 million and will have ownership interest of 49% in each joint venture company. The joint venture in New Caledonia will own the nickel mines and assets relating to nickel mining operations. We plan to purchase all of the ferro-nickel produced by the joint venture company in Korea using the nickel ore supplied from the New Caledonian joint venture starting in 2009 and use it for our stainless steel production.


	*Transportation*

Since 1983, we have retained a fleet of dedicated bulk carriers to transport our raw materials through long-term contracts with shipping companies in Korea. These dedicated bulk carriers transported approximately 74% of our coal and iron ore in 2005, with the remaining 26% transported by other vessels through chartering contracts. All imported raw materials are unloaded at our port facilities in Pohang and Gwangyang. Costs of transportation of iron ore and coal represented approximately 21% and 8% of the total cost of such materials in 2005.

The Steelmaking Process

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


	*Steel — Basic Oxygen Steelmaking Method*

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

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

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


	*Stainless Steel — Electric Arc Furnace Method*

Stainless steel is produced from stainless steel scrap, chrome, nickel and steel scrap using an electric arc furnace. Stainless steel is then processed into higher value-added products by methods similar to those used for steel production. Stainless steel slab are produced at a continuous casting mill. The slab are

processed at hot rolling mills into stainless steel hot coil, which can be further processed at cold strip mills to produce stainless cold rolled steel products.

Competition


	*Domestic Market*

We are currently the only fully integrated steel producer in Korea. As we had an overall market share of 48.5% of the total sales volume of steel products sold in Korea in 2005, we generally face fragmented competition in the domestic market. In hot rolled products, where we had a market share of approximately 65.9% in 2005, we face competition from a Korean operator of mini-mills, which produces lower quality products, and from various foreign producers, primarily from China and Japan. In cold rolled products and stainless steel products, where we had a market share of approximately 55.1% and 48.9% in 2005, respectively, we compete with smaller specialized domestic manufacturers and various foreign producers, primarily from China and Japan.

We may face increased competition in the future from new specialized or integrated domestic manufacturers of steel products in the Korean market. Our biggest competitor in Korea is Hyundai Steel, an electric-furnace steel producer with annual crude steel production of 8.2 million tons in 2005. Hyundai Steel is a new company name for INI Steel, which was spun-off from Hyundai Group in August 2000. In October 2004, INI Steel acquired Hanbo Steel, which has an annual production capacity of 1.8 million tons of hot rolled products and 1.2 million tons of steel bars.

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


	*Export Markets*

The competitors in our export markets include all the leading steel manufacturers of the world. In recent years, there has been a trend toward industry consolidation among our competitors, and smaller competitors in the global steel market today may become larger competitors in the future. For example, Aceralia, Arbed and Usinor merged in February 2002 to create Arcelor, and LNM Holdings and Ispat International merged in October 2004 to create Mittal Steel. Mittal Steel also launched a hostile takeover bid in the first half of 2006, which was raised to $33.0 billion in May 2006 for a controlling stake in Arcelor. If successful, it would create a company with approximately 10% of global steel production capacity. Competition from global steel manufacturers with expanded production capacity such as Mittal Steel and Arcelor, and new market entrants, especially from China, could result in a significant increase in competition. Major competitive factors include the range of products offered, quality, price, delivery performance and customer service. Our larger competitors may use their resources, which may be greater than ours, against us in a variety of ways, including by making additional acquisitions, investing more aggressively in product development and capacity and displacing demand for our export products.

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

Joint Venture and Other Investments

In September 1996, we entered into an agreement with Sagang Group Co. to establish Zhangjiagang Pohang Stainless Steel Co., Ltd., a joint venture company in China for the manufacture and sale of stainless cold rolled steel products. We have a 91.5% interest in the joint venture (including 33.6% interest of POSCO China Holding Corporation). The plant commenced production of stainless cold rolled steel products and galvanizing iron in December 1998 and produced 335 thousand tons of stainless cold rolled products in 2005, as well as 132 thousand tons of galvanizing iron. The joint venture is currently constructing new mills with expected completion in July 2006 in order to add additional annual production capacity of 600 thousand tons of stainless hot rolled products.

We established Changwon Specialty Steel as a wholly-owned subsidiary in Korea in February 1997. The plants operated by Changwon Specialty Steel have annual production capacities of 810 thousand tons of wire rods, round bars, steel pipes and semi-finished products. Changwon Specialty Steel produced 801 thousand tons of such products in 2005.

We currently hold an 80.0% interest in Qingdao Pohang Stainless Steel Co., Ltd. (including 10.0% interest of POSCO China Holding Corporation), a joint venture set up to manufacture and sell stainless cold rolled steel products in China. Construction of the plant operated by Qingdao Pohang Steel began in August 2003 and became operational in December 2004, with an annual production capacity of 180 thousand tons of stainless cold rolled steel products. Qingdao Pohang Steel produced 130 thousand tons of such products in 2005.

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

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

Diversification

Our first priority is to maximize revenues and profits from our steel operations. In addition, we selectively seek opportunities in growth industries, in part to prepare for the eventual maturation of the Korean steel market. When determining our diversification projects, we consider attractiveness of the industry and its future growth potential, as well as our capabilities to become competitive in such an industry.

New businesses related to our steel operations include liquefied natural gas production and logistics. We completed the construction of a liquefied natural gas terminal in July 2005. In January 2003, we also entered into a joint venture with Mitsui Corporation of Japan for a 51.0% interest in POSCO Terminal Co., Ltd. which provides logistics services related to storage and transportation of raw materials used in steel production and other industries. Facilities operated by POSCO Terminal Co., Ltd. currently have an annual handling capacity of 6.3 million tons and enable us to transport raw materials on behalf of third parties, including electric power companies, cement companies and overseas steel manufacturers.

New businesses not related to our steel operations in which we intend to focus our efforts for diversification include power generation, development of alternative energy and advanced materials and biotechnology. We purchased a 50.0% interest in Korea Independent Energy Corporation for Won 291 billion in July 2005 and purchased the remaining 50% interest for Won 306 billion in March 2006. Korean Independent Energy Corporation is the largest private power generation company in Korea that operates power plants with total power generation capacity of 1,800 megawatts. For our participation in the development and sale of alternative energy products, such as fuel cells, we plan to establish partnerships with established corporations. As for production of advanced materials, we plan to utilize our proprietary steel rolling and strip casting technologies and to develop additional technologies and manufacturing capabilities. In the biotechnology field, we launched in September 2002 POSCO BioVentures, L.P., a $50.0 million venture capital fund established in the United States. The BioVentures fund is committed to investing in promising biotech companies, including various pharmaceutical companies, and assists in their development in cooperation with the Biotech Center at Pohang University of Science & Technology. In order to seek and develop business opportunities outside the steel industry, we expect to continue to work closely with Pohang University of Science & Technology and Research Institute of Industrial Science & Technology, a private research organization wholly sponsored by POSCO.

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

Insurance

As of December 31, 2005, our property, plant and equipment are insured against fire and other casualty losses up to Won 4,784 billion. In addition, we carry general insurance for vehicles and accident compensation insurance for our employees to the extent we consider appropriate.

Item 4.C. Organizational Structure

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


	Jurisdiction of		Percentage of
Name	Incorporation		Ownership

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

Item 4.D. Property, Plants and Equipment

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

Pohang Works

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

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

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


	Year Ended December 31,

	2001		2002		2003		2004		2005

Crude steel and stainless steel production capacity (million tons per year)		12.20		12.20		12.67		13.30		13.30
Actual crude steel and stainless steel output (million tons)		12.04		12.16		12.67		13.45		13.36
Capacity utilization rate(%)(1)		98.7		99.7		100.0		101.1		100.4


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

Gwangyang Works

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

Gwangyang Works is comprised of 40 plants and 43 supporting facilities, including iron-making plants, steelmaking plants, continuous casting plants, hot strip mills and thin-slab hot rolling plants. The site also features docking and unloading facilities for raw materials capable of accommodating ships of as large as 300,000 tons for unloading raw materials, storage areas for 44 days’ supply of raw materials and separate docking facilities.

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

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


	Year Ended December 31,

	2001		2002		2003		2004		2005

Crude steel and stainless steel production capacity (million tons per year)		15.80		15.80		16.23		16.70		16.70
Actual crude steel and stainless steel output (million tons)		15.78		15.90		16.23		16.76		17.19
Capacity utilization rate(%)(1)		99.9		100.6		100.0		100.4		102.9


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

The Environment

We believe we are in compliance with applicable environmental laws and regulations in all material respects. Our levels of pollution control are higher than those mandated by Government standards. We established an environmental monitoring system with real-time feedback on pollutant levels and a forecast system of pollutant concentration in surrounding areas. We also undergo periodic environmental inspections by both internal and external inspectors in accordance with ISO 14001 standards to monitor execution and maintenance of our environmental management plan. We recently invested in comprehensive waste gas treatment facilities at some of our sinter plants, dust collector at our steelmaking plants and coke

wastewater treatment facilities. In addition, we recycle much of the by-products such as slag and sludge into cement, fertilizer, road construction materials and raw materials to be used in the steelmaking process.

POSCO spent Won 93.2 billion in 2003, Won 145.5 billion in 2004 and 127.0 billion in 2005 on anti-pollution facilities.


Item 4A.	*Unresolved Staff Comments*

We do not have any unresolved comments from the Securities and Exchange Commission staff regarding our periodic reports under the Exchange Act of 1934.


Item 5.	*Operating and Financial Review and Prospects*


Item 5.A.	*Operating Results*

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

Overview


	*Sales Volume, Prices and Product Mix*

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


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

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

	•	price levels; and

	•	our ability to improve our product mix.

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

Our sales volume increased by 3.7% in 2004 but decreased by 2.1% in 2005. In 2004, our crude steel output increased to 30.2 million tons and sales volume increased to 31.8 million tons due to an increase in domestic demand primarily from the automobile, consumer appliance, and shipbuilding industries, which outweighed a decrease in demand from the construction industry. In 2005, however, while our crude steel output increased to 30.5 million tons, sales volume decreased to 31.1 million tons due to an increase in our inventory in the second half of 2005 resulting from adverse Chinese market conditions. For a discussion of our sales volume and revenues by major products and markets from 2001 to 2005, see “Item 4. Information on the Company — Item 4.B. Business Overview — Major Products” and “— Markets.”

Unit sales price in Won for all of our principal product lines increased in 2004 despite an appreciation of the Korean Won against the Dollar. The weighted average unit prices for our products increased by 30.5% in 2004 compared to 2003. Unit sales price of wire rods, which accounted for 7.9% of total sales volume, increased by 40.9% in 2004. Unit sales price of hot rolled products, which accounted for 34.5% of total sales volume, increased by 36.7% in 2004. Unit sales price of plates, which accounted for 10.6% of total sales volume, increased by 35.5% in 2004. In 2005, unit sales price in Won for all of our principal product lines other than stainless steel products increased, and the weighted average unit prices for our products increased by 10.6% in 2005 compared to 2004 despite an appreciation of the Korean Won against the Dollar. Unit sales price of silicon steel sheets, which accounted for 2.4% of total sales volume, increased by 24.0% in 2005. Unit sales price of plates, which accounted for 10.3% of total sales volume, increased by 20.2% in 2005. Unit sales price of wire rods, which accounted for 7.6% of total sales volume, increased by 19.7%. These increases were partially offset by a 0.5% decrease in unit sales price of stainless steel products, which accounted for 6.2% of total sales volume in 2005.

Export prices in Dollar terms increased in 2004, primarily as a result of general recovery of the global economy as well as continuous increases in transportation costs and price of raw materials. Although export prices in Dollar terms increased in the first half of 2005 primarily as a result of an increase in demand in China, such prices decreased in the second half of 2005 due to excessive supply of steel products in China. In the first half of 2006, our export prices in Dollar terms have increased due to the recovery of the global steel markets. See “Item 4. Information on the Company — Item 4.B. Business Overview — Markets — Exports.”

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


		Year Ended December 31,

Product		2003		2004		2005

		(In thousands of Won per ton)
Hot rolled products		W	363.5	W	496.9	W	568.9
Plates			433.1		586.8		705.4
Wire rods			383.2		539.6		645.9
Cold rolled products			533.1		640.8		719.0
Silicon steel sheets			642.0		753.0		934.0
Stainless steel products			1,783.7		2,378.4		2,366.9
Others			624.6		494.4		538.6

	Average(1)	W	524.1	W	684.1	W	756.8


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


	*Costs and Production Efficiency*

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

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


	Year Ended
	December 31,

	2003			2004			2005

	(percentage of net
	sales)
Cost of goods sold		75.6	%		72.4	%		71.4	%
Selling and administrative expenses(1)		6.0			5.4			5.5
Total operating expenses		81.6			77.8			76.9
Gross margin		24.4			27.6			28.6
Operating margin		18.4			22.2			23.1


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

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

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


	2001		2002		2003		2004		2005

Crude steel and stainless steel production capacity (million tons per year)		28.00		28.00		28.90		30.00		30.00
Actual crude steel and stainless steel output (million tons)		27.83		28.07		28.90		30.21		30.54
Capacity utilization rate(%)		99.4		100.3		100.0		100.7		101.8
Steel product sales (million tons)(1)		30.07		30.33		30.66		31.80		31.12
Man-hours per ton of crude steel produced(2)		1.28		1.26		1.17		1.12		1.16


(1)	Includes sales by our consolidated sales subsidiaries of steel products purchased by them from third parties, including trading companies to which we sell steel products. These sales amounted to approximately 1.3 million tons in 2001, 1.2 million tons in 2002, 1.4 million tons in 2003, 1.0 million tons in 2004 and 1.0 million tons in 2005.

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


	*Exchange Rate Fluctuations*

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


	•	an increase in the amount of Won required for us to make interest and principal payments on our foreign currency-denominated debt, which accounted for approximately 64.6% of our total long-term debt (excluding discounts on debentures issued and including current portion) as of December 31, 2005;

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

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

Appreciation of the Won, on the other hand, (i) causes our export products to be less competitive by raising our prices in Dollar terms and (ii) reduces net sales and accounts receivables in Won from export sales, which are primarily denominated in Dollars. However, because of the larger positive effects of the appreciation of the Won (i.e., the reverse of the negative effects caused by the depreciation of the Won, as discussed above), appreciation of the Won generally has a positive impact on our results of operations. In terms of the average noon buying rate, the Won appreciated against the Dollar from Won 1,192.0 to US$1 as of December 31, 2003 to Won 1,010.0 to US$1 as of December 31, 2005. See “Item 3. Key Information — Exchange Rate Information.”

We attempt to minimize our exposure to currency fluctuations by attempting to maintain export sales, which result in foreign currency receipts, at a level that covers foreign currency obligations to the extent feasible. As a result, a decrease in our export sales could increase our foreign exchange risks. From time to time we also enter into cross currency swap agreements in the management of our interest rate and currency risks and currency forward contracts with financial institutions to reduce the fluctuation risk of future cash flows. As of December 31, 2005, we had entered into one option contract and six currency forward contracts. The net valuation loss of the above contracts was approximately Won 19.7 billion and the net transaction loss was Won 5.1 billion in 2005. We may incur losses under our existing contracts or any swap or other derivative product transactions entered into in the future. See Note 22 of Notes to Consolidated Financial Statements.

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

We started the construction of the no. 2 mini-mill at Gwangyang Works in 1997. Our board of directors decided in May 1998 to temporarily suspend the construction of the mini-mill due to the unstable economic condition in Korea and the Asia Pacific Region. Due to the continuing unstable economic condition and related decrease in the selling price of products, which in turn resulted in the deterioration in profitability, the management’s operations committee decided in April 2002 to cease the construction of the No. 2 mini-mill. We recognized impairment losses on the construction-in-progress in Gwangyang No. 2 mini-mill amounting to Won 469.6 billion in 2003 and 2004 and reclassified related machinery held to be disposed of in the future as other investment assets as of December 31, 2004.


	*Inflation*

Inflation in the Republic, which was 3.6% in 2003 and 2004, and 2.7% in 2005 has not had a material impact on our results of operations in recent years.

Critical Accounting Estimates

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


	*Allowance for Doubtful Accounts*

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


	*Valuation of Investment Securities and Derivatives*

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

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

When the fair value of a listed equity security or the net equity value of an unlisted equity security declines compared to acquisition cost and is not expected to recover (impaired investment security), the value of the equity security is adjusted to its fair value or net asset value, with the valuation loss charged

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

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

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


	*Impairment of Long-lived Assets*

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

Our estimates of the useful lives and recoverable values of long-lived assets are based on historical trends adjusted to reflect our best estimate of future market and operating conditions. Also, our estimates include the expected future period in which the future cash flows are expected to be generated from continuing use of the assets that we review for impairment and cash outflows to prepare the assets for use that can be directly attributed or allocated on a reasonable and consistent basis. If applicable, estimates also include net cash flows to be received or paid for the disposal of the assets at the end of their useful lives. As a result of the impairment review, when the sum of the discounted future cash flows expected to be generated by the assets is less than the book value of the assets, we recognize impairment losses based on the recoverable value of those assets. We made a number of significant assumptions and estimates in the application of the discounted cash flow model to forecast cash flows, including business prospects, market conditions, selling prices and sales volume of products, costs of production and funding sources. Further impairment charges may be required if triggering events occur, such as adverse market conditions, suggesting deterioration in an asset’s recoverability or fair value. Assessment of the timing of when such declines become other than temporary and/or the amount of such impairment is a matter of significant judgment. Results in actual transactions could differ from those estimates used to evaluate the impairment of such long-lived assets. A percentage difference in cash flow projections or discount rate used would not likely result in an impairment write-down.

Operating Results


	*2005 Compared to 2004*

Our sales in 2005 increased by 9.7% to Won 26,302 billion from Won 23,973 billion in 2004, reflecting an increase of 10.6% in the average unit sales price per ton of our steel products, as discussed in “— Overview — Sales Volume, Prices and Product Mix” above, which more than offset a 2.1% decrease in the sales volume of our steel products.

Sales volume of stainless steel products, which accounted for 6.2% of total sales volume, showed the greatest decrease among our major steel product categories in 2005 with a decrease of 7.3%. Sales volume of hot rolled products, which accounted for 33.2% of total sales volume, decreased by 5.8%. In addition, sales volume of plates, which accounted for 10.3% of total sales volume, decreased by 5.7%. These decreases in sales volume were partially offset by increases in sales volume of silicon steel sheets and cold rolled products. Sales volume of silicon steel sheets, which accounted for 2.4% of total sales volume, showed the greatest increase among our major steel product categories in 2005 with an increase of 4.5%. Sales volume of cold rolled products, which accounted for 33.6% of total sales volume, increased by 2.2%. See “Item 4. Information on the Company — Item 4B. Business Overview — Major Products.”

Our domestic sales in 2005 increased by 10.9% in terms of total sales revenues but decreased by 3.0% in terms of sales volume of steel products compared to 2004. In 2005, our domestic sales accounted for approximately 73.5% of our total sales volume, compared to 74.2% in 2004. The increase in domestic sales revenues in 2005 compared to 2004 was attributable primarily to an increase in the price of steel products sold in Korea, which more than offset a decrease in domestic sales volume.

Our export sales in 2005 increased by 6.9% in terms of sales revenues and by 0.4% in terms of sales volume compared to 2004. Exports as a percentage of total sales volume increased to 26.5% of our total sales volume in 2005 compared to 25.8% in 2004. The increase in export sales in terms of sales revenues in 2005 compared to 2004 was primarily attributable to an increase in the price of steel products sold abroad and to a lesser extent, an increase in export sales volume, which more than offset the reduction in net sales in Won from export sales due to appreciation of the Won against the Dollar.

Gross profit in 2005 increased by 13.9% to Won 7,535 billion from Won 6,612 billion in 2004. Gross margin in 2005 increased to 28.6% from 27.6% in 2004, as the 9.7% increase in sales more than offset an 8.1% increase in cost of goods sold in 2005 to Won 18,767 billion from Won 17,361 billion in 2004. The increase in cost of goods sold was attributable primarily to increases in purchase of raw materials, as well as an increase in labor expenses resulting from higher performance bonuses. Raw materials costs in 2005 increased primarily as a result of a general increase in the unit costs of coal, iron ore, nickel and scrap metal, as well as an increase in our production of crude steel to 30.5 million tons in 2005 compared to 30.2 million tons in 2004. The average price of coal per ton (including all associated costs such as customs duties and transportation costs) increased from $72.02 in 2004 to $112.15 in 2005. The average price of iron ore per ton (including all associated costs such as customs duties and transportation costs) increased from $31.96 in 2004 to $44.22 in 2005.

Operating income in 2005 increased by 14.4% to Won 6,083 billion compared to Won 5,319 billion in 2004. Operating margin increased to 23.1% in 2005 from 22.2% in 2004, as selling and administrative expenses increased by 12.3% in 2005 to Won 1,451 billion compared to Won 1,293 billion in 2004. The increase in selling and administrative expenses resulted principally from increases in provision for doubtful accounts, advertising expenses, fees and charges and labor-related expenses. Our provision for doubtful accounts increased by 94.4% in 2005 to Won 104 billion from Won 54 billion in 2004 primarily as a result of slowdown in the construction industry and an increase in reserve for doubtful receivables of POSCO Engineering & Construction Co., Ltd. Advertising expenses increased by 98.8% in 2005 to Won 98 billion from Won 49 billion in 2004 primarily as a result of reclassification of advertising expenses incurred in our Pohang and Gwangyang plants, which had been classified as manufacturing expenses until 2004, pursuant to recommendation by our internal accounting standards review committee in 2005. Our fees and charges in 2005 increased by 59.3% to Won 122 billion compared to Won 77 billion in 2004, primarily as a result

of an increase in such expenses from POSCO Engineering & Construction. Our labor-related expenses included in selling and administrative expenses, which consist of salaries, welfare expenses and provisions for severance benefits, increased by 13.3% to Won 315 billion in 2005 from Won 278 billion in 2004, primarily as a result of a Won 20 billion increase in salaries, as well as higher welfare expenses and performance bonuses. Our welfare expenses increased by Won 12 billion in 2005 compared to 2004 primarily as a result of our decision to sell 1,325,800 shares of treasury stock in 2005 to the employee stock ownership association, with the difference between the fair value and the proceeds being recognized as welfare expenses.

Our net income in 2005 increased by 5.2% to Won 4,012 billion compared to Won 3,814 billion in 2004 as an increase in operating income, a decrease in loss on impairment of investments, an increase in non-operating income-others and a decrease in interest expense more than offset effects from an increase in non-operating expenses-others and a decrease in gain on recovery of allowance for doubtful accounts. Loss on impairment of investments decreased by 87.5% to Won 12 billion from Won 95 billion in 2004 primarily due to the absence of large impairments of investments in 2005 such as the impairment of Won 79 billion in 2004 related to our decision to permanently cease construction of our mini-mill discussed above. Non-operating income-others increased by 50.6% to Won 211 billion compared to Won 140 billion in 2004 primarily due to the reclassification of certain research and development costs relating to a strip casting testing plant previously recognized as expenses and an increase in interest payments to POSCO Engineering & Construction by its subcontractors from delayed receivables. We previously recognized research and development costs relating to a strip casting plant as expenses based on our conclusion that the technology was not available for immediate commercialization. However, we made an adjustment to non-operating income-others in 2005 because we classified the testing plant as tangible asset in 2005 and plan to use the plant to test our new technologies. Our interest expense decreased by 22.2% to Won 149 billion in 2005 from Won 192 billion in 2004 as we reduced our borrowings in 2005. Our non-operating expenses-others increased to Won 854 billion in 2005 from Won 165 billion in 2004 primarily due to an increase in subsidies to 1,672 employees who were transferred to outsourcing companies in 2005 to increase our labor productivity compared to 40 such employees in 2004, our payment of additional income taxes of Won 179 billion in 2005 in response to an audit conducted by the National Tax Service of our corporate income tax returns for 2000 to 2004, which we are currently taking legal actions to reconcile differences in the interpretation of Korean tax laws, as well as a loss of Won 120 billion related to our disposal of SK Telecom shares to enhance shareholders’ equity through disposition of non-core assets. Our gain on recovery of allowance for doubtful accounts in 2005 decreased by 85.3% to Won 19 billion compared to Won 127 billion in 2004, primarily due to the absence of large recoveries in 2005 such as our recovery of Won 108 billion from settlement of liquidation dividends from POSVEN in 2004.

Our effective tax rate in 2005 was 27.0% compared to 28.1% in 2004. The statutory income tax rate applicable to us, including resident tax surcharges, decreased to 27.5% in 2005 from 29.7% in 2004. See Note 25 of Notes to Consolidated Financial Statements.


	*2004 Compared to 2003*

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

Sales volume of stainless steel products, which accounted for 6.5% of total sales volume, showed the greatest increase among our major steel product categories in 2004 with an increase of 16.4%. Sales volume of plates, which accounted for 10.6% of total sales volume, increased by 11.1%. Sales volume of silicon steel sheets, which accounted for 2.2% of total sales volume, increased by 5.1%. In addition, sales volume of cold rolled products, which accounted for 32.2% of total sales volume, increased by 4.8%. On the other hand, sales volume of wire rods, which accounted for 7.9% of total sales volume, decreased by 9.9%, and sales volume of hot rolled plates, our largest product category in terms of sales volume which

accounted for 34.5% of total sales volume, decreased by 4.8%. See “Item 4. Information on the Company — Item 4B. Business Overview — Major Products.”

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

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

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

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

Our net income in 2004 increased by 91.1% to Won 3,814 billion compared to Won 1,996 billion in 2003 as increases in operating income, net gain on foreign currency translation and gain on recovery of allowance for doubtful accounts and decreases in loss on impairment of property, plant and equipment and interest expense more than offset effects from increases in loss on impairment of investments and donations. We recorded net gain on foreign currency translation of Won 160 billion in 2004 compared to net loss on foreign currency translation of Won 112 billion in 2003 as the Korean Won appreciated in 2004 against the Dollar. Our gain on recovery of allowance for doubtful accounts in 2004 increased by almost ten-fold to Won 127 billion compared to Won 13 billion in 2003, primarily as a result of our recovery of Won 108 billion from settlement of liquidation dividends from POSVEN in 2004. Loss on impairment of property, plant and equipment decreased by 51.8% in 2004 to Won 73 billion from Won 151 billion in

2003, as impairment related to our no. 2 mini-mill in Gwangyang of Won 79 billion was treated as impairment of investments in 2004 whereas impairment related to the mini-mill of Won 151 billion in 2003 was treated as impairment of property, plant, and equipment, which effect more than offset recognition of impairment of property, plant and equipment of Won 63 billion on the building and land of our Japanese branch in 2004 compared to no such impairment in 2003. Our loss on impairment of investments in 2004 increased eight-fold to Won 95 billion from Won 12 billion in 2003, primarily as a result of impairment of investments of Won 79 billion in 2004 related to our decision to permanently cease construction of our mini-mill discussed above. Interest expense in 2004 decreased by 23.3% to Won 192 billion compared to Won 250 billion in 2003 due to our reduction in debt and a general decrease in interest rates. Our donations also increased by 64.3% in 2004 to Won 170 billion from Won 103 billion in 2003 as we contributed Won 58 billion in 2004 to employees’ welfare fund.

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

Item 5.B. Liquidity and Capital Resources

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


	Year Ended December 31,

	2003		2004			2005

	(in billions of Won)
Net cash provided by operating activities	W	3,499	W	4,946		W	5,462
Net cash used in investing activities		2,135		3,386			3,742
Net cash used in financing activities		1,046		1,650			1,578
Cash and cash equivalents at beginning of period		268		594			482
Cash and cash equivalents at end of period		594		482			654
Net increase (decrease) in cash and cash equivalents		326		(112	)		172

Capital Requirements

Historically, uses of cash consisted principally of purchases of property, plant and equipment and other assets and payments of long-term debt. Net cash used for investing activities was Won 2,135 billion in 2003, Won 3,386 billion in 2004 and Won 3,742 billion in 2005. These amounts included purchases of property, plant and equipment of Won 1,299 billion in 2003, Won 2,265 billion in 2004 and Won 3,361 billion in 2005. We recorded net acquisition of trading securities of Won 81 billion in 2003 and Won 64 billion in 2004 and net disposal of trading securities of Won 222 billion in 2005. We also recorded net acquisition of available-for-sale securities of Won 493 billion in 2003, Won 167 billion in 2004 and Won 271 billion in 2005. In our financing activities, we used cash of Won 1,317 billion in 2003, Won 1,125 billion in 2004 and Won 1,368 billion in 2005 for principal repayments of outstanding long-term debt. We used Won 263 billion in 2003, Won 305 billion in 2004 and Won 1,295 billion in 2005 for the repurchase of our shares from the market as treasury stock. We raised cash of Won 932 billion in 2005 from disposal of treasury shares, including our sale of 3,500,000 shares in the form of ADSs in connection with the listing on the Tokyo Stock Exchange in November 2005.

We anticipate that capital expenditures and repayments of outstanding debt will represent the most significant uses of funds for the next several years. From time to time, we may also require capital for investments involving acquisitions and strategic relationships and repurchase of our shares from the market as treasury stock. Our total capital expenditures were Won 3,361 billion in 2005 and, under current plans, are estimated to increase to approximately Won 3,995 billion in 2006 to maintain our competitive strengths and develop higher margin, higher value-added products. We retain the ability to reduce or suspend our planned capital expenditures. However, our failure to undertake planned expenditures on steel-producing facilities could adversely affect the modernization of our production facilities and our ability to produce higher value-added products.

In addition to our funding requirements relating to our capital investment program, payments of the principal of and interest on indebtedness will require considerable resources. Principal repayment obligations with respect to long-term debt outstanding as of December 31, 2005 are Won 1,056 billion in 2006, Won 213 billion in 2007, Won 564 billion in 2008, Won 189 billion in 2009 and Won 168 billion in 2010 and beyond. As of December 31, 2005, we had short-term borrowings of Won 860 billion and current portion of long term debt of Won 1,057 billion. We expect to repay these obligations primarily through cash provided by operations and additional borrowings.

We paid dividends on common stock in the amount of Won 326 billion in 2003, Won 525 billion in 2004 and Won 681 billion in 2005.

The following table sets forth the amount of long-term debt, capital lease and operating lease obligations as of December 31, 2005.


		Payments due by Period

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

		(in billions of Won)
Long-term debt obligations			2,189.6			1,055.6			966.4			167.6			—
Capital lease obligations			3.1			2.8			0.3			—			—
Operating leases obligations			10.5			6.7			3.8			—			—
Purchase obligations			(a	)		(a	)		(a	)		(a	)		(a	)
Other long-term liabilities			—			—			—			—			—

	Total		2,203.2			1,065.1			970.5			167.6			—

(a)

Our purchase obligations include long-term contracts to purchase iron ore, coal, nickel, chrome, stainless steel scrap and liquefied natural gas. These contracts generally have terms of three to ten years and provide for periodic price adjustments to then-market prices. As of December 31, 2005, 500 million tons of iron ore and 113 million tons of coal remained to be purchased under long-term contracts.

In addition, as of December 31, 2005, contingent liabilities for outstanding guarantees provided for the repayment of loans of affiliated companies and non-affiliated companies totaled Won 561 billion and Won 509 billion, respectively. See Note 17 of Notes to Consolidated Financial Statements for a description of our commitments and contingent liabilities.

Capital Resources

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

Our major sources of cash have been net earnings before depreciation and amortization and proceeds of long-term debt and other long-term liabilities, and we expect that these sources will continue to be our principal sources of cash in the future. Net income before depreciation and amortization were Won 3,564 billion in 2003, Won 5,380 billion in 2004 and Won 5,624 billion in 2005, and cash proceeds from long-term debt were Won 600 billion in 2003, Won 280 billion in 2004 and Won 594 billion in 2005. Cash proceeds in 2003 included Won 513 billion we raised through the disposition of 1,696,428 shares of SK Telecom to Zeus (Cayman), an exempted company formed with limited liability under the laws of the Cayman Islands. This disposition was effected in conjunction with Zeus (Cayman)’s issuance of notes exchangeable into SK Telecom ADSs, whose notes are fully and unconditionally guaranteed by us. Total long-term debt, including current portion and excluding discount on debentures issued, was Won 3,989 billion as of December 31, 2003, Won 3,104 billion as of December 31, 2004 and Won 2,190 billion as of December 31, 2005.

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

Our total shareholders’ equity increased from Won 13,250 billion as of December 31, 2003 to Won 19,867 billion as of December 31, 2005. This growth is attributable primarily to growth in retained earnings.

Liquidity

Our liquidity is affected by exchange rate fluctuations. See “— Overview — Exchange Rate Fluctuations.” Approximately 32.0% of our sales in 2003, 30.2% of our sales in 2004 and 29.4% of our sales in 2005 were denominated in foreign currencies, of which approximately two-thirds were denominated in Dollars and one-third in Yen and which were derived almost entirely from export sales. As of December 31, 2005, approximately 64.6% of our long-term debt (excluding discounts on debentures issued and including current portion) was denominated in foreign currencies, principally in Dollars and Yen. We have incurred foreign currency debt in the past principally due to the limited availability and cost of Won-denominated financing in the Republic, which had historically been higher than for Dollar or Yen-denominated financings.

Our liquidity is also affected by our construction expenditures and raw materials purchases. Cash used for purchases of property, plant and equipment was Won 1,299 billion in 2003, Won 2,265 billion in 2004 and Won 3,361 billion in 2005. We have entered into several long-term contracts to purchase iron ore, coal and other raw materials. The long-term contracts generally have terms of three to ten years and provide for periodic price adjustments to then-market prices. At December 31, 2005, 500 million tons of iron ore and 113 million tons of coal remained to be purchased under long-term contracts. We may face unanticipated increases in capital expenditures and raw materials purchases. There can be no assurance that we will be able to secure funds on satisfactory terms from financial institutions or other sources which are sufficient for our unanticipated needs.

We had a working capital (current assets minus current liabilities) surplus of Won 3,450 billion as of December 31, 2003, Won 5,493 billion as of December 31, 2004 and Won 5,759 billion as of December 31, 2005. As of December 31, 2005, we had unused credit lines of Won 1,484 billion out of total available credit lines of Won 2,174 billion. We have not had, and do not believe that we will have, difficulty gaining access to short-term financing sufficient to meet our current requirements.

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


	As of December 31,

	2003		2004		2005

	(in billions of Won)
Cash and cash equivalents, net of government grants	W	593	W	480	W	653
Short-term financial instruments		695		647		760
Trading securities		1,321		2,690		2,611
Trade accounts and notes receivable, net of allowance for doubtful accounts and present value discount		2,308		3,094		3,045
Inventories		2,068		3,066		3,793

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

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


	As of December 31,

	2003		2004		2005

	(in billions of Won)
Trade accounts and notes payable	W	917	W	1,082	W	1,146
Short-term borrowings		732		658		860
Income tax payable		573		1,087		1,367
Current portion of long-term debt, net of discount on debentures issued		1,021		1,047		1,057

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


	*Capital Expenditures and Capacity Expansion*

Our capital expenditures for 2003, 2004 and 2005 amounted to Won 1,299 billion, 2,265 billion and Won 3,361 billion, respectively.

Our current capital investment in production facilities emphasizes capacity rationalization, increased production of higher value-added products and improvements in the efficiency of older facilities in order to reduce operating costs. Our total capital expenditures are estimated to be approximately Won 3,995 billion in 2006. The following table sets out the major items of our capital expenditures currently in progress:

Estimated Remaining

Cost of Completion

Expected

Total Cost of

as of December 31,

Project

Completion Date

Project

2005

(in billions of Won)

Pohang Works:

Construction of FINEX demonstration plant

December 2006

553

273

Rationalization of silicon steel mill (level 2)

March 2007

309

152

Second relining of no. 3 blast furnace

May 2006

264

188

Replacement of no. 2 hot rolled mill

June 2006

226

173

Installation of de-phosporization facility at no. 2. steelmaking department

February 2007

143

104

Installation of rolling equipment at no. 2 hot rolled mill

June 2006

129

110

Gwangyang Works:

Rationalization of no.3 hot rolled mill

December 2007

263

244

Installation of no. 6 continuous galvanizing line

June 2006

230

Coke oven gas purification facility

June 2007

176

151

Upgrading of pickling-tandem cold mill at no 1. cold rolled mill

May 2006

135

Significant Changes in Korean GAAP

In February 2004, the Korean Accounting Standards Boards issued Statements of Korean Financial Accounting Standards (“SKFAS”) No. 15, “Equity Investment.” This statement provides clarification that our proportionate unrealized profit arising from sales by us to equity method investees, sales by the equity method investees to us or sales between equity method investees should be eliminated. SKFAS No. 15 amends Interpretation No. 42-59 which prescribes that unrealized profit arising from sales by us to equity method investees should be fully eliminated. Under SKFAS No. 15, we also assess the potential impairment of investment securities in accordance with the accounting standards on impairment loss, when

there is objective evidence. The provisions of this standard are effective prospectively for equity investments beginning on or after December 31, 2004. We do not expect the adoption of this statement to have a material impact on our financial position or results of operations.

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

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

In February 2005, the Korean Accounting Standards Boards (“KASB”) issued SKFAS No. 18, “Interests in Joint Ventures.” This statement provides the definition of joint venture which requires an investor to recognize assets, liabilities, revenue and expenses related to its investment on a joint venture. Under SKFAS No. 18, joint venture may be classified into one of the following types; joint venture business, joint venture assets or joint venture corporation, and an investor should apply SKFAS No. 15, “Investments in Associates” correspondingly for its investment on joint venture corporation. The provisions of this standard are effective prospectively for joint ventures beginning on or after December 31, 2005. We do not expect the adoption of this statement to have a material impact on its financial position or results of operations.

In March 2005, the KASB issued SKFAS No. 19, “Lease accounting,” which supersedes pre-KASB standard of “Accounting Standards for Lease Industry.” Under SKFAS No. 19, lease transactions that the risk and benefit from the ownership of the leased property is de facto transferred to the lessee should be classified as a finance lease, and an operating lease otherwise. The classification should be determined by substance of a transaction and lease of real estate also are subject to the statements as other property leases. The provisions of this standard are effectively for lease transactions beginning on or after December 31, 2005. We do not expect the adoption of this statement to have a material impact on its financial position or results of operations.

In September 2005, the KASB issued SKFAS No. 20, “Related Party Disclosures,” which supersedes pre-KASB standard of financial reporting. SKFAS No. 20 requires substance over legal form and disclosure of the characteristics of the related party relationships. Under SKFAS No. 20, we are also required to disclose disaggregated information of compensation for chief officers and basis for classifying chief officers. The provisions of this standard are effective for the period beginning after December 31, 2005.

In April 2006, the KASB issued SKFAS No. 21, “Preparation and Disclosure of Financial Statements.” Under SKFAS No. 21, changes in stockholders’ equity are included as one of the main financial statements when a company prepares and discloses non-consolidated financial statements. The provisions of this standard are effective for the period beginning after December 31, 2006.

U.S. GAAP Reconciliation

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

We recorded net income under U.S. GAAP of Won 4,102 billion in 2005 compared to net income of Won 3,460 billion in 2004 and Won 1,997 billion in 2003 primarily due to the factors discussed in “— Operating Results.” Our net income under U.S. GAAP of Won 4,102 billion in 2005 is 2.2% higher than our net income under Korean GAAP of Won 4,012 billion. See Note 33(a) of Notes to Consolidated Financial Statements.

Recent Accounting Pronouncements in U.S. GAAP

In November 2004, the Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standard No. 151 (“FAS 151”), “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” The standard requires that abnormal amounts of idle capacity and spoilage costs should be excluded from the cost of inventory and expensed when incurred. Additionally, the standard requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities and clarifies the meaning of the term ‘normal capacity’. The provisions of FAS 151 are applicable to inventory costs incurred during fiscal years beginning after June 15, 2005. We are in the process of determining the impact of adoption on our financial position and results of operation.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standards No. 123 R, “Share-Based Payment.” This Statement requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. In April 2005, the Securities Exchange Commission (“SEC”) approved a new rule that delayed the effective date of FAS 123 R. Under the SEC rule, FAS 123 R is now effective for annual rather than interim period that begin after June 15, 2005. We are evaluating the requirements of FAS No. 123 R and currently expects that the adoption of FAS No. 123 R will not have a material impact on our financial position and results of operation.

In December 2004, the FASB issued Statement No. 153 (“FAS 153”), “Exchanges of Nonmonetary Assets — an amendment of APB Opinion No. 29.” FAS 153 is based on the principle that nonmonetary asset exchanges should be recorded and measured at the fair value of the assets exchanged, with certain exceptions. This standard requires exchanges of productive assets to be accounted for at fair value, rather than at carryover basis, unless (1) neither the asset received nor the asset surrendered has a fair value that is determinable within reasonable limits or (2) the transactions lack commercial substance (as defined). The new standard is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005.

In March 2005, the SEC issued SAB No. 107 (“SAB 107”), which expresses the view of the staff regarding the interaction between the FASB’s SFAS No. 123 (revised 2004) (FAS 123R), “Share-Based Payment”, and certain SEC rules and regulations and provides the staff’s views regarding the valuation of share-based payment arrangements for public companies. Specifically, SAB 107 provides guidance on how to determine the expected volatility and expected term inputs into a valuation model used to determine the fair value of share based payments under FAS 123R. SAB 107 also provides guidance related to numerous aspects of the adoption of FAS 123R such as taxes, capitalization of compensation costs, modification of share based payments prior to adoption and the classification of expenses.

In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143.” This interpretation clarifies that an entity is required to recognize a liability for the fair value of a conditional assets retirement obligation if the fair value of the liability can be reasonably estimated. The Interpretation is effective no later than the end of fiscal years ending after December 15, 2005 (December 31, 2005, for calendar-year enterprises).

The adoption of this Interpretation did not have a material effect on our financial position and results of operation.

In May 2005, the FASB issued Financial Accounting Standards No. 154 (“FAS 154”), “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20,” which changes the requirements for the accounting and reporting of a change in accounting principle. The Statement requires that changes in accounting principle be retroactively applied. FAS 154 is effective for accounting changes and correction of errors made on or after January 1, 2006, with earlier adoption permitted. We have applied the provisions of this Statement starting January 1, 2006.

In February 2006, the FASB issued Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140.” This Statement resolves issues addressed in Statement 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets” and is effective for all financial instrument acquired or issued after beginning of an entity’s first fiscal year that begins after September 15, 2006. We do not expect the adoption of this statement to have a material impact on its financial position or result of operations.

In March 2006, the FASB issued FASB issued Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140.” This Statement amends FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” with respect to the accounting for separately recognized servicing assets and servicing liabilities. This Statement requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a certain servicing contract and all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. An entity should adopt this Statement as of the beginning of its first fiscal year that begins after September 15, 2006, with earlier adoption is permitted. We do not expect the adoption of this statement to have a material impact on its financial position or result of operations.

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

We maintain a research and development program to carry out basic research and applied technology development activities. Our technology development department works closely with the Pohang University of Science & Technology, Korea’s first research-oriented college founded by us in 1986, and the Research Institute of Industrial Science and Technology, Korea’s first private comprehensive research institute founded by us in 1987. At December 31, 2005, we employed a total of 172 researchers.

In 1994, we founded the POSCO Technical Research Laboratory to carry out applied research and technology development activities. At December 31, 2005, the Technical Research Laboratory employed a total of 588 researchers.

We recorded research and development expenses of Won 199 billion as cost of goods sold in 2003, Won 206 billion in 2004 and Won 173 billion in 2005, as well as research and development expenses of Won 57 billion as selling and administrative expenses in 2003, Won 71 billion in 2004 and Won 53 billion in 2005. In addition, we made donations to educational foundations supporting basic science and technology research, amounting to Won 39 billion in 2003, Won 40 billion in 2004 and Won 33 billion in 2005. We also donated Won 2 billion to Pohang University of Science & Technology, a university founded by us, in 2003 and an additional Won 32 billion in 2004 and Won 17 billion in 2005. See Note 24 of Notes to Consolidated Financial Statements.

Our research and development program has filed over twenty thousand industrial rights applications relating to steel-making technology, approximately one-fourth of which were registered as of December 31, 2005, and has successfully applied many of these to improve our manufacturing process.

Item 5.D. Trend Information

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

Item 5.E. Off-balance Sheet Arrangements

As of December 31, 2003, 2004 and 2005, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Item 5.F. Tabular Disclosure of Contractual Obligations

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

Item 6. Directors, Senior Management and Employees

Item 6.A. Directors and Senior Management

Board of Directors

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

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


	•	the Director Candidate Recommendation Committee;

	•	the Evaluation and Compensation Committee;

	•	the Finance and Operation Committee;

	•	the Executive Management Committee;

	•	the Audit Committee; and

	•	the Insider Trading Committee.

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

Under the Commercial Code and our articles of incorporation, one Chairman should be elected among the Outside Directors and several Representative Directors may be elected among the Standing Directors by our board of directors’ resolution.


	*Standing Directors*

Our current Standing Directors are:

Years

Expiration

with

of term

Name

Position

Responsibility & Division

director

POSCO

Age

of office

Lee, Ku-Taek

Chief Executive Officer and Representative Director

—

February 2007

Yoon, Seok-Man

President and Representative Director

Chief Marketing Officer, Corporate Communication Dept.

February 2007

Lee, Youn

President and Representative Director

General Superintendent, Stainless Steel Division

February 2008

Chung, Joon-Yang

Senior Executive Vice President and Representative Director

Chief Operating Officer and Technology Officer

February 2007

Cho, Soung-Sik

Senior Executive Vice President

Managing Director, POSCO- India Pvt. Ltd.

February 2009

Lee, Dong-Hee

Executive Vice President

Chief Finance Officer

February 2009

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


	*Outside Directors*

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

Expiration

Years as

of term

Name

Position

Principal Occupation

director

Age

of office

Park, Young-Ju

Chairman of the Board

Chairman, Eagon Industrial Co., Ltd.

February 2009

Kim, E. Han

Director

Professor, University of Michigan

February 2008

Jun, Kwang-Woo

Director

Vice Chairman, Deloitte Korea

February 2007

Jones, Jeffrey D

Director

Attorney, Kim & Chang

February 2007

Suh, Yoon-Suk

Director

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

February 2009

Park, Won-Soon

Director

Executive Director, Beautiful Foundation

February 2007

Sun, Wook

Director

Former President & CEO, Samsung Human Resources Development Center

February 2008

Ahn, Charles

Director

Chairman of the Board, AhnLab, Inc.

February 2008

Huh, Sung-Kwan

Director

President, Gwangju Institute of Science and Technology

February 2009

The term of office of the Directors is up to three years. Each Director’s term expires at the close of the ordinary general meeting of shareholders convened in respect of the fiscal year that is the last one to end during such Director’s tenure.

Senior Management

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

Years with

Name

Position

Responsibility and Division

POSCO

Age

Kim, Dong-Jin

Senior Executive Vice President

Managing Director, POSCO-China Holding Corp.

Choi, Jong-Tae

Senior Executive Vice President

Chief Staff Officer, General Superintendent, Human Resources Development Center

Kim, Sang-Ho

Executive Vice President

Department Manager, Legal Affairs Dept.

Hur, Nam-Suk

Executive Vice President

General Superintendent, Gwangyang Works

Oh, Chang-Kwan

Executive Vice President

General Superintendent, Pohang Works

Kwon, Young-Tae

Executive Vice President

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

Chang, Hyun-Shik

Executive Vice President

Energy Project Dept.

Kim, Jin-Il

Executive Vice President

Marketing Division, Market Development Dept., Production Order and Process Dept., Product Technology Dept.

Kwon, Oh-Joon

Senior Vice President

General Superintendent, Technical Research Laboratories

Chung, Dong-Hwa

Senior Vice President

Deputy General Superintendent, Gwangyang Works (Maintenance)

Lee, Sang-Young

Senior Vice President

Deputy General Superintendent, Pohang Works (Iron and Steel Making)

Sung, Hyun-Uck

Senior Vice President

Deputy General Superintendent, Pohang Works (Maintenance)

Park, Han-Yong

Senior Vice President

Materials Purchasing and Supply Management Dept., Outside Services Dept.

Chung, Keel-Sou

Senior Vice President

Managing Director, Zhangjiagang POSCO Stainless Steel Co. Ltd.

Ha, Sang-Wook

Senior Vice President

Technology Development Dept.

Kim, Sang-Young

Senior Vice President

Corporate Communication Dept.

Lee, Young-Suk

Senior Vice President

Stainless Steel Division, Stainless Steel Strategy Dept., Stainless Steel Sales Dept., Stainless Steel Sales Development Dept.

Kim, Sang-Myun

Senior Vice President

Deputy General Superintendent, Gwangyang Works (Administration)

Park, Kee-Young

Senior Vice President

Marketing Division, Hot Rolled Steel Sales Dept., API Steel Sales Dept., Plate Sales Dept., Wire Rod Sales Dept.

Lee, Kyu-Jeong

Senior Vice President

Business Innovation Dept.

Won, Jong-Hai

Senior Vice President

Managing Director, Qingdao Pohang Stainless Steel Co., Ltd.

Years with

Name

Position

Responsibility and Division

POSCO

Age

Kim, Tae-Man

Senior Vice President

Deputy General Superintendent, Pohang Works (Administration)

Cho, Jun-Gil

Senior Vice President

Deputy General Superintendent, Pohang Works (Hot and Cold Rolling)

Yoo, Kwang-Jae

Senior Vice President

Stainless Steel Division, Stainless Steel Production and Technology

Yoon, Yong-Chul

Senior Vice President

Deputy General Superintendent, Gwangyang Works (Iron and Steel Making)

Cho, Noi-Ha

Senior Vice President

Deputy General Superintendent, Gwangyang Works (Hot and Cold Rolling)

Yoon, Yong-Won

Senior Vice President

Facilities Investment Planning Dept., Plant and Equipment Procurement Dept.

Kim, Soo-Kwan

Senior Vice President

Audit Dept., Corporate Ethics Dept.

Park, Ki-Hong

Vice President

Department Manager, Corporate Strategic Planning Dept.

Choo, Wung-Yong

Vice President

European Union Office

Kim, Sung-Kwan

Vice President

Deputy Managing Director, Zhangjiagang POSCO Stainless Steel Co. Ltd.

Jang, Byung-Hyo

Vice President

Managing Director, POSCO-Japan Corp.

Jeong, Tae-Hyun

Vice President

Deputy Managing Director, POSCO-India Pvt. Ltd.

Kim, Joon-Sik

Vice President

Investment Management Dept.

Jang, Young-Ik

Vice President

Stainless Steel Raw Materials Procurement Dept.

Kim, Moon-Seok

Vice President

Seoul Office

Yun, Tai-Han

Vice President

Marketing Strategy Dept. Sales and Production Planning Dept.

Cho, Bong-Rae

Vice President

FINEX Research and Development Project Dept.

Chang, In-Hwan

Vice President

Cold Rolled Steel Sales Dept., Automotive Flat Products Sales Dept., Automotive Flat Products Exports Dept., Coated Steel Sales Dept., Electrical Steel Sales Dept.

Item 6.B. Compensation

Compensation of Directors and Officers

Salaries and bonuses for Standing Directors and salaries for Directors are paid in accordance with standards determined by the board of directors within the limitation of directors remuneration guidelines approved at an annual general meeting of shareholders. In addition, compensation of executive officers is paid in accordance with standards determined by the board of directors. The aggregate compensation paid and accrued to all Directors and executive officers was approximately Won 15.0 billion in 2005 and the aggregate amount set aside or accrued by us to provide pension and retirement benefits to such persons was Won 2.1 billion in 2005.

We have also granted stock options to some of our Directors and executive officers. See “— Item 6E. Share Ownership” for a list of stock options granted to our Directors and executive officers. At the annual shareholders’ meeting held in February 2006, our shareholders elected to terminate the stock option program. Stock options granted prior to this meeting remain valid and outstanding pursuant to the articles of incorporation in effect at the time of the issuance of the stock option.

Item 6.C. Board Practices

Director Candidate Recommendation Committee

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

Evaluation and Compensation Committee

The Evaluation and Compensation Committee comprises four Outside Directors, Yoon-Suk Suh (committee chair), Young-Ju Park, Kwang-Woo Jun and Won-Soon Park. The Evaluation and Compensation Committee’s primary responsibilities include establishing evaluation procedures and compensation plans for executive officers and taking necessary measures to execute such plans.

Finance and Operation Committee

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

Executive Management Committee

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

Audit Committee

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

The duties of the Audit Committee include:


	•	engaging independent auditors;

	•	approving independent audit fees;

	•	approving audit and non-audit services;


	•	reviewing annual financial statements;

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

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

	•	examining improprieties or suspected improprieties.

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

Insider Trading Committee

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

Differences in Corporate Governance Practices

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


NYSE Corporate Governance Standards		POSCO’s Corporate Governance Practice

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


NYSE Corporate Governance Standards		POSCO’s Corporate Governance Practice

Audit Committee
Listed companies must have an audit committee that is composed of more than three directors and satisfy the requirements of Rule 10A-3 under the Exchange Act		We maintain an Audit Committee comprised of four Outside Directors who meet the applicable independence criteria set forth under Rule 10A-3 under the Exchange Act.
Shareholder Approval of Equity Compensation Plan
Listed companies must allow its shareholders to exercise their voting rights with respect to any material revision to the company’s equity compensation plan		We currently have an employee stock ownership program. We previously provided a stock options program for officers and directors, as another equity compensation plan. However, during our annual shareholders’ meeting in February 2006, our shareholders resolved to terminate the stock option program and amended our articles of incorporations to delete the provision allowing grant of stock options to officers and directors. Consequently we may not grant stock options to officers and directors starting February 24, 2006. Matters related to the Employee Stock Ownership Program are not subject to shareholders’ approval under Korean law.
Corporate Governance Guidelines
Listed companies must adopt and disclose corporate governance guidelines		We have adopted a Corporate Governance Charter setting forth our practices with respect to relevant corporate governance matters. Our Corporate Governance Charter is in compliance with Korean law but does not meet all requirements established by the New York Stock Exchange for U.S. companies listed on the exchange. A copy of our Corporate Governance Charter is available on our website at www.posco.co.kr.
Code of Business Conduct and Ethics
Listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers		We have adopted a Code of Conduct for all directors, officers and employees. A copy of our Code of Conduct is available on our website at www.posco.co.kr.

Item 6.D. Employees

As of December 31, 2005, we had 28,853 employees, including 9,849 persons employed by our subsidiaries, almost all of whom were employed within Korea. Of the total number of employees, approximately 80% are technicians and skilled laborers and 20% are administrative staff. We use subcontractors for maintenance, cleaning and transport activities. We had 27,919 employees, including 8,524 persons employed by our subsidiaries, as of December 31, 2004 and 27,415 employees, including 8,042 persons employed by our subsidiaries, as of December 31, 2003. To improve operational efficiency and increase labor productivity, we plan to reduce the number of our employees in future years through natural attrition. However, we expect the number of persons employed by our subsidiaries in growth industries to increase in the future.

We consider our relations with our work force to be excellent. We have never experienced a work stoppage or strike. Wages of our employees are among the highest in Korea. In addition to a base monthly wage, employees receive periodic bonuses and allowances. Base wages are determined annually following consultation between the management and employee representatives, who are currently elected outside the framework of the POSCO labor union. A labor union was formed by our employees in June 1988. Union

membership peaked at 19,026 employees at the beginning of 1991, but has steadily declined since then. As of December 31, 2005, only 21 of our employees were members of the POSCO labor union.

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

As of December 31, 2005, our employees owned approximately 2.1% of our common stock through an employee stock ownership association.


Item 6.E.	*Share Ownership*

Common Stock

The persons who are currently our Directors or executive officers held, as a group, 2,555 common shares as of December 31, 2005, the most recent date for which this information is available. The table below shows the ownership of our common shares by Directors and executive officers.


Shareholders		Number of common shares owned

Chang-Kwan Oh			770
Jong-Tae Choi			542
E. Han Kim			364
Sang-Young Kim			195
Tae-Man Kim			91
Jin-Il Kim			90
Jun-Gil Cho			81
Yong-Chul Yoon			81
Yong-Won Yoon			79
Noi-Ha Cho			70
Dong-Hwa Chung			53
Soo-Kwan Kim			42
Sang-Wook Ha			40
Oh-Joon Kwon			19
Han-Yong Park			12
Young-Ik Jang			10
Youn Lee			2
Dong-Jin Kim			2
Nam-Suk Hur			2
Kee-Yeoung Park			2
Jong-Hai Won			2
Kwang-Jae Yoo			2
Tai-Han Yun			2
In-Hwan Chang			2

	Total		2,555

Stock Options

The following table sets forth information regarding the stock options we have granted to our current Directors and executive officers as of March 31, 2006. With respect to all of the options granted, we may elect either to issue shares of common stock, distribute treasury stock or pay in cash the difference between the exercise and the market price at the date of exercise. The options may be exercised by a person who has continued employment with POSCO for two or more years from the date on which the options are granted and within seven years from the second anniversary of the issuance of such options. All of the stock options below relate to our common stock.

At the annual shareholders’ meeting held in February 2006, our shareholders elected to terminate the stock option program. Stock options granted prior to this meeting remain valid and outstanding pursuant to the articles of incorporation in effect at the time of the issuance of the stock option.


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

Ku-Taek Lee		July 23, 2001		7/24/2003		7/23/2008		98,900		45,184		4,518		40,666
		July 23, 2004		7/24/2006		7/23/2011		151,700		49,000		0		49,000
Seok-Man Yoon		September 18, 2002		9/19/2004		9/18/2009		116,100		11,179		3,000		8,179
		July 23, 2004		7/24/2006		7/23/2011		151,700		7,840		0		7,840
Youn Lee		July 23, 2001		7/24/2003		7/23/2008		98,900		9,037		903		8,134
		April 26, 2003		4/27/2005		4/26/2010		102,900		1,921		192		1,729
		July 23, 2004		7/24/2006		7/23/2011		151,700		7,840		0		7,840
Joon-Yang Chung		April 27, 2002		4/28/2004		4/27/2009		136,400		9,316		931		8,385
		July 23, 2004		7/24/2006		7/23/2011		151,700		4,900		0		4,900
Soung-Sik Cho		July 23, 2001		7/24/2003		7/23/2008		98,900		9,037		5,903		3,134
		April 26, 2003		4/27/2005		4/26/2010		102,900		1,921		192		1,729
Dong-Hee Lee		April 26, 2003		4/27/2005		4/26/2010		102,900		9,604		960		8,644
Young-Ju Park		July 23, 2004		7/24/2006		7/23/2011		151,700		1,862		0		1,862
E. Han Kim		April 26, 2003		4/27/2005		4/26/2010		102,900		2,401		0		2,401
Kwang-Woo Jun		July 23, 2004		7/24/2006		7/23/2011		151,700		1,862		0		1,862
Jeffrey D. Jones		July 23, 2004		7/24/2006		7/23/2011		151,700		1,862		0		1,862
Yoon-Suk Suh		July 23, 2004		7/24/2006		7/23/2011		151,700		1,862		0		1,862
Wook Sun		April 28, 2005		4/29/2007		4/28/2012		194,900		2,000		0		2,000
Charles Ahn		April 28, 2005		4/29/2007		4/28/2012		194,900		2,000		0		2,000


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

Dong-Jin Kim		July 23, 2001		7/24/2003		7/23/2008		98,900		9,037		903		8,134
		April 26, 2003		4/27/2005		4/26/2010		102,900		1,921		192		1,729
		July 23, 2004		7/24/2006		7/23/2011		151,700		7,840		0		7,840
Jong-Tae Choi		July 23, 2001		7/24/2003		7/23/2008		98,900		9,037		903		8,134
		April 26, 2003		4/27/2005		4/26/2010		102,900		1,921		192		1,729
Sang-Ho Kim		April 28, 2005		4/29/2007		4/28/2012		194,900		12,000		0		12,000
Nam-Suk Hur		April 27, 2002		4/28/2004		4/27/2009		136,400		9,316		5,316		4,000
		April 28, 2005		4/29/2007		4/28/2012		194,900		2,000		0		2,000
Chang-Kwan Oh		April 27, 2002		4/28/2004		4/27/2009		136,400		9,316		931		8,385
Young-Tae Kwon		September 18, 2002		9/19/2004		9/18/2009		116,100		9,316		931		8,385
Hyun-Shik Chang		April 26, 2003		4/27/2005		4/26/2010		102,900		9,604		960		8,644
Jin-Il Kim		April 26, 2003		4/27/2005		4/26/2010		102,900		9,604		8,252		1,352
Oh-Joon Kwon		April 26, 2003		4/27/2005		4/26/2010		102,900		9,604		960		8,644


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

Dong-Hwa Chung		April 26, 2003		4/27/2005		4/26/2010		102,900		9,604		960		8,644
Sang-Young Lee		April 26, 2003		4/27/2005		4/26/2010		102,900		9,604		5,460		4,144
Hyun-Uck Sung		April 26, 2003		4/27/2005		4/26/2010		102,900		9,604		960		8,644
Han-Yong Park		April 26, 2003		4/27/2005		4/26/2010		102,900		9,604		5,282		4,322
Keel-Sou Chung		July 23, 2004		7/24/2006		7/23/2011		151,700		9,800		0		9,800
Sang-Wook Ha		July 23, 2004		7/24/2006		7/23/2011		151,700		9,800		0		9,800
Sang-Young Kim		July 23, 2004		7/24/2006		7/23/2011		151,700		9,800		0		9,800
Young-Suk Lee		July 23, 2004		7/24/2006		7/23/2011		151,700		9,800		0		9,800
Sang-Myun Kim		July 23, 2004		7/24/2006		7/23/2011		151,700		9,800		0		9,800
Kee-Yeoung Park		July 23, 2004		7/24/2006		7/23/2011		151,700		9,800		0		9,800
Kyu-Jeong Lee		July 23, 2004		7/24/2006		7/23/2011		151,700		9,800		0		9,800
Jong-Hai Won		April 28, 2005		4/29/2007		4/28/2012		194,900		10,000		0		10,000
Tae-Man Kim		April 28, 2005		4/29/2007		4/28/2012		194,900		10,000		0		10,000
Jun-Gil Cho		April 28, 2005		4/29/2007		4/28/2012		194,900		10,000		0		10,000
Kwang-Jae Yoo		April 28, 2005		4/29/2007		4/28/2012		194,900		10,000		0		10,000
Yong-Chul Yoon		April 28, 2005		4/29/2007		4/28/2012		194,900		10,000		0		10,000
Noi-Ha Cho		April 28, 2005		4/29/2007		4/28/2012		194,900		10,000		0		10,000
Yong-Won Yoon		April 28, 2005		4/29/2007		4/28/2012		194,900		10,000		0		10,000


Item 7.	*Major Shareholders and Related Party Transactions*


Item 7.A.	*Major Shareholders*

The following table sets forth certain information relating to the shareholders of our common stock issued as of December 31, 2005.


		Number of
Shareholders		Shares Owned		Percentage

SK Telecom			2,481,311		2.85
Pohang University of Science and Technology			2,418,000		2.77
National Pension Corporation			2,407,509		2.76
Directors and executive officers as a group			2,555		0.00
Public(1)			72,781,395		83.48
POSCO (held in the form of treasury stock)			6,189,091		7.10
POSCO (held through treasury stock fund)			906,974		1.04

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


(1)	Includes 23,869,739 shares of common stock, representing 27.38% of the total issued shares of common stock, in the form of ADRs.


Item 7.B.	*Related Party Transactions*

We have issued guarantees of Won 425 billion as of December 31, 2003, Won 443 billion as of December 31, 2004 and Won 561 billion as of December 31, 2005, in favor of affiliated and related companies. We have also engaged in various transactions with our subsidiaries and affiliated companies. Please see Notes 17 and 28 of Notes to Consolidated Financial Statements.

As of December 31, 2003, 2004 and 2005, we had no loans outstanding to our executive officers and Directors.


Item 7.C.	*Interests of Experts and Counsel*

Not applicable


Item 8.	*Financial Information*


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

See “Item 18. Financial Statements” and pages F-1 through F-87.

Legal Proceedings


	*Claim against the Fair Trade Commission*

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

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


	*Anti-dumping and Countervailing Proceedings and Safeguard Measures*

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

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

DIVIDENDS

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

The table below sets out the annual dividends declared on the outstanding common stock to shareholders of record on December 31 of the years indicated and the interim dividends declared on the outstanding common stock to shareholders of record on June 30 of the years indicated. A total of 87,186,835 shares of common stock were issued at the end of 2005. Of these shares, 80,090,770 shares were outstanding and 6,189,091 shares were held by us in treasury and 906,974 shares were held through

our treasury stock fund. The annual dividends set out for each of the years below were paid in the immediately following year.


					Average Total
	Annual Dividend per		Interim Dividend per		Dividend per
Year	Common Stock to Public		Common Stock		Common Stock

	(in Won)
2001	W	2,000	W	500		W2,500
2002		3,000		500		3,500
2003		5,000		1,000		6,000
2004		6,500		1,500		8,000
2005		6,000		2,000		8,000

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

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

Item 8.B. Significant Changes

Not applicable

Item 9. The Offer and Listing

Item 9.A. Offer and Listing Details

Market Price Information


	*Notes*

Our 7¹/8 % notes due 2006 are traded in the over-the-counter market. Sales prices for the notes are not regularly reported on any exchange or other quotation service.


	*Common Stock*

The principal trading market for our common stock is the Stock Market Division of the Korea Exchange. Our common stock, which is in registered form and has a par value of Won 5,000 per share, has been listed on the first section of the Stock Market Division of the Korea Exchange since June 1988 under the identifying code 005490. The table below shows the high and low trading prices and the average daily volume of trading activity on the Stock Market Division of the Korea Exchange for our common stock since January 1, 2001.


		Price
						Average Daily
		High		Low		Trading Volume

						(number of shares)
		(in Won)
2001
	First Quarter		104,000		76,500		343,509
	Second Quarter		118,000		85,000		236,198
	Third Quarter		104,000		74,000		176,544
	Fourth Quarter		127,000		81,500		254,780
2002
	First Quarter		160,000		117,500		303,579
	Second Quarter		154,000		121,500		323,772
	Third Quarter		139,000		101,000		324,477
	Fourth Quarter		130,500		103,500		269,624


			Price
							Average Daily
			High		Low		Trading Volume

							(number of shares)
			(in Won)
2003
	First Quarter			133,000		92,400		336,187
	Second Quarter			127,000		97,500		300,224
	Third Quarter			152,500		123,500		310,936
	Fourth Quarter			163,000		131,500		345,272
2004
	First Quarter			181,000		156,500		312,764
	Second Quarter			177,000		131,000		413,523
	Third Quarter			184,000		145,000		241,698
	Fourth Quarter			203,000		163,000		287,632
2005
	First Quarter			225,500		176,500		293,360
	Second Quarter			203,000		174,500		298,650
	Third Quarter			240,500		182,000		295,458
	Fourth Quarter			236,500		199,500		334,140
2006
	First Quarter			251,500		196,500		391,776
		January		220,500		196,500		444,412
		February		237,500		210,000		436,789
		March		251,500		226,500		300,611
	Second Quarter (through June 7)			290,000		234,500		319,731
		April		277,000		239,500		324,095
		May		290,000		241,000		403,990
		June (through June 7)		250,000		234,500		340,241


	*ADSs*

Our common stock is also listed on the New York Stock Exchange, the London Stock Exchange and the Tokyo Stock Exchange in the form of ADSs. The ADSs have been issued by The Bank of New York as ADR depositary and are listed on the New York Stock Exchange under the symbol “PKX.” One ADS represents one-fourth of one share of common stock. As of December 31, 2005, 23,869,739 ADSs were outstanding, representing 27.38% shares of common stock.

The table below shows the high and low trading prices and the average daily volume of trading activity on the New York Stock Exchange for our ADSs since January 1, 2001.


		Price
						Average Daily
		High		Low		Trading Volume

						(number of ADSs)
		(in US$)
2001
	First Quarter		22.62		15.00		507,108
	Second Quarter		22.80		16.97		378,273
	Third Quarter		19.99		13.60		277,112
	Fourth Quarter		24.21		15.84		260,475


			Price
							Average Daily
			High		Low		Trading Volume

							(number of ADSs)
			(in US$)
2002
	First Quarter			29.25		22.41		372,788
	Second Quarter			30.64		23.35		355,145
	Third Quarter			29.52		21.30		354,089
	Fourth Quarter			27.40		21.20		268,750
2003
	First Quarter			28.66		18.46		324,595
	Second Quarter			26.55		19.26		333,511
	Third Quarter			32.49		26.08		262,191
	Fourth Quarter			33.97		28.98		477,580
2004
	First Quarter			38.43		33.55		578,963
	Second Quarter			39.01		27.97		1,013,306
	Third Quarter			40.14		32.47		729,723
	Fourth Quarter			47.50		36.49		765,003
2005
	First Quarter			54.85		41.22		866,811
	Second Quarter			49.70		43.75		790,208
	Third Quarter			57.08		44.12		606,928
	Fourth Quarter			56.01		47.85		671,024
2006
	First Quarter			63.08		48.97		812,089
		January		57.65		48.97		973,995
		February		60.22		52.75		770,821
		March		63.80		58.31		705,391
	Second Quarter (through June 6)			74.41		61.75		912,551
		April		72.50		61.75		818,053
		May		74.41		63.17		982,232
		June (through June 6)		65.70		61.91		978,175

Item 9.B. Plan of Distribution

Not applicable

Item 9.C. Markets

The Korean Securities Market

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

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

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

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

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


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

									(percent)
1979		131.28		131.28		104.38		118.97		17.8		3.8
1980		100.00		119.36		100.00		106.87		20.9		2.6
1981		97.95		165.95		93.14		131.37		13.2		3.1
1982		123.60		134.49		106.00		127.31		10.5		3.4
1983		122.52		134.46		115.59		121.21		6.9		3.8
1984		116.73		142.46		114.37		142.46		5.1		4.5
1985		139.53		163.37		131.40		163.37		5.3		5.2
1986		161.40		279.67		153.85		272.61		4.3		7.6
1987		264.82		525.11		264.82		525.11		2.6		10.9
1988		532.04		922.56		527.89		907.20		2.4		11.2
1989		919.61		1,007.77		844.75		909.72		2.0		13.9
1990		908.59		928.82		566.27		696.11		2.2		12.8
1991		679.75		763.10		586.51		610.92		2.6		11.2
1992		624.23		691.48		459.07		678.44		2.2		10.9
1993		697.41		874.10		605.93		866.18		1.6		12.7
1994		879.32		1,138.75		855.37		1,027.37		1.2		16.2
1995		1,013.57		1,016.77		847.09		882.94		1.2		16.4
1996		888.85		986.84		651.22		651.22		1.3		17.8
1997		653.79		792.29		350.68		376.31		1.5		17.0
1998		385.49		579.86		280.00		562.46		1.9		10.8
1999		587.57		1,028.07		498.42		1,028.07		1.1		13.5
2000		1,059.04		1,059.04		500.60		504.62		1.6		18.6
2001		520.95		704.50		468.76		693.70		2.0		14.2
2002		724.95		937.61		584.04		627.55		1.4		17.8
2003		635.17		822.16		515.24		810.71		2.2		10.9
2004		821.26		936.06		719.59		895.92		2.1		15.8


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

									(percent)
2005		893.71		1,379.37		870.84		1,379.37		1.5		12.0
2006 (through June 7)		1,389.27		1,464.70		1,266.84		1,266.84		N.A.		10.7

Source: The Stock Market Division of the Korea Exchange.


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

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

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

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

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


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

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

As a consequence, if a particular closing price is the same as the price set by the fluctuation limit, the closing price may not reflect the price at which persons would have been prepared, or would be prepared to continue, if so permitted, to buy and sell shares. Orders are executed on an auction system with priority rules to deal with competing bids and offers.

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

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


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

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

1979		355		2,609,414		5,391,351		5,382		4,579		4,641
1980		352		2,526,553		3,828,691		5,654		3,897		5,905
1981		343		2,959,057		4,224,207		10,565		8,708		12,433
1982		334		3,000,494		4,407,711		9,704		6,667		8,904
1983		328		3,489,654		4,386,743		9,325		5,941		7,468
1984		336		5,148,460		6,222,456		14,847		10,642		12,862
1985		342		6,570,404		7,380,818		18,925		12,315		13,834
1986		355		11,994,233		13,924,115		31,755		32,870		38,159
1987		389		26,172,174		33,033,162		20,353		70,185		88,584
1988		502		64,543,685		94,348,318		10,367		198,364		289,963
1989		626		95,476,774		140,489,660		11,757		280,967		414,431
1990		669		79,019,676		110,301,055		10,866		183,692		256,500
1991		686		73,117,833		96,182,364		14,022		214,263		281,850
1992		688		84,711,982		107,502,515		24,028		308,246		391,175
1993		693		112,665,260		139,419,948		35,130		574,048		676,954
1994		699		151,217,231		191,729,721		36,862		776,257		984,223
1995		721		141,151,399		182,201,367		26,130		487,762		629,614
1996		760		117,369,988		139,031,021		26,571		486,834		575,733
1997		776		70,988,897		50,161,742		41,525		555,759		392,707
1998		748		137,798,451		114,090,455		97,716		660,429		471,432
1999		725		349,503,966		305,137,040		278,551		3,481,620		3,039,654
2000		704		188,041,490		150,162,898		306,163		2,602,211		2,078,028
2001		689		255,850,070		194,784,979		473,241		1,997,420		1,506,685
2002		683		258,680,756		216,071,436		857,245		3,041,595		2,540,590
2003		684		355,362,626		298,123,294		385,852		2,026,774		1,700,314
2004		683		412,588,139		396,338,269		372,895		2,232,109		2,138,445
2005		702		655,251,489		647,737,731		463,749		3,150,407		3,114,281
2006 (through June 5)		715		634,904,940		673,210,624		353,187		4,206,907		4,232,225

Source: The Stock Market Division of the Korea Exchange.


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

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

Further Opening of the Korean Securities Market

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

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

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

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

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

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

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

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

As the cash deposited with a securities company is regarded as belonging to the securities company, which is liable to return the same at the request of its customer, the customer cannot take back deposited cash from the securities company if a bankruptcy or reorganization procedure is instituted against the securities company and, therefore, can suffer from loss or damage as a result. However, the Depositor Protection Act provides that Korea Deposit Insurance Corporation will, upon the request of the investors,

pay investors up to Won 50 million per depositor per financial institution in case of the securities company’s bankruptcy, liquidation, cancellation of securities business license or other insolvency events. Pursuant to the Securities and Exchange Act, as amended, securities companies are required to deposit the cash received from its customers to the extent the amount is not covered by the Depositor Protection Act with the Korea Securities Finance Corporation, a special entity established pursuant to the Securities and Exchange Act. Set-off or attachment of cash deposits by securities companies is prohibited. The premiums related to this insurance are paid by securities companies.

Item 9.D. Selling Shareholders

Not applicable

Item 9.E. Dilution

Not applicable

Item 9.F. Expenses of the Issuer

Not applicable

Item 10. Additional Information

Item 10.A. Share Capital

Currently, our authorized share capital is 200,000,000 shares, which consists of shares of common stock, par value Won 5,000 per share (“Common Shares”) and shares of non-voting stock, par value Won 5,000 per share (“Non-Voting Shares”). Common Shares and Non-Voting Shares together are referred to as “Shares.” Under our articles of incorporation, we are authorized to issue Non-Voting Shares up to the limit prescribed by applicable law, the aggregate of which currently is one-half of our total issued and outstanding capital stock. As of December 31, 2005, 87,186,835 Common Shares were issued, of which 6,189,091 shares were held by us in treasury and an additional 906,974 shares were held by our treasury stock fund. We have never issued any Non-Voting Shares. All of the issued and outstanding Common Shares are fully-paid and non-assessable and are in registered form. We issue share certificates in denominations of 1, 3, 4, 5, 10, 50, 100, 500, 1,000 and 10,000 shares.

Item 10.B. Memorandum and Articles of Association

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

Dividends

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

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

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

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

Distribution of Free Shares

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

Preemptive Rights and Issuance of Additional Shares

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

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


	•	publicly offered pursuant to the Securities and Exchange Act;

	•	issued to members of our employee stock ownership association;

	•	represented by depositary receipts;

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

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

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

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

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

Members of our employee stock ownership association, whether or not they are our shareholders, generally have a preemptive right to subscribe for up to 20% of the Shares publicly offered pursuant to the Securities and Exchange Act. This right is exercisable only to the extent that the total number of Shares so acquired and held by members of our employee stock ownership association does not exceed 20% of the total number of Shares then issued. As of December 31, 2005, approximately 2.1% of the outstanding Shares were held by members of our employee stock ownership association.

General Meeting of Shareholders

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


	•	as necessary;

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

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

	•	at the request of our audit committee.

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

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

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

Voting Rights

Holders of our Common Shares are entitled to one vote for each Common Share, except that voting rights of Common Shares held by us, or by a corporate shareholder that is more than 10% owned by us either directly or indirectly, may not be exercised. A recent amendment to the Commercial Code permitted cumulative voting, under which voting method each shareholder would have multiple voting rights corresponding to the number of directors to be appointed in the voting and may exercise all voting rights cumulatively to elect one director.

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

least two-thirds of the voting Shares present or represented at a meeting, where the affirmative votes also represent at least one-third of our total voting Shares then issued and outstanding:


	•	amending our articles of incorporation;

	•	removing a director;

	•	effecting any dissolution, merger or consolidation of us;

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

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

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

	•	approving matters required to be approved at a general meeting of shareholders, which have material effects on our assets, as determined by the Board of Directors.

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

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

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

Rights of Dissenting Shareholders

In some limited circumstances, including the transfer of the whole or any significant part of our business and our merger or consolidation with another company, dissenting shareholders have the right to require us to purchase their Shares. To exercise this right, shareholders, including holders of Non-Voting Shares, must submit to us a written notice of their intention to dissent before the general meeting of shareholders. Within 20 days after the relevant resolution is passed at a meeting, the dissenting shareholders must request us in writing to purchase their Shares. We are obligated to purchase the Shares of dissenting shareholders within one month after the expiration of the 20-day period. The purchase price for the Shares is required to be determined through negotiation between the dissenting shareholders and us. If we cannot agree on a price through negotiation, the purchase price will be the average of (1) the weighted average of the daily Share prices on the Korea Exchange for the two-month period before the date of the adoption of the relevant board resolution, (2) the weighted average of the daily Share price on the Korea Exchange for the one month period before the date of the adoption of the relevant resolution and (3) the weighted average of the daily Share price on the Korea Exchange for the one week period before such date of the adoption of the relevant resolution. However, the FSC may adjust this price if we or holders of 30% or more of the Shares we are obligated to purchase do not accept the purchase price. Holders of ADSs will not be able to exercise dissenter’s rights unless they have withdrawn the underlying common stock and become our direct shareholders.

Register of Shareholders and Record Dates

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

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

Annual Report

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

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

Transfer of Shares

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

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

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

Acquisition of Shares by Us

We may not acquire our own Shares except in limited circumstances, such as a reduction in capital. In addition, we may acquire Shares through purchases on the Korea Exchange or through a tender-offer. In addition, we may acquire interests in our own Shares through agreements with trust companies and asset management companies. The aggregate purchase price for the Shares may not exceed the total amount available for distribution of dividends, subject to certain procedural requirements.

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

Exchange Act, we are subject to certain selling restrictions for the Shares acquired by us. In the case of a reduction in capital, we must immediately cancel the Shares acquired by us.

Liquidation Rights

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


Item 10.C.	*Material Contracts*

None.


Item 10.D.	*Exchange Controls*

Notes

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

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

Shares and ADSs

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

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

Government Review of Issuance of ADRs

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

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

Reporting Requirements for Holders of Substantial Interests

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

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

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

Restrictions Applicable to ADSs

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

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

Restrictions Applicable to Shares

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

Korea Exchange only through the Stock Market Division of the Korea Exchange, except in limited circumstances, including, among others:


	•	odd-lot trading of shares;

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

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

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

	•	direct investment as defined in the Foreign Investment Promotion Law.

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

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

Upon a foreign investor’s purchase of shares through the Korea Exchange, no separate report by the investor is required because the investment registration card system is designed to control and oversee foreign investment through a computer system. However, a foreign investor’s acquisition or sale of shares outside the Korea Exchange (as discussed above) must be reported by the foreign investor or his standing proxy to the Governor at the time of each such acquisition or sale; provided, however, that a foreign investor must ensure that any acquisition or sale by it of shares outside the Korea Exchange in the case of trades in connection with a tender offer, odd-lot trading of shares or trades of a class of shares for which the aggregate foreign ownership limit has been reached or exceeded, is reported to the Governor by the securities company engaged to facilitate such transaction. A foreign investor must appoint one or more standing proxies from among the Korea Securities Depository, foreign exchange banks, including domestic branches of foreign banks, securities companies, including domestic branches of foreign securities companies, asset management companies, futures trading companies and internationally recognized custodians which will act as a standing proxy to exercise shareholders’ rights or perform any matters related to the foregoing activities if the foreign investor does not perform these activities himself. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the Governor in cases deemed inevitable by reason of conflict between laws of Korea and those of the home country of the foreign investor.

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

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

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

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

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


Item 10.E.	*Taxation*

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

consequences of the purchase, ownership and disposition of such securities, including the effect of any national, state or local tax laws.

Korean Taxation

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


	•	a resident of Korea;

	•	a corporation with registered office or main office is located in Korea or actual management of which takes place in Korea; or

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


	*Note*


	Taxation of Interest

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


	Taxation of Capital Gains

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


	Inheritance Tax and Gift Tax

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

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


	*Shares or ADSs*


	Dividends on the Shares of Common Stock or ADSs

We will deduct Korean withholding tax from dividends paid to you at a rate of 27.5%. If you are a qualified resident in a country that has entered into a tax treaty with Korea, you may qualify for a reduced rate of Korean withholding tax. See the discussion under “— Tax Treaties” below for an additional explanation on treaty benefits.

In order to obtain the benefits of a reduced withholding tax rate under a tax treaty, you must submit to us, prior to the dividend payment date, such evidence of tax residence as may be required by the

Korean tax authorities. Evidence of tax residence may be submitted to us through the ADR depositary. If we distribute to you free shares representing a transfer of certain capital reserves or asset revaluation reserves into paid-in capital, that distribution may be subject to Korean tax.


	Taxation of Capital Gains

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

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

Under a tax ruling issued by the Korean tax authority in 1995 (the “1995 tax ruling”), ADSs are treated as securities separate from the underlying shares represented by such ADSs and, based on such ruling, (i) capital gains earned by you from the transfer of ADSs to another non-resident (other than to such transferee’s permanent establishment in Korea) will not be subject to Korean income taxation and (ii) capital gains earned by you (regardless of whether you have a permanent establishment in Korea) from the transfer of ADSs outside Korea will be exempt from Korean income taxation by virtue of the STTCL, provided that the issuance of the ADSs is deemed to be an overseas issuance under the STTCL.

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


	*Tax Treaties*

Korea has entered into a number of income tax treaties with other countries (including the United States), which would reduce or exempt Korean withholding tax on dividends on, and capital gains on transfer of, shares of our common stock or ADSs. For example, under the Korea-United States income tax treaty, reduced rates of Korean withholding tax of 16.5% or 11.0% (respectively, including resident surtax, depending on your shareholding ratio) on dividends and an exemption from Korean withholding tax on capital gains are available to residents of the United States that are beneficial owners of the relevant dividend income or capital gains. However, under Article 17 (Investment of Holding Companies) of the

Korea-United States income tax treaty, such reduced rates and exemption do not apply if (i) you are a United States corporation, (ii) by reason of any special measures, the tax imposed on you by the United States with respect to such dividends or capital gains is substantially less than the tax generally imposed by the United States on corporate profits, and (iii) 25% or more of your capital is held of record or is otherwise determined, after consultation between competent authorities of the United States and Korea, to be owned directly or indirectly by one or more persons who are not individual residents of the United States. Also, under Article 16 (Capital Gains) of the Korea-United States income tax treaty, the exemption on capital gains does not apply if you are an individual, and (a) you maintain a fixed base in Korea for a period or periods aggregating 183 days or more during the taxable year and your ADSs or shares of common stock giving rise to capital gains are effectively connected with such fixed base or (b) you are present in Korea for a period or periods of 183 days or more during the taxable year.

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


	Inheritance Tax and Gift Tax

If you die while holding an ADS or donate an ADS, it is unclear whether, for Korean inheritance and gift tax purposes, you will be treated as the owner of the shares of common stock underlying the ADSs. If the tax authority interprets depositary receipts as the underlying share certificates, you may be treated as the owner of the shares of common stock and your heir or the donee (or in certain circumstances, you as the donor) will be subject to Korean inheritance or gift tax presently at the rate of 10% to 50%; provided that the value of the ADSs or shares of common stock is greater than a specified amount.

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

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


	Securities Transaction Tax

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

With respect to transfer of ADRs, a tax ruling was issued in 2004 by the Korean tax authority (the “2004 tax ruling”) to the effect that depositary receipts (which the ADRs fall under) constitute share certificates subject to the securities transaction tax; provided that, under the Securities Transaction Tax Law, the transfer of depositary receipts listed on the New York Stock Exchange, the Nasdaq National Market or other qualified foreign exchanges is exempt from the securities transaction tax. Based on the 2004 tax ruling and the relevant provisions of the Securities Transaction Tax Law, once the ADSs are listed on the New York Stock Exchange, your transfer of ADRs should not be subject to the securities transaction tax.

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

United States Taxation

This summary describes the material U.S. federal income tax consequences for a U.S. holder (as defined below) of owning our notes, shares of common stock or ADSs. This summary applies to you only if you hold notes, shares of common stock or ADSs as capital assets for tax purposes and, in the case of the notes, only if you purchased such notes in the applicable initial offering at their issue price. This summary does not apply to you if you are a member of a class of holders subject to special rules, such as:


	•	a dealer in securities or currencies;

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

	•	a bank;

	•	a life insurance company;

	•	a tax-exempt organization;

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

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

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

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

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

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

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


	•	a citizen or resident of the United States;

	•	a U.S. domestic corporation; or

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


	*Notes*


	Interest

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


	Sale, Exchange or Retirement

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


	*Shares of Common Stock and ADSs*

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


	Dividends

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

Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual prior to January 1, 2011 with respect to the ADSs will be subject to taxation at a maximum rate of 15% if the dividends are “qualified dividends.” Dividends paid on the ADSs will be treated as qualified dividends if (i) the ADSs are readily tradable on an established securities market in the United States and (ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company (“PFIC”). The ADSs are listed on the New York Stock Exchange, and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. Based on our audited financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC for U.S. federal income tax purposes with respect to our 2004 or 2005 taxable year. In addition, based on our audited financial statements and its current expectations regarding the value and nature of its assets, the sources and nature of its income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for our 2006 taxable year.

The U.S. Treasury has announced its intention to promulgate rules pursuant to which holders of ADSs or common stock and intermediaries through whom such securities are held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Because such procedures have not yet been issued, it is not clear whether we will be able to comply with them. Holders of ADSs and common shares should consult their own tax advisers regarding the availability of the reduced dividend tax rate in the light of their own particular circumstances.

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


	Sales and Other Dispositions

For U.S. federal income tax purposes, gain or loss you realize on the sale or other disposition of shares of common stock or ADSs will be capital gain or loss, and will be long-term capital gain or loss if the shares of common stock or ADSs were held for more than one year. Your ability to offset capital

losses against ordinary income is limited. Long-term capital gain recognized by an individual U.S. holder generally is subject to taxation at a reduced rate.


	Foreign Tax Credit Considerations

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

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

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

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


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

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


Item 10.F.	*Dividends and Paying Agents*

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


Item 10.G.	*Statements by Experts*

Not applicable


Item 10.H.	*Documents on Display*

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


Item 10.I.	*Subsidiary Information*

Not applicable


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

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

Exchange Rate Risk

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

As of December 31, 2005, we had entered into six currency forward contracts and one option contract. Our aggregate net valuation loss of above contracts was approximately Won 19.7 billion and net transaction loss was Won 5.1 billion in 2005. We may incur losses under our existing contracts or any swap or other derivative product transactions entered into in the future. See Note 22 of Notes to Consolidated Financial Statements.

Interest Rate Risk

We are also subject to market risk exposure arising from changing interest rates. A reduction of interest rates increases the fair value of our debt portfolio, which is primarily of a fixed interest nature. From time to time, we use, to a limited extent, interest rate swaps to reduce interest rate volatility on some of our debt and manage our interest expense by achieving a balanced mixture of floating and fixed rate debt. As of December 31, 2005, we did not have any outstanding interest rate swap contract.

The following table summarizes the carrying amounts, fair values, principal cash flows by maturity date and weighted average interest rates of our short-term and long-term liabilities as of December 31, 2005 which are sensitive to exchange rates and/or interest rates. The information is presented in Won, which is our reporting currency.


				Maturities

																						December 31, 2005					December 31, 2004

				2006			2007			2008			2009			2010			Thereafter			Total			Fair Value		Total			Fair Value

				(In millions of Won except rates)
Local currency:
	Fixed rate				712,931			155,170			62,319			43,475			12,115			5,091			991,100			1,017,635		1,568,148			1,613,304
		Average weighted rate(1)			5.34	%		4.80	%		5.87	%		5.76	%		5.45	%		3.12	%		5.30	%		—		6.27	%		—
		Variable rate			—			—			—			—			—			—			—			—		—			—
		Average weighted rate(1)			—			—			—			—			—			—			—			—		—			—

		Sub-total			712,931			155,170			62,319			43,475			12,115			5,091			991,100			1,017,635		1,568,148			1,613,304

Foreign currency, principally Dollars and Yen:
	Fixed rate				1,194,149			49,394			493,800			137,301			18,174			128,074			2,020,892			2,035,777		2,116,505			2,152,279
		Average weighted rate(1)			3.66	%		3.48	%		0.48	%		3.02	%		4.54	%		3.30	%		2.82	%		—		2.70	%		—
		Variable rate			8,301			8,301			8,301			8,301			4,151			—			37,357			37,357		76,941			76,941
		Average weighted rate(1)			5.50	%		5.50	%		5.50	%		5.50	%		5.50	%		—			5.50	%		—		3.65	%		—

		Sub-total			1,202,451			57,695			502,102			145,602			22,324			128,074			2,058,249			2,073,134		2,193,447			2,229,221

			Total		1,915,382			212,865			564,420			189,078			34,439			133,164			3,049,348			3,090,768		3,761,595			3,842,525


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

Commodity Price Risk

We are exposed to market risk of price fluctuations related to the purchase of raw materials, especially iron ore and coal. To ensure adequate supply of raw materials, we enter into long-term supply contracts to purchase iron ore, coal, nickel, chrome, stainless steel scrap and liquefied natural gas. These contracts generally have terms of three to ten years and provide for periodic price adjustments to then-market prices. As of December 31, 2005, 500 million tons of iron ore and 113 million tons of coal remained to be purchased under long-term supply contracts. We generally do not use commodity derivatives to manage our commodity price risks. As of December 31, 2005, we had entered into one nickel forward contract, which recorded net transaction gain of Won 1.0 billion in 2005.

Equity Price Risk

We are exposed to equity price risk primarily from changes in the stock price of SK Telecom and Nippon Steel Corporation. We currently hold a 2.85% interest in SK Telecom (excluding shares placed as

collateral for exchangeable bonds issued in August 2003) and a 2.2% interest in Nippon Steel Corporation. We have not entered into any derivative instruments or any other arrangements to manage our equity price risks.


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


Item 12.A.	*Debt Securities*

Not applicable


Item 12.B.	*Warrants and Rights*

Not applicable


Item 12.C.	*Other Securities*

Not applicable

Item 12.D. American Depositary Shares

The following is a summary of the deposit agreement, dated as of September 26, 1994, among us, The Bank of New York as ADR depositary and all holders and beneficial owners of ADRs, as amended by amendment no. 1 dated as of June 25, 1997. The deposit agreement is governed by the laws of the State of New York. Because it is a summary, it does not contain all the information that may be important to you. For more complete information, you should read the entire deposit agreement and the ADR. The deposit agreement has been filed as an exhibit to the registration statement of which this prospectus forms a part. Additional copies of the deposit agreement are available for inspection at the Corporate Trust Office of the ADR depositary, located at 101 Barclay Street, New York, New York 10286. The principal executive office of the ADR depositary is located at One Wall Street, New York, New York 10286.

American Depositary Receipts

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

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

Deposit and Withdrawal of Deposited Securities

Notwithstanding the provisions described below, under current Korean laws and regulations, the ADR depositary is required to obtain our prior consent for the number of shares to be deposited in any given proposed deposit which exceeds the difference between (1) the aggregate number of shares deposited by

us for the issuance of ADSs (including deposits in connection with the initial and all subsequent offerings of ADSs and stock dividends or other distributions related to these ADSs) and (2) the number of shares on deposit with the ADR depositary at the time of such proposed deposit.

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

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

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

Dividends, Other Distributions and Rights

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

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

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

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

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

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

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

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

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

dividend, or unless the ADR depositary calls for the surrender of outstanding ADRs to be exchanged for new ADRs.

Record Dates

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


	•	any cash dividend or other cash distribution becomes payable;

	•	any distribution other than cash is made;

	•	rights are issued with respect to Deposited Securities;

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

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

The record date will, to the extent practicable, either be the same date as the record date fixed by us, or if different from the record date fixed by us, be fixed after consultation with us. The record date will determine (1) the ADR holders who are entitled to receive the dividend, distribution or rights, or the net proceeds of the sale of the rights; (2) the ADR holders who are entitled to give instruction for the exercise of voting rights at a shareholders’ meeting or to attend (without voting at or speaking to) the meeting; or (3) the date on which each ADS will represent a changed number of shares of common stock.

Voting of the Underlying Deposited Securities

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


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

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

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

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

Disclosure of Beneficial Ownership; Ownership Restrictions

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

We may restrict transfers of the shares of common stock where the transfer might result in ownership of shares of common stock exceeding the limits under our articles of incorporation and applicable law. See “Item 10. Additional Information — Item 10D. Exchange Controls — Restrictions Applicable to Common Stock.” We may also restrict transfers of the ADSs where the transfer may cause the total number of

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

Reports and Notices

We will furnish to the ADR depositary English language versions of any reports, notices and other communications that we generally transmit to holders of our common stock or other Deposited Securities, including our annual reports, with annual audited consolidated financial statements prepared in conformity with Korean GAAP and, if prepared pursuant to the Exchange Act, a reconciliation of net earnings for the year and stockholders’ equity to U.S. GAAP, and unaudited non-consolidated semiannual financial statements prepared in conformity with Korean GAAP. The ADR depositary will arrange for the prompt mailing of copies of these documents, or, if we request, a summary of any such notice provided by us to you or, at our request, make notices, reports (other than the annual reports and semiannual financial statements) and other communications available to you on a basis similar to that for the holders of our common stock or other Deposited Securities or on such other basis as we may advise the ADR depositary according to any applicable law, regulation or stock exchange requirement.

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

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

Amendment and Termination of the Deposit Agreement

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

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

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


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

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


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

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

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

Charges of the ADR Depositary

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

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


	•	taxes and other governmental charges;

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

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

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

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

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

Liability of Holders for Taxes or Other Charges

You are liable for payment to the ADR depositary of any tax or other governmental charges or expenses payable by the Custodian, the ADR depositary or its nominee as the registered holder of any

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

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

Limitations on Execution, Transfer and Surrender of ADRs

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

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

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

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

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

General

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

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

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

Not applicable


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

Not applicable

Item 15. Controls and Procedures

We have evaluated, with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2005. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of December 31, 2005 were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting during 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 16A. Audit Committee Financial Expert

At our annual general meeting of shareholders in February 2006, our shareholders elected the following four members of the audit committee: E. Han Kim (committee chair), Jeffrey D. Jones, Yoon-Suk Suh and Wook Sun. In addition, they determined and designated that Yoon-Suk Suh is an “audit committee financial expert” within the meaning of this Item 16A. The board of directors have approved this newly elected audit committee, and reaffirmed the determination by our shareholders that Yoon-Suk Suh is an audit committee financial expert and further determined that he is independent within the meaning of applicable SEC rules.

Item 16B. Code of Ethics

We have adopted a code of business conduct and ethics, as defined in Item 16B of Form 20-F under the Securities Exchange Act of 1934, as amended. Our code of business conduct and ethics, called Code

of Conduct, applies to our chief executive officer and chief financial officer, as well as to our directors, other officers and employees. Our Code of Conduct is available on our web site at www.posco.co.kr. If we amend the provisions of our Code of Conduct that apply to our chief executive officer or chief financial officer and persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our web site at the same address.

Item 16C. Principal Accountant Fees and Services

Audit and Non-Audit Fees

The following table sets forth the fees billed to us by our independent auditors, Samil Pricewaterhouse Coopers, during the fiscal years ended December 31, 2004 and 2005:


	Year Ended December 31,

	2004		2005

	(in millions of Won)
Audit fees	W	1,006	W	1,064
Audit-related fees		46		846
Tax fees		72		59
Other fees		—		—

Total fees	W	1,124	W	1,969

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

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

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

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

Audit Committee Pre-Approval Policies and Procedures

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

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

Not applicable


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

The following table sets forth the repurchases of common shares by us or any affiliated purchasers during the fiscal year ended December 31, 2005:


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

January 1 to January 31			—			—		—		—
February 1 to February 29			292,870			W201,401		292,870		1,450,860
March 1 to March 31			964,528			209,369		964,528		486,332
April 1 to April 30			486,332			196,831		486,332		—
May 1 to May 31			—			—		—		—
June 1 to June 30			—			—		—		—
July 1 to July 31			640,719			201,699		640,719		2,859,281
August 1 to August 31			1,547,236			211,822		1,547,236		1,312,045
September 1 to September 30			836,117			220,818		836,117		475,928
October 1 to October 31			475,928			227,522		475,928		—
November 1 to November 30			536,750	(1)		212,223		—		—
December 1 to December 31			370,224	(1)		201,737		—		—

	Total		6,150,704			W210,567		5,243,730		—


(1)	Stocks purchased through the treasury stock fund.

PART III


Item 17.	*Financial Statements*

Not applicable


Item 18.	*Financial Statements*


	Page

Report of Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets as of December 31, 2004 and 2005		F-2
Consolidated Statements of Income for the Years Ended December 31, 2003, 2004 and 2005		F-4
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2003, 2004 and 2005		F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2004 and 2005		F-7
Notes to Consolidated Financial Statements		F-9

Item 19. Exhibits


1	.1	—	Articles of incorporation of POSCO (English translation)
2	.1	—	Form of Common Stock Certificate (including English translation) (incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement No. 33-81554)*
2	.2	—	Form of Deposit Agreement (including Form of American Depositary Receipts) (incorporated by reference to the Registrant’s Registration Statement (File No. 33-84318) on Form F-6)*
2	.3	—	Letter from ADR Depositary to the Registrant relating to the Pre-release of American Depositary Receipts (incorporated by reference to the Registrant’s Registration Statement (File No. 33-84318) on Form F-6)*
7	.1	—	Computation of ratio of earnings to fixed charges
8	.1	—	List of subsidiaries of POSCO
12	.1	—	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12	.2	—	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13	.1	—	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15	.1	—	Consent of Samil PricewaterhouseCoopers, the Korean member firm of PricewaterhouseCoopers


*	Filed previously

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of POSCO

We have audited the accompanying consolidated balance sheets of POSCO and its subsidiaries (the “Company”) as of December 31, 2005 and 2004, and the related consolidated statements of income, of changes in shareholders’ equity, and of cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2005 and 2004, and the results of their operations and their cash flows for the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the Republic of Korea.

Accounting principles generally accepted in the Republic of Korea vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 33 to the consolidated financial statements.

Seoul, Republic of Korea

April 21, 2006

Samil PricewaterhouseCoopers is the Korean member firm of PricewaterhouseCoopers. PricewaterhouseCoopers refers to the network of members firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

F-1

POSCO and Subsidiaries

Consolidated Balance Sheets

December 31, 2005 and 2004


			2005		2004		2005

							(Note 2)
			(In millions of Korean Won and
			thousands of US Dollar)
ASSETS
Current assets
	Cash and cash equivalents, net of government grants (Notes 3 and 27)		W	653,364	W	480,130	$	646,895
	Short-term financial instruments (Notes 3, 13 and 27)			760,371		647,228		752,843
	Trading securities (Note 4)			2,610,502		2,689,593		2,584,655
	Current portion of available-for-sales securities (Note 7)			90,889		141,573		89,989
	Current portion of held-to-maturity securities (Note 7)			2,688		13,769		2,661
	Trade accounts and notes receivable, net of allowance for doubtful accounts (Notes 5, 13, 27 and 28)			3,044,720		3,093,511		3,014,574
	Other accounts and notes receivable, net of allowance for doubtful accounts and present value discount (Notes 5, 17, 27 and 28)			241,587		163,118		239,195
	Inventories (Notes 6, 13 and 29)			3,792,594		3,065,521		3,755,044
	Deferred income tax assets (Note 25)			131,790		—		130,485
	Other current assets, net of allowance for doubtful accounts (Note 11)			311,831		193,373		308,744

		Total current assets		11,640,336		10,487,816		11,525,085
Property, plant and equipment, net (Notes 8, 13, 14 and 29)				12,271,710		10,440,291		12,150,208
Investment securities (Notes 7, 13, 27 and 29)				2,815,741		2,345,076		2,787,862
Intangible assets, net (Notes 9 and 29)				453,709		496,315		449,217
Long-term loans receivable, net of allowance for doubtful accounts and present value discount (Notes 5, 27, 28 and 29)				42,040		81,496		41,624
Long-term trade accounts and notes receivable, net of allowance for doubtful accounts and present value discount (Notes 5, 27 and 29)				41,390		36,094		40,980
Deferred income tax assets (Notes 25 and 29)				39,922		54,157		39,527
Guarantee deposits (Notes 27 and 29)				49,081		41,424		48,595
Long-term financial instruments (Notes 3, 13, 27 and 29)				19,506		1,706		19,313
Other long-term assets, net of allowance for doubtful accounts and present value discount (Notes 5, 11 and 29)				133,875		144,585		132,549

Total assets			W	27,507,310	W	24,128,960	$	27,234,960

F-2

POSCO and Subsidiaries

Consolidated Balance Sheets — (Continued)

December 31, 2005 and 2004


			2005			2004			2005

									(Note 2)
			(In millions of Korean Won and
			thousands of US Dollar)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
	Trade accounts and notes payable (Notes 27 and 28)		W	1,145,729		W	1,082,299		$	1,134,385
	Short-term borrowings (Notes 12, 27 and 28)			859,774			657,541			851,261
	Current portion of long-term debts, net of discount on debentures issued (Notes 13 and 27)			1,057,200			1,046,699			1,046,733
	Accrued expenses (Note 27)			698,062			391,900			691,150
	Other accounts and notes payable (Notes 27 and 28)			194,486			225,680			192,560
	Withholdings (Note 27)			101,956			94,285			100,947
	Income tax payable			1,366,847			1,086,971			1,353,314
	Deferred income tax liabilities (Note 25)			645			—			639
	Other current liabilities (Note 16)			456,864			409,643			452,341

		Total current liabilities		5,881,563			4,995,018			5,823,330
Long-term debts, net of current portion and discount on debentures issued (Notes 13, 27 and 28)				1,131,270			2,050,801			1,120,069
Accrued severance benefits, net (Note 15)				274,812			230,367			272,091
Deferred income tax liabilities (Note 25)				220,628			270,641			218,444
Other long-term liabilities (Notes 14, 16 and 21)				132,121			196,077			130,813

		Total liabilities		7,640,394			7,742,904			7,564,747

Commitments and contingencies (Note 17)
Shareholders’ equity
	Common stock (Note 1)			482,403			482,403			477,627
	Capital surplus (Note 18)			3,991,409			3,895,378			3,951,890
	Retained earnings (Note 19)			16,157,947			12,851,118			15,997,967
	(Net income: W4,011,546 million in 2005 and W3,814,225 million in 2004
		Losses in excess of minority interest: W22,448 million in 2005 and W13,205 million in 2004)
	Capital adjustments, net (Note 20)			(1,151,609	)		(1,150,734	)		(1,140,207	)

				19,480,150			16,078,165			19,287,277

Minority interest
	Common stock			174,457			147,917			172,730
	Capital surplus and retained earnings			212,309			159,974			210,206

				386,766			307,891			382,936

		Total shareholders’ equity		19,866,916			16,386,056			19,670,213

Total liabilities and shareholders’ equity			W	27,507,310		W	24,128,960		$	27,234,960

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

F-3

POSCO and Subsidiaries

Consolidated Statements of Income

Years Ended December 31, 2005, 2004 and 2003


										(Note 2)

		2005		2004			2003			2005

		(in millions of Korean Won and thousands of US dollar,
		except per share amounts)
Sales (Notes 28 and 29)		W	26,301,788	W	23,973,053		W	17,789,237		$	26,041,374
Cost of goods sold (Note 28)			18,767,195		17,360,706			13,450,786			18,581,381

Gross profit			7,534,593		6,612,347			4,338,451			7,459,993
Selling and administrative expenses (Note 23)			1,451,317		1,292,928			1,075,470			1,436,948

Operating income			6,083,276		5,319,419			3,262,981			6,023,045

Non-operating income
	Interest and dividend income (Note 28)		161,135		141,054			97,233			159,540
	Gain on foreign currency transactions		114,615		130,915			84,459			113,480
	Gain on foreign currency translation		148,857		177,889			6,415			147,383
	Gain on valuation of trading securities		15,357		22,497			6,387			15,205
	Gain on disposal of trading securities		59,436		43,012			35,993			58,848
	Gain on disposal of property, plant and equipment		24,225		13,769			8,061			23,985
	Gain on valuation of derivatives (Note 22)		1,671		9,594			2,849			1,654
	Gain on derivative transactions (Note 22)		3,857		12,452			2,481			3,819
	Equity in earnings of investees (Note 7)		26,095		3,505			—			25,837
	Gain on recovery of allowance for doubtful accounts		18,591		126,861			12,798			18,407
	Gain on disposal of investments		2,973		7,304			11,099			2,944
	Others		210,853		139,967			91,602			208,764

			787,665		828,819			359,377			779,866

Non-operating expenses
	Interest expense (Note 28)		149,337		192,030			250,319			147,858
	Other bad debt expense		30,146		16,229			—			29,848
	Loss on foreign currency transactions		95,646		112,343			77,979			94,699
	Loss on foreign currency translation		9,091		17,407			118,231			9,001
	Equity in losses of investees (Note 7)		6,371		—			4,523			6,308
	Donations (Note 24)		153,018		169,546			103,191			151,503
	Loss on disposal of property, plant and equipment		42,815		29,086			43,217			42,391
	Loss on valuation of derivatives (Note 22)		21,393		2,646			30,781			21,181
	Loss on derivative transactions (Note 22)		9,000		9,332			1,660			8,911
	Loss on impairment of investments		11,846		94,824			11,516			11,729
	Others		854,089		165,273			233,671			845,632

			1,382,752		808,716			875,088			1,369,061

Extraordinary income			—		3,388			—			—

Net income before income tax expense and minority interest			5,488,189		5,342,910			2,747,270			5,433,850
Income tax expense (Note 25)			1,482,439		1,501,646			730,270			1,467,761

Net income before minority interest			4,005,750		3,841,264			2,017,000			3,966,089
Minority interest in income of consolidated subsidiaries			5,796		(27,039	)		(21,017	)		5,739

Net income		W	4,011,546	W	3,814,225		W	1,995,983		$	3,971,828

Per share data (Note 26) (in Korean won and US dollar)
	Basic and diluted ordinary income per share	W	50,652	W	47,155		W	24,496		$	50.15
	Basic and diluted earnings per share		50,652		47,185			24,496			50.15

F-4

POSCO and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

Years Ended December 31, 2005, 2004 and 2003


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

	(In millions of Korean Won and thousands of US Dollar)
Balance as of January 1, 2003		90,781,795		W	482,403	W	3,797,737		W	8,464,715		W	(1,204,374	)	W	279,165		W	11,819,646
Net income for 2003		—			—		—			1,995,983			—			—			1,995,983
Effect of change in percentage of ownership of investees		—			—		(7,345	)		—			—			—			(4,097	)
Dividends		—			—		—			(326,865	)		—			—			(334,403	)
Loss on prior period unadjusted equity method		—			—		—			(16,124	)		—			—			(16,124	)
Change in losses in excess of minority interest (Note 19)		—			—		—			(668	)		—			668			—
Retirement of treasury stock		(1,815,640	)		—		—			(253,381	)		253,381			—			—
Change in treasury stock		—			—		21,635			—			(175,555	)		—			(153,920	)
Overseas operations translation adjustment (Note 20)		—			—		—			—			44,496			—			43,490
Changes in valuation gain and loss on investment securities (Note 20)		—			—		—			—			(152,089	)		—			(157,246	)
Effect of change in percentage of minority interest																(7,551	)
Minority interest in income consolidated subsidiaries		—			—		—			—			—			21,017			21,017
Others		—			—		16,746			11,420			4,153			—			35,221

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


Balance as of January 1, 2004		88,966,155		W	482,403	W	3,828,773		W	9,875,080		W	(1,229,988	)	W	293,299		W	13,249,567
Net income for 2004		—			—		—			3,814,225			—			—			3,814,225
Effect of change in percentage of ownership of investees		—			—		1,527			1,167			—			—			(622	)
Dividends		—			—		—			(524,602	)		—			—			(531,709	)
Change in losses in excess of minority interest (Note 19)		—			—		—			(10,042	)		—			10,041			—
Retirement of treasury stock		(1,779,320	)		—		—			(304,711	)		—			—			(304,711	)
Change in treasury stock		—			—		63,695			—			158,025			—			221,720
Overseas operations translation adjustment (Note 20)		—			—		—			—			(126,552	)		—			(138,457	)
Changes in valuation gain and loss on investment securities (Note 20)		—			—		—			—			51,933			—			52,030
Effect of change in percentage of minority interest																(22,488	)
Minority interest in income consolidated subsidiaries		—			—		—			—			—			27,039			27,039
Others		—			—		1,383			1			(4,152	)		—			(3,026	)

Balance as of December 31, 2004		87,186,835		W	482,403	W	3,895,378		W	12,851,118		W	(1,150,734	)	W	307,891		W	16,386,056

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

F-5

POSCO and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

Years Ended December 31, 2005, 2004 and 2003


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

	(In millions of Korean Won and thousands of US Dollar)
Balance as of January 1, 2005		87,186,835	W	482,403	W	3,895,378		W	12,851,118		W	(1,150,734	)	W	307,891		W	16,386,056
Net income for 2005		—		—		—			4,011,547			—			—			4,011,547
Effect of change in scope of consolidation (Note 1)		—		—		167			3,981			—			—			4,148
Effect of change in percentage of ownership of investees		—		—		(12,893	)		598			—			—			(12,295	)
Dividends		—		—		—			(680,794	)		—			—			(680,794	)
Change in losses in excess of minority interest (Note 19)		—		—		—			(22,448	)		—			22,448			—
Change in treasury stock		—		—		108,018			—			(279,061	)		—			(171,043	)
Overseas operations translation adjustment (Note 20)		—		—		—			—			(11,524	)		—			(11,524	)
Changes in valuation gain and loss on investment securities (Note 20)		—		—		—			—			290,143			—			290,143
Effect of change in percentage of minority interest		—		—		—			—			—			62,223			62,223
Minority interest in income of consolidated subsidiaries		—		—		—			—			—			(5,796	)		(5,796	)
Others		—		—		739			(6,056	)		(433	)		—			(5,749	)

Balance as of December 31, 2005		87,186,835	W	482,403	W	3,991,409		W	16,157,946		W	(1,151,609	)	W	386,766		W	19,866,916


Balance as of January 1, 2005	87,186,835	$	477,627	$	3,856,810		$	12,723,879		$	(1,139,341	)	$	304,843		$	16,223,818
Net income for 2005	—		—		—			3,971,829			—			—			3,971,829
Effect of change in scope of consolidation (Note 1)	—		—		165			3,942			—			—			4,107
Effect of change in percentage of ownership of investees	—		—		(12,765	)		592			—			—			(12,173	)
Dividends	—		—		—			(674,053	)		—			—			(674,053	)
Change in losses in excess of minority interest (Note 19)	—		—		—			(22,226	)		—			22,226			—
Change in treasury stock	—		—		106,948			—			(276,298	)		—			(169,350	)
Overseas operations translation adjustment (Note 20)	—		—		—			—			(11,410	)		—			(11,410	)
Changes in valuation gain and loss on investment securities (Note 20)	—		—		—			—			287,270			—			287,270
Effect of change in percentage of minority interest	—		—		—			—			—			61,607			61,607
Minority interest in income of consolidated subsidiaries	—		—		—			—			—			(5,739	)		(5,739	)
Others	—		—		732			(5,996	)		(428	)		—			(5,692	)

Balance as of December 31, 2005	87,186,835	$	477,627	$	3,951,890		$	15,997,967		$	(1,140,207	)	$	382,937		$	19,670,214

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

F-6

POSCO and Subsidiaries

Consolidated Statements of Cash Flows

Years Ended December 31, 2005, 2004 and 2003


												(Note 2)

			2005			2004			2003			2005

			(In millions of Korean Won and thousands of US Dollar)
Cash flows from operating activities
Net income			W	4,011,546		W	3,814,225		W	1,995,983		$	3,971,828

Adjustments to reconcile net income to net cash provided by operating activities
	Depreciation and amortization			1,612,556			1,565,361			1,568,057			1,596,590
	Accrual of severance benefits			213,082			192,648			165,018			210,972
	Provision (reversal) for doubtful accounts			115,865			(56,961	)		(3,843	)		114,718
	Gain on foreign currency translation, net			(138,296	)		(165,136	)		111,736			(136,927	)
	Gain on valuation of trading securities, net			(14,786	)		(21,644	)		(5,756	)		(14,640	)
	Loss (gain) on valuation of derivatives, net			19,722			(6,948	)		27,932			19,527
	Loss (gain) on derivatives transaction, net			5,143			(3,120	)		(821	)		5,092
	Gain on disposal of trading securities and investments, net			(59,203	)		(43,012	)		(39,738	)		(58,617	)
	Loss on disposal of property, plant and equipment, net			18,590			15,317			35,156			18,406
	Equity in earnings of investees, net			(19,724	)		(3,505	)		4,523			(19,529	)
	Minority interest in income of consolidated subsidiaries			(5,796	)		27,039			21,017			(5,739	)
	Others			391,779			382,045			276,289			387,901

				2,138,932			1,882,084			2,159,570			2,117,754

Changes in operating assets and liabilities
	Decrease (increase) in trade accounts and notes receivable			45,112			(869,353	)		(502,944	)		44,665
	Increase in inventories			(706,528	)		(903,532	)		(392,255	)		(699,533	)
	Increase in other accounts and notes receivable			(94,499	)		(63,329	)		(23,233	)		(93,563	)
	Decrease (increase) in accrued income			(19,757	)		33,906			(20,580	)		(19,561	)
	Decrease (increase) in advance payments			(83,702	)		1,076			(61,442	)		(82,873	)
	Increase in prepaid expenses			(1,360	)		(1,565	)		(2,156	)		(1,347	)
	Increase (decrease) in trade accounts and notes payable			(170,131	)		317,983			89,220			(168,447	)
	Increase (decrease) in other accounts and notes payable			(7,571	)		73,813			83,506			(7,496	)
	Increase (decrease) in advances received			(7,888	)		104,073			(13,375	)		(7,810	)
	Decrease in accrued expenses			493,376			52,874			120,087			488,491
	Decrease in income tax payable			281,240			486,198			149,376			278,455
	Deferred income tax, net			(144,841	)		137,986			(2,164	)		(143,407	)
	Payment of severance benefits			(84,049	)		(28,346	)		(25,045	)		(83,217	)
	Increase in group severance insurance deposits			(98,790	)		(95,848	)		(83,024	)		(97,812	)
	Increase (decrease) in other current liabilities			(30,479	)		(4,598	)		30,612			(30,177	)
	Others			(58,375	)		8,247			(3,539	)		(57,796	)

				(688,242	)		(750,415	)		(656,956	)		(681,428	)

		Net cash provided by operating activities		5,462,236			4,945,894			3,498,597			5,408,154

F-7

POSCO and Subsidiaries

Consolidated Statements of Cash Flows — (Continued)

Years Ended December 31, 2005, 2004 and 2003


			2005			2004			2003			2005

												(Note 2)
			(In millions of Korean Won and thousands of US Dollar)
Cash flows from investing activities
	Disposal of trading securities		W	12,758,304		W	10,482,755		W	10,800,373		$	12,631,984
	Acquisition of trading securities			(12,536,599	)		(10,546,422	)		(10,881,694	)		(12,412,474	)
	Disposal of investment securities			347,987			27,558			234,038			344,542
	Acquisition of investment securities			(618,598	)		(194,344	)		(726,766	)		(612,473	)
	Disposal of short-term financial instruments			1,322,222			1,416,087			1,940,605			1,309,131
	Acquisition of short-term financial instruments			(1,434,935	)		(1,354,342	)		(2,365,200	)		(1,420,728	)
	Acquisition of long-term financial instruments			(13,343	)		(928	)		(13,454	)		(13,211	)
	Acquisition of property, plant and equipment			(3,360,537	)		(2,265,074	)		(1,298,848	)		(3,327,264	)
	Disposal of property, plant and equipment			66,273			74,041			69,886			65,617
	Proceeds from short-term loans			107,484			100,983			45,512			106,420
	Short-term loans provided			(119,033	)		(39,864	)		(52,401	)		(117,854	)
	Long-term loans provided			(33,406	)		(4,665	)		(30,192	)		(33,075	)
	Acquisition of intangible assets			(81,605	)		(89,739	)		(103,828	)		(80,797	)
	Acquisition of other investment assets			(239,211	)		(1,083,445	)		(50,986	)		(236,843	)
	Others			92,668			91,257			297,686			91,749

		Net cash used in investing activities		(3,742,329	)		(3,386,142	)		(2,135,269	)		(3,705,276	)

Cash flows from financing activities
	Proceeds from short-term borrowings			4,828,860			5,847,951			6,168,032			4,781,050
	Proceeds from long-term debt			594,312			280,038			600,112			588,428
	Proceeds from other long-term liabilities			497,193			72,136			185,792			492,270
	Disposal of treasury stock			931,664			81,724			43,885			922,440
	Repayment of current portion of long-term debt			(1,040,410	)		(1,018,064	)		(1,314,762	)		(1,030,109	)
	Repayment of short-term borrowings			(4,715,293	)		(5,861,889	)		(6,065,901	)		(4,668,607	)
	Repayment of long-term debt			(328,037	)		(106,558	)		(2,129	)		(324,789	)
	Payment of cash dividends			(680,794	)		(524,570	)		(325,961	)		(674,053	)
	Acquisition of treasury stock			(1,295,163	)		(304,712	)		(263,351	)		(1,282,340	)
	Repayment of other long-term liabilities			(398,998	)		(76,300	)		(138,151	)		(395,048	)
	Others			29,024			(39,477	)		66,270			28,737

		Net cash used in financing activities		(1,577,642	)		(1,649,721	)		(1,046,164	)		(1,562,021	)

Effect of exchange rate changes on cash and cash equivalents				(4,425	)		(22,267	)		9,107			(4,381	)

Net increase in cash and cash equivalents from changes in consolidated subsidiaries				33,939			382			—			33,603

		Net increase (decrease) in cash and cash equivalents		171,779			(111,854	)		326,271			170,079
Cash and cash equivalents
Beginning of the period				482,092			593,946			267,675			477,319

End of the period			W	653,871		W	482,092		W	593,946		$	647,398

Supplemental cash flow information for the years ended December 31 is as follows:


	2005		2004		2003		2005

	(In millions of Korean Won)
Cash paid during the year for interest	W	154,240	W	214,845	W	255,762	$	152,713
Cash paid during the year for Income tax	W	1,443,439	W	854,899	W	589,052	$	1,429,147

F-8

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2005 and 2004


1.	Consolidated Companies

General descriptions of POSCO, the controlling company, and its controlled subsidiaries (the “Company”), including POSCO Engineering & Construction Co., Ltd. (POSCO E & C) and 16 other domestic subsidiaries and 29 overseas subsidiaries, whose accounts are included in the consolidated financial statements, and 16 equity-method investees, which are excluded from the consolidation, are as follows:


	*The Controlling Company*

POSCO, the controlling company, was incorporated on April 1, 1968, under the Commercial Code of the Republic of Korea, to manufacture and distribute steel rolled products and plates in the domestic and overseas markets. Annual production capacity is 30,000 thousand tons: 13,300 thousand tons at the Pohang mill and 16,700 thousand tons at the Gwangyang mill. The shares of POSCO have been listed on the Korea Stock Exchange since 1988. POSCO operates two plants and one office in Korea, and six liaison offices overseas. The principal market for POSCO’s products is the domestic market in Korea, while export and overseas sales are concentrated in Japan, China and other countries in the Asia Pacific region.

As of December 31, 2005, POSCO’s shareholders are as follows:


	Number of		Percentage of
	Shares		Ownership (%)

SK Telecom Co., Ltd.		2,487,809		2.85
Pohang University of Science and Technology		2,418,000		2.77
National Pension Corporation		2,407,509		2.76
Others		79,873,517		91.62

		87,186,835		100.00

As of December 31, 2005, the shares of POSCO are listed on the Korea Stock Exchange, and its depository receipts are listed on the New York, London and Tokyo Stock Exchanges.

F-9

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


	*Consolidated Subsidiaries*

The consolidated financial statements include the accounts of POSCO and its controlled subsidiaries. The following table sets forth certain information with regard to consolidated subsidiaries as of December 31, 2005:


		Net Assets			Number of		Number of Shares						Percentage of			Percentage of
	Primary	(in millions of			Outstanding								Ownership			Ownership in
Subsidiaries	Business	Korean Won)(1)			Shares		POSCO		Subsidiaries		Total		(%)		Location	Subsidiaries (%)

Domestic
POSCO E & C	Engineering and construction	W	929,785			30,000,000		27,281,080		—		27,281,080		90.94	Pohang	—
Posteel Co., Ltd.	Steel sales and service		287,206			18,000,000		17,155,000		—		17,155,000		95.31	Pohang	—
POSCON Co., Ltd.	Electronic control devices manufacturing		103,758			3,519,740		3,098,610		—		3,098,610		88.04	Pohang	—
Pohang Coated Steel Co., Ltd.	Coated steel manufacturing		273,308			6,000,000		4,000,000		—		4,000,000		66.67	Pohang	—
POSCO Machinery & Engineering Co., Ltd.	Steel work maintenance		43,355			1,700,000		1,700,000		—		1,700,000		100.00	Pohang	—
POSDATA Co., Ltd.	Computer hardware and software distribution		152,209			8,155,160		5,044,072		—		5,044,072		61.85	Sungnam	—
POSCO Research Institute	Economic research and consulting		22,836			3,800,000		3,800,000		—		3,800,000		100.00	Seoul	—
Seung Kwang Co., Ltd.	Athletic facilities operation		45,260			3,945,000		2,737,000		1,208,000		3,945,000		100.00	Suncheon	POSCO E & C (30.62)
POS-AC Co., Ltd.	Architecture and consulting		16,577			130,000		130,000		—		130,000		100.00	Seoul	—
Changwon Specialty Steel Co., Ltd.	Specialty steel manufacturing		388,867			26,000,000		26,000,000		—		26,000,000		100.00	Changwon	—
POSCO Machinery Co., Ltd.	Machinery installation		32,045			1,000,000		1,000,000		—		1,000,000		100.00	Gwangyang	—
POSTECH Venture Capital Co., Ltd.	Investment in venture companies		32,963			6,000,000		5,700,000		—		5,700,000		95.00	Pohang	—
POSCO Refractories & Environment Company Ltd. (POSREC)	Manufacturing		110,518			5,907,000		3,544,200		—		3,544,200		60.00	Pohang	—
SEO MUEUN Development Inc.	Real estate, rental and construction		(39,773	)		30,000		—		—		—		0.00	Busan	—(2)
POSCO Terminal Co., Ltd.	Distribution and warehousing		31,261			5,000,000		2,550,000		—		2,550,000		51.00	Gwangyang	—(4)
Dongwoosa Service Inc.	Facilities management		28,564			714,286		214,286		—		214,286		30.00	Seoul	—(4)
Samjung Packing & Aluminum Co., Ltd.	Packing materials manufacturing		61,577			3,000,000		270,000		831,756		1,101,756		36.73	Pohang	Dongwoosa Service Inc.(4) (27.73)

F-10

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Net Assets

Number of

Number of Shares

Percentage of

Primary

(in millions of

Outstanding

Ownership

Ownership in

Subsidiaries

Business

Korean Won)(1)

Shares

POSCO

Subsidiaries

Total

(%)

Location

Subsidiaries (%)

Foreign

POSCO America Corporation (POSAM)

Steel trading

117,379

308,610

306,855

1,755

308,610

100.00

U.S.A.

POSCAN (0.57)

POSCO Australia Pty. Ltd. (POSA)

Steel trading

59,467

761,775

—

761,775

100.00

Australia

—

POSCO Canada Ltd. (POSCAN)

Coal trading

73,260

1,099,885

—

1,099,885

100.00

Canada

Posteel (100.00)

POSCO Asia Co.,Ltd. (POA)

Steel trading

19,184

9,360,000

—

9,360,000

100.00

Hongkong

—

VSC POSCO Steel Corporation (VPS)

Steel manufacturing

9,948

N/A

40.00

Vietnam

Posteel (5.00)(3)

DALIAN POSCO–CFM Coated Steel Co., Ltd.

Coated steel manufacturing

27,048

N/A

55.00

China

Posteel (15.00) POSCO-China Holding Corp. (10.00)(3)

POS-Tianjin Coil Center Co., Ltd.

Steel service center

11,446

N/A

70.00

China

Posteel (60.00)(3)

POSMETAL Co., Ltd.

Steel service center

6,686

6,000

—

3,000

50.00

Japan

Posteel (50.00)

Shanghai Real Estate Development Co., Ltd.

Real estate rental

73,302

N/A

100.00

China

POSCO E & C (100.00)(3)

IBC Corporation

Real estate rental

19,311

N/A

60.00

Vietnam

POSCO E & C (60.00)(3)

POSLILAMA Steel Structure Co., Ltd.

Steel structure fabrication and sales

(7,063

)

N/A

70.00

Vietnam

POSCO E & C (60.00), Posteel (10.00)(3)

Zhangjiagang Pohang Stainless Steel Co., Ltd.

Stainless steel manufacturing

332,190

N/A

91.53

China

POSCO-China Holding Corp., (33.58)(3)

Guangdong Pohang Coated Steel Co., Ltd.

Coated steel manufacturing

26,803

N/A

95.19

China

POSCO-China Holding Corp. (11.52)(3)

POS-THAI Steel Service Center Co., Ltd.

Steel service center

13,898

5,941,570

2,327,288

2,136,208

4,463,496

75.12

Thailand

Posteel (35.95)

Qingdao Pohang Stainless Steel Co., Ltd.

Stainless steel manufacturing

39,198

N/A

80.00

China

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

Myanmar-POSCO Co., Ltd.

Steel manufacturing

5,126

19,200

13,440

—

13,440

70.00

Myanmar

—

Zhangjiagang POSHA Steel Port Co., Ltd.

Depot service

11,316

N/A

90.00

China

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

F-11

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


		Net Assets		Number of		Number of Shares						Percentage of			Percentage of
	Primary	(in millions of		Outstanding								Ownership			Ownership in
Subsidiaries	Business	Korean Won)(1)		Shares		POSCO		Subsidiaries		Total		(%)		Location	Subsidiaries (%)

POSCO Investment Co.,Ltd.	Finance		66,312		5,000,000		5,000,000		—		5,000,000		100.00	Hongkong	—
POSCO (SUZHOU) Automotive Processing Center Co., Ltd.	Steel service center		21,203		N/A		N/A		N/A		N/A		100.00	China	POSCO-China Holding Corp. (10.00)(3)
POS-Qingdao Coil Center Co., Ltd.	Steel service center		7,479		N/A		N/A		N/A		N/A		100.00	China	Posteel (100.00)(3)
POSCO-China Holding Corp.	Investment		142,560		N/A		N/A		N/A		N/A		100.00	China	—(3)
POS-ORE Pty. Ltd.	Soft coal		23,492		17,500,001		—		17,500,001		17,500,001		100.00	Australia	POSA (100.00)
POSCO-JAPAN Co., Ltd.	Steel trading		47,853		90,438		90,438		—		90,438		100.00	Japan	—
POSEC-Hawaii Inc.	Construction		17,571		24,400		—		24,400		24,400		100.00	U.S.A.	POSCO E & C (100.00)(4)
POSCO E&C (Zhangjiagang) Engineering & Consulting Co., Ltd.	Facilities manufacturing		341		N/A		N/A		N/A		N/A		100.00	China	POSCO E & C (100.00)(3),(4)
POS-CD Pty. Ltd.	Soft coal		9,575		12,550,000		—		12,550,000		12,550,000		100.00	Australia	POSA (100.00)(4)
POS-GC Pty. Ltd.	Soft coal		8,472		11,050,000		—		11,050,000		11,050,000		100.00	Australia	POSA (100.00)(4)
POSCO–India Private Ltd.	Steel manufacturing and mine		50,343		225,000,000		224,999,999		—		224,999,999		100.00	India	—(4)
POS-IPC	Steel service center		7,400		33,328,787		21,663,712		—		21,663,712		65.00	India	—(4)


(1)	Net assets of the Company’s overseas subsidiaries are translated at the exchange rate as of the balance sheet date.

(2)	The Company does not have any equity interest in SEO MUEUN Development Inc. However, in accordance with the contract terms, the Company has the power to manage, control or direct the operations. In addition, all the members of SEO MUEUN Development Inc.’s Board of Directors are composed of employees of POSCO E & C.

(3)	No shares have been issued in accordance with the local laws and regulations.

(4)	These subsidiaries are newly included in the consolidation.

F-12

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


	*Equity-Method Investees*

The following table sets forth certain information with regard to equity-method investees as of December 31, 2005:


		Net Assets			Number of Shares						Percentage of			Percentage of
		(in millions of									Ownership			Ownership in
Investees	Primary Business	Korean Won)(1)			POSCO		Subsidiaries		Total		(%)		Location	Subsidiaries (%)

Domestic
eNtoB Corporation	E-business	W	20,162			560,000		180,000		740,000		23.13	Seoul	POSDATA and others (5.63)
MIDAS Information Technology Co., Ltd.	Engineering		12,672			—		866,190		866,190		25.46	Seoul		POSCO E & C (25.46)
Songdo New City Development Inc.	Real estate rental		(106,282	)		—		78,338		78,338		29.90	Seoul		POSCO E&C (29.90)
POSCO Power Corp.	Thermal power plant		448,904			20,000,000		—		20,000,000		50.00	Incheon		—
Foreign
KOBRASCO	Pellet manufacturing		80,806			2,010,719,185		—		2,010,719,185		50.00	Brazil		—(2)
Fujiura Butsuryu Center Co., Ltd.	Warehousing		2,801			—		600		600		30.00	Japan		POSCO-JAPAN (30.00)
USS — POSCO Industries (UPI)	Material processing		150,358			N/A		N/A		N/A		50.00	U.S.A.		POSAM (50.00)(2)(3)
POSCHROME	Fe-Cr manufacturing		29,697			21,675		—		21,675		25.00	Republic of South Africa		—
Guangdong Xingpu Steel Center Co., Ltd.	Metal processing		14,217			N/A		N/A		N/A		21.00	China		Posteel (10.50)(3)
POS-HYUNDAI Steel	Metal processing		7,556			2,345,558		4,573,838		6,919,396		29.50	India		Posteel (19.50)
POSCO Bioventures LP	Investment in companies in the bio-tech industry		35,462			N/A		N/A		N/A		100.00	U.S.A.	POSAM (100.00)(3)(4)
PT POSMI Steel Indonesia (POSMI)	Steel service center		4,035			743		2,229		2,972		36.69	Indonesia		Posteel (27.52)(2)
POSMMIT Steel Centre SDN BHD (POSMMIT)	Steel service center		11,756			4,200,000		—		4,200,000		30.00	Malaysia		—
POSVINA Co., Ltd.	Steel manufacturing		5,075			N/A		N/A		N/A		50.00	Vietnam		—(2),(3)
CAML Resources Pty. Ltd.	Raw material production and trading		40,883			—		—		—		33.34	Australia		POSA (33.34)(2)
Hubei Huaerliang POSCO silicon science & technology Co., Ltd.	Raw material production and trading		11,352			N/A		N/A		N/A		30.00	China	POSCO- China(30.00)(3)


(1)	Net assets of the Company’s overseas subsidiaries are translated at the exchange rate as of the balance sheet date.

(2)	The Company owns over 30% of equity interest in KOBRASCO, UPI, POSMI, POSVINA Co., Ltd and CAML Resources Pty. Ltd.. However, the Company is not the major shareholder of these companies. Therefore, these companies were excluded from consolidation. As of December 31, 2005, POSVEN is in the process of liquidation and is accordingly excluded from consolidation.

(3)	No shares have been issued in accordance with the local laws and regulations.

(4)	The Company owns 100% of equity interest in POSCO Bioventures LP. However, due to an agreement with POSCO Bioventures LP., which prohibits the Company to engage in management activities, POSCO Bioventures LP. was excluded from consolidation.

F-13

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


	*Subsidiaries Excluded from the Consolidated Financial Statements*

Net Assets (in

Number of Shares

Percentage of

millions of

Ownership

Ownership in

Investees

Primary Business

Korean Won)(1)

POSCO

Subsidiaries

Total

(%)

Location

Subsidiaries (%)

Domestic

Metapolis Co., Ltd.

Construction

3,086

—

400,500

40.00

Hwasung

POSCO E & C (40.00)(2)

Foreign

PT. POSNESIA
Stainless Steel Industry

STS/CR

12,474

29,610,000

—

29,610,000

70.00

Indonesia

—(3)

Dalian Poscon Dongbang Automatic Co., Ltd.

Facilities manufacturing

1,268

N/A

70.00

China

POSCON (70.00)(2)

Qingdao Posco Steel Processing Co., Ltd.

Steel service center

1,055

N/A

100.00

China

POA (100.00)(2)

VECTUS Ltd.

Transportation (transportation system, PRT)

4,633

—

3,250,000

100.00

England

Posteel (76.93)
POSCON (7.69)
POSDATA (7.69)
POSCO Machinery & Engineering (7.69)(2)

POSCO-FOSHAN Steel Processing Center Co., Ltd.

Steel service center

12,100

N/A

100.00

China

POA (40.00)
POSCO-CHINA (60.00)(2)

POS-NPC

Steel service center

1,855

—

19,000

95.00

Japan

POSCO-JAPAN (95.00)(4)

POSCO E&C (Beijing)Co. Ltd.

Construction and Engineering

2,507

N/A

100.00

China

POSCO E & C (100.00)(4)


(1)	The net assets of the Company’s overseas subsidiaries are translated at the exchange rate as of the balance sheet date.

(2)	Total assets were less than W7,000 million as of December 31, 2004.

(3)	As of December 31, 2005, this company is in the process of liquidation.

(4)	The capital investment was less than W7,000 million as of December 31, 2005.


	*Change in Scope of Consolidation*

The consolidated financial statements now include the accounts of POSCO Terminal Co., Ltd. and POSCO E&C (Zhangjiagang) Engineering & Consulting Co., Ltd. as their total assets exceeded W7,000 million as of December 31, 2004. In addition, POSEC-Hawaii Inc. had been excluded from the consolidation scope until prior year due to suspension of operation for more than one year. However, it changed its business plan, increased paid-in capital and resumed its operations during the year ended December 31, 2005. As a result, the accounts of POSEC-Hawaii Inc. were included in the consolidated financial statements as of December 31, 2005. As of December 31, 2005, POSCO entered into an agreement with Dongwoosa Service Inc. that enables POSCO to appoint the management members of Dongwoosa Service Inc. Accordingly, as POSCO is able to exercise control over Dongwoosa Service Inc., the accounts of Dongwoosa Service Inc. were included in the consolidated financial statements. The accounts of Samjung Packing & Aluminum Co., Ltd. were included in the consolidated financial statements as POSCO and Dongwoosa Service Inc. own over 30% of equity interest and are able to exercise control over Samjung Packing & Aluminum Co. as of December 31, 2005. The accounts of

F-14

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

POS-GC Pty. Ltd., POS-CD Pty. Ltd., POSCO-India Private Ltd. and POS-IPC were included in the consolidated financial statements as POSCO made an investment to establish POS-GC Pty. Ltd., POS-CD Pty. Ltd. and POSCO-India Private Ltd. and POS-IPC during December 31, 2005. As a result of such change in scope of consolidation, the total assets, sales and shareholders’ equity of the consolidated financial statements as of December 31, 2005, increased by W343,577 million, W65,409 million, and W86,549 million, respectively, and consolidated net income for the year then ended decreased by W161,374 million.


2.	Summary of Significant Accounting Policies

The significant accounting policies followed by the Company in the preparation of its consolidated financial statements for December 31, 2005, are summarized below:


	*Basis of Consolidated Financial Statements Presentation*

POSCO and its domestic subsidiaries maintain their accounting records in Korean won and prepare statutory financial statements in the Korean language (Hangul) in conformity with accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these consolidated financial statements are intended for use by those who are informed about Korean accounting principles and practices. The accompanying consolidated financial statements have been condensed, restructured and translated into English from the Korean language consolidated financial statements. Certain information attached to the Korean language consolidated financial statements, but not required for a fair presentation of POSCO and its domestic subsidiaries’ financial position, results of operations or cash flows, is not presented in the accompanying consolidated financial statements.


	*Accounting Estimates*

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect amounts reported therein. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from those estimates.


	*Application of the Statements of Korean Financial Accounting Standards*

The Korean Accounting Standards Board has published a series of Statements of Korean Financial Accounting Standards (SKFAS), which will gradually replace the existing financial accounting standards established by the Korean Financial Supervisory Commission. As SKFAS Nos. 10, 12 and 13 became applicable to the Company on January 1, 2004, the Company adopted these Standards in its financial statements covering periods beginning January 1, 2004. The provisions of these standards are adopted prospectively.

In addition, as SKFAS Nos. 15 through 17 became effective for the Company on January 1, 2005, the Company adopted these Standards in its financial statements for December 31, 2005. The provisions of these standards are adopted prospectively.

In accordance with SKFAS No. 15, Equity Method, equity in earnings and losses of the investees are shown in the income statement as a gross amount. Likewise, positive and negative capital adjustments are shown in the balance sheets as a gross amount. In addition, in accordance with SKFAS No. 16, Deferred Income Tax, deferred tax assets and liabilities are classified into current and non-current and within each

F-15

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

classification deferred tax assets and liabilities are offset and recorded as a net amount. Deferred tax effects applicable to items in shareholders’ equity are directly reflected in the shareholders’ equity account.


	*Principles of Consolidation*

The accompanying consolidated financial statements include the accounts of POSCO and its controlled subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

The Company records differences between the investment account and corresponding capital account of subsidiaries as a goodwill or a negative goodwill, and such differences are amortized over the estimated useful lives using the straight-line method. However, differences which occur from additional investments acquired in consolidated subsidiaries are reported in a separate component of shareholders’ equity, and are not included in the determination of the results of operations. The Company records the equity of the consolidated subsidiaries, which is not included in the equity of the controlling company, as a minority interest in consolidated subsidiaries. In addition, if losses of the consolidated subsidiaries, included in minority interest, are in excess of minority interest is charged to the retained earnings of the controlling company. Until losses charged to the equity of the controlling company are recovered, all gains on related consolidated subsidiaries are recognized in equity of the controlling company.


	*Cash and Cash Equivalents, and Financial Instruments*

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


	*Revenue Recognition*

Revenue from the sale of products is recognized when title and the significant risks and rewards of ownership have been transferred to the buyer, which is generally upon physical delivery. The Company deems delivery to have occurred upon shipment or upon delivery, depending upon shipping terms of the transaction. No revenue is recognized if there are significant uncertainties regarding collectibility of the amount due, associated costs or the possible return of goods.

Revenue is measured at the fair value of the consideration received or receivable and represents amounts due for goods and services provided in the normal course of business, net of discounts, VAT and other sales related taxes.

Revenue from construction and other services are generally recognized using the percentage-of-completion method.


	*Allowance for Doubtful Accounts*

The Company provides an allowance for doubtful accounts based on management’s estimate of the collectibility of individual accounts and historical collection experience.


	*Inventories*

The quantity of inventory on hand is verified using the perpetual inventory system, which continuously updates the quantity of the inventory during the period, and by physical count as of the balance sheet date. Inventories are stated at the lower of cost or market, with cost being determined using the moving-average

F-16

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

method, except for materials-in-transit, which are stated at actual cost using the specific identification method. If the net realizable value of inventories (current replacement cost for raw materials) is lower than its cost, the carrying amount is reduced to the net realizable value and the difference between the cost and revalued amount is charged to current operations. If, however, the circumstances which caused the valuation loss ceased to exist, causing the market value to rise above the carrying amount, the valuation loss is reversed limited to the original carrying amount before valuation. The said reversal is a deduction from cost of sales.

For certain other subsidiaries, inventories are stated at the lower of cost or market, generally with cost being determined using the gross average method, moving-average method or first-in, first-out (FIFO) method. Individual accounting policies on inventories of POSCO and each subsidiary are enumerated on page 29 and 30.


	*Investments in Securities*

The Company accounts for equity and debt securities under the provision of SKFAS No. 8, Investments in Securities. This statement requires investments in equity and debt securities to be classified into three categories: trading, available-for-sale and held-to-maturity.

Securities that are bought and held principally for near-term sale to generate profits from short-term price differences are classified as trading. Trading generally involves active and frequent buying and selling. Debt securities that have fixed or determinable payments and fixed maturity shall be classified as held-to-maturity only if the reporting entity has both the positive intent and ability to hold those securities to maturity. Securities that are not classified as either held-to-maturity securities or trading securities are classified into available-for-sale.

Securities are initially carried at cost, including incidental expenses, with cost being determined using the gross average method or moving-average method. Debt securities, which the Company has the intent and ability to hold to maturity, are generally carried at cost, adjusted for the amortization of discounts or premiums. Premiums and discounts on debt securities are amortized over the term of the debt using the effective interest rate method. Trading and available-for-sale securities are carried at fair value, except for non-marketable securities classified as available-for-sale securities, which are carried at cost. Non-marketable debt securities are carried at a value using the present value of future cash flows, discounted at a reasonable interest rate determined considering the credit ratings by the independent credit rating agencies.

Unrealized valuation gains or losses on trading securities are charged to current operations, and those resulting from available-for-sale securities are recorded as a capital adjustment, the accumulated amount of which shall be charged to current operations when the related securities are sold, or when an impairment loss on the securities is recognized. Impairment losses are recognized in the statement of income when the recoverable amounts are less than the acquisition costs of securities or adjusted costs of debt securities for the amortization of discounts or premiums.


	*Investments in Affiliates*

Investments in equity securities of companies, over which the Company exercises a significant influence, are recorded using the equity method of accounting. Under the equity method, the Company records changes in its proportionate ownership in the book value of the investee in current operations, as capital adjustment or as adjustments to retained earnings, depending on the nature of the underlying change in the book value of the investee. The Company discontinues the equity method of accounting for investments in equity method investees when the Company’s share in the accumulated losses equals the

F-17

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

cost of the investments, and until the subsequent cumulative changes in its proportionate net income of the investees equals its cumulative proportionate net losses not recognized during the periods when the equity method was suspended. If the book value of the investee has changed due to the capital increase of the investee, net losses not recognized in the prior periods are reflected in equity method investment securities as an adjustment to retained earnings.

Differences between the initial purchase price and the Company’s initial proportionate ownership in the net book value of the investee are amortized over the period, not to exceed 20 years, using the straight-line method. However, in case of the investee which is also a subsidiary of the Company, if the additional investment results in the change in the ownership percentage, the difference between the change in the proportionate ownership in the book value of the investee and additional investment is recorded as capital adjustment.

The Company’s proportionate unrealized profit arising from sales by the Company to equity method investee, sales by the equity method investees to the Company or sales between equity method investees are eliminated to the extent of the Controlling Company’s ownership. Only unrealized profit arising from sales by the Company to subsidiaries is fully eliminated.

Foreign currency financial statements of equity method investees are translated into Korean won using the exchange rates in effect as of the balance sheet date for assets and liabilities (the exchange rates on the acquisition date for capital accounts), and annual average exchange rates for income and expenses. Any resulting translation gain or loss is included in the capital adjustments account, a component of shareholders’ equity.

The equity method of accounting is applied based on the most recent available unreviewed financial statements of subsidiaries and affiliates. The Company believes that if the financial statements were reviewed, differences between unreviewed and reviewed financial statements would not have a material effect on the financial statements of the Company.


	*Property, Plant and Equipment*

Property, plant and equipment are stated at cost, net of accumulated depreciation, except for certain assets subject to upward revaluations in accordance with the Asset Revaluation Law. Individual depreciation methods for property, plant and equipment of POSCO and each subsidiary are enumerated on page 29 and 30. Depreciation is computed using the straight-line method or declining-balance method over the estimated useful lives of the assets, as follows:


	Estimated Useful Lives

Buildings and structures		20-40 years
Machinery and equipment		3-25 years
Tools		4-10 years
Vehicles		3-10 years
Furniture and fixtures		3-10 years

The acquisition cost of an asset consists of its purchase price and any directly attributable cost of bringing the asset to working condition for its intended use. When the estimated cost of dismantling and removing the asset and restoring the site, after the termination of the asset’s useful life, meets the criteria for the recognition of provisions, the present value of the estimated expenditure shall be included in the cost of the asset.

F-18

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Subsequent expenditure on property, plant and equipment shall be capitalized only when it increases future economic benefits beyond its most recently assessed standard of performance; all other subsequent expenditures shall be recognized as an expense in the period in which they are incurred.


	*Intangible Assets*

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


	Estimated Useful Lives

Intellectual property rights		5-10 years
Port facilities usage rights		2-33 years	(2)
Land usage rights		20-50 years	(2)
Deferred development expenses			(1)
Other intangible assets		2-25 years


(1)	The costs incurred in relation to the development of new products and new technologies, including the development cost of internally used software and related costs, are recognized and recorded as development costs only if it is probable that future economic benefits that are attributable to the asset will flow into the entity and the cost of the asset can be measured reliably. The useful life of development costs is based on its estimated useful life, not to exceed 20 years from the date when the asset is available for use.

(2)	Port facilities usage rights and land usage rights with estimated useful lives of 20 years or more, and which represent the rights to use certain port facilities and land, are amortized over the term of exclusive rights.

As of December 31, 2005, port facilities usage rights are related to the quay and inventory yard donated by POSCO in April 1987 to the local bureaus of the Maritime Affairs and Fisheries in Gwangyang, Pohang, Pyoungtaek and Masan.


	*Impairment of Assets*

The Company assesses the potential impairment of assets which are not recorded at fair value when there is evidence that events or changes in circumstances have made the recovery of an asset’s carrying value to be unlikely. The carrying value of the assets is reduced to the estimated realizable value, and an impairment loss is recorded as a reduction in the carrying value of the related asset and charged to current operations. However, the recovery of the impaired assets would be recorded in current operations up to the cost of the asset, net of accumulated depreciation or amortization, if any, before impairment, when the estimated value of the assets exceeds the carrying value after impairment.


	*Discounts on Debentures*

Discounts on debentures are amortized over the term of the debenture using the effective interest rate method. The discount is reported on the balance sheet as a direct deduction from the face amount of the debenture. Amortization of the discount is treated as an interest expense.

F-19

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


	*Government Grants*

POSCO and domestic subsidiaries accounted for the government grants intended to be used for the acquisition of certain assets as deduction from the cost of the acquired assets. Before the acquisition of the assets specified by the grant, the amounts are recognized as a deduction from the account under which the asset to be acquired is to be recorded, or from the other assets acquired as a temporary investment of the grant received.

The government grants, contributed to compensate for specific expenses, are offset against the related expenses. Other government grants, for which the use or purpose is not specified, are recorded as gains from assets contributed, and are recognized in current operations.


	*Valuation of Assets and Liabilities at Present Value*

POSCO and domestic subsidiaries value long-term loans receivable and long-term trade accounts and notes receivable at their present value as discounted at an appropriate discount rate. Discounts are amortized using the effective interest rate method and recognized as an interest income over the life of the related assets.


	*Income Taxes*

Income taxes are accounted for under the asset and liability method. In accordance with the applicable tax laws, POSCO and POSCO E & C and 16 other domestic subsidiaries, and POSA and four other overseas subsidiaries, recognize the temporary differences between the amount reported for financial reporting and income tax purposes as deferred income tax assets and liabilities. POSAM and 22 other overseas subsidiaries record taxes payable as income tax expense in accordance with the applicable tax laws.


	*Accrued Severance Benefits*

Employees and directors with at least one year of service are entitled to receive a lump-sum payment upon termination of their employment, based on their length of service and rate of pay at the time of termination. Accrued severance benefits represent the amount which would be payable assuming all eligible employees and directors were to terminate their employment as of the balance sheet date. In addition, in accordance with the applicable laws and regulations, POSAM and 28 other overseas subsidiaries recorded the amount, which would be payable to employees at the time of termination, as accrued severance benefits.

POSCO and domestic subsidiaries have partially funded the accrued severance benefits through group severance insurance deposits with Samsung Life Insurance Company and others. The amounts funded under these insurance deposits are classified as a deduction from the accrued severance benefits liability. Subsequent accruals are to be funded at the discretion of the companies.

The Company made deposits to the National Pension Fund in accordance with the National Pension Act of the Republic of Korea. The use of the deposit is restricted to the payment of severance benefits. Accordingly, accrued severance benefits in the accompanying balance sheet are presented net of this deposit.


	*Derivative Instruments*

The Company enters into derivative transactions to hedge against financial risks. Derivatives are required to be recorded on the balance sheets at fair value and classified into: cash flow hedges, fair

F-20

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

market value hedges and transactions entered into for nontrading purposes that do not qualify for hedge accounting treatment or otherwise hedge accounting treatment is not applied. When derivatives qualify for cash flow hedges, unrealized holding gains and losses of the derivatives are recorded as capital adjustments in the balance sheet and recognized in the statement of earnings when the hedged item affects earnings. When derivatives qualify for fair market value hedge, unrealized holding gains and losses of the derivatives as well as the changes in the fair value of the hedged items are recorded in the statement of income. If the contract expires, the gains and losses from fair value hedge transactions are charged to earnings and the gains and losses from cash flow hedged are offset against the purchasing price of inventories.


	*Lease Transactions*

The Company accounts for lease transactions as either operating leases or capital leases, depending on the terms of the underlying lease agreement. Machinery and equipment, acquired under capital lease agreements, are recorded at cost as property, plant and equipment, and depreciated using the straight-line method over their estimated useful lives. In addition, the aggregate lease payments are recorded as obligations under capital leases, net of accrued interest. Accrued interest is amortized over the lease period using the effective interest rate method.

Machinery and equipment acquired under operating lease agreements are not included in property, plant and equipment. The related lease rentals are charged to expense when incurred.


	*Foreign Currency Translation*

Monetary assets and liabilities denominated in foreign currencies are translated into Korean won at the exchange rates in effect at the balance sheet date, and resulting translation gains and losses are recognized in current operations.


	*Translation of Foreign Operations*

Foreign currency assets and liabilities of the Company’s overseas business branches and offices are translated at the exchange rate as of the balance sheet date, and income and expenses are translated at the weighted-average exchange rate of the reporting period. Gains or losses on translation are offsetted, and the net amount is recognized as an overseas operations translation debit or credit in the capital adjustments account. Overseas operations translation credit or debit is treated as an extraordinary gain or loss upon closing the foreign branch or office.


	*Stock Appreciation Rights*

Compensation expense for stock appreciation rights, either partially or fully vested, is recorded based on the difference between the base unit price at the date of grant and the moving weighted average of quoted market price at the end of the period proportionally recognized over the vesting period and adjusted for previous recognized expense (Note 21).


	*Capitalization of Financing Expenses*

Financing expense on borrowings associated with certain qualifying assets during the construction period that meet certain criteria for capitalization can be either capitalized or expensed as incurred. The Company chooses to expense as a financing expense the cost of manufacturing, acquisition, and construction of property, plant, and equipment that require more than one year from the initial date of manufacture, acquisition, and construction to the date of the estimated completion of the manufacture, acquisition and construction.

F-21

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


	*Basic Earnings Per Share and Basic Ordinary Income Per Share*

Basic earnings per share is computed by dividing net income allocated to common stock by the weighted average number of common shares outstanding during the year. Basic ordinary income per share is computed by dividing ordinary income allocated to common stock as adjusted by extraordinary gains or losses and net of related income taxes, by the weighted average number of common shares outstanding during the year.


	*Contingent liabilities*

At the balance sheet date, if it is probable that an outflow of economic benefits will be required due to a present obligation as a result of a past event and a reliable estimate can be made of the amount of the obligation, then the corresponding amount should be recognized as a provision. If the present obligation is expected, however, the outflow of economic benefits and reliable estimate can not be made of the amount, then the contingent liability is not recognized, but is disclosed.


	*Treasury Stock*

In accordance with the cost method, the acquisition cost of the Company’s treasury stocks are recorded as an adjustment to shareholders’ equity. Gain on disposition of treasury stock is recorded as other capital surplus and loss on disposition of treasury stock is first deducted from gain on disposition of treasury stock recorded in other capital surplus, recording the balance as capital adjustments and then offset against retained earnings in accordance with the manner of disposing deficit.


	*United States Dollar Amounts*

The Company operates primarily in Korean won and its accounting records are maintained in Korean won. The U.S. dollars amounts, provided herein, represent supplementary information, solely for the convenience of the reader. All won amounts are expressed in U.S. dollars at US$1:W1,010.00, the US Federal Reserve Bank of New York noon buying exchange rate in effect on December 30, 2005. The U.S. dollar amounts are unaudited and are not presented in accordance with accounting principles generally accepted in either the Republic of Korea or the United States, and should not be construed as a representation that the won amounts shown could be readily converted, realized or settled in U.S. dollars at this or any other rate.

F-22

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Cost determination methods for Inventories and Depreciation methods for Property, Plant and Equipment of POSCO and its Controlled Subsidiaries follow:


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

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

F-23

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


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

POS-THAI Steel Service Center Co., Ltd.	“	“
Qingdao Pohang Stainless Steel Co., Ltd.	“	“
Myanmar-POSCO Co., Ltd.	“	“
Zhangjiagang POSHA Steel Port Co., Ltd.	“	“
POSCO Investment Co., Ltd.	N/A	“
POSCO (SUZHOU) Automotive Processing Center Co., Ltd.	Moving-average method	“
POS-Qingdao Coil Center Co., Ltd.	“	“
POSCO-China Holding Corp.	N/A	“
POS-ORE Pty. Ltd.	“	“
POSCO-Japan Co., Ltd.	Gross average method	“
POSEC-Hawaii Inc.	N/A	“
POSCO E&C (Zhangjiagang) Engineering & Consulting Co., Ltd.	“	“
POS-GC Pty. Ltd.	Gross average method	“
POS-CD Pty. Ltd.	“	“


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

F-24

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


3.	Cash and Cash Equivalents, and Financial Instruments

Cash and cash equivalents, and short-term and long-term financial instruments as of December 31, 2005 and December 31, 2004, consist of the following:


	Annual interest
	rate (%) as of
	December 31,
	2005		2005			2004

			(in millions of Korean Won)
Cash and cash equivalents
Cash on hand and bank deposits		0.00 - 1.00	W	13,498		W	9,866
Checking accounts		—		5,801			2,927
Corporate bank deposits		0.00 - 4.00		10,470			20,655
Time deposits in foreign currency and others		0.00 - 4.00		348,844			246,891
Maintained by overseas affiliates		0.00 - 6.00		275,258			201,753

				653,871			482,092
Less: Government grants				(507	)		(1,962	)

			W	653,364		W	480,130

Short-term financial instruments
Time deposits in won		3.00 - 5.00	W	266,750		W	113,000
Time deposits in foreign currency		4.59 - 4.69		263,380			—
Installment accounts		4.00 - 5.00		1,169			656
Specified money in trust		—		23,753			2,140
Certificates of deposit		3.00 - 5.00		129,500			185,000
Commercial papers		4.00 - 5.00		34,805			43,893
Securities savings of trust funds		4.00		20,000			270,000
Others		3.00 - 5.00		12,051			16,149
Maintained by overseas affiliates		3.00 - 5.00		8,963			16,390

			W	760,371		W	647,228

Long-term financial instruments
Installment accounts		4.00 - 5.00	W	12,041		W	1,307
Guarantee deposits for opening accounts		—		104			108
Others		0.00 - 4.00		7,361			291

			W	19,506		W	1,706

As of December 31, 2005, the Company’s financial assets amounting to W17,037 million (2004: W13,889 million) are pledged as collateral and accordingly, withdrawal of such financial assets is restricted. The financial assets pledged as collateral include short-term financial instruments and long-term financial instruments amounting to W9,172 million (2004: W7,000 million) and W2,921 million (2004: W541 million), respectively, in relation to performance guarantee deposits, short-term borrowings and long-term debts, and others; short-term financial instruments amounting to W4,840 million (2004: W6,240 million) in relation to government-appropriated projects; and long-term financial instruments amounting to W104 million in relation to collateral deposits for opening checking accounts (Note 13).

F-25

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


4.	Trading Securities

Trading securities as of December 31, 2005 and December 31, 2004, are as follows:


	2005		2004

	(in millions of Korean Won)
Beneficiary certificates	W	2,161,453	W	2,356,562
Money market fund		449,049		302,194
Mutual fund		—		30,837

	W	2,610,502	W	2,689,593


5.	Accounts and Notes Receivable, and Others

Accounts and notes receivable, and their allowance for doubtful accounts and present value discounts as of December 31, 2005 and December 31, 2004, are as follows:


		2005			2004

		(in millions of Korean Won)
Trade accounts and notes receivable		W	3,188,928		W	3,163,644
Less: Allowance for doubtful accounts			(144,060	)		(70,068	)
	Present value discount		(148	)		(64	)

		W	3,044,720		W	3,093,512

Other accounts and notes receivable		W	312,218		W	226,236
Less: Allowance for doubtful accounts			(70,556	)		(63,032	)
	Present value discount		(75	)		(86	)

		W	241,587		W	163,118

Long-term trade accounts and notes		W	55,771		W	50,267
Less: Allowance for doubtful accounts			(12,134	)		(13,683	)
	Present value discount		(2,247	)		(490	)

		W	41,390		W	36,094

Long-term loans receivable		W	42,332		W	82,296
Less: Allowance for doubtful accounts			(263	)		(746	)
	Present value discount		(29	)		(54	)

		W	42,040		W	81,496

F-26

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Accounts stated at present value under long-term deferred payment and others included as part of accounts and notes receivable, and others are as follows:


				Present value						Discount rate
		Face value		discount		Book value		Maturity date		(%)

		(in millions of Korean Won)
Long-term trade accounts receivable
	BNG Steel Co., Ltd.	W	44,897	W	8,733	W	36,164		2008-2009		8.6
	Pohang woobang APT		17,579		1,885		15,694		2014		3.0
	Others		1,773		510		1,263		2006-2014		4.9-13.0

		W	64,249	W	11,128	W	53,121

Long-term loans receivable
	Employees	W	166	W	29	W	137		2017		7.5
	Others		260		17		243		2006		8.4

		W	426	W	46	W	380

Other long-term assets
	Tawryu Construction Co., Ltd.	W	21,900	W	1,619	W	20,281		2007		5.0
	Others		768		112		656		2005-2018		6.5-7.5

		W	22,668	W	1,731	W	20,937

The Company computed discount on account receivable using the Company’s weighted-average borrowing rate incurred as of the date nearest to the Company’s year end and accounted them as allowance for doubtful accounts in accordance with SKFAS No. 13, Troubled Debt Restructuring.

Valuation and qualifying accounts for allowance for doubtful accounts for the years ended December 31, 2005, 2004 and 2003 are as follows:

Additions

Balance at

Charged to

Change in

Balance at

beginning

costs and

scope of

the end of

Description

of period

expenses

consolidation

Deductions(1)

period

(in millions of Korean Won)

Year ended December 31, 2005:

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

Allowance for doubtful accounts

158,944

115,865

11,709

263,111

Year ended December 31, 2004:

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

Allowance for doubtful accounts

325,187

(56,961

)

—

109,282

158,944

Year ended December 31, 2003:

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

Allowance for doubtful accounts

321,534

(3,843

)

—

(7,496

)

325,187


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

F-27

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


6.	Inventories

Inventories as of December 31, 2005 and December 31, 2004, consist of the following:


	2005		2004

	(in millions of Korean Won)
Finished goods	W	724,930	W	448,659
By-products		3,326		2,842
Semi-finished goods		790,251		640,672
Raw materials		1,399,817		1,215,136
Materials-in-transit		645,441		563,469
Others		228,829		194,743

	W	3,792,594	W	3,065,521


7.	Investment Securities

Long-term portion of investment securities as of December 31, 2005 and December 31, 2004, consists of the following:


	2005		2004

	(in millions of Korean Won)
Available-for-sale securities	W	2,090,079	W	2,164,129
Held-to-maturity securities		241,474		38,741
Equity-method investments		484,188		142,206

	W	2,815,741	W	2,345,076


	*Available-For-Sale Securities*

Available for sale securities as of December 31, 2005 and December 31, 2004, consist of the following:


		2005		2004

		(in millions of Korean Won)
Current portion of available-for-sale securities
	Investments in bonds	W	90,889	W	141,573

Available-for-sale securities
	Marketable equity securities		1,647,770		1,682,772
	Non-marketable equity securities		384,466		321,000
	Investments in bonds		41,292		145,640
	Equity investments		16,551		14,717

			2,090,079		2,164,129

		W	2,180,968	W	2,305,702

F-28

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Investments in marketable equity securities as of December 31, 2005 and December 31, 2004, are as follows:


	2005								2004

	Number of		Percentage of		Acquisition
	shares		ownership (%)		cost		Book value(1)		Book value

					(in millions of Korean Won)
Hanil Iron Steel Co., Ltd.		206,798		10.14	W	2,413	W	3,846	W	3,102
HISTEEL Co., Ltd.		135,357		9.95		1,609		2,166		1,747
MunBae Steel Co., Ltd.		1,849,380		9.02		3,588		2,904		2,367
Hana Bank		4,617,600		2.26		29,998		213,333		119,134
Korea Investment Corporation		—		—		—		—		135
SK Telecom Co., Ltd.(2)		4,793,630		5.83		1,361,599		874,827		1,170,222
Samjung P&A Co., Ltd.(3)		—		—		—		—		1,944
DongYang Steel Pipe Co., Ltd.		1,564,250		2.46		3,911		1,095		501
Nippon Steel Corporation		147,876,000		2.17		285,102		534,152		375,649
Korea Line Corporation		217,373		2.17		8,067		5,608		7,695
Others		—		—		5,987		9,839		276

					W	1,702,274	W	1,647,770	W	1,682,772


(1)	Marketable equity securities are stated at fair market value and the difference between the acquisition cost and the fair market value is accounted for in the capital adjustments and minority interest accounts in the consolidated balance sheets.

(2)	The 1,802,132 SK Telecom Co., Ltd. shares classified as available-for-sale securities have been placed as a collateral for exchangeable bonds (Note 13).

(3)	As of December 31, 2005, Samjung P&A Co., Ltd. is included in the consolidation.

Investments in non-marketable equity securities as of December 31, 2005 and December 31, 2004, are as follows:


	2005										2004

	Number of		Percentage of		Acquisition		Net asset
	shares		ownership (%)		cost		value(1)		Book value		Book value

			(in millions of Korean Won)
Dae Kyeong Special Steel Co., Ltd.		1,786,000		19.00	W	8,930	W	6,335	W	8,930	W	8,930
Kihyup Corporation		600,000		10.34		3,000		3,754		3,000		3,000
Powercomm(2)		7,500,000		5.00		246,000		86,258		86,258		76,125
POSCO Terminal Co., Ltd.(4)		—		—		—		—		—		5,916
The Seoul Shinmun(2)		1,614,000		19.40		7,479		—		—		9,551
The Siam United Steel		9,000,000		10.00		26,640		14,832		26,640		26,640
PT-POSNESIA Stainless Steel Industry(3)		29,610,000		70.00		9,474		8,732		1,567		1,567
BX Steel Posco Cold Rolled Sheet Co., Ltd.(5)		—		10.00		26,803		24,099		26,803		26,803

F-29

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


	2005										2004

	Number of		Percentage of		Acquisition		Net asset
	shares		ownership (%)		cost		value(1)		Book value		Book value

			(in millions of Korean Won)
Incheon Int’l Airport Railroad Co., Ltd.		20,609,665		12.00		103,048		99,181		103,048		74,330
POSEC-HAWAII Inc.(4)		—		—		—		—		—		5,343
Busan-Gimhae Light Rail Transit Co., Ltd.(3)		1,911,000		49.00		9,555		7,269		9,555		9,065
Vectus Ltd.(3)		3,250,000		100.00		6,241		4,633		4,633		—
Seoul Metro Line Nine Corporation(6)		3,032,090		20.00		15,160		12,571		15,160		—
Hankuk Leisure Co., Ltd.		839,964		16.42		8,627		9,451		8,476		8,476
POSCO-FOSHAN Steel Processing Center Co., Ltd.(3)(5)		—		40.00		5,001		4,117		5,001		4,175
Others		—		—		110,904		82,729		85,395		61,079

					W	586,862	W	363,961	W	384,466	W	321,000


(1)	The net asset value of the non-marketable equity securities is determined based on the investee companies’ most recent available December 31, 2005 financial information, which has not been reviewed or audited. However, the net asset value of PT-POSNESIA Stainless Steel Industry, Vectus Ltd., Seoul Metro Line Nine Corporation, POSCO-FOSHAN Steel Processing Center Co., Ltd. are based on their unaudited financial statements as of September 30, 2005. And the net asset value of Hankuk Leisure Co., Ltd. is based on its audited financial statements as of December 31, 2004

(2)	Powercomm Inc. and Seoul Shinmun shares are carried at fair value determined by the independent credit rating agencies. The difference between the fair value and the book value (acquisition cost) of Powercomm amounting to W159,742 million (W115,813 million, net of deferred income tax) was accounted for as a capital adjustment and minority interest. The difference between the fair value and the book value of the Seoul Shinmun amounting to W7,479 million was charged to current operations as loss on impairment of investments based on the conclusion that the recoverable amounts are less than the acquisition costs. Except for Powercomm and Seoul Shinmun, shares without an objective market value were based on acquisition costs.

(3)	PT-POSNESIA Stainless Steel Industry, which is in the process of liquidation as of December 31, 2005, has been excluded from the equity method investments. Busan-Gimhae Light Rail Transit Co., Ltd., Vectus Ltd. and POSCO-FOSHAN Steel Processing Center Co., Ltd., have been excluded from the equity-method investments, as the total assets of each investee were less than W7,000 million as of December 31, 2004.

(4)	POSCO Terminal Co., Ltd., whose total assets exceed W7,000 million as of December 31, 2004, are included in the consolidation. In addition, POSEC-Hawaii Inc. was included in the consolidated financial statements, as POSEC-Hawaii Inc. resumed its operations during December 31, 2005.

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

(6)	Seoul Metro Line Nine Corporation has been excluded from the equity-method investments as the Company is unable to exercise significant control or influence resulting from the disproportional increase in paid-in capital.

F-30

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Available-for-sale securities are stated at fair market value, and the difference between the acquisition cost and fair market value is accounted for in the capital adjustment account. The movements of such differences for December 31, 2005 and 2004 are as follows:


		2005									2004

		Beginning			Increase			Ending			Beginning			Increase			Ending
		balance			(decrease)			balance			balance			(decrease)			balance

		(in millions of Korean Won)
Marketable equity securities
	Hanil Iron & Steel Co., Ltd.	W	689		W	350		W	1,039		W	(75	)	W	764		W	689
	HISTEEL Co., Ltd.		139			265			404			(555	)		694			139
	Moonbae Steel Co., Ltd.		(1,221	)		725			(496	)		(1,748	)		527			(1,221	)
	Chohung Bank		—			—			—			(3,228	)		3,228			—
	Hana Bank		89,136			43,782			132,918			71,589			17,547			89,136
	Korea Investment Corporation		(453	)		453			—			(403	)		(50	)		(453	)
	SK Telecom, Co., Ltd.		(495,027	)		142,117			(352,910	)		(504,158	)		9,131			(495,027	)
	Samjung P & A Co., Ltd.		(770	)		770			—			(848	)		78			(770	)
	Dongyang Steel Pipe Co., Ltd.		(3,410	)		1,369			(2,041	)		(3,403	)		(7	)		(3,410	)
	Nippon Steel Corporation		90,547			90,015			180,562			95,692			(5,145	)		90,547
	Korea Line Corporation		(372	)		(1,411	)		(1,783	)		—			(372	)		(372	)
	Others		10			3,211			3,221			364			(354	)		10

			(320,732	)		281,646			(39,086	)		(346,773	)		26,041			(320,732	)

Non-marketable equity securities
	Powercomm		(169,875	)		54,062			(115,813	)		(177,593	)		7,718			(169,875	)
	Others		8,102			(7,432	)		670			(5,411	)		13,513			8,102

			(161,773	)		46,630			(115,143	)		(183,004	)		21,231			(161,773	)

		W	(482,505	)	W	328,276		W	(154,229	)	W	(529,777	)	W	47,272		W	(482,505	)

Investments in bonds as of December 31, 2005 and 2004, are as follows:


			2005						2004

	Maturity		Acquisition cost			Book value			Book value

			(in millions of Korean Won)
Government bonds		Less than 1 year	W	90,889		W	90,889		W	132,478
		1-5 years		62			63			92,807
		5-10 years		—			—			8
Others		Less than 1 year		—			—			9,095
		1-5 years		42,313			41,229			52,825

				133,264			132,181			287,213
Less: Current portion				(90,889	)		(90,889	)		(141,573	)

			W	42,375		W	41,292		W	145,640

F-31

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Equity investments as of December 31, 2005 and 2004, are as follows:

2005

2004

Acquisition cost

Book value(1)

Book value

(in millions of Korean Won)

Contractor financial fund

12,167

12,589

Software financial fund and others

4,384

2,128

16,551

14,717


(1)	As of December 31, 2005, equity investments with no readily determinable fair value are carried at acquisition cost.

Details of gross unrealized gains and losses on available-for-sale securities for the years ended December 31, 2005 and 2004 are as follows:


	2005								2004

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

	(in millions of Korean Won)
Government and municipal bonds	W	93,024	W	—	W	2,072	W	90,952	W	220,150	W	5,146	W	3	W	225,293
Other bonds		41,786		—		557		41,229		61,034		886		—		61,920

		134,810		—		2,629		132,181		281,184		6,032		3		287,213

Marketable equity securities		1,459,796		189,383		1,409		1,647,770		1,659,684		28,747		5,659		1,682,772
Non-marketable equity securities		335,764		54,062		5,360		384,466		304,621		16,379		—		321,000

	W	1,930,370	W	243,445	W	9,398	W	2,164,417	W	2,245,489	W	51,158	W	5,662	W	2,290,985

For the years ended December 31, 2005, 2004 and 2003, proceeds from sales of available-for-sale securities amounted to W347,987 million, W27,558 million and W234,038 million, respectively. Gross realized gains and losses amounted to W92,904 million and W2,074 million, respectively, for the year ended December 31, 2005.

F-32

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Held-To-Maturity Securities

Held-to-maturity securities as of December 31, 2005 and 2004, are as follows:


				2005				2004

		Maturity		Acquisition cost		Book value		Book value

				(in millions of Korean Won)
Current portion of held-to-maturity securities
	Government and municipal bonds		Less than 1 year	W	2,688	W	2,688	W	2,711
	Finance debentures		,,		—		—		10,010
	Corporate bond in foreign currency		,,		—		—		1,048

					2,688		2,688		13,769

Held-to-maturity securities
	Government and municipal bonds		1-5 years		211,949		211,051		37,961
			5-10 years		30,333		30,423		780

					242,282		241,474		38,741

				W	244,970	W	244,162		52,510

The Company provided national treasury bonds, amounting to W29,514 million, and certain government and municipal bonds, amounting to W1,724 million, to the Gyeongsangbuk-do provincial office as a performance guarantee in relation to the development of a waste disposal area (Note 11).

F-33

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


	*Equity-Method Investments*

Equity-method investees as of December 31, 2005 and 2004, are as follows:


	2005										2004

	Number of		Percentage of		Acquisition		Net asset		Book		Book
	shares		ownership (%)		cost		value(1)		value		value

	(in millions of Korean Won)
KOBRASCO		2,010,719,185		50.00	W	32,950	W	40,403	W	30,268	W	11,203
Fujiura Butsuryu Center Co., Ltd.		600		30.00		632		840		824		648
USS-POSCO Industries(2)		—		50.00		234,293		74,269		61,707		65,084
POSCHROME		21,675		25.00		4,859		7,424		6,153		7,000
Guangdong Xingpu Steel Center Co., Ltd.(2)		—		21.00		1,852		2,986		2,985		3,094
POS-HYUNDAI Steel		6,919,396		29.50		3,136		2,229		2,229		2,276
eNtoB Corporation		740,000		23.13		3,700		4,663		4,188		3,762
POSVINA Co., Ltd.(2)		—		50.00		1,527		2,538		1,593		3,145
POSMMIT Steel Centre SDN BHD		4,200,000		30.00		2,308		3,527		3,212		3,015
PT POSMI Steel Indonesia		2,972		36.69		1,467		1,480		1,746		1,599
MIDAS Information Technology Co., Ltd.		866,190		25.46		433		3,226		3,226		2,646
POSCO Power Corp.(5)		20,000,000		50.00		291,041		224,452		290,255		—
CAML Resources Pty. Ltd.		3,239		33.34		40,388		13,631		38,673		—
POSCO Bioventures LP.(2)		—		100.00		43,691		33,717		33,717		33,221
SONGDO New City Development Inc.(3)		1,332,344		29.90		6,674		—		—		—
Huaerliang POSCO Silicon Science &Technology Co.Ltd(2)		—		30.00		3,236		3,412		3,412		—
Suzhou Dongshin Color Metal Sheet Co., Ltd.(2)		—		—		—		—		—		3,361
Seoul Metro Line Nine Corporation(4)		—		—		—		—		—		2,152

					W	672,187	W	418,797	W	484,188	W	142,206


(1)	Due to the delay in the closing of December 31, 2005 accounts and the settlement of closing differences, the equity method of accounting is applied based on the most recent available December 31, 2005 financial information, which has not been audited or reviewed.

(2)	No shares have been issued in accordance with the local laws and regulations.

(3)	Unrecorded changes in equity interest in SONGDO New City Development Inc. amounted to a negative W40,525 million.

(4)	Seoul Metro Line Nine Corporation has been excluded from the equity-method investments as the Company is unable to exercise significant control or influence resulting from the disproportional increase in paid-in capital.

(5)	In accordance with the resolution of the Board of Directors’ meeting on May 24, 2005, the Company acquired 50% equity interest in POSCO Power Corporation.

F-34

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Details of equity method valuation for December 31, 2005 and 2004, are as follows:


			Earnings
			(losses) of			Other
	January 1,		equity method			increase			December 31,
	2005		investees			(decrease)(1)			2005

	(in millions of Korean Won)
KOBRASCO	W	11,203	W	17,663		W	1,402		W	30,268
Fujiura Butsuryu Center Co., Ltd.		648		296			(120	)		824
USS-POSCO Industries		65,084		(517	)		(2,860	)		61,707
Suzhou Dongshin Color Metal Sheet Co., Ltd.		3,361		(60	)		(3,301	)		—
POSCHROME		7,000		1,303			(2,150	)		6,153
Guangdong Xingpu Steel Center Co., Ltd.		3,094		(89	)		(20	)		2,985
POS-HYUNDAI Steel		2,276		357			(404	)		2,229
eNtoB Corporation		3,762		426			—			4,188
POSVINA Co., Ltd.		3,145		(789	)		(763	)		1,593
POSMMIT Steel Centre SDN BHD		3,015		317			(120	)		3,212
PT POSMI Steel Indonesia		1,599		173			(26	)		1,746
POSCO Bioventures LP.		33,221		(4,103	)		4,598			33,716
MIDAS Information Technology Co., Ltd.		2,646		667			(86	)		3,227
Seoul Metro Line Nine Corporation		2,152		—			(2,152	)		—
POSCO Power Corp.		—		(811	)		291,066			290,255
CAML Resources Pty. Ltd.		—		4,863			33,810			38,673
Huaerliang POSCO Silicon Science & Technology Co. Ltd		—		28			3,384			3,412

	W	142,206	W	19,724		W	322,258		W	484,188

F-35

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


			Earnings
			(losses) of			Other
	January 1,		equity method			increase			December 31,
	2004		investees			(decrease)(1)			2004

	(in millions of Korean Won)
KOBRASCO	W	562	W	10,539		W	102		W	11,203
Fujiura Butsuryu Center Co., Ltd.		538		207			(97	)		648
USS-POSCO Industries		98,653		(8,011	)		(25,558	)		65,084
Suzhou Dongshin Color Metal Sheet Co., Ltd.		4,066		86			(791	)		3,361
POSCHROME		6,711		766			(477	)		7,000
Guangdong Xingpu Steel Center Co., Ltd.		3,291		248			(445	)		3,094
POS-HYUNDAI Steel		1,883		746			(353	)		2,276
eNtoB Corporation		3,295		467			—			3,762
POSVINA Co., Ltd.		3,970		485			(1,310	)		3,145
POSMMIT Steel Centre SDN BHD		2,625		808			(418	)		3,015
PT POSMI Steel Indonesia		1,572		191			(164	)		1,599
MIDAS Information Technology Co., Ltd.		2,281		433			(68	)		2,646
POSCO Bioventures LP.		24,889		(3,056	)		11,388			33,221
SONGDO New City Development Inc.		—		(404	)		404			—
Seoul Metro Line Nine Corporation		—		—			2,152			2,152

	W	154,336	W	3,505		W	(15,635	)	W	142,206


(1)	Other increase or decrease represents the changes in investment securities due to acquisitions (disposals), dividends received, valuation gain or loss on investment securities, changes in retained earnings and others.

F-36

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Details on the elimination of unrealized gain or loss from inter-company transactions for December 31, 2005 and 2004, are as follows:


	2005								2004

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

	(in millions of Korean Won)
KOBRASCO	W	7,997		W	—	W	7,997		W	1,358	W	—	W	1,358
Fujiura Butsuryu Center Co., Ltd.		6			—		6			12		—		12
USS-POSCO Industries		12,562			—		12,562			18,303		—		18,303
Suzhou Dongshin Color Metal Sheet Co., Ltd.		—			—		—			79		—		79
POSCHROME		371			—		371			908		—		908
Guangdong Xingpu Steel Center Co., Ltd.		(39	)		—		(39	)		39		—		39
eNtoB Corporation		149			65		214			213		22		235
POSVINA Co., Ltd.		531			—		531			332		—		332
POSMMIT Steel Centre SDN BHD		143			—		143			211		—		211
PT POSMI Steel Indonesia		(115	)		—		(115	)		182		—		182

	W	21,605		W	65	W	21,670		W	21,637	W	22	W	21,659

Details of differences between the initial purchase price and the Company’s initial proportionate ownership in the book value of the investee are as follows:


	January 1,		Increase		Amortization		December 31,
	2005		(decrease)		(recovery)		2005

	(in millions of Korean Won)
POSMMIT Steel Centre SDN BHD	W	59	W	—	W	20	W	39
PT POSMI Steel Indonesia		531		—		177		354
CAML Resources Pty. Ltd.		—		28,819		3,777		25,042
POSCO Power Corp.		—		73,115		7,311		65,804

	W	590	W	101,934	W	11,285	W	91,239

F-37

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Summary of financial information on equity-method investees as of and for December 31, 2005, follows:


			Total				Net income
	Total assets		liabilities		Sales		(loss)

	(in millions of Korean Won)
KOBRASCO	W	170,450	W	89,644	W	319,869	W	62,863
Fujiura Butsuryu Center Co., Ltd.		19,317		16,516		20,133		1,007
USS-POSCO Industries		454,171		305,634		874,633		(24,992	)
POSCHROME		35,846		6,149		44,105		6,695
Guangdong Xingpu Steel Center Co., Ltd.		36,078		21,861		89,128		(611	)
POS-HYUNDAI Steel		18,925		11,369		67,023		1,338
eNtoB Corporation		61,059		40,896		362,373		4,197
POSVINA Co., Ltd.		9,510		4,435		17,360		(189	)
POSMMIT Steel Centre SDN BHD		39,678		27,922		54,395		1,282
PT POSMI Steel Indonesia		52,932		48,898		59,236		479
MIDAS Information Technology Co., Ltd.		15,287		2,615		14,802		2,475
POSCO Power Corp.		896,824		447,921		400,677		35,839
CAML Resources Pty. Ltd.		85,547		44,664		117,530		31,672
SONGDO New City Development Inc.		625,023		692,450		142,767		(63,508	)
POSCO Bioventures LP.		33,717		—		—		—
Huaerliang POSCO Silicon Science & Technology Co. Ltd.		21,683		10,351		3,453		50

	W	2,576,047	W	1,771,325	W	2,587,484	W	58,597

F-38

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

8. Property, Plant and Equipment

Property, plant and equipment as of December 31, 2005 and December 31, 2004, consist of the following:


	2005			2004

	(in millions of Korean Won)
Buildings and structures	W	5,755,154		W	5,096,042
Machinery and equipment		21,333,817			19,544,990
Tools		404,094			380,744
Vehicles		176,715			173,847
Furniture and fixtures		231,263			207,288

		27,901,043			25,402,911
Less: Accumulated depreciation		(19,312,121	)		(18,268,530	)
Less: Accumulated impairment loss		(2,786	)		(2,786	)

		8,586,136			7,131,595

Land		1,203,300			1,109,382
Less: Accumulated impairment loss		(565	)		(565	)

		1,202,735			1,108,817

Construction-in-progress		2,566,456			2,283,496
Less: Accumulated impairment loss		(83,617	)		(83,617	)

		2,482,839			2,199,879

	W	12,271,710		W	10,440,291

The value of land based on the posted price issued by the Korean tax authority amounted to W3,087,656 million as of December 31, 2005 (December 31, 2004: W2,860,565 million).

As of December 31, 2005, property, plant and equipment are insured against fire and other casualty losses up to W4,783,546 million (December 31, 2004: W4,755,080 million). In addition, the Company carries general insurance for vehicles and accident compensation insurance for its employees.

In accordance with the Asset Revaluation Law, POSCO and certain subsidiaries revalued a substantial portion of their property, plant and equipment and increased the related amount of assets by W6,184 billion as of December 31, 2000, the latest revaluation date. The revaluation surplus amounting to W4,144 billion, net of related tax and transfers to capital stock, was credited to capital surplus, a component of shareholders’ equity (Note 18).

Construction-in-progress includes capital investments in Gwangyang No. 2 Minimill. By a resolution of the Board of Directors in May 1998, the construction on the Minimill has been temporarily suspended due to the economic situation in the Republic of Korea and the Asia Pacific region. The continuing unstable economic condition and related decrease in the selling price of products, resulting in the deterioration in profitability, drove the management’s operations committee’s decision in April 2002 to cease the construction on the No. 2 Minimill. The Company previously recognized impairment losses on the construction-in-progress in Gwangyang No. 2 Minimill amounting to W469,581 million and reclassified related machinery held to be disposed of in the future as other investment assets as of December 31, 2004.

F-39

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

The changes in the carrying value of property, plant and equipment for December 31, 2005, are as follows:


												Elimination of
	Beginning											intercompany			Ending
	balance		Acquisition		Disposal		Depreciation		Others(1)			transactions			balance

	(in millions of Korean Won)
Land	W	1,108,817	W	95,381	W	14,110	W	—	W	12,655		W	(9	)	W	1,202,734
Buildings		2,199,308		261,371		27,150		161,172		(8,578	)		5,055			2,268,834
Structures		889,437		425,886		5,666		89,966		26,178			421			1,246,290
Machinery and equipment		3,851,869		2,274,621		28,596		1,235,562		(12,228	)		16,736			4,866,840
Vehicles		35,624		9,554		1,120		13,997		425			(57	)		30,429
Tools		98,294		50,999		304		48,055		697			(63	)		101,568
Furniture and fixtures		57,064		38,328		1,113		23,197		261			833			72,176
Construction-in-progress		2,199,878		3,618,271		131,909		—		(2,945,299	)		(258,102	)		2,482,839

	W	10,440,291	W	6,774,411	W	209,968	W	1,571,949	W	(2,925,889	)	W	(235,186	)	W	12,271,710


(1)	Includes foreign currency translation adjustments, asset transfers and adjustments resulting from the effect of changes in the scope of consolidation.

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


												Elimination of
	Beginning											intercompany			Ending
	balance		Acquisition		Disposal		Depreciation		Others(1)			transactions			balance

	(in millions of Korean Won)
Land	W	1,212,284	W	7,723	W	73,091	W	—	W	(38,044	)	W	(55	)	W	1,108,817
Buildings		2,314,058		91,189		29,597		152,276		106,106			(130,172	)		2,199,308
Structures		913,564		58,499		4,401		78,759		53,107			(52,573	)		889,437
Machinery and equipment		4,178,717		894,562		22,435		1,209,030		265,772			(255,717	)		3,851,869
Vehicles		33,867		15,194		865		12,098		(137	)		(337	)		35,624
Tools		101,172		49,483		868		51,317		67			(243	)		98,294
Furniture and fixtures		53,754		25,928		2,491		20,921		4,810			(4,016	)		57,064
Construction-in-progress		1,038,360		2,206,870		145,758		—		(777,173	)		(122,421	)		2,199,878

	W	9,845,776	W	3,349,448	W	279,506	W	1,524,401	W	(385,492	)	W	(565,534	)	W	10,440,291


(1)	Includes foreign currency translation adjustments, asset transfers and adjustments resulting from the effect of changes in the scope of consolidation.

F-40

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

9. Intangible Assets

Intangible assets, net of accumulated amortization, as of December 31, 2005 and December 31, 2004, consist of the following:


	2005		2004

	(in millions of Korean Won)
Intellectual property rights	W	1,394	W	485
Land usage rights		43,422		32,416
Deferred development costs		47,299		32,591
Port facilities usage rights		127,258		146,396
Other intangible assets(1)		234,336		284,427

	W	453,709	W	496,315


(1)	The Company capitalized costs directly related to the Enterprise Resource Planning (ERP) system and the process innovation as other intangible assets.

The changes in the carrying value of intangible assets for December 31, 2005, are as follows:


													Elimination of
	Beginning												intercompany		Ending
	Balance		Acquisition		Disposal		Amortization			Others(1)			transactions		balance

	(in millions of Korean Won)
Intellectual property rights	W	485	W	1,159	W	—	W	186		W	(64	)	W	—	W	1,394
Land usage rights		32,416		10,053		192		(2,653	)		(1,508	)		—		43,422
Development costs		32,591		29,381		—		13,021			(1,770	)		118		47,299
Port facilities usage rights		146,396		595		—		19,732			(1	)		—		127,258
Other intangible assets		284,427		43,429		386		95,151			(857	)		2,874		234,336

	W	496,315	W	84,617	W	578	W	125,437		W	(4,200	)	W	2,992	W	453,709


(1)	Includes impairment loss, transfers of an asset, adjustments arising from foreign currency translations and changes in consolidation scope, and others.

The changes in the carrying value of intangible assets for December 31, 2004, were as follows:


												Elimination of
	Beginning											intercompany			Ending
	balance		Acquisition		Disposal		Amortization		Others(1)			transactions			balance

	(in millions of Korean Won)
Goodwill	W	234	W	—	W	—	W	—	W	(234	)	W	—		W	—
Intellectual property rights		523		22		—		131		71			—			485
Land usage rights		12,750		9,291		—		2,270		12,645			—			32,416
Development costs		32,646		16,854		2,260		13,042		(1,607	)		—			32,591
Port facilities usage rights		129,698		39,300		86		22,602		485			(399	)		146,396
Other intangible assets		298,645		78,357		9,325		76,629		4,993			(11,614	)		284,427

	W	474,496	W	143,824	W	11,671	W	114,674	W	16,353		W	(12,013	)	W	496,315


(1)	Includes impairment loss, transfers of an asset, adjustments arising from foreign currency translations and changes in consolidation scope, and others.

F-41

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

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


	(in millions of
	Korean Won)

2006	W	93,884
2007		73,184
2008		56,253
2009		20,512
2010		17,355

	W	261,188


10.	Research and Development Costs, and Others

For the year ended December 31, 2005, the Company expensed research and development costs amounting to W225,615 million (December 31, 2004: W277,149 million), charging W173,070 million to cost of goods sold, and W52,545 million to selling and administrative expenses.


11.	Other Assets

Other assets as of December 31, 2005 and 2004 consist of the following:


			2005			2004

			(in millions of Korean Won)
Other current assets
	Short-term loans receivable (Notes 27 and 28)		W	42,665		W	23,622
	Accrued income			45,517			25,032
	Advance payments			199,580			120,374
	Prepaid expenses			15,724			15,121
	Others			40,728			19,903

				344,214			204,052
	Less: Allowance for doubtful accounts			(32,383	)		(10,681	)

			W	311,831		W	193,371

Other long-term assets
	Other investment assets (Notes 5, 8 and 29)		W	139,320		W	145,778
	Less: Allowance for doubtful accounts			(3,714	)		(733	)
		Present value discount		(1,731	)		(459	)

			W	133,875		W	144,586

F-42

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


12.	Short-Term Borrowings

Short-term borrowings as of December 31, 2005 and December 31, 2004, consist of the following:


		Annual
Financial institutions		interest rate (%)		2005		2004

				(in millions of Korean Won)
Won currency borrowings
	Shinhan Bank and others		3.83-5.00	W	216,150	W	121,374

Foreign currency borrowings
	Yamaguchi Bank and others		1.00-5.00		13,716		29,575
	Choheung Bank and others		1.00-6.00		629,908		506,592

					643,624		536,167

				W	859,774	W	657,541


13.	Long-Term Debts

Current portion of long-term debts as of December 31, 2005 and December 31, 2004, consist of the following:


		Annual
Financial institutions		interest rate (%)		2005			2004

				(in millions of Korean Won)
Debentures
	Domestic and foreign debenture		1.84-8.00	W	991,609		W	961,607
	Less: Discount on debentures issued				(1,083	)		(1,347	)

					990,526			960,260

Won currency borrowings
	Korea Exchange Bank and other		1.00-5.70		26,731			31,511
Foreign currency borrowings
	Development Bank of Japan and others		1.00-4.60		28,202			42,730

					54,933			74,241

Loans from foreign financial institutions
	Sumitomo Bank and others		2.00 LIBOR + 0.80		9,065			10,078

Lease obligation
	HP Financial Services		5.00		2,676			2,103

Unearned revenue			—		—			17

				W	1,057,200		W	1,046,699

F-43

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Long-term debts as of December 31, 2005 and December 31, 2004, are as follows:


			Annual interest
Financial institutions			rate (%)		2005			2004

					(in millions of Korean Won)
Won currency borrowings
	The Korea Development Bank and others			1.00-6.00	W	212,890		W	170,715
	Less: Current portion					(26,731	)		(31,511	)

						186,159			139,204

Foreign currency borrowings
	Development Bank of Japan and others			1.00-7.00		403,926			288,625
	Less: Current portion					(28,202	)		(42,730	)

						375,724			245,895

Loans from foreign financial institutions
	Sumitomo Bank and others			2.00 LIBOR + 0.80		45,169			60,644
	Less: Current portion					(9,065	)		(10,078	)

						36,104			50,566

Debentures
	Domestic debentures			3.60-8.00		562,060			1,276,060
	Foreign bonds(1)			0.00-7.13		965,529			1,308,010

						1,527,589			2,584,070
	Less: Current portion					(991,609	)		(961,607	)
		Discount on debentures issued				(2,697	)		(7,327	)

						533,283			1,615,136

					W	1,131,270		W	2,050,801

Certain current assets, inventories, investments and property, plant and equipment are pledged as collateral for the above borrowings.


(1)	POSCO issued exchangeable bonds on August 20, 2003. They are exchangeable with 15,267,837 SK Telecom Co., Ltd. American Depository Receipts (ADRs).

F-44

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Details of exchangeable bonds as of December 31, 2005, are as follows:


Issuance date:		August 20, 2003
Maturity date:		August 20, 2008 (full amount of principal is repaid if not exercised)
Rate:		Interest rate of zero percent
Face value:		JPY 51,622,000,000
Issuance price:		JPY 51,880,110,000
Exchangeable price:		JPY 3,183/ADR
Exercise call period:		Commencing ten business days following the issuance date until ten business days prior to maturity date
Exercise put period:		Exactly three years following the payment date

On August 20, 2003, POSCO sold its 15,267,837 SK Telecom Co., Ltd. ADRs to Zeus (Cayman), a tax-exempted subsidiary formed under the laws of Cayman Islands. Zeus then issued zero-coupon, guaranteed and exchangeable bonds amounting to JPY51,622 million which are due in 2008, and are fully and unconditionally guaranteed by POSCO. POSCO may elect to pay the holder cash in lieu of delivering SK Telecom Co., Ltd. ADRs (the “Cash Settlement Option”). The number of ADRs such holder is entitled to receive will be calculated by dividing the aggregate principal amount of the Notes to be exchanged by the exchangeable price. Under the Cash Settlement Option, such holder is entitled to receive the cash equivalent of the market value of ADRs upon the exercise. These bonds are non-interest bearing and are exchangeable with SK Telecom Co., Ltd. ADRs at the option of the bondholder. The transaction between the POSCO and Zeus is deemed a borrowing transaction under the Korean generally accepted accounting principles. In 2004 and 2005, in compliance with the terms of the exchangeable bonds, the dividends earned by Zeus from the SK Telecom Co., Ltd. ADRs were used to purchase additional 951,350 ADRs which brought down the exchangeable bond price to JPY3,183/ADR.

Contractual maturities of long-term debts outstanding as of December 31, 2005, are as follows:


							Loans from
			Won currency		Foreign currency		foreign financial
Period	Debentures		borrowings		borrowings		institutions		Total

	(in millions of Korean Won)
2006	W	991,609	W	26,731	W	28,202	W	9,065	W	1,055,607
2007		92,000		63,170		48,630		9,065		212,865
2008		443,970		62,319		49,067		9,065		564,421
2009		10		43,465		136,538		9,065		189,078
2010		—		12,115		17,410		4,915		34,440
2011		—		5,090		124,079		3,994		133,163

	W	1,527,589	W	212,890	W	403,926	W	45,169	W	2,189,574

F-45

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Details of assets pledged as collaterals for short-term borrowings and long-term debts, as well as for performance guarantee, as of December 31, 2005 and December 31, 2004, are as follows:


	Beneficiaries	2005		2004

		(in millions of Korean Won)
Land	Shinhan Bank and others	W	43,005	W	35,541
Buildings and structures	The Korea Development Bank and others		42,304		55,120
Machinery and equipment	Mizuho Bank and others		28		54,918
Cash and cash equivalents	Mizuho Bank and others		12,041		6,555
Short-term and long-term financial instruments	Kyongnam Bank and others		4,650		4,050
Inventories	Korea First Bank and others		195,000		155,000
Trade accounts and notes receivable	Mizuho Bank and others		40,630		62,900
Available-for-sale securities	Exchangeable bond creditor		333,366		358,768
Held-to-maturity securities	Gyeongsangbuk-do provincial office		31,298		32,000

		W	702,322	W	764,852

Details of loans from foreign financial institutions covered by guarantees provided by financial institutions as of December 31, 2005 and December 31, 2004, are as follows:

2005

2004

Financial institutions

Foreign currency

Won equivalent

Foreign currency

Won equivalent

(in millions of Korean Won)

Korea Development Bank

EUR6,389,136

W7,668

EUR7,255,009

W10,324

14. Capital Lease and Operating Lease Agreements


	*Capital Lease*

As of December 31, 2005, the Company acquired certain tools and vehicles under capital lease agreements, with acquisition cost amounting to W7,758 million. The assets and liabilities under the capital leases are recognized at the present value of the minimum lease payments over the lease terms. The Company’s depreciation expense, with respect to the above lease agreements, for December 31, 2005, amounted to W2,417 million.

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


Period	Principal		Interest		Total

	(in millions of Korean Won)
2006	W	2,676	W	74	W	2,750
2007		331		4		335

	W	3,007	W	78	W	3,085


	*Operating Lease*

As of December 31, 2005, the Company acquired certain tools and equipment under operating lease agreements from Macquarie Capital Korea Co., Ltd. The Company’s rent expenses, with respect to the

F-46

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

above lease agreements, amounted to W15,840 million for December 31, 2005. Future lease payments under the above lease agreements are as follows:


Period	Amount

	(in millions of
	Korean Won)
2006	W	6,737
2007		3,051
2008		698
2009		24

	W	10,510

15. Accrued Severance Benefits

The changes in accrued severance benefits for December 31, 2005, are as follows:


	Beginning												Ending
	balance			Increase			Decrease			Adjustments(1)			balance

	(in millions of Korean Won)
Accrued severance benefits	W	561,980		W	216,344		W	84,623		W	30,253		W	723,954
National Pension Fund		(1,825	)		—			(399	)		(1,089	)		(2,515	)
Group severance insurance deposits		(329,788	)		(123,676	)		(22,726	)		(15,889	)		(446,627	)

	W	230,367		W	92,668		W	61,498		W	13,275		W	274,812


(1)	Includes foreign currency adjustments, changes in consolidation scope and others.

The Company expects to pay the following future benefits to its employees upon their normal retirement age:


	(in millions of
	Korean Won)

2006	W	11,550
2007		17,042
2008		27,067
2009		33,623
2010-2014		325,938

	W	415,220

The above amounts were determined based on the employee’ current salary rates and the number of service years that will be accumulated upon their retirement date. These amounts do not include amounts that might be paid to employees that will cease working with the Company before their normal retirement age.

F-47

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

16. Other Liabilities

Other liabilities as of December 31, 2005 and December 31, 2004, consist of the following:


		2005		2004

		(in millions of Korean Won)
Other current liabilities
	Advances received	W	334,166	W	316,778
	Unearned revenue		3,164		2,397
	Others		119,533		90,468

		W	456,863	W	409,643

Other long-term liabilities
	Reserve for allowance	W	17,524	W	10,667
	Others (Notes 14 and 21)		114,597		185,410

		W	132,121	W	196,077

17. Commitments and Contingencies

As of December 31, 2005, contingent liabilities for outstanding guarantees provided for the repayment of loans of affiliated companies are as follows:

Amount

Won

Grantors

Entity being guaranteed

Financial institution

guaranteed(1)

equivalent

(in millions)

POSCO

POSINVEST

Bank of America and others

US$

56,373,465

57,106

Zhangjiagang Pohang Stainless Steel Co., Ltd.

Bank of China and others

253,320,000

256,613

POSCO E & C

IBC Corporation

The Korea Development Bank and others

58,180,000

58,936

Shanghai Real Estate Development Co., Ltd.

Woori Bank and others

25,000,000

25,325

POSLILAMA Steel Structure Co., Ltd.

The Export-Import Bank of Korea and others

28,000,000

28,364

Posteel Co., Ltd.

POS-THAI Steel Service Center Co., Ltd.

Sumitomo Bank and others

6,210,405

6,200

POS-Qingdao Coil Center Co., Ltd.

Industrial Bank of Korea and others

4,000,000

4,052

PT POSMI Steel Indonesia

Korea Exchange Bank

5,400,000

5,470

POSCO Investment Co., Ltd.

Qingdao Pohang Stainless Steel Co., Ltd.

Bank of Tokyo-Mitsubishi

72,500,000

73,443

POS-ORE

POSA

ANZ Bank

18,311,204

18,549

POSCO-Japan Co., Ltd.

Fujiura Butsuryu Center Co., Ltd.

Korea Exchange Bank and others

JPY1,190,000,000

10,234

POS-NPC

Mizuho Bank and others

2,000,000,000

17,201

561,493


(1)	Currencies other than US$ or JPY are translated into US$ amounts.

F-48

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

As of December 31, 2004, contingent liabilities for outstanding guarantees provided for the payment of loans of affiliated companies amounted to W443,154 million.

As of December 31, 2005, contingent liabilities for outstanding guarantees provided to non-affiliated companies for the repayment of loans are as follows:

Amount

Won

Grantors

Entity being guaranteed

Financial institution

guaranteed(1)

equivalent

(in millions)

POSCO

Dae Kyeong Special Steel

The Korea Development

2,591

Co., Ltd.

Bank

US$

1,948,800

1,974

DC Chemical Co., Ltd.

E1 Co., Ltd.

1,281

The Siam United Steel Co., Ltd.

Japan Bank for International Cooperation

US$

6,006,582

6,085

Zeus

Related creditors

JPY51,622,000,000

443,970

POSCO E&C

Daejeon Energy System Co., Ltd.

Woori Bank

12,000

Baek Song Construction Co., Ltd.

Shinsegae Merchant Bank Corp.

7,500

Pan Pacific and others

Korea Exchange Bank and others

7,384

POSCO Machinery & Engineering Co.,

S-Tank Engineering Ltd. Co, Ltd.

SK Engineering & Construction Co., Ltd.

1,252

Samjung Packing & Aluminum Co., Ltd.

Pyungsan SI Ltd.

Shinhan Bank and others

24,800

508,837

In addition to the guarantee described above, POSCO E&C provides performance guarantee to Samsung Corporation amounting to W1,365,717 million as of December 31, 2005. In relation to private businesses, POSCO E&C also provides debt undertaking guarantee to 33 companies, which amounts to W1,085,666 million.

As of December 31, 2004, contingent liabilities for outstanding guarantees provided to non-affiliated companies for the repayment for loans amounted to W720,361 million.

POSCO entered into long-term contracts to purchase iron ore, coal, nickel, chrome and stainless steel scrap. These contracts generally have terms of five to ten years and provide for periodic price adjustments to the market price. As of December 31, 2005, 500 million tons of iron ore and 113 million tons of coal remained to be purchased under such long-term contracts.

The Company paid US$159,600,000 on behalf of POSVEN on June 21, 2001, an affiliate which is 60% owned by the Company. On July 20, 2001, an additional payment of US$53,200,000 was due, representing a long-term debt guaranteed by Raytheon Company (“Raytheon”), a shareholder of POSVEN and a joint venture partner with the Company in the construction of a facility in Venezuela. Both companies agreed that each would pay half of the amount. The Company, therefore, made a payment of US$26,600,000.

During the year ended December 31, 2004, due to the settlement of liquidation dividends from POSVEN, the Company recorded recovery of allowance for doubtful accounts amounting to W108 billion. As of December 31, 2005, the Company received the residuals of liquidation dividends amounting to W16.7 billion and finished the liquidation of POSVEN during the year ended December 31, 2005.

F-49

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

POSCO entered into a contract on the usage of bulk carriers with Keo Yang Shipping Co., Ltd. and others in order to ensure the transportation of raw materials through 2011.

On July 1, 2004, POSCO entered into an agreement with Tangguh Liquefied Natural Gas (LNG) Consortium in Indonesia regarding the commitment to purchase 550 thousand tons of LNG annually for 20 years commencing in May 2005. The Company completed the construction of Gwangyang LNG terminal on July 4, 2005.

As of December 31, 2005, POSCO has bank overdraft agreements of up to W210,000 million with Woori Bank and other seven banks. In addition, the Company entered into a credit purchase loan agreement with Hana Bank and eight other banks for credit lines up to W325,000 million and to borrow W20,000 million in short-term borrowings. POSCO has 44 promissory notes, including a blank promissory note, with The Korea Development Bank, as collaterals for loans from foreign financial institutions. The Company has an agreement with Woori Bank and others to open letters of credit, documents against acceptance and documents against payment amounting to US$886,500 thousand and to borrow US$70 million in foreign short-term borrowings. The accounts receivables in foreign currency sold to financial institutions and outstanding as of December 31, 2005, amount to US$80,603,041, for which the Company is contingently liable upon the issuers’ default.

As of December 31, 2005, POSCO E & C has bank overdraft agreements of up to W40,000 million with Woori Bank and other banks. In addition, POSCO E & C has a revolving loan agreements of up to W334,200 million with Suhyup Bank and other banks. In addition, POSCO E & C has provided seven blank promissory notes and 18 other notes, with amounts equivalent to approximately W232,013 million, to other financial institutions as collateral for agreements and outstanding loans. POSCO E&C has provided seven blank checks and one other check, with amounts equivalent to approximately W2,500 million as collaterals for agreements and outstanding loans as of December 31, 2005.

As of December 31, 2005, Posteel Co., Ltd. has entered into local and foreign credit agreements, of up to W554,290 million and with Hana Bank and other banks of which 406,498 million remain unused, respectively. In addition, Posteel Co., Ltd. has an unsettled document against acceptance amounting to JPY 909 million and US$69 million, and an unsettled document against payment balances in relation to exports amounting to US$302,006.

As of December 31, 2005, POSCON Co., Ltd. has credit purchase loan agreements with Shinhan Bank and other banks for credit lines of up to W6,000 million and revolving loan agreements of up to W40,854 million and US$4.7 million. In addition, POSCON Co., Ltd. has entered into agreements with Shinhan Bank and other banks for opening letters of credit in relation to trade of up to US$14 million.

As of December 31, 2005, Pohang Coated Steel Co., Ltd. has provided a blank promissory note to Korea Zinc Company Ltd. as a guarantee for the repayment of loan. In addition, Pohang Coated Steel Co., Ltd. has entered into agreements to discount its trade accounts receivable with Shinhan Bank and other banks for amount of up to W15,000 million. In addition, Pohang Coated Steel Co., Ltd. has local credit loan agreements and credit purchase loan agreements of up to W40 million, letters of credit in relation to trade of up to US$1,500 million and W2,000 million with Shinhan Bank.

As of December 31, 2005, POSCO Machinery & Engineering Co., Ltd. has entered into a bank overdraft agreement of up to W2,000 million with Shinhan Bank, local credit loan agreements of up to W6,000 million and credit purchase loan agreements of up to W9,000 million with Shinhan Bank and other banks. In addition, POSCO Machinery & Engineering Co., Ltd. has entered into an agreement with Shinhan Bank for opening letters of credit in relation to trade of up to US$3 million and a loan agreement.

F-50

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

As of December 31, 2005, POSDATA Co., Ltd. has provided a note to HP Financial Services for an outstanding lease agreement. In addition, POSDATA Co., Ltd. entered into loan on bills agreements of up to W111,800 million with Shinhan Bank and other banks as of December 31, 2005.

As of December 31, 2005, POS-AC Co., Ltd. has a bank overdraft agreement with Woori Bank amounting to W1,000 million and a loan agreement, secured by trade accounts receivables, amounting to W3,000 million. In addition, POS-AC Co., Ltd. has entered into an agreement with Woori Bank amounting to W1,000 million in relation to discount of trade accounts receivables.

As of December 31, 2005, Changwon Specialty Steel Co., Ltd. has a loan agreement, secured by trade accounts receivable, of up to W90,000 million with Woori Bank. In addition, Changwon Specialty Steel Co., Ltd. has agreements with Korea First Bank and six other banks for opening letters of credit of up to US$68 million and W31,000 million, respectively.

As of December 31, 2005, POSCO Machinery Co., Ltd. has a loan agreement, secured by trade accounts receivables, of up to W10,000 million with Woori Bank and other banks. In addition, POSCO Machinery Co., Ltd. has entered into an agreement with Korea Exchange Bank for opening letters of credit of up to US$3 million. POSCO Machinery Co., Ltd. also has entered into a performance guarantee contract of up to W10,000 million with Kwangju bank.

As of December 31, 2005, POSCO America Corp. has a loan agreement to borrow up to US$50 million with Bank of America.

As of December 31, 2005, POSCO Canada Ltd. has a loan agreement to borrow up to CAD15 million with Korea Exchange Bank of Canada.

As of December 31, 2005, POSCO Asia Co., Ltd. has loan agreements to borrow up to US$140 million with Bank of America and other banks.

As of December 31, 2005, POSMETAL Co., Ltd. has loan agreements to borrow up to JPY 3,100 million with the Bank of Fukuoka and other banks.

As of December 31, 2005, Zhangjiagang Pohang Stainless Steel Co., Ltd. has loan agreements to borrow up to US$400 million with Bank of China and other banks.

As of December 31, 2005, POSCO Refractories & Environment Company Ltd. (POSREC) has a bank overdraft agreement of up to W3,000 million and credit purchase loan agreements of up to W12,000 million with Pusan Bank and other banks. In addition, POSREC has entered into agreements to borrow up to US$5 million and W5,000 million with Pusan Bank and Citibank Korea, respectively, for opening letters of credit.

As of December 31, 2005, Dongwoosa Service Inc. has provided a blank promissory note to Hyundai Motor Service as a guarantee for the maintenance of vehicles. In addition, Dongwoosa Service Inc. has a bank overdraft agreements of up to W3,000 million with Korea Exchange Bank

As of December 31, 2005, Samjung Packing & Aluminum Co., Ltd. has a bank overdraft agreement of up to W2,000 million with Woori Bank and purchase loan agreements of up to W43,000 million with Woori Bank and other banks. In addition, Samjung Packing & Aluminum Co., Ltd. has entered into agreements to borrow up to US$23 million with Woori Bank and other banks for opening letters of credit in relation to trade. The accounts receivables in foreign currency sold to financial institutions and outstanding as of December 31, 2005, amount to W4,063 million, for which the Company is contingently liable upon the issuers’ default.

F-51

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

As of December 31, 2005, POSCO Terminal has a loan agreement, secured by trade accounts receivable, of up to W1,000 million with Woori Bank. POSCO Terminal also entered into US$10 million-limit forward currency contract with the Korea Exchange Bank.

On June 22, 2005, POSCO entered into a memorandum of understanding with the Orissa State Government of India for the construction of an integrated steel mill and the development of a mine in Bhubaneswar, the capital of Orissa.

The Company is a defendant in various domestic and foreign legal actions arising during the normal course of business. As of December 31, 2005, the aggregate amounts of domestic and foreign claims against the Company as the defendant amounted to approximately W31,006 million and US$1,319,834 in 22 pending cases. The Company believes that the outcome of these cases is uncertain but, in any event, they would not result in a material ultimate loss for the Company.

18. Capital Surplus

Capital surplus as of December 31, 2005 and December 31, 2004, consist of the following:


	2005		2004

	(in millions of Korean Won)
Additional paid-in capital	W	463,825	W	463,825
Revaluation surplus		3,233,730		3,213,414
Others		293,854		218,139

	W	3,991,409	W	3,895,378

19. Retained Earnings

Retained earnings as of December 31, 2005 and December 31, 2004, consist of the following:


		2005		2004

		(in millions of Korean Won)
Appropriated
	Legal reserve	W	241,201	W	241,201
	Appropriated retained earnings for business stabilization		918,300		918,300
	Other legal reserve		1,303,333		880,000
	Voluntary reserve		9,735,199		7,341,899

			12,198,033		9,381,400
Unappropriated			3,959,914		3,469,718

		W	16,157,947	W	12,851,118


	*Legal Reserve*

The Commercial Code of the Republic Korea requires the Company to appropriate, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid, until such reserve equals 50% of its issued capital stock. The reserve is not available for the payment of cash dividends, but may be transferred to capital stock, or used to reduce accumulated deficit, if any, with the ratification of the Company’s majority shareholders.

F-52

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


	*Other Legal Reserve*

Pursuant to the Special Tax Treatment Control Law, the Company appropriates retained earnings as a reserve for overseas investment loss and research and human resource development. These reserves are not available for dividends, but may be transferred to capital stock, or used to reduce accumulated deficit, if any, with the ratification of the Company’s majority shareholders.


	*Voluntary Reserve*

The Company appropriates a certain portion of retained earnings, such as reserve for business rationalization, reserve for business expansion and appropriated retained earnings for dividends, pursuant to a shareholder resolution, as a voluntary reserve. This reserve may be transferred to unappropriated retained earnings by the resolution of shareholders, and may be distributed as dividends after its reversal.


	*Additional Losses of Minority Interest*

Accumulated deficit of SEO MUEUN Development Inc. and POSLILAMA Steel Structure Co., Ltd., affiliates included in the consolidated financial statements, resulted in losses in excess of minority interest amounting to W35,653 million for December 31, 2005 (December 31, 2004: W13,205 million). The additional losses are deducted from the consolidated retained earnings to be charged to the Controlling Company. The Company plans to add any profits resulting from SEO MUEUN Development Inc. and POSLILAMA Steel Structure Co., Ltd. to the Controlling Company’s equity until they recover the amount of losses in excess of minority interest.


	*Dividends*

The Company declared dividends, which were approved by the Board of Directors on July 12, 2005. For the year ended December 31, 2004, the Company declared dividends in accordance with the resolution of the Board of Directors on July 23, 2004.

Details of interim and year-end dividends for the years ended December 31, 2005, 2004 and 2003 are as follows:


		2005		2004		2003

		(in millions of Korean Won)
Interim cash dividends
	Number of shares	W	78,759,934	W	80,707,945	W	81,648,519
	Dividend ratio		40%		30%		20%
	Dividend amount		157,520		121,062		81,649

2005

2004

2003

(in millions of Korean Won)

Year-end cash dividends

Number of shares

W80,154,281

W80,503,664

W80,707,945

Dividend ratio

120%

130%

100%

Dividend amount

480,926

523,274

403,540

F-53

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Details of the dividends payout ratio and dividends yield ratio for the ended December 31, 2005, 2004 and 2003 are as follows:

2005

2004

2003

Dividend

payout ratio

yield ratio

payout ratio

yield ratio

payout ratio

yield ratio

Common shares

15.91%

3.96%

16.89%

4.28%

24.31%

3.68%

20. Capital Adjustments

Capital adjustments as of December 31, 2005 and December 31, 2004, consist of the following:


	2005			2004

	(in millions of Korean Won)
Treasury stock	W	(959,205	)	W	(680,144	)
Cumulative foreign currency translation adjustment		4,386			15,912
Valuation loss on investment securities		(196,790	)		(486,502	)

	W	(1,151,609	)	W	(1,150,734	)

As of December 31, 2005, the Company holds 7,096,065 shares of its own common stock amounting to W959,205 million.

The voting rights of treasury stock are restricted in accordance with the Korean Commercial Code of the Republic of Korea. In addition, the Company sold 1,289,347 shares and 36,453 shares of its treasury stock to the association of employee stock ownership on July 26, 2005 and October 25, 2005, as approved by the Board of Directors on July 22, 2005 and October 21, 2005, respectively, and the difference between the fair value and the proceeds from the sale was recognized as welfare expense.

F-54

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


21.	Stock Appreciation Rights

POSCO granted stock appreciation rights to its executive officers in accordance with the stock appreciation rights plan approved by the Board of Directors. The details of the stock appreciation rights granted are as follows:

1st Grant

2nd Grant

3rd Grant

4th Grant

5th Grant

6th Grant

Before the modifications(1)

Number of shares

498,000 shares

60,000 shares

22,000 shares

141,500 shares

218,600 shares

90,000 shares

Exercise price

W98,400 per share

W135,800 per share

W115,600 per share

W102,900 per share

W151,700 per share

W194,900 per share

After the modifications(1)

Grant date

July 23, 2001

April 27, 2002

September 18, 2002

April 26, 2003

July 23, 2004

April 28, 2005

Exercise price

W98,900 per share

W136,400 per share

W116,100 per share

W102,900 per share

W151,700 per share

W194,900 per share

Number of shares granted

453,576 shares

55,896 shares

20,495 shares

135,897 shares

214,228 shares

90,000 shares

Number of shares cancelled

19,409 shares

—

Number of shares exercised

338,071 shares

13,971 shares

3,931 shares

60,068 shares

—

Number of shares outstanding

96,096 shares

41,925 shares

16,564 shares

75,829 shares

214,228 shares

90,000 shares

Exercise period

July 24, 2003
– July 23, 2008

April 28, 2004
– April 27, 2009

Sept. 19, 2004
– Sept. 18 2009

April 27, 2005
– April 26, 2010

July 24, 2006
– July 23, 2011

April 29, 2007
– April 28, 2012

Settlement method

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


(1)	The Company changed the number of shares granted and the exercise price as presented above, in accordance with the resolutions of the Board of Directors dated April 26, 2003, October 17, 2003 and October 22, 2004.

POSCO applied the intrinsic value method to calculate the compensation cost related to the stock appreciation rights, and such compensation costs are accounted as other long-term liabilities and amortized over the vesting period of the stock grants.

The compensation costs for stock appreciation rights granted to employees and executives recognized for the year ended December 31, 2005, and for the future periods are as follows:


	1st Grant		2nd Grant		3rd Grant		4th Grant		5th Grant		6th Grant		Total

	(in millions of Korean Won)
Prior periods	W	36,297	W	2,851	W	1,461	W	9,663	W	1,695	W	—	W	51,967
Current year		3,348		898		271		3,572		6,548		310		14,947
Future periods		—		—		—		—		3,197		607		3,804

	W	39,645	W	3,749	W	1,732	W	13,235	W	11,440	W	917	W	70,718

F-55

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

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


	2005					2004

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

	(in Korean Won)
Beginning of year		722,007		W	118,711		638,598		W	103,681
Granted		90,000			194,900		218,600			151,700
Excercised		(277,365	)		101,899		(119,888	)		98,900
Canceled		—			—		—			—
Forfeited		—			—		(15,303	)		117,973

Stock appreciation rights outstanding, end of year		534,642			140,258		722,007			118,711

Excercisable at the year end		230,414		W	108,276		456,885		W	104,865

Weighted-average fair value at grant date				W	116,176				W	110,179

The following table summarizes information about stock appreciation rights outstanding at December 31, 2005:


	Appreciation rights outstanding

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

					(in Korean Won)
98,900		96,096		2.56 years	W	98,900
136,400		41,925		3.32 years		136,400
116,100		16,564		3.72 years		116,100
102,900		75,829		4.32 years		102,900
151,700		214,228		5.56 years		151,700
194,900		90,000		6.33 years		194,900

		534,642		4.74 years	W	140,258

POSDATA Co., Ltd. granted (1st grant) stock appreciation rights of 138,000 shares to its executives. However, the outstanding stock appreciation rights have been reduced to 88,000 shares as certain employees and executives have retired as of December 31, 2005. For December 31, 2005, POSDATA Co., Ltd. recognized stock compensation cost amounting to W3,290 million, with no additional stock compensation cost to be recognized in the future.

F-56

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

22. Derivatives

The Company has entered into various derivatives agreements with financial institutions to hedge currency and commodity price risks. The gains and losses on those derivatives for December 31, 2005, and related contracts outstanding as of December 31, 2005, are as follows:


	Type of		Purpose of				Valuation		Valuation		Transaction		Transaction
Company	transaction		transaction		Financial institutions		gain		loss		gain		loss

							(in millions of Korean Won)
POSCO	Currency forward			Trading	SC Korea First Bank and others		W	—	W	18,727	W	688	W	861
		Nickel future		”		Sempra Metal Ltd.		—		—		1,674		637
POSCO E&C	Currency forward			”	Citibank Korea and others			1,546		1,982		600		6,722
Posteel Co.,Ltd.		”		”		Hana bank and others		—		—		170		37
Pohang Coated Steel Co.,Ltd.		”				Shinhan Bank		—		684		112		125
		Option		”		”		125		—		486		564
POSDATA	Currency forward			”		Korea Exchange Bank		—		—		90		12
Changwon Specialty Steel Co.,Ltd.		”		”		SC Korea First Bank		—		—		37		42

							W	1,671	W	21,393	W	3,857	W	9,000

The gains and losses on currency those derivatives for December 31, 2004, and related contracts outstanding as of December 31, 2004, were as follows:

Type of

Purpose of

Valuation

Transaction

Company

transaction

Financial institutions

gain

loss

gain

loss

(in millions of Korean Won)

POSCO

Currency swap

Trading

Citibank Korea and others

—

683

—

Nickel future

”

Sempra Metal Ltd.

—

2,800

5,980

Currency forward

”

CALYON

—

597

1,092

POSCO E&C

”

Citibank Korea and others

9,588

2,646

4,900

1,499

Posteel Co., Ltd.

”

Citibank Korea

—

328

694

Pohang Coated Steel Co., Ltd.

”

Shinhan Bank

—

3,106

Changwon Specialty Steel Co.,Ltd.

”

SC Korea First Bank

—

9,594

2,646

12,452

9,332

F-57

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

The gains and losses on currency those derivatives for December 31, 2003, and related contracts outstanding as of December 31, 2003, were as follows:

Purpose of

Valuation

Transaction

Company

Type of transaction

transaction

Financial institutions

gain

loss

gain

loss

POSCO

Currency swap

Fair market value hedge(1)

Citibank Korea and others

—

29,693

—

POSCO

Currency forward

Trading

The Bank of New York

—

451

—

POSCO

Nickel forward

Cash flow hedge

Sempra Metal., Ltd

4,153

—

POSCO E&C

Currency forward

Fair market value hedge(1)

Citibank Korea and others

2,646

1,066

936

124

Posteel Co., Ltd.

”

Trading

Hana Bank

305

329

Pohang Coated Steel Co.,Ltd.

”

Shinhan Bank

189

—

789

1,180

Changwon Specialty Steel Co.,Ltd.

”

Fair market value hedge(1)

Korea First Bank

—

7,002

30,781

2,481

1,660


(1)	Accounted for as trading, since the criteria for hedge accounting are not met.

F-58

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

23. Selling and Administrative Expenses

Selling and administrative expenses for December 31, 2005, 2004 and 2003, consist of the following:


	2005		2004		2003

	(in millions of Korean Won)
Transportation and storage	W	492,921	W	493,790	W	445,723
Salaries		168,746		149,153		142,400
Welfare		116,542		103,638		75,730
Depreciation and amortization		60,742		68,145		65,384
Fees and charges		122,204		76,710		54,662
Advertising		98,158		49,382		40,681
Research and development		52,545		70,949		56,825
Severance benefits		29,475		25,051		21,217
Sales commissions		23,409		18,286		18,759
Travel		18,808		18,530		16,075
Rent		16,345		17,287		12,554
Repairs		14,736		20,047		9,159
Training		17,367		11,765		11,835
Office supplies		7,654		8,103		5,660
Provision for doubtful accounts		104,310		53,671		8,955
Meeting		9,680		8,576		8,098
Taxes and public dues		14,914		13,661		11,534
Vehicle expenses		2,155		6,509		5,983
Membership fees		8,876		5,391		5,294
Sales promotions		5,745		6,474		6,333
Entertainment		7,315		6,444		5,796
Others		58,670		61,366		46,813

	W	1,451,317	W	1,292,928	W	1,075,470

24. Donations

Donations by the Company for December 31, 2005, 2004 and 2003, consist of the following:


	2005		2004		2003

	(in millions of Korean Won)
Pohang University of Science and Technology	W	17,050	W	32,479	W	2,267
POSCO Educational Foundation		33,000		39,500		38,800
POSCO Welfare Fund		69,960		58,000		—
Others		33,008		39,567		62,124

	W	153,018	W	169,546	W	103,191

F-59

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

25. Income Taxes

Income tax expense for December 31, 2005, 2004 and 2003, consist of the following:


	2005			2004		2003

	(in millions of Korean Won)
Current income taxes	W	1,610,278		W	1,361,874	W	746,482
Deferred income taxes		(127,839	)		139,772		(16,212	)

	W	1,482,439		W	1,501,646	W	730,270

The following table reconciles income tax expense computed at the statutory rates to the actual income tax expense recorded by the Company:


	2005			2004			2003

	(in millions of Korean Won)
Net income before income tax expense	W	5,488,189		W	5,342,910		W	2,747,270
Statutory tax rate (%)		27.5			29.7			29.7

Income tax expense computed at statutory rate		1,509,240			1,586,844			815,939
Tax credit		(215,892	)		(161,939	)		(99,109	)
Others, net		189,091			76,741			13,440

Income tax expense	W	1,482,439		W	1,501,646		W	730,270

Effective rate (%)		27.01			28.11			26.58

In 2005, National Tax Service audited the Company’s corporate income tax returns for the years 2000 to 2004. As a result of the audit, the Company recognized the expected additional income taxes amounting to W178,598 million in its income statement as a non-operating expense for the year ended December 31, 2005. On March 10, 2006, the Company received the additional income taxes bill imposed by Daegu regional office of National Tax Service.

In accordance with the SKFAS No. 17, Deferred Income Tax, which became applicable to the Company on January 1, 2005, income tax effect of temporary differences in relation to an item in the shareholders’ equity is recorded as part of the related shareholders’ equity item. Due to the change in accounting policy, capital adjustment decreased by W6,882 million, deferred tax assets increased by W158,030 million and deferred tax liabilities increased by W163,343 million. There is no effect on net income.


26.	Earnings Per Share

F-60

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


	Number of		Number of days			Weighted number
Period	shares issued		outstanding			of shares

Beginning balance(1)		80,503,664		365			29,383,837,360
Acquisition treasury stock		412,894		—	(2)		(476,518,019	)

							28,907,319,341


Period	Weighted-Average Number of Common Shares

For period 2005:		28,907,319,341 ÷ 365 = 79,198,135
For period 2004:		29,585,862,618 ÷ 366 = 80,835,690


(1)	Beginning number of common shares excludes 6,683,171 treasury shares

(2)	The Company’s net acquisition of treasury shares is 412,894 during the year ended December 31, 2005. For the computation of weighted average number of common shares outstanding, the number of treasury shares was excluded.

Ordinary Income per share for the years ended December 31, 2005 and 2004, and 2003 are calculated as follows:

2005

2004

2003

(in millions of Korean Won,

except per share amounts)

Ordinary income

4,011,547

3,811,843

1,995,983

Weighted-average number of common shares outstanding

79,198,135

80,835,690

81,483,634

Basic earnings and ordinary income per share

50,652

47,155

24,496

Earnings per share for the years ended December 31, 2005, 2004 and 2003 are calculated as follows:

2005

2004

2003

(in millions of Korean Won,

except per share amounts)

Ordinary income

4,011,547

3,814,225

1,995,983

Weighted-average number of common shares outstanding

79,198,135

80,835,690

81,483,634

Basic earnings and ordinary income per share

50,652

47,185

24,496

Diluted Earnings Per Share

Diluted earnings per share for the years ended December 31, 2005, 2004 and 2003 are identical to basic earnings per share, since there is no dilutive effect resulting from the stock option plan as of December 31, 2005, 2004 and 2003.

F-61

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


27.	Assets and Liabilities Denominated in Foreign Currencies

Monetary assets and liabilities denominated in foreign currencies as of December 31, 2005 and December 31, 2004, are as follows:


		2005				2004

		Foreign currency(3)		Won equivalent		Won equivalent

		(in millions of Korean Won except for foreign currencies)
Assets
	Cash and cash equivalents(1)	US$	316,844,860	W	320,964	W	38,628
		JPY	31,940,745		275		9
		Overseas subsidiaries (US$)	280,573,968		284,221		218,143
	Trade accounts and notes receivable	US$	545,530,525		552,622		330,210
		JPY	3,710,469,500		31,912		42,382
		EUR	3,621,507		4,346		934
		Overseas subsidiaries (US$)	241,600,285		244,741		317,097
	Other accounts and notes receivable	US$	9,936,621		10,066		18,793
		JPY	39,080,774		336		104
		Overseas subsidiaries (US$)	18,526		18,526		8,339
	Short-term and long-term loans receivable	Overseas subsidiaries (US$)	19,054,227		19,302		72,461
	Long-term trade accounts and notes receivable	US$	—		—		—
		Overseas subsidiaries (US$)	70,513		71		74
	Investment securities(2)	US$	—		—		1,044
		Overseas subsidiaries (US$)	37,020,904		37,502		25,134
	Guarantee deposits	US$	327,939		332		462
		Overseas subsidiaries (US$)	1,288,796		1,306		1,317

				W	1,526,522	W	1,075,131

F-62

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


		Foreign currency(3)

			W-
		20	05

						2004
						--W------------
				on equivalent		on equivalent

		(in millions of Korean Won except for foreign currencies)
Liabilities
	Trade accounts and notes payable	US$	772,264,663	W	782,304	W	274,779
		JPY	2,274,827,010		19,564		5,358
		EUR	11,011,238		13,215		7,304
		Overseas subsidiaries (US$)	71,589,380		72,520		110,338
	Other accounts and notes payable	US$	7,501,251		7,599		7,595
		JPY	305,046,967		2,624		2,780
		EUR	4,113,498		4,937		508
		Overseas subsidiaries (US$)	357,715		362		432
	Accrued expenses	US$	8,480,609		8,591		225,902
		Overseas subsidiaries (US$)	18,543,504		18,785		10,731
	Short-term borrowings	US$	10,290,216		10,424		15,875
		JPY	300,000,000		2,580		—
		Overseas subsidiaries (US$)	622,526,933		630,620		520,292
	Withholdings	US$	4,960,814		5,025		5,335
		JPY	81,416,567		700		371
		EUR	5,662,370		6,796		6,814
		Overseas subsidiaries (US$)	7,263,637		7,358		562
	Debentures(2),(4)	US$	260,165,000		263,547		481,938
		JPY	81,622,000,000		701,982		826,072
	Foreign currency loans(4)	JPY	2,803,297,214		24,109		32,221
		Overseas subsidiaries (US$)	374,942,894		379,817		256,404
	Loans from foreign financial institutions(4)	US$	19,180,930		19,430		24,470
		EUR	21,446,351		25,739		36,146
		Overseas subsidiaries (US$)	—		—		28

				W	3,008,628	W	2,852,255


(1)	Includes cash and cash equivalents, short-term financial instruments and long-term financial instruments.

(2)	Presented at face value.

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

(4)	Includes current portion of long-term debts.

F-63

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


28.	Related Party Transactions

Significant transactions, which occurred in the ordinary course of business, with consolidated subsidiaries for the years ended December 31, 2005, 2004 and 2003, and the related account balances as of December 31, 2005 and December 31, 2004, are as follows:


	Sales and others(1)						Purchases and others(1)

	2005		2004		2003		2005		2004		2003

	(in millions of Korean Won)
POSCO E&C	W	3,758	W	9,317	W	4,834	W	1,732,462	W	891,474	W	314,456
Posteel Co., Ltd.		1,030,276		919,618		870,792		86,005		67,193		35,681
POSCON Co., Ltd.		131		139		72		235,232		194,847		167,642
Pohang Steel Co., Ltd.		426,007		303,425		251,137		1,105		271		1,576
POSCO Machinery & Engineering Co., Ltd.		92		5,001		65		160,787		116,424		102,099
POSDATA Co., Ltd.		1,009		989		857		182,149		209,839		206,562
POSCO Research Institute		—		—		—		14,350		13,203		11,694
Seung Kwang Co., Ltd.		—		—		—		110		35		60
POS-AC Co., Ltd.		566		517		450		29,554		20,980		9,150
Changwon Specialty Steel Co., Ltd.		3,440		31		77		53,618		75,984		57,557
POSCO Machinery Co., Ltd.		121		116		126		107,648		95,892		80,908
POSCO Refractories & Environment(POSREC)		261		137		122		195,329		173,917		154,404
POSTECH Venture Capital Co., Ltd.		63		59		54		—		—		—
Pohang Steel America Corporation (POSAM)		97,920		33,446		—		—		—		107
POSCO Australia Pty. Ltd. (POSA)		10,163		1,115		—		31,305		41,673		157,641
POSCO Canada Ltd. (POSCAN)		—		—		—		102,841		56,143		39,664
POSCO Asia Co., Ltd. (POA)		552,694		573,772		367,998		130,871		146,016		111,889
Zhangjiagang Pohang Stainless Steel Co., Ltd.		723,522		714,832		349,723		—		—		—
POSCO-Japan Co., Ltd.		544,636		409,845		226,276		75,604		30,846		10,922
Others		317,176		86,821		33,110		338,718		—		—

	W	3,711,835	W	3,059,180	W	2,105,693	W	3,477,688	W	2,134,737	W	1,462,012

F-64

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


	Receivables(2)				Payables(2)

	2005		2004		2005		2004

	(in millions of Korean Won)
POSCO E&C		53		82,889		193,856		237,283
Posteel Co., Ltd.		111,790		122,260		1,760		1,876
POSCON Co., Ltd.		1		15,172		28,638		43,050
Pohang Steel Co., Ltd.		33,896		43,021		66		1
POSCO Machinery & Engineering Co., Ltd.		4		2,270		14,449		27,879
POSDATA Co., Ltd.		43		442		26,709		30,782
POSCO Research Institute		—		—		2,674		7,224
Seung Kwang Co., Ltd.		2,063		2,038		—		—
POS-AC Co., Ltd.		1		—		888		663
Changwon Specialty Steel Co., Ltd.		1,231		1		2,119		6,692
POSCO Machinery Co., Ltd.		1		4,300		9,863		19,767
POSCO Refractories & Environment (POSREC)		17		19		23,774		23,526
POSTECH Venture Capital Co., Ltd.		—		—		53		—
Pohang Steel America Corporation (POSAM)		9		—		—		—
POSCO Australia Pty. Ltd. (POSA)		618		24		—		—
POSCO Canada Ltd. (POSCAN)		—		16		5,726		—
POSCO Asia Co., Ltd. (POA)		8,749		29,866		6,931		4,730
VSC-POSCO Steel Corporation (VPS)		—		11		—		—
DALIAN POSCO-CFM Coil Center Co., Ltd.		—		—		—		—
Zhangjiagang Pohang Stainless Steel Co., Ltd.		175,415		16,486		—		—
POSCO-Japan Co., Ltd.		19,599		18,751		1,542		1,722
Others		97,123		—		28,772		—

	W	450,613	W	337,566	W	347,820	W	405,195


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

(2)	Receivables include trade accounts, other accounts receivable and others; payables include trade accounts, other accounts payable and others.

F-65

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Significant transactions, which occurred in the ordinary course of business, with equity method investees for the years ended December 31, 2005, 2004 and 2003, and related account balances as of December 31, 2005 and December 31, 2004, are as follows:


	Sales and others(1)						Purchases and others(1)

	2005		2004		2003		2005		2004		2003

	(in millions of Korean Won)
eNtoB Corporation	W	—	W	—	W	—	W	170,258	W	131,377	W	69,072
KOBRASCO		—		—		—		202,262		104,848		99,498
POSCHROME		—		—		—		45,043		51,820		33,267
Posmmit Steel Centre SDN BHD (POS-MMIT)		10,229		7,655		480		—		—		—
PT POSMI Steel Indonesia		—		5		—		—		—		—
POSVINA Co., Ltd.		11,239		12,599		7,281		—		—		—
USS — POSCO Industries (UPI)		312,377		365,362		239,294		—		—		16
Shunde Xingpu Steel Center Co., Ltd.		—		—		219						—
MIDAS Information Technology., Ltd.		—		—		—		—		15		99

	W	333,845	W	385,621	W	247,274	W	417,563	W	288,060	W	201,952


	Receivables(2)				Payables(2)

	2005		2004		2005		2004

	(in millions of Korean Won)
eNtoB Corporation	W	—	W	—	W	2,329	W	3,286
KOBRASCO		—		—		—		2,584
POSCHROME		—		—		4,719		—
Posmmit Steel Centre SDN BHD (POS-MMIT)		29		—		—		—
PT POSMI Steel Indonesia		—		—		—		—
POSVINA Co., Ltd.		1,100		4		—		—
USS — POSCO Industries (UPI)		—		—		—		—
MIDAS Information Technology., Ltd.		—		—		—		—

	W	1,129	W	4	W	7,048	W	5,870


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

(2)	Receivables include trade accounts, other accounts receivable and others; payables include trade accounts, other accounts payable and others.

F-66

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Eliminations of inter-company revenues and expenses for the years ended December 31, 2005, 2004 and 2003 are as follows:


	Revenues

	2005		2004		2003

	(in millions of Korean Won)
Sales	W	8,293,069	W	5,982,359	W	4,115,235
Interest income		1,322		2,242		485
Rental income		1,014		727		612
Others		3,074		3,693		3,023

	W	8,298,479	W	5,989,021	W	4,119,355


	Expenses

	2005		2004		2003

	(in millions of Korean Won)
Cost of goods sold	W	8,094,089	W	5,849,925	W	4,007,975
Interest expense		3,778		2,272		495
Selling and administrative expenses		156,157		120,428		109,011
Others		44,455		16,396		1,874

	W	8,298,479	W	5,989,021	W	4,119,355

Eliminations of significant inter-company receivables and payables for the years ended December 31, 2005 and for the year December 31, 2004, are as follows:


	2005		2004

	(in millions of Korean Won)
Trade accounts and notes payable	W	728,395	W	412,421
Short-term borrowings		28,064		19,959
Other accounts and notes payable		269,287		265,881
Long-term debts		23,557		50,435
Other liabilities		284,829		114,934

	W	1,334,132	W	863,630


	2005		2004

	(in millions of Korean Won)
Trade accounts and notes receivable	W	1,046,732	W	676,744
Short-term loans receivable		36,310		20,628
Other accounts and notes receivable		5,415		296
Long-term loans receivable		37,359		51,032
Other assets		208,316		114,930

	W	1,334,132	W	863,630

F-67

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

29. Segment and Regional Information

The following table provides information on the significant financial status of each operating segment of the consolidated subsidiaries as of and for the years ended December 31, 2005:


											Consolidation
		Steel			Trading			Others			adjustment			Consolidated

		(in millions of Korean Won)
Statement of income
	External customers	W	24,841,038		W	3,373,587		W	6,380,232		W	(8,293,069	)	W	26,301,788
	Less: Inter-segment		(3,974,711	)		(990,743	)		(3,327,616	)		8,293,069			—

	Net sales	W	20,866,327		W	2,382,844		W	3,052,616		W	—		W	26,301,788

Operating income		W	5,879,972		W	24,453		W	436,583		W	(257,732	)	W	6,083,276
Depreciation and amortization and others			1,606,140			7,346			83,899			(84,831	)		1,612,554
Balance sheet
	Inventories		3,264,059			102,569			531,519			(105,553	)		3,792,594
	Investments		4,660,946			273,938			818,018			(2,611,346	)		3,141,556
	Property, plant and equipment		12,216,465			213,681			642,283			(800,719	)		12,271,710
	Intangible assets		326,768			505			137,251			(10,815	)		453,709

The following table provides information on the significant financial status of each operating segment of the consolidated subsidiaries as of and for the years ended December 31, 2004:


											Consolidation
		Steel			Trading			Others			adjustment			Consolidated

		(in millions of Korean Won)
Statement of income
	External customers	W	22,624,977		W	2,986,345		W	4,344,090		W	(5,982,359	)	W	23,973,053
	Less: Inter-segment		(3,322,773	)		(626,579	)		(2,033,007	)		5,982,359			—

	Net sales	W	19,302,204		W	2,359,766		W	2,311,083		W	—		W	23,973,053

Operating income		W	5,174,877		W	34,770		W	190,245		W	(80,472	)	W	5,319,420
Depreciation and amortization and others			1,553,238			7,933			77,904			(73,624	)		1,565,451
Balance sheet
	Inventories		2,534,497			72,463			515,567			(57,006	)		3,065,521
	Investments		4,087,223			282,491			633,453			(2,298,629	)		2,704,538
	Property, plant and equipment		10,189,473			230,082			586,270			(565,534	)		10,440,291
	Intangible assets		410,170			1,515			97,100			(12,470	)		496,315

F-68

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

The following table provides information on the significant financial status of each operating segment of the consolidated subsidiaries as of and for the years ended December 31, 2003:


											Consolidation
		Steel			Trading			Others			adjustment			Consolidated

		(in millions of Korean Won)
Statement of income
	External customers	W	16,503,386		W	2,384,952		W	3,016,135		W	(4,115,236	)	W	17,789,237
	Less: Inter-segment		(2,241,755	)		(599,615	)		(1,273,866	)		4,115,236			—

	Net sales		14,261,631		W	1,785,337		W	1,742,269		W	-		W	17,789,237

Balance sheet
	Inventories		1,867,743		W	51,638		W	160,389		W	(11,399	)	W	2,068,371
	Investments		4,056,692			308,349			501,454			(2,039,817	)		2,826,678
	Property, plant and equipment		9,549,746			206,416			612,625			(523,010	)		9,845,777
	Intangible assets		402,439			2,351			79,593			(9,887	)		474,496

Substantially all of the Company’s operations are for the production of steel products. Net sales for the years ended December 31, 2005, 2004 and 2003, and non-current assets by geographic location as of December 31, 2005, 2004 and 2003, are as follows:


	Sales(1)				Non-current assets

	2005		2004		2005			2004

	(in millions of Korean Won)
Korea	W	18,566,060	W	16,738,372	W	17,614,231		W	15,295,486
Japan		1,371,510		1,163,541		72,177			84,640
China		3,117,909		3,315,789		1,204,250			813,798
Asia/Pacific, excluding Japan and China		1,502,205		1,257,108		113,167			108,119
North America		550,331		529,080		188,345			153,919
Others		1,193,773		969,163		97,684			61,815
Consolidation adjustments		—		—		(3,422,880	)		(2,876,632	)

	W	26,301,788	W	23,973,053	W	15,866,974		W	13,641,145


(1)	Represent revenues, net of consolidation adjustments, incurred based on customers’ locations instead of the Company and subsidiaries’ locations.

F-69

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Condensed consolidated balance sheets categorized by types of business are as follows:


		2005

		Non-financial			Financial
		Institution			Institution

		(in millions of Korean Won)
Assets
Current assets		W	11,618,851		W	48,841
Non-Current assets			15,867,586			134,292
	Investment assets		3,142,196			134,263
	Property, plant and equipment		12,271,681			29
	Intangible assets		453,709			—

Total Assets			27,486,437			183,133

Liabilities
Current liabilities			5,840,863			83,784
Non-Current liabilities			1,780,441			74

Total Liabilities			7,621,304			83,858

Shareholders’ equity
Common stock			482,403			83,187
Capital surplus			3,990,266			—
Retained earnings			16,161,090			19,017
Capital adjustments			(1,153,744	)		(2,929	)
Minority interest			385,118			—

Total shareholders’ equity			19,865,133			99,275

Total liabilities and shareholders’ equity		W	27,486,437		W	183,133

F-70

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Condensed consolidated statements of income categorized by types of business are as follows:


	2005

	Non-financial			Financial
	Institution			Institution

	(in millions of Korean Won)
Sales	W	26,297,284		W	6,890
Cost of goods sold		(18,763,918	)		(3,177	)
Selling and administrative expenses		(1,449,750	)		(1,666	)

Operating income		6,083,616			2,047
Non-operating income		786,485			560
Non-operating expenses		(1,380,580	)		(4,736	)

Net income (loss) before income tax expense and minority interest		5,489,521			(2,129	)
Income tax expense		(1,483,725	)		(1,286	)

Net income before minority interest		4,005,796			(843	)
Minority interest in income of consolidated subsidiaries		(5,626	)		—

Net income (loss)	W	4,011,422		W	(843	)


30.	Operating Results for the Final Interim Period

Significant operating results for the quarter ended December 31, 2005, are as follows:


	Unaudited

	(in millions of Korean Won,
	except per share amount)
Sales	W	6,535,114
Cost of sales		5,004,931
Operating income		1,108,800
Net income		377,935
Ordinary income per share		4,792
Net income per share		4,792


31.	Reclassification of Prior Periods’ Financial Statements

Certain amounts in financial statements as of and for the year ended December 31, 2004, have been reclassified to conform to the December 31, 2005 financial statement presentation. These reclassifications had no effect on previously reported net income or shareholders’ equity.


32.	Issuance of POSCO ADSs on the Tokyo Stock Exchange

As approved by the Board of Directors on July 12, 2005, the Company issued 14,000,000 American Depository Shares (“ADSs”) representing 3,500,000 shares of the Company’s common stocks. Each ADS represents the one-fourth of one share of common stock. The Korea Securities Depository has the custody of underlying common stocks and the Bank of New York is the depository of POSCO ADSs. POSCO ADSs listed on the Tokyo Stock Exchange, from which the Company received a listing approval on October 24, 2005. Subscription is scheduled for three days from November 16, 2005 to November 18,

F-71

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

2005, with the payment for subscription to be made on November 21, 2005. POSCO ADSs have been available for trading on the Tokyo Stock Exchange beginning November 22, 2005.


33.	Significant Differences between Korean GAAP and U.S. GAAP

Reconciliation to U.S. Generally Accepted Accounting Principles

The consolidated financial statements of the Company are prepared in accordance with generally accepted accounting principles in the Republic of Korea (“Korean GAAP”), which differs in certain material respects from generally accepted accounting principles in the United States of America (“U.S. GAAP”). Application of U.S. GAAP would have affected the balance sheets as of December 31, 2005 and 2004 and the net income for the three year periods ended December 31, 2005, 2004 and 2003 to the extent described below.

A description of the material differences between Korean GAAP and U.S. GAAP as they relate to the Company are discussed in detail below.


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


		Adjustments						Adjustments
		before			Income tax			after
		income tax			effect			income tax

		(in millions of Korean Won,
		except share data)
For the year ended December 31, 2005
Net income under Korean GAAP								W	4,011,546
Adjustments
	Fixed asset revaluation	W	19,301		W	(5,222	)		14,079
	Capitalized costs		15,381			(4,230	)		11,151
	Capitalized repairs		(5,312	)		1,461			(3,851	)
	Investment securities		81,659			(22,456	)		59,203
	Amortization of goodwill		8,875			(2,441	)		6,434
	Others, net		4,187			(1,151	)		3,036

		W	124,091		W	(34,039	)	W	90,052

Net income as adjusted in accordance with U.S. GAAP								W	4,101,598

Basic and diluted earnings per share, as adjusted, in accordance with U.S. GAAP								W	51,789

Weighted-average shares outstanding									79,198,135

F-72

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


		Adjustments						Adjustments
		before			Income tax			after
		income tax			effect			income tax

		(in millions of Korean Won,
		except share data)
For the year ended December 31, 2004
Net income under Korean GAAP								W	3,814,225
Adjustments
	Fixed asset revaluation	W	26,428		W	(6,840	)		19,588
	Capitalized costs		47,458			(13,051	)		34,407
	Capitalized repairs		(9,422	)		2,591			(6,831	)
	Investment securities		(557,615	)		153,344			(404,271	)
	Others, net		4,270			(1,174	)		3,096

		W	(488,881	)	W	134,870		W	(354,011	)

Net income as adjusted in accordance with U.S. GAAP								W	3,460,214

Basic and diluted earnings per share, as adjusted, in accordance with U.S. GAAP								W	42,806

Weighted-average shares outstanding									80,835,690


		Adjustments						Adjustments
		before			Income tax			after
		income tax			effect			income tax

		(in millions of Korean Won,
		except share data)
For the year ended December 31, 2003
Net income under Korean GAAP								W	1,995,983
Adjustments
	Fixed asset revaluation	W	26,351		W	(7,826	)		18,525
	Capitalized costs		16,187			(4,808	)		11,379
	Capitalized repairs		(9,721	)		2,887			(6,834	)
	Investment securities		(22,557	)		6,699			(15,858	)
	Others, net		(8,773	)		2,606			(6,167	)

		W	1,487		W	(442	)	W	1,045

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

Basic and diluted earnings per share, as adjusted, in accordance with U.S. GAAP								W	24,508

Weighted-average shares outstanding									81,483,634

F-73

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


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


		Adjustments						Adjustments
		before			Income tax			after
		income tax			effect			income tax

		(in millions of Korean Won)
As of December 31, 2005
Shareholders’ equity under Korean GAAP								W	19,866,916
Less: Minority interest									(386,766	)

									19,480,150
Adjustments
	Fixed asset revaluation	W	(175,907	)	W	25,528			(150,379	)
	Capitalized costs		286,208			(78,707	)		207,501
	Capitalized repairs		3,724			(1,024	)		2,700
	Investment securities		(66,594	)		18,313			(48,281	)
	Amortization of goodwill		8,875			(2,441	)		6,434
	Others, net		60			(16	)		44

		W	56,366		W	(38,347	)	W	18,019

Shareholders’ equity, as adjusted, in accordance with U.S. GAAP								W	19,498,169


		Adjustments						Adjustments
		before			Income tax			after
		income tax			effect			income tax

		(in millions of Korean Won)
As of December 31, 2004
Shareholders’ equity under Korean GAAP								W	16,386,056
Less: Minority interest									(307,891	)

									16,078,165
Adjustments
	Fixed asset revaluation	W	(195,045	)	W	30,705			(164,340	)
	Capitalized costs		270,827			(74,477	)		196,350
	Capitalized repairs		9,036			(2,485	)		6,551
	Investment securities		(48,399	)		214,510			166,111
	Others, net		(4,127	)		1,135			(2,992	)
	Deferred taxes related to OCI		—			—			(71,788	)

		W	32,292		W	169,388		W	129,892

Shareholders’ equity, as adjusted, in accordance with U.S. GAAP								W	16,208,057


(c)	Fixed asset revaluation

Under Korean GAAP, certain fixed assets were subject to upward revaluations in accordance with the Asset Revaluation Law, with the revaluation increment credited to capital surplus. As a result of this revaluation, depreciation expense on these assets was adjusted to reflect the increased basis. Under U.S. GAAP, such a revaluation is not permitted and depreciation expense should be based on historical

F-74

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

cost. When assets are sold, any revaluation surplus related to those assets under Korean GAAP would be reflected in income as additional gain on sale of assets under U.S. GAAP.


(d)	Capitalized costs

Under Korean GAAP, the Company capitalizes certain foreign exchange gains and losses on borrowings associated with property, plant and equipment during the construction period. Under U.S. GAAP, all foreign exchange gains and losses are included in the results of operations for the current period. No foreign exchange gains and losses have been capitalized as of December 31, 2005, 2004 and 2003 under Korean GAAP. Depreciation of net capitalized foreign exchange gains and losses carried forward from prior periods amounted to W8,097 million, W20,611 million and W20,611 million in 2005, 2004 and 2003, respectively.

In addition, effective from the period beginning after December 31, 2002, under Korean GAAP, interest costs that would have been theoretically avoided had expenditures not been made for assets which require a period of time to prepare them for their intended use are generally expensed as incurred, except when certain criteria are met for capitalization. The Company has adopted this application and expensed financing costs subject to the capitalization. Under U.S. GAAP, the Company is required to capitalize such amount. Capital projects that have had their progress halted would suspend the capitalization of interest and would also delay the accumulation of depreciation during the suspense period.

Capitalized interest for the years ended December 31, 2005, 2004 and 2003 are as follows:


	2005			2004			2003

	(in millions of Korean Won)
Capitalized interest	W	86,269		W	84,948		W	54,386
Depreciation of capitalized interest		(60,581	)		(55,871	)		(54,857	)

Net income impact	W	25,688		W	29,077		W	(471	)

Under Korean GAAP, research and development costs, organization costs and internal use software costs have been recorded as intangible assets and amortized over a period not exceeding 20 years. Under U.S. GAAP, organization costs as well as research and developments costs are generally expensed as incurred. In addition, certain costs incurred for software developed for internal use, U.S. GAAP requires that costs incurred in the preliminary project stage be expensed as incurred. External direct costs such as material and service, payroll or payroll related costs for employees who are directly associated with the project, and interest costs incurred when developing computer software for internal use, should be capitalized and amortized on a straight-line method over the estimated useful life. Training costs, data conversion costs and general administrative costs should be expensed as incurred.

U.S. GAAP reconciliation adjustments for the capitalization and amortization of intangible assets which arose mostly from research and development cost for the years ended December 31, 2005, 2004 and 2003 are as follows:


	2005			2004			2003

	(in millions of Korean Won)
Net income impact	W	(18,404	)	W	(2,230	)	W	(3,953	)


(e)	Capitalized repairs

Under Korean GAAP, repair costs associated with the Company’s furnaces are expensed as incurred, regardless of the nature of the expenditure. U.S. GAAP requires that repairs that extend an asset’s useful

F-75

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

life or significantly increase its value be capitalized when incurred and depreciated. Routine maintenance and repairs are expensed as incurred. No repair costs have been capitalized as of December 31, 2005, 2004 and 2003 under Korean GAAP. Depreciation of capitalized repairs carried forward from prior periods has been recorded.


(f)	Guarantees

Under Korean GAAP, the guarantor is required to disclose guarantees, including indirect guarantees of indebtedness of others. Under U.S. GAAP, the guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee for guarantees issued or modified after December 31, 2002. As of December 31, 2005, the guarantees issued or modified after December 31, 2002 by the Company for the repayment of loans amounts to W81,541 million, excluding guarantees issued either between parents and their subsidiaries or between corporations under common control (Note 17). The fair value of the liability recorded at the inception is amortized into income over the life of the guarantee contract. The Company has recognized the fair value of liabilities net of amortization amounting to W1,732 million, W(559) million and W(2,396) million for the years ended December 31, 2005, 2004 and 2003, respectively. This adjustment is included in Others, net.


(g)	Stock Appreciation Rights

Under Korean GAAP, the intrinsic value method for awards that call for settlement in cash, shares, or a combination of both measures compensation at the end of each period as the amount by which the moving weighted average of quoted market value of the shares of the enterprise’s stock covered by a grant exceeds the option price. The moving weighted average of quoted market value is calculated based on the weighted average market price of last one week, last one month and last two months of each period. Under U.S. GAAP, accounting for stock appreciation rights requires compensation for awards that call for settlement in cash, shares, or a combination of both to be measured at the end of each period as the amount by which the quoted market value of the shares of the enterprise’s stock covered by a grant exceeds the option price.

U.S. GAAP reconciliation adjustments for stock appreciation rights granted to employees and executives recognized for the years ended December 31, 2005, 2004 and 2003 are included in Others, net and are as follows:

2005

2004

2003

(in millions of Korean Won)

Net income impact

2,455

4,829

(6,001

)

The total stock compensation expense under U.S. GAAP for the years ended December 31, 2005, 2004 and 2003 are W(12,027) million, W9,810 million and W24,894 million, respectively.

(h) Investment Securities

The differences in accounting for investment securities relate to (i) recognition of an impairment loss under U.S. GAAP but not under Korean GAAP and (2) Recognition of gain on disposal of available for sale investments.

(i) Recognition of an impairment loss

Under Korean GAAP, if the fair value of investments classified as either available-for-sale or held to maturity permanently declines compared to its acquisition cost as evidenced by events such as bankruptcy,

F-76

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

liquidation, negative net asset values and cessation of operations, the carrying value of the debt or equity security is adjusted to fair value, with the resulting impairment loss charged to current operations. If the fair value of the security subsequently recovers, a gain is recognized up to the amount of previously recognized impairment loss.

Under U.S. GAAP, if the decline in fair value of investments classified as either available-for-sale of held to maturity is determined to be other-than-temporary, the cost basis of the individual security is written down to fair value as the new cost basis and the amount of the impairment loss is charged to current operations. In addition, U.S. GAAP prohibits gain recognition based on subsequent recoveries of previously impaired investments.

Both Korean GAAP and U.S. GAAP requires that all unrealized gains and losses arising from available-for-sale securities be recorded in accumulated other comprehensive income.

As a result of the above differences, the Company recognized an impairment loss recorded in the statement of income on available-for-sale securities under U.S. GAAP of W7,881 for which the decline in fair value was considered to be other-than-temporary under U.S. GAAP but not “permanently impaired” under Korean GAAP. This U.S. GAAP adjustment also results in a reclassification adjustment within accumulated other comprehensive income, resulting in higher unrealized losses under Korean GAAP, compared to U.S. GAAP.

No other-than-temporary impairment is recorded for held-to-maturity securities as of December 31, 2005, 2004 and 2003.


(ii)	Recognition of gain on disposal of available for sale investments

The Company disposed of certain securities that had been previously impaired under U.S. GAAP purposes. The fair value of these securities subsequently recovered resulting in the reversal of the impairment under Korean GAAP. As a result, the Company’s cost basis relating to those securities was higher under Korean GAAP than under U.S. GAAP. This difference in cost basis resulted in a gain of W89,541 under U.S. GAAP upon disposal.

A summary of the U.S. GAAP adjustments relating to investment securities for the years ended December 31, 2005, 2004 and 2003 follows:


	2005			2004			2003

	(in millions of Korean Won)
Impairment loss	W	(7,882	)	W	(562,838	)	W	(24,766	)
Recognition of gains on disposal		89,541			5,223			2,209

Net income impact	W	81,659		W	(557,615	)	W	(22,557	)

F-77

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Information with respect to available-for-sale debt and equity securities as of December 31, 2005, 2004 and 2003 is as follows:

Available-for-Sale Securities:


		2005			2004			2003

		(in millions of Korean Won)
Book value		W	1,864,297		W	2,261,620		W	2,315,508
Unrealized gains and losses			328,276			47,272			(157,844	)
	Permanent impairment loss		(11,605	)		(3,190	)		(10,651	)

Fair value (Korean GAAP)			2,180,968			2,305,702			2,147,013
	Other-than-temporary impairment		(66,594	)		(48,399	)		(38,118	)

Fair value (US GAAP)		W	2,114,374		W	2,257,303		W	2,108,895

No other-than-temporary impairment is recorded for held-to-maturity securities as of December 31, 2005, 2004 and 2003.

(i) Goodwill

Under Korean GAAP, goodwill is amortized over the useful life during which future economic benefits are expected to flow to the enterprise, not exceeding twenty years. The Company amortizes goodwill over five years using straight-line method. Under U.S. GAAP, goodwill is not subject to amortization rather an impairment test is required at least annually.

(j) Deferred Income Taxes

In general, accounting for deferred income taxes is substantially the same between Korean GAAP and U.S. GAAP. The Company is also required to recognize the additional deferred tax effects that result from differences between the reported Korean GAAP and U.S. GAAP amounts.

F-78

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

34. Additional Financial Information in Accordance with U.S. GAAP

(a) Deferred taxes in accordance with U.S. GAAP

The tax effects of temporary differences that resulted in significant portions of the deferred tax assets and liabilities at December 31, 2005 and 2004, computed under U.S. GAAP, and a description of the financial statement items that created these differences are as follows:


	2005		2004

	(in millions of Korean Won)
Deferred tax assets
Fixed asset revaluation	W	25,528	W	30,705
Capitalized foreign exchange losses		—		3,071
Investment securities		77,984		69,822
Impairment loss on fixed assets		129,135		129,135
Impairment loss on investment securities		23,078		221,337
Allowance for doubtful accounts		61,142		32,148
Allowance for severance benefits		101,867		69,913
Depreciation expense		18,980		17,299
Capital expenditures		—		9,489
Research and development expense		12,988		9,804
Deferred taxes related to OCI		182,824		—
Denied accrual expenses		120,198		16,452
Others		86,287		115,681

Total deferred tax assets		840,011		724,856

Deferred tax liabilities
Gain on valuation of equity method investments		134,441		81,400
Reserve for repairs		132,120		137,394
Accrued income		917		3,453
Reserve for technology		388,117		367,283
Capitalized repairs		1,024		2,485
Capitalized costs		78,707		78,876
Deferred taxes related to OCI		162,434		71,788
Others		30,159		101,061

Total deferred tax liabilities		927,919		843,740

Net deferred tax liabilities	W	87,908	W	118,884

(b) Comprehensive income

Under Korean GAAP, there is no requirement to present comprehensive income. Under U.S. GAAP, comprehensive income and its components are required to be presented under the provisions of SFAS No. 130, Reporting Comprehensive Income. Comprehensive income includes all changes in shareholders’ equity during the period except those resulting from investments by, or distributions to

F-79

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

owners, including certain items not included in the current year’s results of operations. Comprehensive income for the years ended December 31, 2005, 2004, and 2003 is summarized as follows:


		2005			2004			2003

		(in millions of Korean Won)
Net income, as adjusted, in accordance with U.S. GAAP		W	4,101,598		W	3,460,214		W	1,997,028
Other comprehensive income, net of tax:
	Foreign currency translation adjustments		(7,150	)		(91,750	)		34,414
	Unrealized gains (losses) on investments		85,195			434,753			8,960
	Less: Reclassification adjustment for gains included in income		(1,665	)		(1,288	)		—

Comprehensive income, as adjusted, in accordance with U.S. GAAP		W	4,177,978		W	3,801,929		W	2,040,402

F-80

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Accumulated other comprehensive income as of December 31, 2005, 2004 and 2003 is summarized as follows:


	Foreign currency			Unrealized			Accumulated other
	translation			gains (losses) on			comprehensive
	adjustments			investments			income

	(in millions of Korean Won)
Balance, December 31, 2002	W	68,872		W	(264,702	)	W	(195,830	)
Foreign currency translation adjustment, net of tax benefit of W(10,081) million		34,414			—			34,414
Unrealized losses on investments, net of tax benefit of W(14,825) million		—			8,960			8,960

Current period change		34,414			8,960			43,374

Balance, December 31, 2003	W	103,286		W	(255,742	)	W	(152,456	)
Foreign currency translation adjustment, net of tax benefit of W34,801 million		(91,750	)		—			(91,750	)
Unrealized losses on investments, net of tax benefit of W(164,905) million		—			434,753			434,753
Less: Reclassification adjustment for net realized gain included in income, net of tax benefit of W488 million		—			(1,288	)		(1,288	)

Current period change		(91,750	)		433,465			341,715

Balance, December 31, 2004	W	11,536		W	177,723		W	189,259
Foreign currency translation adjustment, net of tax benefit of W2,712 million		(7,150	)		—			(7,150	)
Unrealized losses on investments, net of tax benefit of W(32,316) million		—			85,195			85,195
Less: Reclassification adjustment for net realized gain included in income, net of tax benefit of W632 million		—			(1,665	)		(1,665	)

Current period change		(7,150	)		83,530			76,380

Balance, December 31, 2005	W	4,386		W	261,253		W	265,639

(c) Fair Value of financial instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:


	(i) Cash and cash equivalents, short-term financial instruments, trading securities, trade accounts and notes receivable, trade accounts and notes payable, and short-term borrowings


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


	(ii) Investment Securities


	The fair value of market-traded investments such as listed company’s stocks, public bonds and other marketable securities are based on quoted market prices for those investments.

F-81

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


	Investments in non-listed companies’ stock, for which there are no quoted market prices, estimate of fair value is based on acquisition cost less impairment if any.


	(iii) Long-Term loans, trade account and notes receivable


	Loans receivable, accounts and notes receivable are reported net of specific and general provisions for impairment as well as present value discount factor. As a result, the fair values of long-term loans approximate their carrying values.


	(iv) Long-Term debt


	The fair value of long-term debt is based on quoted market prices, where available. For those notes where quoted market prices are not obtainable, a discounted cash flow model is used based on the current rates for issues with similar maturities.

The estimated fair values of the Company’s financial instruments stated under Korean GAAP as of December 31, 2005 and 2004 are summarized as follows:


	2005				2004

	Carrying				Carrying
	amount		Fair value		amount		Fair value

	(in millions of Korean Won)
Cash and cash equivalents	W	653,364	W	653,364	W	486,370	W	486,370
Short-term financial instruments		760,371		760,371		640,988		640,988
Trading securities		2,610,502		2,610,502		2,689,593		2,689,593
Trade accounts and notes receivable, including long-term loans		3,369,737		3,369,737		3,374,219		3,374,219
Investment securities		2,815,741		2,815,741		2,345,076		2,345,076
Short-term borrowings		859,774		859,774		657,541		657,541
Trade accounts and notes payable		1,145,729		1,145,729		1,082,299		1,082,299
Long-term debt, including current portion		2,188,470		2,233,670		3,096,727		3,184,984

(d) Minority interest

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


(e)	Classification differences in the Consolidated Statements of Income

Certain income and expense items in the Company’s Consolidated Statements of Income including: (i) gains and losses on disposal of property, plant and equipment; (ii) impairment of property, plant and equipment; (iii) gains on recovery of allowance for doubtful accounts; (iv) other bad debt expenses; (v) and provision for early retirement benefits have been classified as non-operating under Korean GAAP and excluded from the determination of operating income. Under U.S. GAAP, the above noted income and expense items would be included in the determination of operating income. In addition, as a result of tax assessments, amendments to tax return filings and related tax penalties and interest have been classified as non-operating expenses under Korean GAAP. Under U.S. GAAP, these expenses would be included as part of the Company’s income tax. After reclassification of those items, operating income under U.S. GAAP would be W5,725,875 million, W5,407,351 million and W3,106,742 million for the years ending December 31, 2005, 2004 and 2003, respectively.

F-82

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

Components of “Other” non-operating expenses

“Other” non-operating expenses disclosed within the Korean GAAP Consolidated Statements of Income are comprised of the following:


	2005		2004		2003

	(in millions of Korean Won)
Loss on disposal of investments		121,474		7,869		7,084
Loss on impairment of property, plant and equipment		—		72,692		150,750
Additional payment of income taxes		194,506		10,054		1,104
Provision for early retirement benefits(1)		418,567		16,637		6,480
Others		119,542		58,021		68,253

Total	W	854,089	W	165,273	W	233,671

(1)

On March 30, 2000, the company initiated an ongoing plan to offer special termination benefits to employees who voluntarily accept early retirement. During the year ended December 31, 2005, the Company received applications for early retirement from employees. As of December 31, 2005, the company recorded an expense amounting to KRW 418,567 million representing lump sum early retirement benefits which were either paid or accrued for the applicants who were notified of acceptance and approval of their applications during the year ended December 31, 2005. The employees were terminated effective on or before January 1, 2006 and all liabilities associated with these early retirement benefits were settled by January of 2006.


(f)	Consolidated statement of cash flows

Under both Korean GAAP and US GAAP, cash flows are classified under operating activities, investing activities and financing activities. Under Korean GAAP, cash and cash equivalents include cash on hand, cash in banks, and highly liquid temporary cash investments with original maturities of three months or less. Under US GAAP, cash and cash equivalents are defined as being cash and investments with original maturities of three months or less.

Under U.S. GAAP, cash flows related to purchases and sales of trading securities are classified as cash flows from operating activities. However, under Korean GAAP, they are classified as cash flows from investing activities. Net cash flows from purchases and sales of trading securities are W221,705 million, W(63,667) million and W(81,321) million for the years ended December 31, 2005, 2004 and 2003, respectively.


(g)	Segment

The following table provides information on reconciliation of net income of each operating segment of the consolidated subsidiaries from Korean GAAP to U.S. GAAP for the year ended December 31, 2005:


									Reconciling
	Steel		Trading			Others			adjustments			Consolidated

	(in millions of Korean Won)
Net income under Korean GAAP	W	3,972,572	W	11,935		W	278,105		W	(251,066	)	W	4,011,546
Adjustments		104,891		(3,713	)		(11,126	)		—			90,052

Net income under U.S. GAAP	W	4,077,463	W	8,222		W	266,979		W	(251,066	)	W	4,101,598

F-83

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

The following table provides information on reconciliation of total assets of the consolidated subsidiaries from Korean GAAP to U.S. GAAP as of December 31, 2005:

Subtotal before

Reconciling

US GAAP

Steel

Trading

Others

elimination

adjustments

Consolidated

(in millions of Korean Won)

Segments’ total assets

26,648,657

970,949

4,438,504

32,058,110

(4,550,800

)

18,019

27,525,329

The following table provides information on the significant items in total assets of each operating segment of the consolidated subsidiaries as of December 31, 2005:


										Reconciling
	Steel			Trading			Others			adjustments			Consolidated

	(in millions of Korean Won)
Investments under Korean GAAP	W	4,795,209		W	273,938		W	683,755		W	(2,611,346	)	W	3,141,556
Adjustments		(77,922	)		(4,805	)		(13,339	)		—			(96,066	)

Investments under U.S. GAAP	W	4,717,287		W	269,133		W	670,416		W	(2,611,346	)	W	3,045,490

Property, plant and equipment under Korean GAAP	W	12,216,494		W	213,681		W	642,254		W	(800,719	)	W	12,271,710
Adjustments		148,424			—			—			—			148,424

Property, plant and equipment under U.S. GAAP	W	12,364,918		W	213,681		W	642,254		W	(800,719	)	W	12,420,134


35.	Recent Accounting Pronouncements


	*U.S. GAAP*

In March 2005, the SEC issued SAB No. 107 (SAB 107), which expresses the view of the staff regarding the interaction between the FASB’s SFAS No. 123 (revised 2004) (FAS 123R), Share-Based Payment, and certain SEC rules and regulations and provides the staff’s views regarding the valuation of share-based payment arrangements for public companies. Specifically, SAB 107 provides guidance on how to determine the expected volatility and expected term inputs into a valuation model used to determine the fair value of share based payments under FAS 123R. SAB 107 also provides guidance related to numerous aspects of the adoption of FAS 123R such as taxes, capitalization of compensation costs, modification of share based payments prior to adoption and the classification of expenses.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standards No. 123 R, “Share-Based Payment.” This Statement requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. In April 2005, the Securities Exchange Commission (SEC) approved a new rule that delayed the effective date of FAS 123 R. Under the SEC rule, FAS 123 R is now effective for annual rather than interim period that begin after June 15, 2005. The company is evaluating the requirements of FAS No. 123 R and currently expects that the adoption of FAS No. 123 R will not have a material impact on the Company’s financial position and results of operation.

F-84

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004

end of fiscal years ending after December 15, 2005 (December 31, 2005, for calendar-year enterprises). The adoption of this Interpretation did not have a material effect on the Company’s financial position and results of operation.

In November 2004, the FASB issued Financial Accounting Standard No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4 (FAS 151). The standard requires that abnormal amounts of idle capacity and spoilage costs should be excluded from the cost of inventory and expensed when incurred. Additionally, the standard requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities and clarifies the meaning of the term ‘normal capacity’. The provisions of FAS 151 are applicable to inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is in the process of determining the impact of adoption on its financial position and results of operations.

In December 2004, the FASB issued Statement No. 153 (FAS 153), Exchanges of Nonmonetary Assets — an amendment of APB Opinion No. 29. FAS 153 is based on the principle that nonmonetary asset exchanges should be recorded and measured at the fair value of the assets exchanged, with certain exceptions. This standard requires exchanges of productive assets to be accounted for at fair value, rather than at carryover basis, unless (1) neither the asset received nor the asset surrendered has a fair value that is determinable within reasonable limits or (2) the transactions lack commercial substance (as defined). The new standard is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not expect the adoption of this statement to have a material impact on its financial position or results of operations.

In May 2005, the FASB issued Financial Accounting Standards No. 154, which changes the requirements for the accounting and reporting of a change in accounting principle. The Statement requires that changes in accounting principle be retroactively applied. FAS 154 is effective for accounting changes and correction of errors made on or after January 1, 2006, with earlier adoption permitted. The Company will apply the provisions of this Statement from January 1, 2006.

In February 2006, the FASB issued Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140.” This Statement resolves issues addressed in Statement 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.” and is effective for all financial instrument acquired or issued after beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company does not expect the adoption of this statement to have a material impact on its financial position or result of operations.

In March 2006, the FASB issued FASB issued Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140”. This Statement amends FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” with respect to the accounting for separately recognized servicing assets and servicing liabilities. This Statement requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a certain servicing contract and all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. An entity should adopt this Statement as of the beginning of its first fiscal year that begins after September 15, 2006, with earlier adoption is permitted. The Company does not expect the adoption of this statement to have a material impact on its financial position or result of operations.

F-85

POSCO AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

December 31, 2005 and 2004


	*Korean GAAP*

In February 2005, the Korean Accounting Standards Boards (“KASB”) issued Statements of Korean Financial Accounting Standards (“SKFAS”) No. 18, “Interests in Joint Ventures.” This statement provides the definition of joint venture which requires an investor to recognize assets, liabilities, revenue and expenses related to its investment on a joint venture. Under SKFAS No. 18, joint venture may be classified into one of the following types; joint venture business, joint venture assets or joint venture corporation, and an investor should apply SKFAS No. 15, “Investments in Associates” correspondingly for its investment on joint venture corporation. The provisions of this standard are effective prospectively for joint ventures beginning on or after December 31, 2005. The Company does not expect the adoption of this statement to have a material impact on its financial position or results of operations.

In March 2005, the KASB issued SKFAS No. 19, “Lease accounting,” which supersedes pre-KASB standard of “Accounting Standards for Lease Industry”, Under SKFAS No. 19, lease transactions that the risk and benefit from the ownership of the leased property is de facto transferred to the lessee should be classified as a finance lease, and an operating lease otherwise. The classification should be determined by substance of a transaction and lease of real estate also are subject to the statements as other property leases. The provisions of this standard are effectively for lease transactions beginning on or after December 31, 2005. The Company does not expect the adoption of this statement to have a material impact on its financial position or results of operations.

F-86

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.


	POSCO

	(Registrant)

	/s/ Ku-Taek Lee

	Ku-Taek Lee
	Chief Executive Officer
	and Representative Director

Date: June 12, 2006

Exhibit Index


1	.1	—	Articles of incorporation of POSCO (English translation)
2	.1	—	Form of Common Stock Certificate (including English translation) (incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement No. 33-81554)*
2	.2	—	Form of Deposit Agreement (including Form of American Depositary Receipts) (incorporated by reference to the Registrant’s Registration Statement (File No. 33-84318) on Form F-6)*
2	.3	—	Letter from ADR Depositary to the Registrant relating to the Pre-release of American Depositary Receipts (incorporated by reference to the Registrant’s Registration Statement (File No. 33-84318) on Form F-6)*
7	.1	—	Computation of ratio of earnings to fixed charges
8	.1	—	List of subsidiaries of POSCO
12	.1	—	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12	.2	—	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13	.1	—	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15	.1	—	Consent of Samil PricewaterhouseCoopers, the Korean member firm of PricewaterhouseCoopers


*	Filed previously