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The More Value

2 0 1 1 A N N U A L R E P O R T

DONGKUK STEEL MILL CO., LTD.Ferrum Tower 66 Suha-dong, Jung-gu, SeoulTel 82-2-317-1114

www.dongkuk.co.kr/eng/

ValueD O N G K U K S T E E L

D O N G K U K S T E E L

The More Value

CONTENTS

Financial Highlights

02/ Message From Chairman

04/ Message From President

06/ Board of Directors

08/ Vision 2015

10/ About Dongkuksteel

12/ 2011 Overview and Outlook for 2012

14/ Affiliated Companies

16/ Business Activities

18/ Social Responsibility

20/ History

21/ Financial Statements

60/ Global Network 2 0 1 1 A N N U A L R E P O R T

Financial Highlights

Individual

Consolidated

Revenue

Revenue

5,909.48,841.9

181.9267.1

5,2

71

.48

,15

4.8

24

3.2

34

6.4

4,5

65

.27

,01

6.1

15

3.7

4

17

.0

2011

2011

2011

2011

2010

2010

2010

2010

2009

2009

2009

2009

Operating Income

Operating Income

Assets

Assets

7,8

80

.21

0,1

52

.9

7,4

57

.39

,67

0.3

6,5

56

.88

,77

2.5

2011

2011

2010

2010

2009

2009

Liabilities

Liabilities

5,0

42

.0

7,0

05

.2

4,5

46

.86

,46

2.9

3,7

53

.95

,61

6.8

2011

2011

2010

2010

2009

2009

※ According to K-GAAP standards for FYE 2009,K-IFRS standards for FYE 2010, 2011

(unit :1 bi l l ion KRW)

(unit :1 bi l l ion KRW)

D O N G K U K S T E E L

2 0 1 1 A N N U A L R E P O R T

CONTENTS

01/ Financial Highlights




01/ Vision 2015






01/ History


01/ Global Network

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2011 ANNUAL REPORT

DONGKUK STEEL 03

Message from Chairman

CONTENTS





01/ Vision 2015






01/ History


01/ Global Network

I would like to express my deepest gratitude to our shareholders for their unwavering trust and support, and to our

employees for their dedicated hard work.

The financial crisis in Europe has delayed the expected recovery of the global economy. Due to increase of raw material

prices including iron ores and the stagnation of various industries, the steel industry has experienced many difficulties as we

were not able to reflect increasing raw material prices in our product pricing.

To strengthen management with a strong sense of determination for success within the constant skirmishes for survival, I

have chosen “Systemized Risk Management,” “Creative Reestablishment of Business Fundamentals,” and “Strengthening

Adaption to Changes and Maintaining Core Competitiveness,” as the management principles of our company.

By establishing a system of survival within the most difficult business environments, and by achieving success with the integrated

steel mill in Brazil, which we have prepared over the past decade, we are ready for the upcoming 100 years.

In all instances, everything depends on the people. A masterpiece sword can only be as powerful as the person who wields its blade.

we promise to communicate and corporate in creating a masterpiece sword which will be worthwhile.

I would like to ask for unchanging support and encouragement from our shareholders as Dongkuk Steel will become a

global masterpiece steel company in the future.

2012 is the known as the year of the black dragon. I hope all of our shareholders and employees achieve their goals and

soar to greater heights.

Thank you.

Sae Joo Chang Chairman and CEO

Dongkuk Steel Group

The More Value02 DONGKUK STEEL 03


By achieving

success with the

integrated steel

mil l in Brazil,

which we have

prepared over

the past decade,

we are ready for

the upcoming

100 years.

CONTENTS





01/ Vision 2015






01/ History


01/ Global Network

The More Value02

2011 ANNUAL REPORT

DONGKUK STEEL 03


CONTENTS





01/ Vision 2015






01/ History


01/ Global Network

Fur thermore,

we ensure that

we a lways

pract ice

t ransparent

management

and put our

shareholders

in terests

foremost.

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2011 ANNUAL REPORT

DONGKUK STEEL 05

Message from President

Last year, Dongkuk Steel successfully stabilized Dangjin Mill and the Eco-arc electric furnace in Incheon, establishing its

position as a next-generation production plant.

By developing various new products and steel grades, we strengthened our technologies. We also established an innovative

steel business model for sustainable and eco-friendly development, as we constructed new reinforcing bar rolling plant in

Incheon. With the construction of an integrated steel mill in Brazil, we have now declared a new era of global business.

I would like to thank all of our shareholders and employees for making these accomplishments possible.

However, current business conditions are constantly threatening our growth.

Due to signs of low economic growth, stagnation in various industries,and the excessive supply of steel along with intense

competition, upholding a strong foothold within the market has become our top priority for 2012.

Peter Druckeronce said “Trying to predict the future is like trying to drive down a country road at night with no lights while

looking out the back window. The best way to predict the future is to create it.”

Although our future is unpredictable more than ever before, we cannot cease advancing forward because of fear alone. By

creating new opportunities within the changes and innovating ourselves, we cope with the challenging business environment

through communication.

As we advancing forward with our pride and confidence in Dongkuk and with our 58-year history, we will become a global

masterpiece steel company, as we promise to repay our shareholders for their support and trust.

Furthermore, we ensure that we always practice transparent management and put our shareholders interests foremost.

I would like to wish you the best of health and fortune.

Thank you.

Young Chul Kim President and CEO

Dongkuk Steel

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2011 ANNUAL REPORT

DONGKUK STEEL 07

Board of Directors

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2011 ANNUAL REPORT

DONGKUK STEEL

Dongkuk Steel’s Board of Directors is the company’s core decision-making body for protecting the rights and interests of

the shareholders and stakeholders, maintaining transparent management, and sustainable long-term growth. Dongkuk

Steel’s Board of Directors consists of 12 directors, 7 of whom are outside directors.

Deok Bae Kim

Dae Hwi Kim

Jae Hong Lee

Shinichi Okada

Seung Hee Han

Jin Kuck Park

Kew Hong Park

Yong Sup Yoon

Sae Joo Chang

Inside Director

Sae Joo Chang

Young Chul Kim

Sae Wook Chang

Yun Young Nam

Ta i Yo u l Ye u n

Outside Director

Seung Hee Han

J in Kuck Park

Yong Sup Yoon

Deok Bae K im

D a e H w i K i m

Jae Hong Lee

Shinichi Okada

Chairman

President

President

Vice-president

Vice-president

Arbitrator, Korean Commercial Arbitration Board (Current) Director, Shinmyeong Culture Foundation (Current)

Former CEO/Director, Sun-Myeong Accounting Firm/Current Vice-President, Seong-Do Accounting Firm

Former Presiding Judge, Seoul Western District Court/Current Attorney, Yulchon Law Firm

Member of the 16th National Assembly/Former Executive Secretary to the Chairman of the National Assembly

Former Chief Judge, Seoul Family Court/Current Attorney at Hwawoo Law Firm

Former Chief Judge, Seoul Administrative Court/Current Attorney, Kim & Chang Law Firm

JFE Holdings/Current Managing Director, JFE Holdings

Young Chul Kim

Sae Wook Chang

Yun Young Nam

Tai Youl Yeun

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2011 ANNUAL REPORT

DONGKUK STEEL 09

Vision 2015

CHANGE & GROWTH

Global Production

Customer-oriented sales and technologyMarketing

Strengthen product competitiveness based on technology

Secure highest level of raw material prices competitiveness

Reinforce ourstanding inthe global market

Operating Profit Revenue

10 million tons

600 billion won7 trillion won

Global

Integrated Steel

Manufacturer

Having achieved continuous growth as Korea’s first privately-owned steel company, Dongkuk

Steel is preparing to continue its growth to become global integrated steel manufacturer under

the company’s motto “Change & Growth.”

While pursuing customer-oriented technology sales and marketing, Dongkuk Steel will secure the

highest level of cost competitiveness, product competitiveness based on technology leadership,

while securing a strong foothold within the global market. By doing so, it will achieve 10 million tons

in production, 7 trillion won in revenue, and 600 billion won in operating profit by 2015.

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2011 ANNUAL REPORT

DONGKUK STEEL 11

About Dongkuk steel

Dangjin Works, which began commercial

production in 2010, is a state-of-the-art steel

plate factory. It is responsible for producing

various high-value-added steel products, such

as TMCP and normalized steel plates.

Busan Works manufactures various small size

sections to meet a wide range of customer’s

demands.

Incheon Works specializes in manufacturing reinforcing bars. It is equipped with a state-of-the-art eco-friendly electric : ECO-Arc

electric furnace and other steel production facilities. The construction of a new reinforcing bars rolling plant is underway with the

goal of a hot-run in mid-2012, commencing commercial production for the 4th quarter of 2012. Therefore, the competitiveness of

Incheon Works as Dongkuk’s primary reinforcing bars plant is expected to increase significantly.

DongkukSteel, established in 1954 as a small

company that manufactured nails and steel

wires, has now grown into a global steel

company that manufactures steel plates,

reinforcing bars, and sections.

By manufacturing steel plates for the first time

in Korea, Dongkuk Steel created a growth

foundation for Korea’s shipbuilding industry to

become the world’s number 1. And through the

bold investments in the Eco-Arc electric furnace

sector, it has strengthened its leadership as

an eco-friendly electric furnace manufacturer

with global competitiveness. It is expanding its

business area to blast furnaces by constructing

a steel mill in Brazil, as it prepares to become a

global, integrated steel manufacturer.

With its headquarters in Seoul, Dongkuk Steel

operates 4 sites in Pohang, Incheon, Dangjin,

and Busan.

Pohang Works is Dongkuk’s main production

plant that produce crude steel, steel plates,

sections, and re-bars. To cope with changes

within the steel plates market and to strengthen

the company’s competitiveness, the No. 1

Plate Factory, an outdated facility that has been

operating since October of 1990, will be shut

down in June 10, 2012.

Pohang Incheon Dangjin Busan TotalCrude Steel 1,400 2,200 0 0 3,600

Products 4,450 1,410 1,500 200 7,560

Steel plates 2,900 0 1,500 0 4,400

Reinforcing Bars 550 1,410 0 0 1,960

Sections 1,000 0 0 200 1,200

Pohang Incheon Dangjin Busan TotalCrude Steel 1,400 2,200 0 0 3,600

Products 3,450 1,930 1,500 200 7,080

Steel plates 1,900 0 1,500 0 3,400

Reinforcing Bars 550 1,930 0 0 2,480

Sections 1,000 0 0 200 1,200

(Unit: 1,000tons)

2012

2011

Dongkuk Steel Site &

Production Capacity

Steel Plates Reinforcing Bars & Sections

2011 Overview

Thanks to the global economic recovery, increasing number of new ships commissions, and shipyards’ stocking demand we have experienced increasing sales volume and favorable pricing conditions As shipyards began destocking and shipbuilding volume decreased in 2nd half domestic sales volume and price fell sharply. Increase in slab input price caused by time lag between contract and input as well as depreciating KRW were also main reasons for lower profit rate.

As Korean steel plate manufacturers increased their production capacities by over 5 million tons in 2010 and shipyards imported more steel plates from overseas, steel plate manufacturers’ leverage in price negotiations weakened significantly.

2011 Overview

The construction industry index of 2011 showed a 4% increase (Construction 10.9%↑, Civil works 6.6%↓) in total amount of constructions commissioned, a 10.1% increase (Residential 10.4%↑, Commercial 27.7%↑) in area approved for construction, and a 19.8% increase (Residential 54.2%↑, Commercial 16.8%↑) in area where construction has begun, which resulted in increased sales of reinforcing bars and sections.

Increasing demands for officetels and commercial buildings, civil engineering constructions such as subways, and the growth of residential real-estate markets such as apartment housing in the suburbs were the main causes of growth.

Annual sales of H-beams showed the highest production and sales in the company’s history, and the quarterly sales of reinforcing bars also reached the highest ever in the 4th quarter.

Outlook for 20112

As shipyards are building ships at lower commission rates, this will lead to higher pressure to lower the price of steel plates, and the overall profitability of 2012 is expected to be low as compared to 2011.

However, profitabilify in steel industry has hit the bottom during the 1st quarter and will gradually improve. The drop in slab input price and appreciating KRW will have a positive effect in recovering our profitability.

The overall demand of steel plates is expected to decrease from the previous year, due to less demands from shipyards. On the other hand, orders for offshore plants, offshore structures, and LNG carriers are expected to increase due to high oil prices. Demand for steel plates for oil well pipes and oil pipelines are expected to increase. If the global economy improves and orders of merchant ships recover, the demand for steel plates during the 2nd half may be much stronger than we expect.

Outlook for 20112

The approval and construction of residential buildings show continuous increase since 2010. The increasing demands for housing constructions suburban regions and public corporations such as LH and SH Corporation will likely result in gradual recovery in the housing sector. Furthermore, demands for reinforcing bars and sections will gradually increase as government organizations begin construction for relocation and large infrastructure investments increase.

The profitability of reinforcing bars is expected to improve thanks to the stabilization of the Eco-Arc electric furnace in Incheon and the new reinforcing bars pressure rolling plant, which completed in June, 2012. On the other hand, profitability of sections is expected to see a slight decrease, as more imported products are being introduced into the market. However, it will still be higher than steel plates and reinforcing bars.

(Unit: 1,000 tons)

(Unit: 1,000 tons)

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2011 ANNUAL REPORT

DONGKUK STEEL 13

2009 2010 2011Domestic 2,296 3,004 2,746

Export 264 481 579Total 2,560 3,485 3,325

2009 2010 2011Domestic 2,728 2,636 2,773

Export 181 183 188Total 2,910 2,819 2,961

Annual Sales Volume

3,3

25

3,4

85

2,5

60

2011 2010 2009

Total

Annual Sales Volume

2,9

61

2,8

19

2,9

10

2011 2010 2009

Total

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2011 ANNUAL REPORT

DONGKUK STEEL 15

Affil iated Companies

Dongkuk Steel Group consists of 18 companies in Korea, including Dongkuk Steel, and 16 corporations overseas.

Dongkuk Steel Group’s steel business consists of Dongkuk Steel, which manufactures steel plates and long products,

and Union Steel, which manufactures cold-rolled coated plates and color coated plates. Dongkuk Steel Group’s

logistics business utilizes an integrated system that includes land and maritime transportation, port stevedoring, and

management. And Dongkuk Steel Group also operates businesses in machinery production and IT sectors.

By creating synergy through the collaboration of affiliated companies, and making continuous investment and growth,

all affiliated companies of Dongkuk Steel Group are steadily becoming global enterprises.

18 companies in Korea + 16 companies overseas

Dec.31, 2011. standard

Organization Chart

ANHUI KUKJE

JINGTIAN

MACHINERY

BRANSON

MACHINERY

DONGKUK STEEL

40.37% 34.82%

27.6%

5%

21.35% 90%

16.67%

100% 100%

100%100%

84.85%

5%

60% 40%

10.23% 35.4%44.8%

14.68%

100%1.46%

100% 100%

51%

70.94% 100% 100%

25%

75%

100%

55.56% 44.44%

100%

50%

50%

73.33% 43.84% 65.11% 51.9% 98.55% 55% 63.59% 51.08% 30%

DK AZTEC DK UILILSIN U & VENTURE CAPITAL

INTERGIS

DK S&

UNION

COATING

UNION STEEL

FERRUM INFRA

Dangjin Kodae-port Operating

DONGKUK

INT’L

DONGKUK

CORP.CSP

DKC.S.A

AIMSTEK CO., LTD

Intergis Logistics Center

DKLC

BGCT

I&K Newport

DK TECHDK UIL H.K

DK UIL TIANJIN

DK UIL VIETNAM

UNION LOGISTICS JIANGYIN

BLUE MINE

DK UNC

UNION STEEL CHINA

UNION STEEL MEXICO

WUXI

CHANGJIANG

STEEL METAL

UNION STEEL

PROCESSING

CENTER

USI SERVICE

CENTER P.L

KUKJE

MACHINERY

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2011 ANNUAL REPORT

DONGKUK STEEL 17

Business Activities

Resolution to Investments in the Blast Furnace Steel Mill in Brazil

On December 9, 2011, Dongkuk Steel’s Board of Directors reached a resolution to invest in the blast furnace steel mill in Brazil with

Vale and POSCO. As a result, CSP, a joint venture of Dongkuk Steel, Vale, and POSCO, will acquire 30, 50, and 20 percent shares

respectively, and begin the joint venture.

During stage 1 of the project, CSP will invest 4.868 billion

dollars to construct a 3 million-ton class steel mill by

2015. 50 percent of the budget will be acquired from

outside loans and the remaining 50 percent will be paid

by equities of the 3 companies. Dongkuk Steel will be

investing 730 million dollars.

Pile driving and groundbreaking construction will begin

in the second half of 2012 and a hot run is expected to

take place during the second half of 2015. As a result of

this joint venture, Dongkuk Steel has acquired the rights

to receive a stable supply of a minimum of 1.6 million

tons of high-quality slabs.

Construction of New Reinforcing bar Pressure Rolling Line in Incheon

In April 2011, Dongkuk Steel began the construction of the new

reinforcing bar rolling line, which is a downstream process of the

1.2 million ton capacity Eco-Arc electric furnace, which began

commercial production in January 2011.

The new pressure rolling line uses advanced technologies such

as hot-direct rolling and no-twist rolling to dramatically improve

quality and productivity. It is also an eco-friendly, low-carbon

facility that maximizes energy consumption. The new facility will

be capable of manufacturing high-value-added reinforcing bars of

every specification, including ultra high-strength reinforcing bars

(SD800) with 57mm in diameter and tensile strength of 800MPa. The new line is planned to begin a hot run in June, 2012, and the

preexisting pressure rolling line (annual production capacity of 680,000 tons) is due to be shut down.

INTERGIS IPO

INTERGIS is a general logistic company that operates port

stevedoring, transportation of steel products and import/export

containers and cargo transportation with business sites in

Busan, Pohang, Dangin and Incheon. And through its IPO in

December 2011, it was successfully enlisted in the KOSPI.

Union Steel begins commercial production in No. 6 and No. 7 CCL

In January 2012, Union Steel began commercial production in No. 6 and

No. 7 CCL which began construction in March 2011.

The No.6 CCL is specialized equipment for printed steel sheets, and the

No.7 CCL is specialized for film-laminated steel sheets. These two lines

combined will have an annual production capacity of 120,000 tons.

Union Steel color coated sheets uphold the top plates market share in

Korea and it is aiming to become No.1 product. After acquiring recognition

for its excellent quality, Union Steel color coated sheets are supplied to world-leading appliance manufacturers, such as Whirlpool,

Mitsubishi, Samsung, and LG. Union Steel aims to achieve a 1 million ton production capacity of color coated sheets by 2015.

By establishing a coiling center in Thailand, following overseas plants in China and Mexico, Union Steel will continue to its global

expansion.

Acquisition of DK AZTEC

Dongkuk Steel has acquired ASTEK(changed name to DK AZTEC), which manufactures sapphire ingots, in May 2011 by acquiring

38.1 percent of its shares, making Dongkuk the largest shareholder with management rights. Sapphire ingots are core materials used

in the circuit boards of LEDs, and DK AZTEC is a prominent venture company that possesses the technology to manufacture large

sapphire ingots and also has the ability to develop its own equipment. In December of last year,

DK AZTEC became Korea’s first company to successfully manufacture 6-inch sapphire ingots,

and maintains excellent technological leadership compared to its competition. By continuously

supporting investments towards DK AZTEC, Dongkuk Steel will nurture the company to occupy

a dominant share of the sapphire ingot market, which only a few companies in the world are

able to provide large supplies.

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2011 ANNUAL REPORT

DONGKUK STEEL 19

Social Responsibility

Volunteer Activities

Under the mission of “Make the World a Heart-warming Place,” Dongkuk Steel carries out up-close volunteer activities from

each business site to support the local community, which is the foundation of our growth, and to expand the corporate culture of

sharing and volunteering.

Scholarships for Engineering Students

In collaboration with the Songwon Cultural Foundation, Dongkuk Steel provides scholarships to outstanding engineering major

undergraduate and graduate students of 13 universities since 2004.

Dongkuk’s scholarship program began in hopes to support the developments of engineering in the local communities, and the

number of beneficiary students and schools are increasing. Furthermore, scholarship beneficiaries are also given added points if

they wish to work with Dongkuk Steel upon graduation.

Cultural Activities

Based on the management philosophy of “Contributing to Cultural Developments

through Steel” Dongkuk Steel actively participates in corporate “Mecenat” activities,

including supporting cultural and arts events such as exhibitions and performances.

Since 2004, Dongkuk Steel has been supporting the cultural and arts society, including

classical music performances and musicals as well as operas by the National Opera

Company. Furthermore, it also operates Songwon Arts Center to helping discover and

support young, talented artists.

Songwon Cultural Foundation

Songwon Cultural Foundation was established in December of 1996 through a

donation of 10 billion won to support talented human resources, and to help our

neighbors in need by creating a brighter society, as it was the wishes of the late

Chairman Sang Tae Chang, who founded the company.

Today, it collaborates with Dongkuk Steel to support scholarships, donations

for self-support, and research and development in academic and scientific

technologies.

Scholarships

Academic/Research Programs

Donations

Culture Programs

(unit: million won)

(unit: million won)

(unit: million won) (unit: million won)

535

552

4,319 1,633

1998~2011

22 Report of Independent Auditors

24 Statement of Financial Position

26 Statement of Income

28 Separate Statement of Comprehensive Income

29 Separate Statement Changes in Equity

30 Statement of Cash Flows

32 Notes to the Separate Financial Statements

C O N T E N T S

Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010

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2011 ANNUAL REPORT

DONGKUK STEEL 21

History

Jul. 1954

May 1963

Mar. 1965

Oct. 1966

Feb. 1971

Feb. 1972

Feb. 1985

May 1986

Jun. 1991

Apr. 1993

Feb. 1994

Dec. 1997

Feb. 1999

Ju l . 2004

Oct. 2009

May 2010

Jun. 2010

Oct. 2010

Jul . 2012

Jun. 2012

Dongkuk Steel established

Construction of large-scale steel works begins, first private steel company (Busan)

Blast furnace completed (50 tons/day), a first in Korea

Electric furnace completed (15 tons/day), a first in Korea

Completed plate mill, a first in Korea (150,000 tons/year)

Merges with Hankuk Steel and Hankuk Steel Ind. (Incheon Works)

Merges with Yeonhap Steel (Union Steel), Kukje Machinery, & Kukje Transportation

Incheon Works breaks world record in steel production per hour

No.1 Plate Mill in Pohang Works completed (1 mil. tons/year)

2nd Incheon Works completed; DC electric furnace (1million ton), a first in Korea

Permanent no-strike declared, a first in Korea

No.2 Plate Mill (1.5 mil. tons/year) & Section Mill (720,000 tons / year) in Pohang Works completed

Rebar Mill in Pohang Works completed (400,000 tons/year)

New corporate vision and new CI declared on 50th anniversary

Completed new R&D Center

Opening ceremony for Plate Mill in Dangjin Works (1.5mil. tons/year)

Completed new head office “Ferrum Tower”

Completed ‘Eco Arc’ Electric Furnace(1.2million ton) in Incheon Works

Established joint venture with POSCO and Vale, CSP in Brazil

Completed new rebar will in Incheon(1.2mil. tons/year)

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2011 ANNUAL REPORT

DONGKUK STEEL 23

Samil PricewaterhouseCoopers, LS Yongsan Tower, 191, Hangangno 2-ga, Yongsan-gu, Seoul 140-702, Korea (Yongsan P.O Box 266, 140-600), www.samil.com

This report is effective as of March 7, 2012, the audit report date. Certain subsequent events or circumstances, which may occur

between the audit report date and the time of reading this report, could have a material impact on the accompanying separate

financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that

the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

Seoul, Korea

March 7, 2012

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 audit provides a

reasonable basis

In our opinion, based on our audit, the separate financial statements, referred to

above, present fairly, in all material respects, the financial position of DONGKUK

STEEL MILL CO., LTD. as of December 31, 2011, and its financial performance

and cash flows for the year then ended in accordance with Korean-IFRS.

Auditing standards and their application in practice vary among countries. The

procedures and practices used in the Republic of Korea to audit such financial

statements may differ from those generally accepted and applied in other

countries. Accordingly, this report is for use by those who are informed about

Korean auditing standards and their application in practice.

for our opinion.

To the Board of Directors and Shareholders of

DONGKUK STEEL MILL CO., LTD.

We have audited the accompanying separate statement of financial position of DONGKUK STEEL

MILL CO., LTD. (the “Company”) as of December 31, 2011, and the related separate statement

of income, comprehensive income, changes in equity and cash flows for the year then ended,

expressed in Korean won. These separated financial statements are the responsibility of the

Company’s management. Our responsibility is to express an opinion on these separate financial

statements based on our audit. The financial statements of the Company as of and for the year

ended December 31, 2010, were audited by us as per our audit report dated March 1, 2011, where

we expressed an unqualified opinion on those statements. The financial statements on which we

expressed an unqualified opinion do not reflect the adjustments as described in Note 39 as required

by the International Financial Reporting Standards adopted by the Republic of Korea (“Korean-

IFRS”). However, the financial statements presented herein for comparative purposes reflect such

adjustments in accordance with Korean-IFRS.

We conducted our audit in accordance with auditing standards generally accepted in the Republic

of Korea. 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

Report of Independent Auditors

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2011 ANNUAL REPORT

DONGKUK STEEL 25

Separate Statements of Financial PositionYears Ended December 31, 2011 and 2010, january1, 2010

Consolidated Statements of Financial PositionYears Ended December 31, 2011 and 2010, january1, 2010

AssetsCurrent assets

Cash and cash equivalents

Financial deposits

Trade receivables

Other receivables

Other financial assets

Inventories

Other current assets

Total current assets

Non-current assetsFinancial deposits

Other receivables


Property, plant and equipment

Intangible assets

Investment Property

Investments in subsidiaries, joint ventures and associates

Other non-current assets

Total non-current assets

Total assets

Liabilities and EquityLiabilities Current liabilities

Trade payables

Borrowings

Other payables

Other current liabilities

Total current liabilities

Non-current liabilitiesBorrowings

Defined benefit liabilities

Deferred income tax liabilities

Other payables

Provisions

Total non-current liabilities

Total liabilities

EquityCapital stock

Capital surplus

Retained earnings

Accumulated other comprehensive income

Other components of equityTotal equityTotal liabilities and equity

(in thousands of Korean won)

4,5

4,5

4,6,37

4,6,37

4,7

8

9

4,5

4,6

4,7

10

11

13

12

9

4,15,37

4,14,36

4,15,37

4,7,19

4,14,36

17

16

4,15

18,35

1,20

21

22

20,22

663,307,649

590,352,901

853,885,047

4,330,481

4,294,053

1,385,573,181

40,669,451

3,542,412,763

30,300

1,672,064

121,142,981

3,066,675,245

56,853,425

154,938,614

935,473,099

1,034,915

4,337,820,643

7,880,233,406

1,641,784,804

1,512,564,343

128,647,179

14,498,091

3,297,494,417

1,663,875,512

20,780,393

45,780,674

14,091,200

-

1,744,527,779

5,042,022,196

421,185,800

83,097,849

1,722,317,810

-39,255,276

650,865,027

2,838,211,210

7,880,233,406

30,300

1,273,375

170,396,799

3,067,927,282

65,381,299

93,524,136

787,785,025

1,040,867

4,187,359,083

7,457,313,816

1,813,397,762

1,246,251,913

110,446,887

15,974,620

3,186,071,182

1,257,478,549

23,270,537

39,804,626

10,076,300

30,101,127

1,360,731,139

4,546,802,321

421,185,800

83,097,849

1,756,808,586

-1,445,767

650,865,027

2,910,511,495

7,457,313,816

28,300

9,512,499

206,570,392

2,799,722,629

66,838,856

-

654,755,576

10,585,833

3,748,014,085

6,524,289,524

1,380,024,768

964,490,491

112,384,799

25,205,221

2,482,105,279

1,163,735,181

19,135,214

7,258,212

7,832,075

-

1,197,960,682

3,680,065,961

421,185,800

83,097,849

1,656,943,238

26,922,133

656,074,543

2,844,223,563

6,524,289,524

598,114,510

549,132,411

801,497,067

13,361,134

44,062,974

1,222,282,841

41,503,796

3,269,954,733

948,051,761

306,064,346

653,563,432

17,410,636

4,096,665

813,968,660

33,119,939

2,776,275,439

Notes December 31,2011

December 31,2010

January 1,2010

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

AssetsCurrent assets


Financial deposits

Trade receivables

Other receivables


Inventories

Other current assets

Non-current assets classified as held for sale

Total current assets

Non-current assetsFinancial deposits

Trade receivables

Other receivables



Intangible assets

Investment Property

Investments in joint ventures and associates

Deferred income tax assets

Other non-current assets

Total non-current assets

Total assets

Liabilities and EquityLiabilities Current liabilities

Trade payables

Current income tax liabilities

Borrowings

Other payables

Provisions

Other current liabilities

Total current liabilities

Non-current liabilitiesBorrowings

Defined benefit liabilities

Deferred income tax liabilities

Other payables

Provisions

Other non-current liabilities

Total non-current liabilities

Total liabilities

EquityEquity attributable to owners of the Parent

Capital stock

Capital surplus

Retained earnings

Accumulated other comprehensive income

Other components of equity

Non-controlling interestsTotal equityTotal liabilities and equity


4,5

4,5

4,6,37

4,6,37

4,7

8

9

10

4,5

4,6

4,6

4,7

10

11

13

12

16

9

4,15,37

4,14,36

4,15,37

18,35

4,7,19

4,14,36

17

16

4,15

18,35

4,7,19

1,20

21

22

20,22

821,421,405

658,677,480

1,378,721,874

59,696,680

37,475,716

1,785,715,551

95,714,010

1,737,290

4,839,160,006

3,400,100

2,869,864

27,682,338

142,850,048

4,506,163,808

91,757,066

238,630,249

275,991,527

9,511,647

15,050,521

5,313,725,168

10,152,885,174

1,135,945,100

4,785,173

3,165,485,152

175,988,255

47,434

41,522,168

4,523,733,282

2,288,691,391

59,223,424

101,312,956

27,003,494

3,578,865

1,593,699

2,481,403,8297,005,177,111

421,185,800

83,097,849

1,693,916,283

(42,756,012)

642,646,864

2,798,090,784

349,617,279

3,147,708,06310,152,885,174

2,475,600

2,021,735

27,012,254

252,957,155

4,384,147,229

101,804,661

202,043,194

39,472,782

9,890,796

12,698,269

5,034,523,675

9,670,304,752

1,496,032,786

5,819,350

2,873,340,842

164,087,738

-

44,438,944

4,583,719,660

1,656,830,154

70,259,443

95,705,491

20,988,011

35,312,842

110,000

1,879,205,9416,462,925,601

421,185,800

83,097,849

1,729,407,076

21,220,620

665,368,335

2,920,279,680

287,099,471

3,207,379,1519,670,304,752

623,500

1,137,253

30,622,248

277,104,325

4,208,498,570

105,614,983

71,967,208

54,962,323

6,146,599

10,909,407

4,767,586,416

8,643,597,504

1,260,306,322

6,829,908

2,162,836,479

188,760,854

1,409,608

54,691,348

3,674,834,519

1,724,348,124

54,468,713

67,192,830

20,567,703

5,259,102

107,000

1,871,943,4725,546,777,991

421,185,800

83,097,849

1,611,221,347

50,797,156

662,450,359

2,828,752,511

268,067,002

3,096,819,5138,643,597,504

883,636,402

625,426,174

1,273,115,791

28,314,312

87,227,234

1,642,466,140

94,797,794

797,230

4,635,781,077

1,192,243,877

373,216,666

1,058,955,284

26,899,367

13,262,243

1,123,064,634

88,369,017

-

3,876,011,088

Notes December 31,2011

December 31,2010

January 1,2010

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

The More Value26

2011 ANNUAL REPORT

DONGKUK STEEL 27

Revenue

Cost of sales

Gross profit

Selling, general and administrative expenses

Other operating income

Other operating expenses

Operating profit

Financial income

Financial expenses

Share of profit (loss) of joint ventures and associates

Profit before Income tax

Income tax expense

Profit for the year

Profit attributable to:

Owners of the parent

Non-controlling interests

Earnings per share for profit attributable to owners of the parent (in Korean won)

Basic earnings per share

(in thousands of Korean won, except per share amounts)

23,37

8,24,37

24,26,37

27

24,28

29

30

12

34

31

32

8,841,939,944

8,213,649,287

628,290,657

349,711,533

151,423,480

162,933,001

267,069,603

130,176,869

310,395,850

-8,043,395

78,807,254

72,297,826

6,504,428

7,485,482

-976,054

124

8,154,799,191

7,366,209,535

788,589,656

360,537,909

120,524,212

202,145,544

346,430,415

129,439,357

244,003,935

-3,486,260

228,379,577

49,614,359

178,765,218

162,546,621

16,218,597

2,681

Notes 2011 2010

Separate Statements of IncomeYears Ended December 31, 2011 and 2010

Consolidated Statements of IncomeYears Ended December 31, 2011 and 2010

Revenue

Cost of salesGross profit


Other operating income

Other operating expenses

Operating profit

Financial income

Financial expenses

Profit before Income tax

Income tax expense

Profit for the year

Earnings per share for profit(In Korean Won)


(in thousands of Korean won, except per share amounts)

23,37

8,24,37

24,26,37

27

24,28

29

30

34

31

32

5,909,399,295

5,482,854,258

426,545,037

217,485,116

97,869,680

125,022,918

181,906,683

84,952,763

203,572,903

63,286,543

52,334,511

10,952,032

181

5,271,376,417

4,772,382,721

498,993,696

195,999,953

90,543,980

150,343,667

243,194,056

85,374,664

147,533,719

181,035,001

42,319,641

138,715,360

2,288

Notes 2011 2010

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

The More Value28

2011 ANNUAL REPORT

DONGKUK STEEL 29

7

17


Separate Statements of Comprehensive IncomeYears Ended December 31, 2011 and 2010

Separate Statements of Changes in EquityYears Ended December 31, 2011 and 2010

(in thousands of Korean won) Notes 2011 2010


Profit for the year

Other comprehensive income, net of tax

Gain on valuation of available-for-sale securities, net

Cash flow hedges

Actuarial gain(loss) on defined benefit liability

Other comprehensive income(loss) for the year, net of tax

Total comprehensive income for the year

10,952,032

-37,832,771

23,262

-8,724

-37,818,233

-26,866,201

138,715,360

-28,014,793

-353,107

-2,337,745

-30,705,645

108,009,715

Balance at January 1, 2010

Comprehensive income:

Profit for the year

Gain on valuation of

available-for-sale securities, net

Cash flow hedges


Total comprehensive income

Transactions with owners:

Dividends

Purchase of treasury shares

Others

Total transactions with owners

Balance at December 31, 2010

Balance at January 1, 2011

Comprehensive income:

Profit for the year

Gain on valuation of

available-for-sale securities, net

Cash flow hedges


Total comprehensive income

Transactions with owners:

Dividends

Total transactions with owners

Balance at December 31, 2011

7

17

33

7

17

33

504,283,649

-

-

-

-

-

-

-

-

504,283,649

504,283,649

-

-

-

-

-

-

-

504,283,649

1,656,943,238

138,715,360

-

-

(2,337,745)

136,377,615

(36,512,267)

-

-

(36,512,267)

1,756,808,586

1,756,808,586

10,952,032

-

-

(8,742)

10,943,308

(45,434,084)

(45,434,084)

1,722,317,810

26,922,133

-

(28,014,793)

(353,107)

-

(28,367,900)

-

-

-

-

(1,445,767)

(1,445,767)

-

(37,832,771)

23,262

-

(37,809,509)

-

-

(39,255,276)

656,074,543

-

-

-

-

-

-

(6,282,890)

1,073,374

(5,209,516)

650,865,027

650,865,027

-

-

-

-

-

-

-

650,865,027

2,844,223,563

138,715,360

(28,014,793)

(353,107)

(2,337,745)

108,009,715

(36,512,267)

(6,282,890)

1,073,374

(41,721,783)

2,910,511,495

2,910,511,495

10,952,032

(37,832,771)

23,262

(8,742)

(26,866,201)

(45,434,084)

(45,434,084)

2,838,211,210

Notes Sharecapital

Retainedearnings

Accumulatedother

comprehensiveincome(expense)

Othercomponents

of equityTotal

The More Value30

2011 ANNUAL REPORT

DONGKUK STEEL 31

Cash flows from operating activities

Cash generated from operations

Interest received

Interest paid

Dividends received

Income tax paid

Net cash generated from operating activities

Cash flows from investing activities

Decrease in financial deposits

Decrease in other receivables

Decrease in other financial assets

Proceeds from disposal of property, plant and equipment

Proceeds from disposal of intangible assets

Inflow from changes in consolidated subsidiaries

Decrease in other non-current assets

Increase in financial deposits

Increase in other receivables

Increase in other financial assets

Purchases of property, plant and equipment

Purchases of intangible assets

Acquisition of subsidiary, net of cash acquired

Acquisition of investments in joint ventures and associates

Outflow from changes in consolidated subsidiaries

Increase in other assets

Net cash used in investing activities

Cash flows from financing activities

Proceeds from borrowings

Issuance of capital stock

Capital increase from non-controlling interests

Repayments of borrowings


Dividends paid

Capital decrease from non-controlling interests

Net cash provided by financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of year

Exchange gains on cash and cash equivalents

Cash and cash equivalents at the end of year

34

5

5

16,676,592

39,242,933

(209,561,463)

3,581,116

(68,088,686)

(218,149,508)

1,441,786,735

47,435,584

91,818,768

1,347,960

456,490

-

21,704

(1,472,841,154)

(47,076,114)

(69,587,643)

(439,609,362)

(1,479,830)

(9,327,396)

(203,750,242)

(23,561,243)

(70,483)

(684,436,226)

5,059,368,139

51,615,039

13,780,042

(4,235,745,647)

-

(45,436,107)

(5,871,324)

837,710,142

(64,875,592)

883,636,402

2,660,595

821,421,405

61,749,514

38,097,480

(172,916,526)

4,140,957

(12,533,897)

(81,462,472)

981,402,765

46,479,679

11,794,987

40,458,546

266,728

981,307

13,585,210

(1,231,811,971)

(38,061,418)

(108,208,788)

(496,455,999)

(2,467,289)

-

-

-

(459,237)

(782,495,480)

3,713,584,274

16,082,320

-

(3,131,428,178)

(6,282,890)

(36,511,297)

(2,128,273)

553,315,956

(310,641,996)

1,192,243,877

2,034,521

883,636,402


Separate Statements of Cash FlowsYears Ended December 31, 2011 and 2010

Consolidated Statements of Cash FlowsYears Ended December 31, 2011 and 2010


Cash flows from operating activities


Interest received

Interest paid

Dividends received

Income tax paid

Net cash generated from operating activities

Cash flows from investing activities

Decrease in financial deposits

Decrease in other receivables

Decrease in other financial assets

Proceeds from disposal of property, plant and equipment

Proceeds from disposal of intangible assets

Proceeds from disposal of investments in

subsidiaries, joint ventures and associates

Decrease in other assets

Increase in financial deposits

Increase in other receivables

Increase in other financial assets

Purchases of property, plant and equipment

Purchases of intangible assets

Acquisition of investments in

subsidiaries, joint ventures and associates

Increase in other assets

Net cash used in investing activities

Cash flows from financing activities

Proceeds from borrowings

Repayments of borrowings


Dividends paid

Net cash provided by financing activities

Net increase(decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at the end of year

34

5

5

86,199,649

26,176,545

(142,133,036)

6,717,535

(52,888,937)

(75,928,244)

1,400,593,998

1,146,628

106,205

663,997

318,182

76,007,682

314,062

(1,439,814,488)

(734,127)

(1,138,795)

(274,069,490)

(495,670)

(214,595,117)

(705,601)

(452,402,534)

2,529,349,715

(1,890,389,691)

-

(45,436,107)

593,523,917

65,193,139

598,114,510

663,307,649

310,736,399

28,170,323

(109,899,145)

3,582,143

362,437

232,952,157

916,863,848

4,423,968

127,635

10,357,229

130,000

-

14,686,686

(1,159,939,914)

(4,433,488)

(168,540)

(441,248,863)

(1,471,242)

(144,209,947)

(2,633,390)

(807,510,018)

1,746,897,838

(1,479,483,042)

(6,282,890)

(36,511,296)

224,620,610

(349,937,251)

948,051,761

598,114,510


The More Value32

2011 ANNUAL REPORT

DONGKUK STEEL 33

Notes to the Separate Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010

15.39

10.21

14.88

57.51

97.99

2.01

100.00

Percentage ofownership(%)

1. General information

DONGKUK STEEL MILL CO., LTD. (the “Company”) was incorporated on July 7, 1954, under the Commercial Code of the Republic of Korea

to engage in manufacturing and marketing of steel plates, reformed bars and H-beams. The Company’s head office is located in Suha-dong,

Jung-gu, Seoul, and its main manufacturing facilities are located in Incheon, Pohang, Busan, and Dangjin in the Republic of Korea. In addition,

the Company has invested in Union Steel Co., Ltd., Intergis Co., Ltd., Donkuk Int’l Inc, Dongkuk Corp, Union Coating Co., Ltd., DKUIL and

several local and international companies.

The Company’s shares were listed on the Korea Exchange in April 1988. As of December 31, 2011, the Company has outstanding capital

stock amounting to \421,186 million, including preferred stock of \36,781 million. The Company’s shareholders and their respective ownership

as of December 31, 2011, are as follows:

9,512,765

6,314,398

9,199,317

35,552,298

60,578,778

1,245,512

61,824,290

Sae Joo Chang

Sae Wook Chang

JFE Steel

Others

Treasury stock

Number ofshares

2. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have

been consistently applied to all the periods presented, unless otherwise stated

2.1 Basis of Preparation

The Company maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul)

in conformity with the International Financial Reporting Standards as adopted by the Republic of Korea (“Korean-IFRS”). The accompanying

financial statements have been condensed, restructured and translated into English from the Korean language financial statements.

The Company’s financial statements for the annual period beginning on January 1, 2011, have been prepared in accordance with Korean-IFRS.

These are the standards, subsequent amendments and related interpretations issued by the International Accounting Standards Board (“IASB”)

that have been adopted by the Republic of Korea.

The financial statements of the Company were prepared in accordance with Korean-IFRS and are subject to Korean-IFRS1101, ‘First-time

Adoption of Korean-IFRS’. The transition date, according to Korean-IFRS1101, from the previous accounting principles generally accepted in

the Republic of Korea (“Previous K-GAAP”) to Korean-IFRS is January 1, 2010. Reconciliations and descriptions of the effect of the transition

from previous K-GAAP to Korean-IFRS on the Company’s equity, comprehensive income and cash flows are described in Note 39.

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise

judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or

areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.

3. Critical Accounting Estimates and Judgments

The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal

the related actual results. Estimations and assumptions are continuously evaluated with consideration to factors such as events reasonably

predictable in the foreseeable future within the present circumstance according to historical experience. The estimates and assumptions

that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are

addressed below.

(1) Income taxes

The Company recorded, based on its best estimate, current taxes and deferred taxes that the Company will be liable in the future for the

operating results as of the financial year end. However, the final tax outcome in the future may be different from the amounts that were initially

recorded. Such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is

made.

(2) Fair value of financial instruments

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Company uses

its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each

reporting period.

(3) Provisions

As described in Note 18, the Company recognizes provisions for litigations as of the reporting date. The amounts are estimated based on

historical data.

(4) Defined benefit liability

The present value of the defined benefit liability depends on a number of factors that are determined on an actuarial basis using a number

of assumptions. The assumptions used in determining the net cost (income) for pensions include the discount rate. Any changes in these

assumptions will impact the carrying amount of the defined benefit liability. The Company determines the appropriate discount rate at the end

of each year. This is the interest rate that is used to determine the present value of estimated future cash outflows expected to be required

to settle the defined benefit liability. In determining the appropriate discount rate, the Company considers the interest rates of high-quality

corporate bonds that are denominated in the currency in which the pension benefits will be paid, and that have terms to maturity approximating

to the terms of the related pension liability. Other key assumptions for defined benefit liability are based in part on current market conditions.

Additional information is disclosed in Note 17.

The More Value34

2011 ANNUAL REPORT

DONGKUK STEEL 35

4. Financial Instruments by Category

Income and loss of financial instruments by category for the years ended December 31, 2011 and 2010, are as follows:

5. Cash and Cash Equivalents

Cash and Cash Equivalents

The cash and cash equivalents in consolidated statements of financial position equal to cash in consolidated statements of cash flows.

Financial deposits

The following amounts of financial deposits are restricted in connection with maintaining checking accounts as of December 31, 2011

and 2010, and January 1, 2010, are as follows:

(in millions of Korean won)



2011

2010.12.31

2010.12.31

2011.12.31

2011.12.31

2010

2010.1.1

2010.1.1

Available-for-sale financial assets

Gain(Loss) on valuation(Other comprehensive income(loss))

Dividend income

Loans and receivables

Interest income

Gain(Loss) on foreign exchange

Bad debt expense

Held-to-maturity financial assets

Interest income

Derivative financial instruments

Gain(Loss) on valuation (Other comprehensive income(loss))

Gain(Loss) on valuation/disposal (Profit or loss)

Financial liabilities measured at amortized cost

Interest expense

Gain(Loss) on foreign exchange

Cash on hand

Bank deposits and other

Total

Restricted financial deposits

(37,833)

2,962

26,720

(2,375)

-

141

23

-

143,115

(31,721)

1

598,114

598,115

191

1

663,307

663,308

30

(28,015)

2,962

31,179

(2,727)

(5,903)

129

(353)

633

122,240

26,127

1

948,501

948,502

191

6. Trade and Other Receivables

The aging analysis of trade and other receivables as of December 31, 2011 and 2010, and January 1, 2010, is as follows:



Other receivables (non-current)

Other receivables (non-current)

Other receivables (current)


Trade receivables

Trade receivables

Receivables not past due

Past due but not impaired¹

Less than 3 months

3 to 6 months

6 to 12 months

Over 12 months

Impaired

Less than 3 months

1,672

1,672

-

-

-

-

-

-

-

1,672

4,330

4,330

-

-

-

-

-

-

-

4,330

761,787

761,787

82,664

5,618

579

3,237

92,098

-

-

853,885

2011.12.31



Less than 3 months

3 to 6 months

6 to 12 months

Over 12 months

Impaired

Less than 3 months

1,273

1,273

-

-

-

-

-

-

-

1,273

13,361

13,361

-

-

-

-

-

-

-

13,361

759,198

759,198

37,542

1,552

-

3,205

42,209

-

-

801,497

2010.12.31

(in millions of Korean won) Other receivables (non-current)


Trade receivables



Less than 3 months

3 to 6 months

6 to 12 months

Over 12 months

Impaired

Less than 3 months

9,512

9,512

-

-

-

-

-

-

-

9,512

17,411

17,411

-

-

-

-

-

5,903

5,903

23,314

546,689

546,689

103,244

55

1

3,574

106,874

-

-

653,563

2010.1.1

1 Trade receivables past due but not impaired relate to a number of independent who has no recent history of default.

The More Value36

2011 ANNUAL REPORT

DONGKUK STEEL 37

The details of other financial assets and liabilities as of December 31, 2011 and 2010, and January 1, 2010, are as follows:

¹ Other financial liabilities are included in other liabilities of the financial position (Note 19).

7. Other financial assets and liabilities

(in millions of Korean won) 2011.12.31 2010.12.31 2010.1.1


Financial assets at fair value through profit or loss



Derivatives

Less: current

Other financial liabilities¹

Derivatives

Financial guarantee liabilities

Less: current

-

120,094

5,343

-

125,437

(4,294)

121,143

-

495

495

(495)

-

40,091

170,058

4,311

-

214,460

(44,063)

170,397

31

472

503

(503)

-

-

205,975

4,269

423

210,667

(4,097)

206,570

-

413

413

(413)

-

The details of inventories as of December 31, 2011 and 2010, and January 1, 2010, are as follows:

The cost of inventories recognised as expense and included in ‘cost of sales’ amounted to ￦4,702,666 million (2010: ￦4,145,892 million) including ‘losses

on valuation of inventories’ of ￦7,360 million and ‘reversal of allowance for losses on valuation of inventories’ was not incurred (2010: ￦1,728 million).

8. Inventories

December 31, 2011December 31, 2010December 31, 2011

(in millions of Korean won) Original amount

Original amount

Original amount

9

140,816

89,960

211,455

58,887

304,650

9,920

815,697

562

188,752

148,103

335,408

63,258

474,844

11,356

1,222,283

5

205,220

233,948

447,639

67,291

433,311

5,519

1,392,933

Merchandise

Finished products

Semi-finished products

Raw materials

Supplies

Materials-in-transit

Others

Total

Carrying amount

Carrying amount

Carrying amount

9

139,088

89,960

211,455

58,887

304,650

9,920

813,969

562

188,752

148,103

335,408

63,258

474,844

11,356

1,222,283

5

201,109

231,454

446,884

67,291

433,311

5,519

1,385,573

Valuation allowance

Valuation allowance

Valuation allowance

-

(1,728)

-

-

-

-

-

(1,728)

-

-

-

-

-

-

-

-

-

(4,111)

(2,494)

(755)

-

-

-

(7,360)

The details of other current and non-current assets as of December 31, 2011 and 2010, and January 1, 2010, are as follows:

9. Other assets


Current

Advances to suppliers

Prepaid expenses

Prepaid value added tax

Prepaid income taxes

Non-current

Long-term prepaid expenses

Others

7,449

6,747

3,561

22,912

40,669

68

967

1,035

41,704

6,282

5,702

25,206

4,254

41,504

74

967

1,041

42,545

11,423

8,263

8,779

4,655

33,120

70

10,516

10,586

43,706

2011.12.31

2010.12.31

2010.1.1




Acquisition costAccumulated depreciationGovernment grantsNet book amount



Total

Total

Total

Financial Lease (Ship)



Construction –in–

progress


progress


progress

Machinery and

equipment

Machinery and

equipment

Machinery and

equipment

Buildings

Buildings

Buildings

Others

Others

Others

Structures

Structures

Structures

Land

Land

Land

686,196--

686,196

719,533 --

719,533

752,175--

752,175

500,508(107,560)

-392,948

503,106 (95,049)

- 408,057

332,498(85,190)

- 247,308

140,161(25,633)

-114,528

132,873 (21,424)

- 111,449

56,022(18,241)

-37,781

2,716,569(1,221,347)

(248)1,494,974

2,483,811 (1,086,920)

(273) 1,396,618

1,638,836(991,687)

(299)646,850

116,697(12,326)

-104,371

116,697 (3,571)

-113,126

----

77,051(31,013)

-104,371

75,614 (24,460)

- 51,154

46,355(30,249)

-16,106

227,656--

227,656

267,990 - -

267,990

1,099,503--

1,099,503

4,464,802(1,397,879)

(248)3,066,675

4,299,624 (1,231,424)

(273) 3,067,927

3,925,389(1,125,367)

(299)2,799,723

The details of property, plant and equipment as of December 31, 2011 and 2010, and January 1, 2010, are as follows:

10. Property, plant and equipment

Changes in the carrying amounts of property, plant and equipment for the years ended December 31, 2011 and 2010,are as follows:

2011

2010



BeginningAcquisitionsTransfer-in(out)DisposalsDepreciationEnding

BeginningAcquisitionsTransfer-in(out)DisposalsDepreciationEnding

Total

Total




progress


progress

Machinery and

equipment

Machinery and

equipment

Buildings

Buildings

Others

Others

Structures

Structures

Land

Land

719,943-

(33,337)--

686,196

752,17556

(28,746)(3,952)

-719,533

408,05712

(1,906)(479)

(12,736)392,948

247,308 17

172,598 (528)

(11,338)408,057

111,449279

8,275 (356)

(5,119)114,528

37,781 19

77,661 (234)

(3,778) 111,449

1,396,618 14,569

255,457 (8,421)

(163,249) 1,494,974

646,850 14,063

891,105 (19,693)

(135,707) 1,396,618

113,126 ---

(8,755)104,371

- 116,697

--

(3,571) 113,126

51,1541,2936,153

(27)(12,571) 46,002

16,1064,938

40,898(459)

(10,329) 51,154

267,990 257,916

(298,250)--

227,656

1,099,503422,156

(1,253,669)--

267,990

3,067,927 274,069 (63,608)(9,283)

(202,430)3,066,675

2,799,723 557,946

(100,153)(24,866)

(164,723)3,067,927

The More Value38

2011 ANNUAL REPORT

DONGKUK STEEL 39

Depreciation of property, plant and equipment was classified for the years ended December 31, 2011 and 2010, as follows:

During the year, the Company has capitalized borrowing costs amounting to ￦ 1,746 million (2010: ￦ 29,427 million) on qualifying assets. Borrowing

costs were capitalized at the weighted average rate of its general borrowings of 5.78% (2010: 5.15%)

As of December 31, 2011, certain property, plant and equipment have been pledged as collaterals for certain bank loans for up to a maximum of ￦

1,593,774 million (December 31, 2010: ￦ 1,412,005 million)(Note 14).

As of December 31, 2011, inventories, property, plant and equipment are insured against fire with Meritz Insurance Co., Ltd. for up to ￦ 3,907,225

million (2010: ￦ 3,322,209 million). In addition, the Company carries general loss and comprehensive liability insurance on its vehicles and products.

(in millions of Korean won) 2011 2010

Cost of sales


Research and development expenses

192,835

6,990

2,605

202,430

156,414

5,789

2,520

164,723

The details of intangible assets as of December 31, 2011 and 2010, and January 1, 2010, are as follows:

11. Intangible Assets




Software

Software

Software

Other Intangible Assets



2011.12.31

2010.12.31

2010.1.1

Total

Total

Total

Acquisition cost

Accumulated depreciation and impairment

Government grants

Net book amount

Acquisition cost


Government grants

Net book amount

Acquisition cost


Government grants

Net book amount

34,243

(32,088)

-

2,155

34,243

(25,239)

-

9,004

32,642

(18,497)

-

14,145

70,132

(1,995)

(13,439)

54,698

78,950

(8,819)

(13,754)

56,377

73,565

(6,801)

(14,070)

52,694

104,375

(34,083)

(13,439)

56,853

113,193

(34,058)

(13,754)

65,381

106,207

(25,298)

(14,070)

66,839

Changes in the carrying amounts of intangible assets in the years ended December 31, 2011 and 2010, are as follows:



Software

Software



2011

2010

Total

Total

Beginning

Acquisition / Transfer

Disposal and others

Amortization

Ending

Beginning

Acquisition / Transfer

Disposal and others

Amortization

Ending

9,004

-

-

(6,849)

2,155

14,145

1,601

-

(6,742)

9,004

56,377

496

(393)

(1,782)

54,698

52,694

5,751

(130)

(1,938)

56,377

65,381

496

(393)

(8,631)

56,853

66,839

7,352

(130)

(8,680)

(65,381)

Amortization of intangible assets was classified for the years ended December 31, 2011 and 2010, as follows:

The details of significant intangible assets are as follows:

¹ The units of production method is used for depreciation.

² Book value is net of related government grants.



2011

2011.12.31Description

2010

Residual useful lives

Cost of sales


5,018

3,613

8,631

599

1,547

27,018

3,923

28,328

Software

Other

Intangible

Assets

ERP

MES

Right to use Pohang Hoahn Wharf

Right to use Dangjin Wharf

Right to use Incheon North Port Wharf ²

5,067

3,613

8,680

1 year

1 year

¹

¹

42 years

Changes in investments in subsidiaries, joint ventures and associates for the years ended December 31, 2011 and 2010, are as follows:

12. Investments in Subsidiaries, Joint Ventures and Associates


Beginning balance

Acquisitions / Transfer in

Disposals

Impairment loss

Ending balance

787,785

226,341

(78,653)

-

935,473

654,756

144,210

-

(11,181)

787,785

The More Value40

2011 ANNUAL REPORT

DONGKUK STEEL 41

The details of investments in subsidiaries, joint ventures and associates as of December 31, 2011 and 2010, and January 1, 2010,are as follows:


Subsidiaries

Joint ventures and associates

660,752

274,721

935,473

746,803

40,982

787,785

602,594

52,162

654,756

The details of investments in subsidiaries as of December 31, 2011 and 2010, and January 1, 2010, are as follows:

¹ The Company acquired additional 3.41% of interest in Intergis Co., Ltd. (acquisition cost: ￦4,354 million) during the year ended December 31, 2011.

And Intergis Co., Ltd.’s shares were listed on the Korea Exchange during the year ended December 31, 2011. The ownership interest in Intergis Co., Ltd.

decreased by 35.82% due to shares listed in public and disposal of Intergis Co., Ltd. interests (book value: ￦13,995 million). In addition, Union Steel Co.,

Ltd. has 10.23% interest in Intergis Co., Ltd.

² Union Steel Co., Ltd. and Intergis Co., Ltd. have 70.94% and 1.46% interests, respectively, in Union Coating Co., Ltd..

³ The Company lost control over CSP and classified the investment as an associate since CSP increased its capital stock by issuing new stocks to the third

party only for the year ended December 31, 2011.

4 Dangjin Kodae-port Operating Company Ltd. which was established during the period, became new subsidiaries since the Company has de facto control

due to the acquisition of more than one-half of common shares with voting rights.

5 Reclassified from an associate to a subsidiary since the Company acquired control over DK UNC Co., Ltd. due to additional 51.9% acquisition of DK UNC

Co., Ltd.(acquisition cost: ￦10,738 million) for the year ended December 31, 2011.


Union Steel Co., Ltd.

Intergis Co., Ltd.¹

Dong Kuk Int’l Inc.

Dong Kuk Corporation

Union Coating Co., Ltd.²

Ilsin U&Venture Capital

CSP Co., Ltd.³

Ferrum Infra Co., Ltd.

Dangjin Kodae-port

Operating Company., Ltd.

Meritz 2Star Private equity

security KISE-7

Meritz 2Star Private equity

security SEPO-12

Hi Private Securities

Investment trust 3-18

Hi Private Securities

Investment trust 3-19

Heungkuk Safe Private

Securities Investment trust

92 bond

DKUNC Co., Ltd.

4

5

2011.12.31 2010.12.31LocationPercentage of ownership (%) 2010.1.1

455,995

70,712

19,673

15,784

10,815

6,917

-

59,580

550

-

9,988

-

-

-

10,738

660,752

Korea

Korea

U.S.A.

Japan

Korea

Korea

Brazil

Korea

Korea

Korea

Korea

Korea

Korea

Korea

Korea

455,995

80,353

19,673

15,784

10,815

11,139

23,041

59,580

-

10,435

9,988

20,000

20,000

10,000

-

746,803

65.11

43.84

64.27

51.08

27.60

73.33

-

98.55

55.00

-

100.00

-

-

-

51.90

455,995

80,353

19,673

15,784

10,815

11,139

8,435

400

-

-

-

-

-

-

-

602,594

The details of investments in joint ventures and associates as of December 31, 2011 and 2010, and January 1, 2010, are as follows:

¹ Although Intergis Co., Ltd. owns 5.0% and the Company holds less than 20% of the equity shares of investee, the Company exercises significant influence and

hence applied equity method as material transactions exist between the Company and investee, and the Company exercise significant influence.

² Prior to the year ended December 31, 2010, the Company recognized the impairment loss because the net realizable value of investments in IC&IG Holding

(NL) B.V. was below its net book value and was not expected to recover in the near future due to its continuous operating losses and accumulated deficit. In

addition, the liquidation of IC&IG Holding (NL) B.V. is completed for the year ended December 31, 2011.

³ Investment of DK AZTEC was classified as an associate due to the Company’s significant influence as the Company newly acquired the ordinary shares and

redeemable convertible preferred shares with voting right of DK AZTEC Inc. for the year ended December 31, 2011. In addition, all redeemable convertible

preferred shares were converted into ordinary shares for the year ended December 31, 2011.


DK UIL Co., Ltd.

DK S& Co., Ltd.¹

IC&IG Holding(NL)²

DK AZTEC Inc.³

CSP Co.,Ltd.

2011.12.31 2010.12.31LocationPercentage of ownership (%)

2010.1.1

40,684

298

-

35,667

198,072

274,721

Korea

Korea

Netherland

Korea

Brazil

40,684

298

-

-

-

40,982

34.82

5.00

-

47.88

30.00

51,864

298

-

-

-

52,162




Market price per share (in Korea won)



Number of shares held



Fair value

Fair value

Fair value

2011.12.31

2010.12.31

2010.1.1

Book value

Book value

Book value


Intergis Co., Ltd.

DK UIL Co., Ltd.


DK UIL Co., Ltd.


DK UIL Co., Ltd.

16,100

7,590

2,265

28,950

3,860

22,000

5,110

6,680,297

5,759,720

3,967,140

6,680,297

3,967,140

6,680,297

3,967,140

107,553

43,716

8,986

193,395

15,313

146,967

20,272

455,995

70,712

40,684

455,995

40,684

455,995

51,864

Fair values of marketable shares held by subsidiaries, joint ventures and associates as of December 31, 2011 and 2010, and January 1, 2010, are as follows:

The More Value42

2011 ANNUAL REPORT

DONGKUK STEEL 43

88,987

77,490

166,477

50,282

47,425

97,707

-

-

-

-

45,692

(747)

44,945

-

94,271

(747)

93,524

48,579

34,831

-

83,410

44,945

28,777

(2,193)

71,529

93,524

63,608

(2,193)

154,939

Changes in the carrying amounts of investment property for the years ended December 31, 2011 and 2010, are as follows:

Fair value of investment property as of December 31, 2011 and 2010, and January 1, 2010, is as follows:

The Company evaluates the fair value of investment property by using generally accepted method such as applying recent market price among independent

persons, reference to another transaction that is substantially the same and discounted cash flow analysis.

Rental income from investment property recognized in the income statement during the year ended December 31, 2011, is ￦12,344 million (2010:

￦3,154 million), and operating expenses related to investment property is ￦4,628 million (2010: ￦1,290 million).

13. Investment Property




Land

Land

2011.12.31

Buildings

Buildings

2010.12.31

2011

2010

Total

Total

2010.1.1

Beginning balance

Acquisitions / Transfer-in

Depreciation

Ending balance

Beginning balance

Acquisitions / Transfer-in

Depreciation

Ending balance

Land

Buildings

-

48,579

-

48,579

The details of borrowings as of December 31,2011 and 2010, and January 1, 2010, are as follows:

¹ The details of borrowings as of December 31, 2011 and 2010, and January 1, 2010, are as follows:

14. Borrowings


Current Short-term borrowings¹

Current maturities long-term borrowings

Deventures

Finance lease liabilities (Note 36)

Non-current long-term borrowings

Deventures

Finance lease liabilities (Note 36)

1,049,079

118,249

334,536

10,700

1,512,564

485,905

1,082,421

95,550

1,663,876

3,176,440

752,345

118,239

363,829

11,839

1,246,252

504,154

648,382

104,943

1,257,479

2,503,731

368,162

43,851

549,849

2,628

964,490

498,302

665,433

-

1,163,735

2,128,225

Short-term borrowings

Long-term borrowings



Banker's Usance

General loans

Others

Loans for renting house

Loans for

facilities

Less: Current maturities

Creditor

Creditor

Latest maturity

date

Latest maturity

date

Annual interest rate(%)

2011.12.31

Annual interest rate(%)

2011.12.31

Korea Development Bank and Others

Korea Development Bank and Others

HANA Bank

Kookmin Bank

Korea Development Bank

2012.08.06

2012.10.13

-

2025.04.04

2018.07.27

1.03

4.65

-

300

5.16~8.28

2011.12.31

2011.12.31

2010.12.31

2010.12.31

Carrying amount

Carrying amount

2010.1.1

2010.1.1

731,293

300,000

17,786

1,049,079

1,881

602,273

604,154

(118,249)

485,905

720,712

-

31,633

752,345

1,938

620,454

622,393

(118,239)

504,154

338,522

10,000

19,640

368,162

1,985

540,168

542,153

(43,851)

498,302

Debentures


Fixed interest rate Korean won debentures

70-2nd Non-guaranteed public bonds

74th public bonds

75st Non-guaranteed public bonds

76-1st Public bonds

76-2nd Public bonds

Variable interest rate foreign currency debentures

77st Foreign Non-guaranteed Privately placed bonds

78st Privately placed bonds

Less : Discounts on debentures

maturity date

interest rate(%) at

2011.12.31

2012.02.27

2013.03.15

2014.02.28

2014.09.23

2016.09.23

2012.10.21

2013.11.22

7.30

5.38

4.54

4.39

4.62

Libor(3 Months)

+3.30

Libor(3 Months)

+3.30

Total Current

2011.12.31

Non-current

300,000

350,000

300,000

250,000

70,000

34,599

115,330

1,419,929

(2,972)

1,416,957

300,000

-

-

-

-

34,599

-

334,599

(63)

334,536

-

350,000

300,000

250,000

70,000

-

115,330

1,085,330

(2,909)

1,082,421

The More Value44

2011 ANNUAL REPORT

DONGKUK STEEL 45



70-1st public bonds


74st public bonds

Variable interest rate korean won debentu-res

71st privately placed bonds

Variable interest rate foreign currency debentures

73-1st Foreign guaranteed Privately placed bonds

73-2nd Foreign guaranteed Privately placed bonds


maturity date

interest rate(%)at

2010.12.31

2011.02.27

2012.02.27

2013.03.15

2011.02.27

2011.09.25

2011.09.25

6.90

7.30

5.38

CD(91days)

+3.50

LIBOR+4.45

LIBOR+4.45

Total Current

2010.12.31

Non-current

200,000

300,000

350,000

50,000

56,945

56,945

1,013,890

(1,679)

1,012,211

200,000

-

-

50,000

56,945

56,945

363,890

(61)

363,829

-

300,000

350,000

-

-

-

650,000

(1,618)

648,382




72-1st Privately placed bonds


66st Non-guaranteed public bonds

70-1st Non-guaranteed public bonds


Variable interest rate Korean won debentures

72-2nd Privately placed bonds


73-1st Foreign guaranteed Privately placed bonds

73-2nd Foreign guaranteed Privately placed bonds


maturity date

interest rate(%)at2010.1.1

2010.01.23

2010.07.15

2010.01.17

2010.07.28

2011.02.27

2012.02.27

2010.07.15

2011.02.27

2011.09.25

2011.09.25

7.50

5.29

4.83

5.07

6.90

7.30

CD+2.11

CD+3.50

LIBOR+4.45

LIBOR+4.45

Total Current

2010.1.1

Non-current

100,000

100,000

100,000

200,000

200,000

300,000

50,000

50,000

58,380

58,380

1,216,760

(1,478)

1,215,282

100,000

100,000

100,000

200,000

-

-

50,000

-

-

-

550,000

(151)

549,849

-

-

-

-

200,000

300,000

-

50,000

58,380

58,380

666,760

(1,327)

665,433

Carrying amount and fair value of non-current borrowings as of December 31, 2011 and 2010, and January 1, 2010, are as follows:

¹ The fair values is based on the cash flow discounted using the corporate bonds and others rate in the same credit grade with the Company, and no

significant difference exists between the fair value and carrying amount of current borrowings.

2010.1.12010.12.312011.12.31

Carrying amount

Carrying amount

Carrying amount



Debentures

Finance lease liability

498,302

665,433

-

1,163,735

504,154

648,382

104,943

1,257,479

485,905

1,082,421

95,550

1,663,876

Fair value¹Fair value¹Fair value¹

524,189

666,715

-

1,190,904

528,010

655,048

90,901

1,273,959

508,488

1,088,851

84,257

1,681,596

The payment schedule of borrowing as of the year ended December 31, 2011, is as follows:

Less than(in millions of Korean won)

Short-term borrowings

Current maturities of Long-term borrowings

Current maturities of Deventures


Deventures

-

-

-

322,460

550,000

872,460

1,049,079

118,249

334,599

-

-

1,501,927

Over

5year2 year 5 year1 yearTotal

-

-

-

45,185

70,000

115,185

-

-

-

118,260

465,330

583,590

1,049,079

118,249

334,599

485,905

1,085,330

3,073,162

The analysis of deferred tax assets and deferred tax liabilities as of December 31, 2011 and 2010, and January 1, 2010, is as follows:

15. Trade Payables and Other payables

16. Deferred Income Tax



2011.12.31

2011.12.31

2010.12.31

2010.12.31

2010.1.1

2010.1.1

Current

Trade payables

Non-trade payables

Accrued expenses

Dividend payable

Deposits received

Non-current

Deposits received

Non-trade payables

Deferred tax assets

Deferred tax asset to be recovered within 12 months

Deferred tax asset to be recovered after more than 12 months

Deferred tax liabilities

Deferred tax liability to be recovered after more than 12 months

Deferred tax liability to be recovered after more than 12 months

Deferred tax assets(liabilities),net

1,641,785

1,641,785

85,587

42,964

6

90

128,647

14,091

-

14,091

1,784,523

14,239

92,085

106,324

(552)

(151,553)

(152,105)

(45,781)

1,813,398

1,813,398

65,431

44,918

8

90

110,447

10,076

-

10,076

1,933,921

32,840

80,736

113,576

(12,655)

(140,726)

(153,381)

(39,805)

1,380,025

1,380,025

75,609

36,679

7

90

112,385

3,605

4,227

7,832

1,500,242

55,810

95,400

151,210

(17,812)

(140,656)

(158,468)

(7,258)

The More Value46

2011 ANNUAL REPORT

DONGKUK STEEL 47

Defined benefit liability recognized on the statements of finance position as of December 31, 2011 and 2010, and January 1, 2010, is as follows:

17. Defined Benefit Liability

(in millions of Korean won) 2011.12.31

2011.12.31

2010.12.31

2010.12.31

2010.1.1

2010.1.1

Present value of funded defined benefit liability

Fair value of plan assets

Liability on the statement of financial position

82,576

(61,796)

20,780

78,197

(54,926)

23,271

69,278

(50,143)

19,135

The principal actuarial assumptions as of December 31, 2011 and 2010, and January 1, 2010, were as follows:

Discount rate (%)

Expected return on plan assets (%)

Future salary increases Office (%)

Production (%)

4.40

4.00

4.50

4.00

4.95

4.58

5.61

5.65

5.77

4.23

5.00

5.22


Current

Unearned from customers

Withholding

Other financial liabilities(Notes 4 and 7)

9,366

4,637

495

14,498

10,294

5,178

503

15,975

21,698

3,094

413

25,205

Changes of provisions for the years ended December 31, 2011 and 2010, are as follows:

¹ Payments of compensation were confirmed and were provided, and the actual difference of payments of compensation and reserves for anticipated

litigation losses, which are \ 6,360 millions, were recognized as other operating income(miscellaneous gain) in the year ended December 31,2011.

18. Provisions

19. Other liabilities

2011

2010



Litigation losses

Litigation losses

Unused amounts reversed¹

Unused amounts reversed¹

Beginningbalance

Beginningbalance

Usedamounts

Usedamounts

Additional provisions adjustment

Additional provisions adjustment

Ending balance

Ending balance

30,101

-

-

30,101

(6,360)

-

(23,741)

-

-

30,101

The Company is authorized to issue 200,000,000 shares with a ￦5,000 par value per share, of which 76,881,000 ordinary shares and 7,356,160

preferred shares have been issued as of December 31, 2011.

The Company redeemed 7,356,160 shares of redeemable preferred shares from Kawasaki Steel Co., Ltd. for ￦36,563 million in 2003 and retired them

through an appropriation of retained earnings, as approved by the Board of Directors. As a result no outstanding redeemable preferred shares, remains

as of December 31, 2011.

In 2003, 2004 and 2006, the Company retired 10,000,000 treasury shares amounting to ￦40,855 million, 2,300,000 shares amounting to ￦22,420

million and 2,756,710 shares amounting to ￦13,523 million, respectively, through appropriation of retained earnings according to the resolutions of the

board of directors. As a result, capital stock amount as of December 31, 2011, is not equal to the total par value of the ordinary shares issued, which is

￦309,121 million

On June 1, 1998, the Company revalued its property, plant and equipment in accordance with Asset Revaluation Law. Revaluation gain amounted

to ￦340,328 million and was transferred to reserve for asset revaluation (other components of equity) after deduction of related taxes amounting to

￦7,078 million. On December 31, 1998, the reserve for asset revaluation of ￦35,100 million was converted to capital.

In 2006, the Company recognized a gain of ￦139,463 million from the disposal of 7,336,674 treasury shares and recorded ￦￦30,096 million, net of

related tax effect of ￦38,352 million, as other components of equity.

¹ The Commercial Code of the Republic of 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.

² These reserves may be distributed as dividends after the shareholders approval.

Changes in retained earnings for the years ended December 31, 2011 and 2010, are as follows:


Legal reserves¹

Discretionary reserves²

Reserve for business rationalization

Reserve for improvement of financial structure

Reserve for facilities

Severance indemnities for directors

Voluntary reserve

Unappropriated retained earnings

75,410

14,452

59,000

20,000

2,000

1,154,146

397,310

1,722,318

70,810

14,452

59,000

20,000

2,000

1,077,146

513,401

1,756,809

67,150

14,452

59,000

20,000

2,000

1,067,146

427,195

1,656,943

Retained earnings as of December 31, 2011 and 2010, and January 1, 2010, consist of:

21. Retained earnings

20. Paid-in Capital Stock


Beginning balance

Profit(loss) for the year

Dividends

Actuarial gains and losses

Ending balance

1,756,809

10,952

(45,434)

(9)

1,722,318

1,656,943

138,715

(36,511)

(2,338)

1,756,809

The More Value48

2011 ANNUAL REPORT

DONGKUK STEEL 49

4,600

347,000

45,434

397,034

276

4,600

77,000

45,434

127,034

386,367

Appropriation of retained earnings

The statements of appropriation of retained earnings for the years ended December 31, 2011 and 2010, are as follows:

Appropriation of Retained Earnings

Years Ended December 31, 2011 and 2010

(Date of Appropriation: March 16, 2012 and March 11, 2011

for the years ended December 31, 2011 and 2010, respectively)

(in millions of Korean won) 20102011

Retained earnings before appropriation

Unappropriated retained earnings carried over from prior year

Changes in retained earnings of equity-method investees, net

Effects of Korean IFRS adoption

Actuarial gains and losses

Profit for the year

Appropriation of retained earnings

Legal reserve

Discretionary reserve

Dividends

Dividends(ratio) per share

Common stock :

￦750 (15%) in 2011

￦750 (15%) in 2010

Unappropriated retained earnings to be carried forward to subsequent year

841

(9,188)

385,371

(2,338)

138,715

513,401

386,367

-

-

(9)

10,952

397,310

Accumulated other comprehensive income as of December 31, 2011 and 2010, and January 1, 2010, consists of:

22. Accumulated other comprehensive income and other components of equity


Change in valuation of available-for-sale securities

Change in valuation of derivative financial assets

Total

(39,255)

-

(39,255)

(1,423)

(23)

(1,446)

26,592

330

26,922

Other components of equity as of December 31, 2011 and 2010, and January 1, 2010, are as follows:

¹ The Company has retained 1,245,512 shares of treasury shares (2010: 1,245,512 shares) as

of December 31, 2011. The Company intends to sell or retire the treasury shares in the future.

23. Revenue



2011.12.31 2010.12.31 2010.1.1

Treasury Shares¹

Revenue of merchandise

Others

21,472 21,472

2011

2011

2010

2010

5,788,475

120,924

5,909,399

5,209,489

61,887

5,271,376

15,189

24. Expenses by nature

25. Employee benefit expense

26. Selling, general and administrative expenses




Changes in inventories

Purchase of Raw materials and merchandise

Employee benefit expense(Note 25)

Depreciation, amortization and depreciation

relating to investment property

Transportation expenses

Commission expenses and Service fees

Supplies expenses

Repairs expenses

Other expenses

Total¹

Wages and salaries

Welfare expenses

Post-employment benefits(Note 17)

Others

Wages and salariesPost-employment benefitsWelfare expensesTravel expenseTransportation expensesRental expensesSupplies expensesDepreciationAmortizationTaxes and duesEntertainment expensesInsurance expensesResearch & development expensesAdvertising expensesService feesTraining expensesExport expensesCommission expensesMiscellaneous expensesOthers

2011

2011

2010

2010

(93,347)

4,796,013

156,073

213,254

68,210

182,232

103,046

72,696

327,185

5,825,362

120,204

23,492

10,633

1,744

156,073

31,699 3,676 6,047 1,775

64,064 1,768 1,231 6,990 3,613 4,539 3,586 2,033 8,098 1,345

25,731 3,356

16,017 22,758

5,755 3,404

217,485

(114,167)

4,260,059

151,466

174,150

63,084

171,075

93,789

57,264

262,006

5,118,726

120,603

19,954

10,150

759

151,466

30,184 1,407 4,862 1,782

59,761 3,578 1,315 5,789 3,613 2,582 3,379 1,667 6,915 1,902

19,725 3,080

12,610 23,146

5,465 3,238

196,000

¹ Expenses that are recorded by nature as cost of sales, selling, general and administrative expenses and other operating expenses in the income statements.

The More Value50

2011 ANNUAL REPORT

DONGKUK STEEL 51

128,779

59,437

65,845

3,497

76,540

205,319

(1,746)

203,573

132,116

70,393

60,370

1,353

44,845

176,961

(29,427)

147,534

28. Other operating expenses

29. Financial Income



Interest expenses

Loss on foreign exchange

Loss on disposal of plant, property and equipment

Loss on disposal of intangible assets

Loss on disposal of investments in associates

Provision for anticipated litigation loss

Other bad debt expenses

Others

Interest income

Cash equivalents and financial deposits


Dividend income

Gain on foreign exchange

Financial guarantee income

2011

2011

2010

2010

16,082

86,686

8,791

75

2,645

-

-

10,744

125,023

26,861

26,720

141

6,718

50,579

795

84,953

19,551

54,930

18,071

-

-

30,101

5,903

21,788

150,344

31,308

31,179

129

3,582

49,719

766

85,375

27. Other operating income


Gain on foreign exchange

Gain on disposal of property, plant and equipment

Miscellaneous expenses

Gain on transactions of financial assets at fair value through profit or loss

Others

2011 2010

78,551

172

19,147

-

-

97,870

73,456

3,562

12,366

633

527

90,544

Under the former accounting standards, operating profit (loss) was calculated as gross profit net of selling, general and administrative expenses. Under

Korean-IFRS, selling, general and administrative expenses, and other operating profit (expenses) are deducted. Therefore, operating profit (loss) amount

differs between previous K-GAAP to Korean-IFRS by the amount of other operating income (expenses) (Note 27).

30. Financial Expenses


Interest expense

Borrowings

Debentures

Finance lease liabilities

Loss on foreign exchange

Less: Amounts capitalized on qualifying assets

2011 2010

-

38

38

(4,939)

47,221

-

42,282

42,320

181,035

43,811

-

623

(7,775)

38

5,623

-

42,320



Current tax Current tax on profits for the year

Adjustments in respect of prior years

Total current tax

Deferred tax (Note 16) Origination and reversal of temporary differences

Changes in deferred income tax from tax loss

carryforwards, others

Impact of change in tax rate

Total deferred tax

Income tax expense

Profit before income tax

Tax expense based on applicable tax rate1

Tax effects of: Income not subject to tax

Expenses not deductible for tax purposes

Tax loss and credit carryforwards

Adjustment in respect of prior years

Others

Re-measurement of deferred tax – change in tax rate

Income tax expense

2011

2011

2010

2010

7,258

26,973

34,231

(5,431)

15,444

8,091

18,104

52,335

63,287

15,315

(1,558)

1,956

(6,815)

26,973

8,373

8,091

52,335

The details of income tax expense for the years ended December 31, 2011 and 2010, are as follows:

The reconciliation between profit before income tax and income tax expense for the years ended December 31, 2011 and 2010, are as follows:

During the year, as a result of the change in the Korean corporate tax rate that was substantively enacted on December 31, 2011, the relevant deferred tax

balances have been re-measured.

31. Income tax expense

138,715,359,554

60,619,819

2,288

60,853,778 (233,959)

60,619,819

(in Korean won)

Profit attributable to equity holders of the Company

Weighted average number of ordinary shares in issue¹


BeginningPurchase of treasury sharesWeighted average number of ordinary shares

2011

2011

2010

2010

10,952,032,304

60,578,778

181

60,578,778 -

60,578,778

Basic earnings per share is calculated by dividing the profit by the weighted average number of ordinary shares in issue during the year excluding ordinary shares purchased

by the Company and held as treasury shares. As there are no diluted securities outstanding, diluted earnings per share is identical to basic earnings per share.

¹ Weighted average number of ordinary shares for the years ended December 31, 2011 and 2010, is calculated as follows:

32. Earnings per Share

The More Value52

2011 ANNUAL REPORT

DONGKUK STEEL 53

A dividend in respect of the year ended December 31, 2011, of ￦750 per share, amounting to a total dividend of ￦45,434 million, is to be proposed at the

annual general meeting on March 16, 2012. These financial statements do not reflect this dividend payable. The dividends paid in 2010 were ￦36,511 million.

33. Dividends

34. Cash Generated from Operations

Cash generated from operations for the years ended December 31, 2011 and 2010, are as follows:

The principal non-cash transaction for the years ended December 31, 2011 and 2010, are as follows:

181,035

164,723

747

8,680

-

10,150

(29,208)

(3,582)

122,240

(31,781)

(3,562)

18,071

17,081

(40,091)

(148,103)

4,990

(408,314)

(11,176)

454,151

(7,085)

(9,320)

30,101

(9,011)

310,736


Profit before income tax

Adjustments for: Depreciation

Depreciation relating to investment property

Amortization

Losses on valuation of inventories

Post-employment benefits

Interest income

Dividend income

Interest expenses

Gain (Loss) on foreign exchange

Gains on disposal of property, plant and equipment

Loss on disposal of property, plant and equipment

Other gain and loss

Financial assets at fair value through profit or loss

Trade receivables

Other receivables

Inventories

Other assets

Trade payables

Other payables

Other liabilities

Provision for anticipated litigation losses

Deferred Income Tax


2011 2010

63,287

202,430

2,193

8,631

7,360

10,633

(26,861)

(6,718)

143,115

78,889

(172)

8,791

(3,639)

28,346

(71,942)

9,298

(167,219)

18,421

(221,472)

23,734

15,971

(23,741)

(13,135)

86,200

1,253,669

482,068

116,697

94,271


Reclassification of construction-in-progress of property, plant and equipment

Reclassification of current maturities of borrowings

Acquisition of financial Lease(Ship)

Reclassification of property, plant and equipment of investment property

2011 2010

298,250

428,886

-

63,608

(1) As of December 31, 2011, the Company has received payment guarantees amounting to USD 3,010,000 thousand (equivalent to ￦3,471,433

million) (December 31, 2010: USD 3,351,012 thousand, equivalent to ￦ 3,177,531 million) (January 1, 2010: USD 2,870,000 thousand, equivalent to

￦ 2,870,000 million) from Hana Bank and other financial institutions for the opening of letters of credit. The Company has bank overdraft agreements with

Hana Bank amounting to ￦10,000 million (December 31, 2010: ￦10,000 million; January 1,

35. Contingencies

2010: ￦10,000 million) Also, as of December 31, 2011, the Company has agreements on maximum loan amounts amounting to ￦150,000 million

with Hana Bank and others in relation to loans for general operating capital.

(2) As of December 31, 2011, the Company has corporate settlement services contracts of up to ￦180,000 million (December 31, 2010: ￦190,000

million; January 1, 2010: ￦30,280 million) which guarantee the payment of trade payables in case the suppliers sell their trade receivables with Hana

Bank and other financial institutions.

(3) As of December 31, 2011, the Company has received guarantees from Hana Bank and others amounting to ￦425 million (December 31, 2010:

￦425 million; January 1, 2010 : ￦425 million) and from Seoul Guarantee Insurance amounting to ￦7,632 million (December 31, 2010: ￦8,886

million; January 1, 2010: ￦6,523 million) in relation to compliance of contracts has received guarantees from Shinhan Bank and others amounting to

USD 100,000 thousand (equivalent to ￦115,330 million) (December 31, 2010: USD 100,000 thousand, equivalent to ￦113,890 million) (January 1,

2010: USD 100,000 thousand, equivalent to ￦116,760 million) in relation to issuing foreign debentures.

(4) As of December 31, 2011, the Company has been named as a either defendant or plaintiff in various legal actions arising from the normal course of

business, including a suit filed against Ssangyong Engineering & Construction Co., Ltd. to refund a performance guarantee for a contract. The

aggregate amounts of these cases with the Company as the defendant and the plaintiff amounted to approximately ￦897 million (two legal actions)

and ￦9,314 million (six legal actions), respectively. As of report date, the outcome of these cases cannot be reasonably determined.

During the year ended December 31, 2010, International Court of Arbitration ruled against the Company in a case filed against Corus UK Limited

regarding their long-term supply contract for steel SLAB. As of December 31, 2010, the Company has written off receivables of ￦ 11,806 million due

from CORUS, and recognized provision and the related costs of ￦ 30,101 million, as non-current liability and other operating expenses, respectively.

Payments of compensation were confirmed and provided, and the actual difference between payments of compensation and provision for anticipated

litigation losses, which was ￦ 6,360 million, was recognized as other operating income (miscellaneous gain) for the year ended December 31, 2011.

(5) Payment guarantees the Company provided for related parties as of December 31, 2011 and 2010, and January 1, 2010, are as follows:

(6) As of December 31, 2011, the Company has provided payment guarantees of charterage and incidental expense in relation to long-term transportation

agreements with DK S& Co., Ltd. and others (Note 36).

2010.1.12010.12.312011.12.31

Description(In thousands of foreign currency, in millions of Korean won)

Collateral

Collateral

Dongkuk Int’l Inc.

Dongkuk Corp.

Amount of foreign

currency

Amount of Korean won

USD 80,450

USD 7,500

JPY 100,000

92,783

8,650

1,485

Amount of foreign

currency


USD 80,450

USD 7,500

JPY 100,000

91,625

8,542

1,397

Amount of foreign

currency


USD 70,450

USD 7,500

JPY 100,000

82,257

8,757

1,263

The More Value54

2011 ANNUAL REPORT

DONGKUK STEEL 55

(1) As of December 31, 2011, the Company has cross investment, technical assistance and license agreements with JFE Steel Corporation. According

to these agreements, the Company is required to hold the shares of JFE Holdings, Inc., amounting to ¥10,000 million. The Company purchased

1,000,000 shares of JFE Holdings, Inc., for ¥6,300 million (equivalent to ￦51,184 million). The remaining agreed shares are to be purchased through

mutual consent. Also, according to the agreement, the Company can withdraw the said investment in case the agreement is not fulfilled.

(2) As of December 31, 2011, the Company entered into strategic alliance contract with POSCO. Also the Company is holding the 588,000 shares of

POSCO Coated & Color Steel Co., Ltd., POSCO’s subsidiary (book value: ￦10,261 million), and the 62,000 shares of POSCO (book value: ￦23,560

million). Under the terms of agreements, the held shares have sale restrictions.

(3) As of December 31, 2011, the Company has entered into long-term procurement agreements with ArcelorMittal and other many suppliers for securing

stable procurement of high quality raw materials and competitive costs.

(4) As of the end of the reporting period, the Company has an agreement that grants the Company the right to acquire additional shares of CSP, an

associate, and VALE S.A., the largest shareholder of CSP(up to 25% of the total shares owned by the largest shareholder).

(5) As of December 31, 2011, the Company utilizes IT equipment through sales and lease back offered by HP Financial Service Ltd. The future minimum

lease payments are as follows:

36. Commitments

(in millions of Korean won) Principal Interest Minimum lease payment

Less than 1 year

Less: Current maturities¹

Finance lease liabilities¹

1,448

(1,448)

-

30 1,478

¹ Included in borrowings in financial statements (Note 14).

3,115

2,796

2,454

1,980

8,239

18,584

As of December 31, 2011, the book value of financial Lease asset is ￦1,963 million and the depreciation expense recognized for the year is ￦3,017 million.

(6) As of December 31, 2011, the Company has long-term transportation agreements with the Associates, DK S& Co., Ltd. in order to guarantee the

stable transportation of finished products and semi-finished products.

As of December 31, 2011, the future minimum lease payments are as follows:

(in millions of Korean won) Principal InterestMinimum lease

payment

Less than 1 year

1 to 2 years

2 to 3 years

3 to 4 years

Over 5 years

Less: Current maturities¹

Finance lease liabilities¹

9,252

9,352

11,803

8,344

66,051

104,802

(9,252)

95,550

12,367

12,148

14,257

10,324

74,290

123,386

¹ Included in borrowings in financial statements (Note 14)

(7) Expenditures contracted for acquiring property, plant and equipment, but not yet incurred as of December 31,

2011 and 2010, are as follows:

As of December 31, 2011, book value and recognized depreciation of financial lease assets are ￦ 104,371 million and ￦ 8,755 million,

respectively, and the Company provides ship financial lease assets as a collateral in connection with borrowings for the legal owner of lease

assets.

Also, in relation to the agreement, the Company guarantees the payment of charterage of USD 67,499 thousand (equivalent to ￦ 77,846

million), and other incidental expenses.

40,618



2011.12.31 2010.12.31

115,040

37. Related Parties

The Company’s subsidiaries in the year ended December 31, 2011, are as follows:

The Company’s associates are DK UIL Co., Ltd. and DK S& Co., Ltd. and others. In addition, other related parties is BGCT and others as of

December 31, 2011.

Subsidiaries Major operations


Wuxi Chang-jiang Steel Metal Co., Ltd.

Union Steel China Co.,Ltd.

Union Steel Mexico Co.,Ltd.

USI SERVICE CENTER

UNIONSTEEL PROCESSING CENTER

Intergis Co.,Ltd.¹

Union Logistics Jiangyin Co.,Ltd.

DK LC

Intergis Logistic Center Co.,Ltd.

Ilsin U&Venture Capital

Ferrum Infra Co., Ltd.

Dongkuk Int’l Inc.

Dongkuk Corp.

DKC S.A.

DKUNC Co., Ltd.

Union Coating Co., Ltd.

Kukje Machinery Co., Ltd.

Branson Machinery LLC.

Anhui Kukje Jingtian Machinery Co.,Ltd.

Dangjin Kodae-port Operating Company., Ltd.

Meritz 2 Star Private Investment trust SEPO-12

Manufacturing and marketing of cold-rolled steel sheets




Trading

Trading

Stevedoring, transportation and service related transportation

Stevedoring, transportation and service related transportation

Stevedoring, service related transportation

Stevedoring, service related transportation

Union of investment

Facility maintenance and management

Trading

Trading

Service related transportation

Distributing computer equipment and maintenance on it device

Manufacturing of cold-rolled steel sheets

Manufacturing and marketing of agricultural machinery

Trading

Manufacturing and marketing of agricultural machinery

Port operation and management

Private equity Fund

The More Value56

2011 ANNUAL REPORT

DONGKUK STEEL 57

160,632

75,703

52,794

289,129

143,722

55,388

22,292

221,402

138,313

453

292

139,058

74,051

182

86

74,319



Sales SalesPurchases Purchases

2011 2010

Subsidiaries

Joint ventures

Other related Parties

Subsidiaries

Joint ventures

Other related Parties

896,518

18,253

-

914,771

778,748

15,558

5,273

799,579

13,233

76

28

13,337

8,244

29

19

8,292

Receivables ReceivablesPayables Payables

2011.12.31 2010.12.31

10,407

2,776

13,183

Key management¹ compensation

¹ Key management refers to the directors who have significant control and responsibilities on the Company’s business plans, operations and controls.

The Company recognized dividend income amounting to ￦3,736 million (2010: ￦595 million) from subsidiaries and ￦20 million (2010: ￦25

million) from associates for the year ended December 31, 2011.

The Company has not recognized allowance for doubtful accounts against the related parties as of December 31, 2011 and 2010, and January 1, 2010.

The details of the guarantees provided by the Company for related parties for the year ended December 31, 2011 are disclosed in Note 35.


Wages and salaries

Post-employment benefits

2011.12.31 2010.12.31

11,195

1,470

12,665

38.1 Financial Risk Factors

(1) Market risk

1) Foreign exchange risk

As of December 31, 2011 and 2010, if the foreign exchange rate of the Korean won fluctuated by 10% while other variables were fixed, the effects

on profit (loss) before income tax would be as follows:

38. Financial Risk Management


USD/KRW

JPY/ KRW

EUR/KRW

197,710

10,229

2,053

202,771

8,774

445

(197,710)

(10,229)

(2,053)

(202,771)

(8,774)

(445)

10% increase 10% increase 10% decrease 10% decrease

2011.12.31 2010.12.31

The Company’s financial instruments denominated in major foreign currencies as of December 31, 2011 and 2010, are as follows:

2) Price risk

The Company’s investments in equity of other entities that are publicly traded are included in one of the following two equity indexes: KOSPI equity index and

NIKKEI equity index.

The table below summarizes the impact of increases/decreases of the two equity indexes on the Company’s post-tax profit for the year and on equity. The

analysis is based on the assumption that the equity indexes had increased/decreased by 10% with all other variables held constant and all the Company’s

equity instruments moved according to the historical correlation with the index:


(In foreign currency: in thousands Korean won: in millions )

KOSPI

NIKKEI


Trade receivables


Trade payables

Debentures

Borrowings


-

-

10,474

3,805

-

-

9,285

2,855

2011.12.31 2011.12.312010.12.31 2010.12.31

Impact on post-tax profit Impact on equity

Amount of foreign currencyCurrencies


11,996

-

71,019

450,096

1,394,000

1,051,108

160,289

130,000

523,207

7,227,978

13,742

-

92,128

USD

JPY

USD

JPY

JPY

USD

JPY

USD

USD

JPY

EUR

GBP

USD

13,835

-

81,906

6,685

20,703

1,212,243

2,381

149,929

603,414

107,347

20,531

-

106,251

2011.12.31 2011.12.31

16,733

-

5,697

-

1,394,000

858,280

558,547

100,000

202,872

7,818,841

1,739

-

2,251

19,538

-

6,652

-

17,604

1,002,127

3,527

116,760

236,874

98,738

2,911

-

2,628

2010.1.1 2010.1.1

31,865

166,986

54,019

366,220

1,394,000

1,186,416

2,820,484

100,000

579,881

3,993,236

2,938

28

102,539

36,291

2,333

61,522

5,116

19,475

1,351,210

39,404

113,890

660,426

55,789

4,447

50

116,781

2010.12.31 2010.12.31

3) Interest rate risk

As of December 31, 2011 and 2010, if interest rates of borrowings with variable interest rates fluctuate by 100bp without other variables changing, the

effects on interest expenses related to borrowings with variable interest rates are as follows:


Interest expenses

(1,499)

(1,639)

1,499

1,639

100bpincrease

100bpincrease

100bpdecrease

100bpdecrease

2011.12.31 2010.12.31

Significant transactions and balances with related parties for the years ended December 31, 2011 and 2010, are as follows:

The More Value58

2011 ANNUAL REPORT

DONGKUK STEEL 59

The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to

historical information about counterparty default rates as of December 31, 2011 and 2010, and January 1, 2010, are as follows:

Group 1 - new customers/related parties (less than 6 months)

Group 2 - existing customers/related parties (more than 6 months) with no defaults in the past.

Some trade receivables are provided with collaterals or payment guarantees and trade receivables are due from many customers.

¹ Credit rating is from Korea Enterprise Data Co., Ltd. Certain cash and cash equivalents deposited in financial institutions, and financial deposits are included.



2011.12.31

2010.1.1

2010.1.1

2010.12.31

2010.12.31

2011.12.31

2011.12.31

2010.12.31 2010.1.1

Trade receivablesCounterparties with external credit rating

AA

AA-

A+

A

A-

BBB+

BBB

BBB-

BB+

BB

BB-

B+

B

B-

Counterparties without external credit rating

Group 1

Group 2


Government and public bonds

Cash at bank and short-term bank deposits¹

AAA

AA+

AABB+

31,113

50,127

39,451

2,729

95,916

35,936

39,678

99,963

117,905

53,507

59,031

38,691

21,458

9,975

695,480

12,774

53,533

66,307

761,787

5,343

134,967

113,715

259,211

746,250

1,254,143

174,550

208,303

346,143

418,280

1,147,276

162,860

143,581

462,560

484,689

1,253,690

24,447

56,017

40,935

1,043

92,057

47,100

56,410

95,422

101,048

53,819

81,144

30,104

20,104

10,687

710,337

7,300

41,561

48,861

759,198

4,311

18,821

40,097

30,134

2,943

67,285

41,323

22,896

51,606

74,228

40,865

64,449

25,480

15,976

6,199

502,302

4,867

39,520

44,387

546,689

4,269

(3) Liquidity Risk

The Company is able to source funds any time in domestic and international financial markets since it has a A+ credit rating from Korea Investor Service, Inc.

and Korea Ratings Corporation, respectively.

Undiscounted cash flows analysis for financial liabilities, including interest, according to their remaining contractual maturity as of December 31, 2011

and 2010, and January 1, 2010, are as follows:

2011.12.31(in millions of Korean won)

Trade payables

Other payables

Borrowings(Except for Finance lease liabilities)


Financial guarantee contracts

-

-

368,900

24,580

-

393,480

1,641,785

128,647

1,498,749

13,817

180,764

3,463,762

Over5year2 to 5 year1 to 2 yearLess than 1

yearTotal

-

-

47,374

74,290

-

121,664

-

14,091

1,263,012

12,148

-

1,289,251

1,641,785

142,738

3,178,035

124,835

180,764

5,268,157

2010.12.31

2010.1.1



Trade payables

Other payables




Trade payables

Other payables




-

-

771,061

26,241

-

797,302

-

-

373,148

-

-

373,148

1,813,398

110,447

1,335,295

15,313

185,216

3,459,669

1,380,025

112,385

1,518,113

2,628

195,753

3,208,904

Over5year

Over5year

2 to 5 year

2 to 5 year

1 to 2 year

1 to 2 year

Less than 1year

Less than 1year

Total

Total

-

-

18,774

84,016

-

102,790

-

-

7,399

-

-

7,399

-

10,076

478,826

13,752

-

502,654

-

7,832

456,320

-

-

464,152

1,813,398

120,523

2,603,956

139,322

185,216

4,862,415

1,380,025

120,217

2,354,980

2,628

195,753

4,053,603

38.2 Capital Management

The gearing ratios at the end of reporting period were as follows:

(in millions of Korean won) 2010.1.12010.12.312011.12.31

Total Borrowings

Less: Cash and cash equivalents

Net debt

Total equity

Total capital

Gearing ratio

2,128,225

(948,052)

1,180,173

2,844,224

4,024,397

29.33%

2,503,731

(598,115)

1,905,616

2,910,511

4,816,127

39.57%

3,176,440

(663,308)

2,513,132

2,838,211

5,351,343

46.96%

(2) Credit Risk

No credit limits were exceeded during the reporting period, and management does not expect any losses from nonperformance by these counterparties.

In addition, none of normal financial assets was readjusted during the years 2011 and 2010.

The More Value60

2011 ANNUAL REPORT

DONGKUK STEEL 61

Global NetworkDOMESTIC

HEAD OFFICEFerrum Tower 66 Suha-dong, Jung-gu, SeoulTel: 82-2-317-1114

POHANG WORKS880, Songdong-ri, Daesong-myun, Nam-gu, PohangTel: 82-54-278-6111

INCHEON WORKS1 Songhyeon-dong, Dong-gu, IncheonTel: 82-32-830-6216

DANGJIN WORKS400, Hanjin-ri, Songak-eup, Dangjin-si, ChungnamTel: 82-41-351-4984

BUSAN WORKS370-97 Shinpyeong-dong, Saha-gu, BusanTel: 82-51-294-2133

R&D CENTER440 Songdong-ri, Daesong-myeon, Nam-gu, PohangTel: 82-54-271-2710

OVERSEAS

LOS ANGELES BRANCHDONGKUK INTERNATIONAL, INC.19750 Magellan Drive Torrance, CA. 90502, USATel: 1-310-523-9595, Fax: 1-310-523-9599

NEW YORK OFFICEDONGKUK INTERNATIONAL, INC.400 Kelby Street, 11th Floor, Fort Lee, NJ. 07024, USATel: 1-201-592-8600, Fax: 1-201-947-3999

TOKYO BRANCHDONGKUK CORPORATION7Floor, Seika Building 2-7-6, Kayaba-cho,Nihonbashi Chuo-Ku, Tokyo 103-0025, JapanTel: 81-3-5623-5723, Fax: 81-3-5623-5722

SHANGHAI REPRESENTATIVE OFFICEDONGKUK STEEL MILL CO., Ltd.Room 2306, Sheng Gao International Builing, No. 317,Xian-xia Road, Chang-ning District, Shanghai, ChinaTel: 86-21-6229-0114, Fax: 86-21-6229-0221

CSP (Companhia Siderúrgica do Pecém)Av. Dom Luis 807, 9o andar, Meireles, Fortaleza, CE, Brazil (CEP 60160-230)Tel: 55-85-3033-3800, Fax: 55-85-3033-3899

UAE BRANCH DONKUK STEEL MILL CO.,Ltd.#3305, Jumeirrah Business Center No. 1, JLT, Dubai, UAETel: 971-4-435-7305, FAX : 971-4-435-7306

Dongkuk Steel, a traditional company

in Korean steel industry, can do the

best in nothing but steel.

LOS ANGELE NS EW YORKTOKYO

SHANGHAI

FORTALEZA

HEAD OFFICE

INCHEON WORKS

DANGJIN WORKS

POHANG WORKS

BUSAN WORKS

DUBAI

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