TAIHAN ELECTRIC WIRE CO., LTD

TAIHAN ELECTRIC WIRE CO., LTD.

Separate Financial Statements As of and For the Years

Ended December 31, 2014 and 2013

ATTACHMENT: INDEPENDENT AUDITORS’ REPORT

(Table of Contents)

Independent Auditors’ Report

Financial Statements of the Company as of and for the Years Ended 2014 and 2013

Footnotes to the Financial Statements

Internal Accounting Control System (IACS) Review Report

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Independent Auditors’ Report

English Translation of Independent Auditors’ Report Originally Issued in Korean on March 20, 2015

To the Shareholders and Board of Directors of

Taihan Electric Wire Co., Ltd.:

Report on the Financial Statements

We have audited the accompanying separate financial statements of Taihan Electric Wire Co., Ltd. (the “Company”),

which comprise the separate statements of financial position as of December 31, 2014 and 2013, and the separate

statements of comprehensive income, separate statements of changes in shareholders’ equity and separate statements of

cash flows, for the years then ended, and a summary of significant accounting policies and other explanatory

information.

Management’s Responsibility for the Separate Financial Statements

Management is responsible for the preparation and fair presentation of these separate financial statements in accordance

with Korean International Financial Reporting Standards (“K-IFRS”) and for such internal control as management

determines is necessary to enable the preparation of separate financial statements that are free from material

misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an audit opinion on these financial statements based on our audits. We conducted our

audits in accordance with Korean Standards on Auditing (“KSAs”). Those standards require that we comply with ethical

requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are

free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial

statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material

misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor

considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to

design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on

the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting

policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall

presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit

opinion.

Opinion

In our opinion, the separate financial statements present fairly, in all material respects, the financial position of the

Company as of December 31, 2014 and 2013, and its financial performance and its cash flows for the years then ended

in accordance with K-IFRS.

Others

We conducted our audit of separate financial statements of the Company as of December 31, 2013, in accordance

with the former KSAs, known as auditing standards generally accepted in Korea.

Emphasis of Matter

The following does not affect auditor's opinion, but helps auditor’s report users to make reasonable decision.

As explained in Note 32 and 33, the Company has entered an business restructuring agreement with Creditors

(Representative: Hana Bank) which includes external cash funding, disposal of defined assets, and settlement of

real estate project financing, etc.. The maturity of borrowing hold by Creditors was waived by December 31, 2015,

and interest rate was adjusted to 3.5% per annum. Also through the debt-for-equity swap, ￦28,056 million and

￦671,944 million was transferred to Shareholders’ equity in 2014 and 2013.

As subsequent event explained in Note 33, Creditors committee has determined financial support through new loan

facility (line of credit: ￦130 billion and letter of guarantee: $20 million) to the Company.

In addition, the Company incurred net loss of ￦257,802 million and ￦706,654 million, respectively, in 2014 and

2013, and total current liabilities exceed total current assets by ￦513,713 million as of December 31, 2014,

contingent liabilities on financial guarantee contract provided for related parties and others of ￦314,057 million

are exposed to credit risk. The accompanying separate financial statements are prepared on a going-concern basis.

Assets and liabilities are recorded on the basis that the entity will be able to realize its assets and discharge its

liabilities in the normal course of its business, but these factors mean that there are significant uncertainties about

the Company’s ability to continue as a going concern. Therefore, the Company’s ability to continue as a going

concern depends on financing plan; achievement of stable operating profit as a result of financial structure

improvement agreement; and agreement for implementation of normalization of business, collection of related-

party receivables and resolution of contingent liabilities on financial guarantee contract. The ultimate effect of these

significant uncertainties cannot presently be determined in the accompanying separate financial statements.

March 20, 2015

Notice to Readers

This report is effective as of March 20, 2015, the auditor’s report date. Certain subsequent events or

circumstances may have occurred between the auditor’s report date and the time the auditor’s report is read.

Such events or circumstances could significantly affect the accompanying separate financial statements and

may result in modifications to the auditor’s report.

TAIHAN ELECTRIC WIRE CO., LTD. (the “Company”),

SEPARATE FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

The accompanying separate financial statements, including all footnote disclosures,

were prepared by, and are the responsibility of, Taihan Electric Wire Co., Ltd.

Kang, Hee Jhun

Chief Executive Officer

Taihan Electric Wire Co., Ltd.

The headquarters address: 180, Simin-daero, Dongan-gu, Anyang-si, Gyeonggi-do, Korea

Telephone number

: 02-316-9114


SEPARATE STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2014 AND 2013

Korean won

2014 2013

(In thousands)

ASSETS

CURRENT ASSETS:

Cash and cash equivalents (Note 31) ￦ 30,817,919 ￦ 31,382,620

Short-term financial instruments (Notes 4 and 31) 4,267,457 14,187,782

Current available-for-sale

financial assets (Notes 4, 7, 28 and 31) 3,268,627 18,880,139

Accounts receivable (Notes 6, 28 and 31) 222,538,991 219,723,717

Short-term loans (Notes 6, 28 and 31) 20,014,937 33,822,126

Other current financial assets (Notes 6, 28 and 31) 23,312,380 15,260,303

Inventories (Note 5 and 9) 127,060,516 127,759,971

Income tax receivable 571,043 646,813

Other current assets (Notes 12, 20 and 28) 35,742,770 35,655,350

Non-current assets held for sale (Notes 13) - 1,990,050

Total current assets 467,594,640 499,308,871

NON-CURRENT ASSETS:

Available-for-sale financial assets

(Notes 4, 7, 30 and 31) 51,666,998 56,598,909

Long-term loans (Notes 6, 28 and 31) 26,134 238

Investments in subsidiaries, associates and joint

ventures (Notes 4, 8 and 30) 171,930,179 250,628,496

Other financial assets (Notes 4, 6 and 31) 5,620,614 4,168,773

Property, plant and equipment

(Notes 9, 14, 15 and 29) 504,840,319 531,725,116

Intangible assets (Notes 10 and 29) 19,353,512 15,602,943

Investment property (Note 11) 661,459 667,039

Deferred tax assets (Note 24) 63,310,252 132,880,389

Total non-current assets 817,409,467 992,271,903

Total assets ￦ 1,285,004,107 ￦ 1,491,580,774

(Continued)


SEPARATE STATEMENTS OF FINANCIAL POSITION (CONTINUED)

AS OF DECEMBER 31, 2014 AND 2013

Korean won

2014 2013

(In thousands)

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable (Notes 17, 28 and 31) ￦ 270,766,274 ￦ 333,903,062

Short-term borrowings (Notes 14, 28 and 31) 151,123,839 66,759,526

Current portion of long-term borrowings

(Notes 15, 16, 28 and 31) 361,825,203 87,068,868

Other current financial liabilities (Notes 17 and 31) 91,157,711 70,462,481

Current provision (Notes 19 and 30) 55,014,197 31,083,025

Other current liabilities (Notes 19, 20 and 28) 51,420,125 51,073,082

Total current liabilities 981,307,349 640,350,044

NON-CURRENT LIABILITIES:

Long-term borrowings (Notes 15 and 31) 248,487,342 570,272,851

Defined benefit obligations (Note 18) 12,571,579 6,405,454

Non-current provision (Notes 19 and 30) 5,028,719 -

Other financial liabilities (Notes 17 and 31) 1,794,153 2,020,983

Total non-current liabilities 267,881,793 578,699,288

Total liabilities 1,249,189,142 1,219,049,332

SHAREHOLDERS’ EQUITY:

Capital stock (Note 1 and 21) 519,641,713 491,586,003

Other contributed capital (Note 21) (58,334,488) 481,192,372

Other components of equity (Notes 7 and 21) 4,114,428 3,533,337

Accumulated deficit (Note 21) (429,606,688) (703,780,270)

Total shareholders’ equity 35,814,965 272,531,442

Total liabilities and shareholders’ equity ￦ 1,285,004,107 ￦ 1,491,580,774

(Concluded)

See notes.


SEPARATE STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

Korean won

2014 2013

(In thousands except per share amounts)

Sales (Notes 22, 28 and 29) ￦ 1,617,496,059 ￦ 1,910,024,553

Cost of sales (Notes 22, 25 and 28) 1,493,869,493 1,830,361,644

Gross profit 123,626,566 79,662,909

Selling and administrative expenses (Notes 22 and 25) 96,982,204 276,173,781

Operating income (loss) 26,644,362 (196,510,872)

Non-operating income and expense:

Finance income (Note 23) 20,566,377 31,117,979

Finance expenses (Note 23) 212,302,933 459,053,046

Other non-operating income (Note 23) 43,789,144 50,744,689

Other non-operating expenses (Note 23) 65,455,653 68,316,572

(213,403,065) (445,506,950)

Loss before income tax (186,758,703) (642,017,822)

Income tax expense (Note 24) 71,043,328 64,635,985

Net loss ￦ (257,802,031) ￦ (706,653,807)

Other comprehensive income:

Items not to be reclassified subsequently to profit or loss:

Actuarial gain (loss) on defined benefit obligations,

net (Note 18) (3,148,450) 2,873,537

Items to be reclassified subsequently to profit or loss:

Gain on valuation of AFS financial assets, net (Note 7) 581,091 2,219,982

(2,567,359) 5,093,519

Total comprehensive loss ￦ (260,369,390) ￦ (701,560,288)

Basic losses per common share (Note 26) ￦ (8,022) ￦ (33,204)

Diluted losses per common share (Note 26) ￦ (8,022) ￦ (33,204)

See notes.


SEPARATE STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


Korean won

Capital stock

Other

contributed

capital

Other

components of

equity

Accumulated

Deficit Total amount

(In thousands)

Balance at January 1, 2013 ￦ 262,841,713 ￦ 496,427,042 ￦ 1,313,355 ￦ (447,887,201) ￦ 312,694,909

Net loss - - - (706,653,807) (706,653,807)

Debt-for-equity swap 228,744,290 432,652,531 - - 661,396,821

Disposition of deficit - (447,887,201) - 447,887,201 -

Gain on valuation of AFS

financial assets, net - - 2,219,982 - 2,219,982

Actuarial gain - - - 2,873,537 2,873,537

Balance at December 31, 2013 ￦ 491,586,003 ￦ 481,192,372 ￦ 3,533,337 ￦ (703,780,270) ￦ 272,531,442

Balance at January 1, 2014 ￦ 491,586,003 ￦ 481,192,372 ￦ 3,533,337 ￦ (703,780,270) ￦ 272,531,442

Net loss - - - (257,802,031) (257,802,031)

Debt-for-equity swap 28,055,710 (4,402,797) - - 23,652,913

Disposition of deficit - (535,124,063) - 535,124,063 -

Gain on valuation of AFS

financial assets, net - - 581,091 - 581,091

Actuarial gain - - - (3,148,450) (3,148,450)

Balance at December 31, 2014 ￦ 519,641,713 ￦ (58,334,488) ￦ 4,114,428 ￦ (429,606,688) ￦ 35,814,965

See notes.


SEPARATE STATEMENTS OF CASH FLOWS


Korean won

2014 2013

(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss ￦ (257,802,031) ￦ (706,653,807)

Adjustments to reconcile net loss to net cash

provided by operating activities: 299,429,725 719,852,149

Changes in operating assets and liabilities (77,043,605) 85,574,998

(35,415,911) 98,773,340

Interest received 1,998,382 3,322,180

Interest paid (32,980,137) (63,728,026)

Dividend received 189,806 377,764

Income tax paid (673,294) 112,941

Net cash (used in) provided by operating activities (66,881,154) 38,858,199

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from withdrawal of short-term

financial instruments 36,535,574 67,720,957

Proceeds from disposal of current AFS

financial assets 60,000 5,003,944

Proceeds from disposal of AFS financial assets 27,596 3,766,416

Collection of short-term loans 2,793,000 7,385,163

Collection of long-term loans 5,465 9,446

Proceeds from disposal of investments in subsidiaries 2,121,500 93,999

Proceeds from disposal of investments in associates - 77,234

Decrease in other financial assets 938,239 4,370,451

Proceeds from disposal of property, plant and equipment 1,405,189 14,096,731

Increase in short-term financial instruments (26,392,059) (62,214,161)

Acquisition of current AFS financial assets (60,000) (5,004,090)

Acquisition of AFS financial assets (955) (1,495)

Extension of short-term loans (18,040,098) (36,357,099)

Extension of long-term loans (31,361) -

Increase in other financial assets (1,138,865) (4,580,207)

Acquisition of property, plant and equipment (4,866,568) (16,150,178)

Acquisition of intangible assets (1,590,380) -

Acquisition of investments in subsidiaries (3,056,806) -

Net cash used in investing activities (11,290,529) (21,782,889)

(Continued)


SEPARATE STATEMENTS OF CASH FLOWS (CONTINUED)


Korean won

2014 2013

(In thousands)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from short-term borrowings ￦ 592,927,891 ￦ 885,955,170

Proceeds from long-term borrowings 33,388,000 63,813,000

Repayment of short-term borrowings (482,589,257) (573,976,376)

Repayment of current maturities of long-term borrowings (66,679,187) (404,977,921)

Common stock issuance costs (138,329) (1,140,249)

Net cash provided by (used in) financing activities 76,909,118 (30,326,376)

NET DECREASE IN CASH AND CASH EQUIVALENTS (1,262,565) (13,251,066)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 31,382,620 45,242,096

EFFECT OF EXCHANGE RATE ON CASH AND CASH

EQUIVALENTS 697,864 (608,410)

CASH AND CASH EQUIVALENTS, END OF YEAR ￦ 30,817,919 ￦ 31,382,620

(Concluded)

See notes.


NOTES TO SEPARATE FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

1. GENERAL INFORMATION:

Taihan Electric Wire Co., Ltd. (the “Company”), was incorporated on February 21, 1955, under the laws of the

Republic of Korea to engage in manufacturing, processing and selling electric wires; cables and related products.

The Company’s headquarters is located in 180, Simin-daero, Dongan-gu, Anyang-si, Gyeonggi-do, Korea, and

its plant is located in Dangjin-si, Choongcheongnam-do.

On December 27, 1968, the Company offered its shares for public ownership and all shares were listed on the

Korea Stock Exchange. On April 19, 2002, the Company split its common share by two-for-one, thereby

decreasing the par value per share from ￦5,000 to ￦2,500. As of December 31, 2014, after several increases

in paid-in capital and capital reductions without consideration, capital stock of common stock and convertible

preferred is ￦408,842 million and ￦110,800 million, respectively.

As of December 31, 2014 and 2013, the shareholders of the Company are as follows:

December 31, 2014

Common stock Convertible preferred stock

Number of

Shares

Percentage of

ownership (%)

Number of

Shares

Percentage of

ownership (%)

Creditors 58,400,000 35.71 44,320,000 100

Taihan Fiberoptics Co., Ltd. 12,000,000 7.34 - -

Taihan Systems Co., Ltd. 4,555,883 2.79 - -

Seul, Yoon Suk 1,620,769 0.99 - -

Seul, Yoon Sung 815,280 0.50 - -

Yang, Kyue Ae 368,779 0.23 - -

Treasury stock 278,112 0.17 - -

Others 85,497,862 52.27 - -

163,536,685 100.00 44,320,000 100.00

December 31, 2013

Common stock Convertible preferred stock

Number of

Shares

Percentage of

ownership (%)

Number of

Shares

Percentage of

ownership (%)

Creditors 47,177,716 30.97 44,320,000 100

Taihan Fiberoptics Co., Ltd. 12,000,000 7.88 - -

Taihan Systems Co., Ltd. 4,555,883 2.99 - -

Seul, Yoon Suk 1,620,769 1.06 - -

Seul, Yoon Sung 815,280 0.54 - -

Yang, Kyue Ae 368,779 0.24 - -

Treasury stock 278,112 0.18 - -

Others 85,497,862 56.14 - -

152,314,401 100.00 44,320,000 100.00

(*1) A net loss per share of the Company was calculated based on a capital reduction without consideration on

January 30, 2015 (see Note 26).

- 2 -

2. BASIS OF FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING

POLICIES:

(1) Basis of Financial Statements Presentation

The Company maintains its official accounting records in Republic of Korean won and prepares separate

financial statements in conformity with Korean International Financial Reporting Standards (“K-IFRS”), in the

Korean language (Hangul). Accordingly, these separate financial statements are intended for use by those who

are informed about K-IFRS and Korean practices. The accompanying separate financial statements have been

condensed, restructured and translated into English with certain expanded descriptions from the Korean language

separate financial statements. Certain information included in the Korean language separate financial

statements, but not required for a fair presentation of the Company’s separate financial position, comprehensive

income, changes in shareholders’ equity or cash flows, is not presented in the accompanying separate financial

statements.

The Company’s separate financial statements for the years ended December 31, 2014 and 2013, are prepared in

accordance with K-IFRS 1027, Separate Financial Statements, which are presented based on the direct share

investment of investors of the controlling and related parties and the participants of the joint ventures, not relying

on the reported result and net assets of invested companies.

The principal accounting policies applied in the preparation of financial statements are set out below and these

policies are identical to those for the year ended December 31, 2013, except for the adoption of the following

new standards.

The accompanying separate financial statements have been prepared on the historical cost basis except for

certain non-current assets and financial instruments that are measured at revalued amounts or fair values, as

explained in the accounting policies below. Historical cost is generally based on the fair value of the

consideration given.

The principal accounting policies are set out below.

1) New and revised K-IFRSs affecting amounts reported and /or disclosures in the separate financial

statements

Amendments to K-IFRS 1032 – Financial Instruments: Presentation

The amendments to K-IFRS 1032 clarify the requirement for the offset presentation of financial assets and

financial liabilities: the right to offset must not be conditional upon the occurrence of future events and can be

exercised anytime during the contract periods. The right to offset is executable even in the case of default or

insolvency. The application of the amendments has had no material impact on the disclosures or on the amounts

recognized in the separate financial statements.

Amendments to K-IFRS 1110, 1112 and 1027 – Investment Entities

The amendments introduced an exception to the principle in K-IFRS 1110, Consolidated Financial Statement,

which required the consolidation of all subsidiaries. If a subsidiary meets definition of an investment entity, the

reporting entity measure the subsidiary at fair value through profit or loss instead of consolidation. Also, the

consequential amendments have been made to K-IFRS 1112, Disclosure of Interests in Other Entities, and K-

IFRS 1027, Separate Financial Statements, to introduce new disclosure requirements for investment entities.

Amendments to K-IFRS 1036 – Impairment of Assets

The amendments introduced disclosure requirements of recoverable amount when the recoverable amount of an

asset or CGU is measured at fair value less costs of disposal. The application of the amendments has had no

material impact on the disclosures or on the amounts recognized in the separate financial statements.

- 3 -

Amendments to K-IFRS 1039 – Financial Instruments: Recognition and Measurement

The amendments permit the Company to use hedge accounting when, as a consequence of laws or regulations or

the introduction of laws or regulations, the parties to the hedging instrument agree that one or more clearing

counterparties replace their original counterparty to become the new counterparty to each of the parties and when

meeting the certain criteria. The application of the amendments has had no material impact on the disclosures or

on the amounts recognized in the separate financial statements.

Enactment of K-IFRS 2121 – Levies

The enactment defines that the obligating event giving rise to the recognition of a liability to pay a levy is the

activity that triggers the payment of the levy in accordance with the related legislation. The application of the

amendments has had no material impact on the disclosures or on the amounts recognized in the separate financial

statements.

2) New and revised K-IFRSs in issue but not yet effective

The Company has not applied the following new and revised K-IFRSs that have been issued but are not yet

effective.

Amendments to K-IFRS 1019 – Employee Benefits

The amendments permit the Company to recognize amount of contributions as a reduction in the service cost in

which the related service is rendered if the amount of the contributions are independent of the number of years of

service. The amendments are effective for the annual periods beginning on or after July 1, 2014.

Amendments to K-IFRS 1016 – Property, Plant and Equipment

The amendments to K-IFRS 1016 prohibits the Company from using a revenue-based depreciation method for

items of property, plant and equipment. The amendments are effective for the annual periods beginning on or

after January 1, 2016.

Amendments to K-IFRS 1038 – Intangible Assets

The amendments apply prospectively for annual periods beginning on or after January 1, 2016. The

amendments to K-IFRS 38 do not allow presumption that revenue is an appropriate basis for the amortization of

an intangible assets, which the presumption can only be limited when the intangible asset expressed as a measure

of revenue or when it can be demonstrated that revenue and consumption of the economic benefits of the

intangible asset are highly correlated.

Amendments to K-IFRS 1111 – Accounting for Acquisitions of Interests in Joint Operations

The amendments to K-IFRS 1111 provides guidance on how to account for the acquisition of a joint operation

that constitutes a business as defined in K-IFRS 1103 Business Combinations. A joint operator is also required

to disclose the relevant information required by K-IFRS 1103 and other standards for business combinations.

The amendments to K-IFRS 1111 are effective for the annual periods beginning on or after January 1, 2016.

Annual Improvements to K-IFRS 2010-2012 Cycle

The amendments to K-IFRS 1002 (i) changes the definitions of ‘vesting condition’ and ‘market condition’; and

(ii) add definition for ‘performance condition’ and ‘service condition’ which were previously included within the

definition of ‘vesting condition’. The amendments to K-IFRS 1103 clarify the classification and measurement

of the contingent consideration in business combination. The amendments to K-IFRS 1108 clarify that a

reconciliation of the total of the reportable segments’ assets should only be provided if the segment assets are

regularly provided to the chief operating decision maker. The amendments are effective for the annual periods

beginning on or after July 1, 2014.

- 4 -

Annual Improvements to K-IFRS 2011-2013 Cycle

The amendments to K-IFRS 1103 clarify the scope of the portfolio exception for measuring the fair values of the

group of financial assets and financial liabilities on a net basis includes all contracts that are within the scope the

standard does not apply to the accounting for the formation of all types of joint arrangement in the financial

statements of the joint arrangement itself. The amendments to K-IFRS 1113, Fair values Measurements, and

K-IFRS 1040, Investment Properties, exist and these amendments are effective to the annual periods beginning

on or after July 1, 2014.

The Company does not anticipate the application of the interpretation will have a material impact on the

Company’s separate financial statements.

(2) Cash and cash equivalents

Cash and cash equivalents include cash, cash equivalent securities, including checks issued by others and

checking accounts, ordinary deposits and financial instruments with an original maturity of three months or less,

which can be easily converted into cash.

(3) Financial assets

Financial assets are recognized when a company becomes a party to the contractual provisions of the instruments.

Financial assets are initially measured at fair value. Transaction costs that are directly attributable to the

acquisition or issue of financial assets are added to or deducted from the fair value of the financial assets, as

appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets at

fair value through profit or loss (FVTPL) are recognized immediately in profit or loss.

1) Classification of financial assets

Financial assets are classified into the following specified categories: ‘financial assets at FVTPL,’ ‘held-to-

maturity investments,’ ‘AFS financial assets’ and ‘loans and receivables.’ The classification depends on the

nature and purpose of the financial assets and is determined at the time of initial recognition.

① Financial assets at FVTPL

Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as

at FVTPL. A financial asset is classified as held for trading if it has been acquired principally for the purpose

of selling it in the near term; or on initial recognition, it is part of a portfolio of identified financial instruments

that the Company manages together and has a recent actual pattern of short-term profit taking; or it is a

derivative that is not designated and effective as a hedging instrument. A financial asset other than a financial

asset held for trading may be designated as at FVTPL upon initial recognition.

② Loans and receivables

Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an

active market are classified as ‘loans and receivables’. Loans and receivables are classified as non-current

assets, excluding those that mature within one year from the end of the reporting period, which are classified as

current assets.

③ Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Company

has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. An entity

may not classify any financial assets as held to maturity if during the current or preceding two years it has sold or

reclassified more than an insignificant amount of held-to-maturity investments except in very narrowly defined

circumstances. Held-to-maturity investments are classified as non-current assets, excluding those investments

that mature or are certain to be disposed of within one year from the end of the reporting period, which are

classified as current assets.

- 5 -

④AFS financial assets

Non-derivative financial assets that are not classified as held to maturity, held for trading designated as at

FVTPL or loans and receivables are classified as AFS financial assets. AFS financial assets are classified as

non-current assets, excluding those securities that are matured or are certain to be disposed of within one year

from the end of the reporting period, which are classified as current assets.

2) Recognition and measurement of financial assets

All financial assets are recognized and derecognized on trade date where the purchase or sale of a financial asset

is under a contract whose terms require delivery of the financial asset within the time frame established by the

market concerned.

① Financial assets at FVTPL

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized

in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or interest earned on

the financial asset and is included in the other gains and losses line item in the separate statement of

comprehensive income.

② Loans and receivables Loans and receivables are measured at amortized cost using the effective interest method, less any impairment.

Interest income is recognized by applying the effective interest rate, except for short-term receivables when the

recognition of interest would be immaterial.

The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating

interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated

future cash receipts (including all fees and points paid or received that form an integral part of the effective

interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument,

or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

③ Held-to-maturity investments

Held-to-maturity investments are measured at amortized cost using the effective interest method less any

impairment, with revenue recognized on an effective yield basis.

④ AFS financial assets

AFS financial assets are initially recognized at fair value plus directly related transaction costs. However,

investments in equity instruments that do not have a quoted market price in an active market and whose fair

value cannot be reliably measured are measured at cost. A gain or loss on changes in fair value of AFS

financial assets is recognized in other comprehensive income, except for impairment loss, interest calculated

using the effective interest method and foreign exchange gains and losses on monetary assets. Accumulated

other comprehensive income is reclassified to current gain or loss from equity at the time of impairment

recognition or elimination of related financial assets. Dividends on AFS equity instruments are recognized in

profit or loss when the Company’s right to receive payment is established.

3) Impairment of financial assets

For all other financial assets, including redeemable notes classified as AFS and finance lease receivables,

objective evidence of impairment could include significant financial difficulty of the issuer or counterparty; or

default or delinquency in interest or principal payments; or it becoming probable that the borrower will enter

bankruptcy or financial reorganization. Financial assets, other than those at FVTPL, are assessed for indicators

of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is

objective evidence that, as a result of one or more events that occurred after the initial recognition of the

financial asset, the estimated future cash flows of the investment have been affected.

- 6 -

① Financial assets carried at amortized cost

For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference

between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the

financial asset’s original effective interest rate. With the exception of AFS equity instruments, if, in a

subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an

event occurring after the impairment was recognized, the previously recognized impairment loss is reversed

through profit or loss to the extent that the carrying amount of the investment at the date the impairment is

reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired

individually are, in addition, assessed for impairment on a collective basis. When a trade receivable is

considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts

previously written off are credited against the allowance account. Changes in the carrying amount of the

allowance account are recognized in profit or loss.

② AFS financial assets For listed and unlisted equity investments classified as AFS, a significant or prolonged decline in the fair value

of the security below its cost is considered to be objective evidence of impairment. When an AFS financial

asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive

income are reclassified to profit or loss in the period. With respect to AFS equity securities, impairment losses

previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value

subsequent to an impairment loss is recognized in other comprehensive income.

4) Derecognition of financial assets

The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset

expire, or when it transfers the financial asset and, substantially, all the risks and rewards of ownership of the

asset to another entity. If the Company neither transfers nor retains substantially all the risks and rewards of

ownership and continues to control the transferred asset, the Company recognizes its retained interest in the asset

and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and

rewards of ownership of a transferred financial asset, the Company continues to recognize the financial asset and

also recognizes a collateralized borrowing for the proceeds received.

(4) Financial liabilities and equity instruments

1) Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the

substance of the contractual arrangement.

2) Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all

of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of

direct issuance costs.

3) Financial liabilities

Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities.

① Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is

designated as FVTPL. A financial liability is classified as held for trading if it has been acquired principally for

the purpose of repurchasing it in the near term; or it is a derivative that is not designated and effective as a

hedging instrument. A financial liability other than a financial liability held for trading may be designated as at

FVTPL upon initial recognition.

Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement

recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest paid on

the financial liability.

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② Compound instruments

The component parts of compound instruments (convertible bonds) issued by the Company are classified

separately as financial liabilities and equity in accordance with the substance of the contractual arrangement.

At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate

for a similar non-convertible instrument. This amount is recorded as a liability on an amortized cost basis using

the effective interest method until extinguished upon conversion or at the instrument’s maturity date. The

equity component is determined by deducting the amount of the liability component from the fair value of the

compound instrument as a whole. This is recognized and included in equity, net of income tax effects, and is

not subsequently remeasured. In addition, the conversion option classified as equity will be transferred to share

premium. No gain or loss is recognized in profit or loss upon conversion or expiration of the conversion option.

③ Other financial liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.

Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with

interest expense recognized on an effective yield basis.

The effective interest method is a method of calculating the amortized cost of a financial liability and of

allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts

estimated future cash payments through the expected life of the financial liability, or (where appropriate) a

shorter period, to the net carrying amount on initial recognition.

④ Financial guarantee contract liabilities

Financial guarantee contract liabilities are initially measured at their fair values and, if not designated as at

FVTPL, are subsequently measured at the higher of the amount of the obligation under the contract, as

determined in accordance with K-IFRS 1037, Provisions, Contingent Liabilities and Contingent Assets, and the

amount initially recognized, less cumulative amortization recognized in accordance with the K-IFRS 1018,

Revenue.

4) Derecognition of financial liabilities

The Company derecognizes financial liabilities when, and only when, the Company’s obligations are discharged,

canceled or they expire. On derecognition of a financial liability, the difference between its carrying amount

and the sum of the consideration paid and payable is recognized in earnings.

(5) Derivative financial instruments

Derivatives are initially recognized at fair value at the date the derivative contract is entered into and are

subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is

recognized in profit or loss immediately, unless the derivative is designated and effective as a hedging

instrument, in such case the timing of the recognition in profit or loss depends on the nature of the hedge

relationship.

1) Hedge embedded derivatives

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives

when their risks and characteristics are not closely related to those of the host contracts and the host contracts are

not measured at FVTPL.

2) Hedge accounting

At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument

and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge

transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Company documents

whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the

hedged item.

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① Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in

profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are

attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in the

hedged item attributable to the hedged risk are recognized in the line of the separate statements of

comprehensive income relating to the hedged item.

Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging

instrument expires or is sold, terminated or exercised or when it no longer qualifies for hedge accounting. The

fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortized to

profit or loss from that date.

② Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow

hedges are recognized in other comprehensive income. The gain or loss relating to the ineffective portion is

recognized immediately in profit or loss and is included in the ‘other gains and losses’ line item.

Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to

profit or loss in the periods when the hedged item is recognized in profit or loss, in the same line item of the

separate statements of comprehensive income as the recognized hedged item. However, when the forecast

transaction that is hedged results in the recognition of a non-financial asset or liability, the gains and losses

previously accumulated in equity are transferred from equity and included in the initial measurement of the cost

of the non-financial asset or liability.

Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging

instrument expires or is sold, terminated or exercised, or it no longer qualifies for hedge accounting. Any gain

or loss accumulated in equity at that time remains in equity and is recognized when the forecast transaction is

ultimately recognized in profit or loss. When a forecast transaction is no longer expected to occur, the gain or

loss accumulated in equity is recognized immediately in profit or loss.

(6) Inventories

Inventories are stated at the lower of cost and net realizable value. Cost of inventories, except for those in

material in transit measured using the specific identification method, is measured using weighted-average

method and consists of the purchase price, cost of conversion and other costs incurred in bringing the inventories

to their present location and condition. Net realizable value represents the estimated selling price for

inventories, less all estimated costs of completion and costs necessary to make the sale.

The carrying amount of inventories sold in the period and the amount of any write-down of inventories to net

realizable value and all losses of inventories in the period, less the amount of any reversal in the period of any

write-down of the inventories, arising from an increase in net realizable value, is recognized as expense during

the period.

(7) Investments in subsidiaries, associates and joint ventures

The Company’s financial statements are separate financial statements prepared in accordance with the

requirements of K-IFRS 1027 Separate Financial Statements in which a parent, or an investor with joint control

of, or significant influence over, an investee accounts for the investments on the basis of the direct equity interest

rather than on the basis of the underlying results and net assets of the investees.

The Company accounts for investments in subsidiaries, associates and joint ventures at cost except when the

investment is classified as held for sale, in which case it is accounted for in accordance with K-IFRS 1105, Non-

current Assets Held for Sale and Discontinued Operations. Dividend income from investments is recognized

when the shareholders’ right to receive dividend has been established.

- 9 -

The requirements of K-IFRS 1039, Financial Instruments: Recognition and Measurement are applied to

determine whether it is necessary to recognize any impairment loss with respect to the Company’s investments

in subsidiaries, associate and joint ventures. When necessary, the entire carrying amount of the investment

(including goodwill) is tested for impairment in accordance with K-IFRS 1036, Impairment of Assets, as a single

asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its

carrying amount. Any impairment loss recognized forms part of the carrying amount (including goodwill) of

the investments. Any reversal of that impairment loss is recognized in accordance with K-IFRS 1036 to the

extent that the recoverable amount of the investment subsequently increases.

(8) Property, plant and equipment

Property, plant and equipment are stated at cost, less subsequent accumulated depreciation and accumulated

impairment losses. The cost of an item of property, plant and equipment is directly attributable to their

purchase or construction, which includes any costs directly attributable to bringing the asset to the location and

condition necessary for it to be capable of operating in the manner intended by management. It also includes

the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Subsequent costs are recognized in carrying amount of an asset or as an asset if it is probable that future

economic benefits associated with the assets will flow into the Company and the cost of an asset can be

measured reliably. Routine maintenance and repairs are expensed as incurred.

The Company does not depreciate land. Depreciation expense is computed using the straight-line method

based on the estimated useful lives of the assets as follows:

Estimated useful lives (years)

Buildings 20–40

Structures 20–40

Machinery and equipment 8–20

Vehicles 5

Other fixed assets 5

If each part of an item of property, plant and equipment has a cost that is significant in relation to the total cost of

the item, it is depreciated separately. The Company reviews the depreciation method, the estimated useful lives

and residual values of property, plant and equipment at the end of each annual reporting period. If expectations

differ from previous estimates, the changes are accounted for as a change in an accounting estimate.

Property, plant and equipment are derecognized upon disposal or when the investment property is permanently

withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising

on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying

amount of the asset) is included in profit or loss in the period in which the property is derecognized.

(9) Intangible assets

1) Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are carried at cost, less accumulated

amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their

estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each

reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Intangible assets with indefinite useful lives that are acquired separately are carried at cost, less accumulated

impairment losses.

2) Internally generated intangible assets - research and development expenditure

Expenditure on research activities is recognized as an expense in the period in which it is incurred. An

internally generated intangible asset arising from development (or from the development phase of an internal

project) is recognized if, and only if, all of the following have been demonstrated: the availability of adequate

technical, financial and other resources to complete the development and to use or sell the intangible asset; the

technical feasibility of completing the intangible asset so that it will be available for use or sale and the ability to

measure reliably the expenditure attributable to the intangible asset during its development.

- 10 -

The amount initially recognized for internally generated intangible assets is the sum of the expenditure incurred

from the date when the intangible asset first meets the recognition criteria listed above. Where no internally

generated intangible asset can be recognized, development expenditure is recognized in profit or loss in the

period in which it is incurred.

3) Derecognition of intangible assets

An intangible asset is derecognized on disposal, or when no future economic benefits are expected from its use

or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference

between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the

asset is derecognized.

(10) Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation (including property under

construction for such purposes). Investment properties are measured initially at cost, including transaction

costs. Investment property is carried at cost, less accumulated depreciation and accumulated impairment losses.

Subsequent costs are recognized in carrying amount of an asset or as an asset if it is probable that future

economic benefits associated with the assets will flow into the Company and the cost of an asset can be

measured reliably. Routine maintenance and repairs are expensed as incurred.

While land is not depreciated, all other investment properties are depreciated based on the respective assets’

estimated useful lives using the straight-line method. The estimated useful lives, residual values and

depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate

accounted for on a prospective basis.

An investment property is derecognized on disposal, or when no future economic benefits are expected from its

use or disposal. Gains or losses arising from derecognition of an investment property, measured as the

difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or

loss when the asset is derecognized.

(11) Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and

rewards of ownership to the lessee. All other leases are classified as operating leases.

1) Financing lease

Assets and liabilities held under finance leases are initially recognized as assets and liabilities of the Company at

their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments.

Lease payments are apportioned between finance expenses and reduction of the lease obligation to achieve a

constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately

in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in

accordance with the K-IFRS 1023, Borrowing costs. Contingent rentals are recognized as expenses in the

periods in which they are incurred.

2) Operating lease

Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where

another systematic basis is more representative of the time pattern in which economic benefits from the leased

asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the

period in which they are incurred.

(12) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which

are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to

the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

- 11 -

Investment income earned on the temporary investment of specific borrowings pending their expenditure on

qualifying assets is deducted from the borrowing costs eligible for capitalization. All other borrowing costs are

recognized in profit or loss in the period in which they are incurred.

(13) Impairment of tangible and intangible assets other than goodwill

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible

assets to determine whether there is any indication that those assets have suffered an impairment loss. If any

such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the

impairment loss (if any). Intangible assets with indefinite useful lives and intangible assets not yet available for

use are tested for impairment at least annually and whenever there is an indication that the asset may be impaired.

Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the

recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent

basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or

otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent

allocation basis can be identified.

Recoverable amount is the higher of fair value, less costs to sell and value in use. If the recoverable amount of

an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the

asset (or the cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized

immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the

impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is

increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not

exceed the carrying amount that would have been determined had no impairment loss been recognized for the

asset (or the cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in

profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the

impairment loss is treated as a revaluation increase.

(14) Government grants

Government grants are not recognized until there is reasonable assurance that the Company will comply with the

conditions attached to them and that the grants will be received.

Specifically, government grants whose primary condition is that the Company should purchase, construct or

otherwise acquire non-current assets are recognized as deferred revenue in the separate statement of financial

position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related

assets.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose

of giving immediate financial support to the Company with no future related costs are recognized in profit or

loss in the period in which they become receivable.

(15) Non-current assets as held for sale

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered

principally through a sale transaction rather than through continuing use. This condition is regarded as met

only when the sale is highly probable and the non-current asset (or disposal group) is available for immediate

sale in its present condition. Management must be committed to the sale, which should be expected to qualify

for recognition as a completed sale within one year from the date of classification. When non-current assets or

disposal groups are classified as held for sale, they are measured at the lower of the carrying amount and its fair

value less costs of disposal.

(16) Provisions

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past

event; it is probable that the Company will be required to settle the obligation, and a reliable estimate can be

made of the amount of the obligation.

- 12 -

The amount recognized as a provision is the best estimate of the consideration required to settle the present

obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the

obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its

carrying amount is the present value of those cash flows (where the effect of the time value of money is material).

At the end of each reporting period, the remaining provision balance is reviewed and assessed to determine if the

current best estimate is being recognized. If the existence of an obligation to transfer economic benefit is no

longer probable, the related provision is reversed during the period.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a

third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and

the amount of the receivable can be measured reliably.

If the liability arises from an event, which is too uncertain or the amount of the obligation cannot be reliably

estimated, the liability should not be provided for, but should be disclosed as a contingent liability.

(17) Revenue recognition

Revenue should be measured at the fair value of the consideration received or receivable taking into account the

amount of any trade discounts and value-added tax (VAT). The Company recognizes revenue when it is

probable that the economic benefits will flow to the Company and the amount of revenue can be measured

reliably.

1) Sale of goods

Revenue from the sale of goods is recognized when the Company has transferred to the buyer the significant

risks and rewards of ownership of the goods. Revenue from the sale of goods is recognized when goods are

delivered and legal title is passed.

2) Rendering of services

Revenue from a contract to provide services is recognized by reference to the stage of completion of the contract.

The stage of completion of the contract is determined as follows: installation fees are recognized by reference to

the stage of completion of the installation, determined as the proportion of the total time expected to install that

has elapsed at the end of the reporting period, servicing fees included in the price of products sold are recognized

by reference to the proportion of the total cost of providing the servicing for the product sold and revenue from

time and material contracts is recognized at the contractual rates as labor hours and direct expenses are incurred.

3) Interest income, royalties and dividend income

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest

rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of

the financial asset to that asset’s net carrying amount on initial recognition.

Royalty revenue is recognized on an accrual basis in accordance with the substance of the relevant agreement.

Dividend income from investments is recognized when the shareholders’ right to receive payment has been

established (provided it is probable that the economic benefits will flow to the Company and the amount of

income can be measured reliably).

(18) Construction contracts

Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognized by

reference to the stage of completion of the contract activity at the end of the reporting period, measured based on

the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs,

except where this would not be representative of the stage of completion. Variations in contract work, claims

and incentive payments are included to the extent that the amount can be measured reliably and its receipt is

considered probable.

Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized to the

extent of contract costs incurred that it is probable it will be recoverable. Contract costs are recognized as

expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total

contract revenue, the expected loss is recognized as an expense immediately.

- 13 -

Revenues recognized during the period in excess of billings on construction contracts are recorded as due from

customers for contract work (other current assets). Billings in excess of revenues recognized on construction

contracts are recorded as “due to customers for contract work (other current liabilities).” Advance payments

received from construction services contracts are recognized as other current liabilities, and construction

receivables are recorded for the amount billed but not received.

(19) Retirement benefits costs

Contributions to defined contribution retirement benefit plans are recognized as an expense when employees

have rendered service entitling them to the contributions.

For defined benefit retirement benefit plans, the cost of providing benefits is determined using the Projected Unit

Credit Method, with actuarial valuations being carried out at the end of each reporting period. Remeasurement,

comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return

on plan assets (excluding interest), is reflected immediately in the statement of financial position with a charge

or credit recognized in other comprehensive income in the period in which they occur. Remeasurement

recognized in other comprehensive income is reflected immediately in retained earnings and will not be

reclassified to profit or loss. Past service cost is recognized in profit or loss in the period of a plan amendment.

Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit

liability or asset. Defined benefit costs are composed of service cost (including current service cost, past

service cost, as well as gains and losses on curtailments and settlements), net interest expense (income), and

remeasurement.

The Company presents the service cost and net interest expense (income) components in profit or loss, and the

remeasurement component in other comprehensive income. Curtailment gains and losses are accounted for as

past service costs.

The retirement benefit obligation recognized in the separate statement of financial position represents the actual

deficit or surplus in the Company’s defined benefit plans. Any surplus resulting from this calculation is limited

to the present value of any economic benefits available in the form of refunds from the plans or reductions in

future contributions to the plans.

(20) Income tax

1) Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported

in the separate statement of comprehensive income because of items of income or expense that are taxable or

deductible in other years and items that are never taxable or deductible. The Company’s liability for current tax

is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the

separate financial statements and the corresponding tax bases used in the computation of taxable profit.

Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are

generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits

will be available against which those deductible temporary differences can be utilized. Such deferred tax assets

and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition

(other than in a business combination) of other assets and liabilities in a transaction that affects neither the

taxable profit nor the accounting profit.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in

subsidiaries and associates, and interests in joint ventures, except where the Company is able to control the

reversal of the temporary difference and it is probable that the temporary difference will not reverse in the

foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such

investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable

profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the

foreseeable future.

- 14 -

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the

extent that it is no longer probable that sufficient taxable profits will be available to allow all or a part of the

asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to be applied in the period in

which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or

substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets

reflects the tax consequences that would follow from the manner in which the Company expects, at the end of

the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities in the same tax jurisdiction and in the same current or non-current

classification are presented on a net basis.

For the purpose of measuring deferred tax liabilities and deferred tax assets for investment properties that are

measured using the fair value model, the carrying amounts of such properties are presumed to be recovered

entirely through sale, unless the presumption is rebutted. The presumption is rebutted when the investment

property is depreciable and is held within a business model whose objective is to consume substantially all of the

economic benefits embodied in the investment properties over time, rather than through sale.

3) Current and deferred taxes for the year

Current and deferred taxes are recognized in profit or loss, except when they relate to items that are recognized

in other comprehensive income or directly in equity; in which case, the current and deferred taxes are also

recognized in other comprehensive income or directly in equity. Where current tax or deferred tax arises from

the initial accounting for a business combination, the tax effect is included in the accounting for the business

combination.

(21) Foreign currency translation

The individual financial statements of each entity are presented in the currency of the primary economic

environment in which the entity operates (its functional currency). For the purpose of the separate financial

statements, the results and financial position of each Company entity are expressed in Korean won, which is the

Company’s functional currency as well as the presentation currency for the separate financial statements.

Transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the

exchange rates prevailing at the transaction dates. At the end of each reporting period, monetary items

denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items

carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date

when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a

foreign currency are not retranslated.

The effects of foreign currency translation of assets and liabilities denominated in foreign currencies related to

investing and financing activities are recognized as financial income (expenses). For all others, effects of

foreign currency translation are recorded as other operating income (expenses). Exchange differences on

monetary AFS securities except changes in amortized cost, and non-monetary AFS securities measured at fair

value, are accumulated in equity.

(22) Fair value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants at the measurement date, regardless of whether that price is directly

observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability,

the Company takes into account the characteristics of the asset or liability if market participants would take those

characteristics into account when pricing the asset or liability at the measurement date. Fair value for

measurement and/or disclosure purposes in these separate financial statements is determined on such a basis,

except for share-based payment transactions that are within the scope of K-IFRS 1102, Share-Based Payment,

leasing transactions that are within the scope of K-IFRS 1017, Leases, and measurements that have some

similarities to fair value but are not fair value, such as net realizable value in K-IFRS 1002, Inventories, or value

in use in K-IFRS 1036, Impairment of Assets.

- 15 -

In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based

on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs

to the fair value measurement in its entirety, which are described as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the

entity can access at the measurement date;

• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset

or liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

(23) Approval of separate financial statements

The Company’s separate financial statements for the year ended December 31, 2014, were approved by the

board of directors on February 27, 2015, and scheduled to be the final approval at the shareholders' meeting of

March 30, 2015.

3. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION

UNCERTAINTY:

In the application of the Company’s accounting policies , which are described in Note 2, management is required

to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not

readily apparent from other sources. The estimates and associated assumptions are based on historical

experience and other factors that are considered to be relevant. Actual results may differ from those estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognized in the period in which the estimate is revised if the revision affects only that period or

in the period of the revision and future periods if the revision affects both current and future periods.

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at

the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying

amounts of assets and liabilities within the next financial year.

(1) Income tax

Recognition and measurement of deferred tax assets and liabilities , requires management's judgment . In

particular, the scope of recognition that whether the recognition of deferred tax assets, is affected by assumptions

about future condition and management's judgment.

The tax currently payable is based on taxable profit for the year. The Company’s liability for current tax is

calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

However, actual income tax payable of future may differs from tax assets (liabilities) recognized in the separate

statements of financial position, and then these differences may affect income tax expenses and deferred tax

assets and liabilities

Meanwhile, the probability of realizing for the deferred tax assets was estimated using expected taxable profit

based on business plan of the Company. As a result, deferred tax asset whose probability of realizing is low was

not recognized. The details of deductible temporary differences and unused tax losses are described in Note 24.

(2) Allowance for loans and receivables

In order to determine the amount of impairment loss on loans and receivables, the Company takes it into account

that the aging of loans and receivables, past bad debt experiences and other economic and industrial factors.

- 16 -

(3) Impairment on non-financial assets

At the end of each reporting period, the Company reviews the carrying amounts of non-financial assets to

determine whether there is any indication that those assets have suffered an impairment loss. Intangible assets

with indefinite useful lives are tested for impairment at least annually and whenever there is an indication that

the asset may be impaired. Other non-financial assets are tested for impairment at least annually whether there

are indications that the book value may not be recoverable. The value in use calculation requires the directors to

estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in

order to calculate present value.

(4) Valuation of Financial Instruments

The Company uses valuation techniques that include inputs that are not based on observable market data to

estimate the fair value of certain type of financial instruments. The directors believe that the chosen valuation

techniques and assumptions used are appropriate in determining the fair value of financial instruments.

(5) Defined Benefit Plan

The Company operates defined benefit retirement plans. The Company’s defined benefit obligation is

determined based on the actuarial valuation carried out at the end of each annual reporting period. Actuarial

assumptions are the Company’s best estimates of the variables in determining the cost of providing post-

retirement benefits, such as discount rates, rates of expected future salary increases and mortality rates.

Significant estimation uncertainty is likely to persist in making such assumptions due to the long-term nature of

post-retirement benefit plan. Details for defined benefit retirement obligations in the separate financial

statements are described in Note 18.

(6) Provision

The Company recognized provision related to the real estate disposal agreement as of December 31, 2014. This

provision was determined based on reasonable estimation of cash outflow from the Company on future.

4. RESTRICTED FINANCIAL INSTRUMENTS:

Details of restricted financial instruments as of December 31, 2014 and 2013, are as follows:

Instrument Financial institution

December 31,

2014 December 31,

2013 Description

(In millions of Korean won)

Short-term financial

assets

Bank deposit Korea Exchange Bank

and others ￦ 2,968 ￦ 11,757 Business Guarantee and etc.

AFS securities Equity securities Kwangju Bank and

others 16,604 19,996

Pledged as collateral for

borrowings (Note 30)

Investment in

subsidiaries,

associates and

joint ventures

Equity securities Hana Bank and others

102,725 113,256

Pledged as collateral for

borrowings (Note 30)

Other financial

assets

Bank deposit

and others

Hana Bank

- 223

Pledged as surety insurance

Total

￦ 122,297 ￦ 145,232

- 17 -

5. INVENTORIES:

Inventories as of December 31, 2014 and 2013, consist of the following:

December 31, 2014

Acquisition cost Valuation allowance Book value


Merchandise ￦ 9,526 ￦ (71) ￦ 9,455

Finished products 47,759 (482) 47,277

Work in process 30,486 - 30,486

Raw materials and supplies 18,244 - 18,244

Materials in transit 21,599 - 21,599

Total ￦ 127,614 ￦ (553) ￦ 127,061

December 31, 2013

Acquisition cost Valuation allowance Book value


Merchandise ￦ 4,841 ￦ (56) ￦ 4,785

Finished products 46,819 (541) 46,278

Work in process 26,991 - 26,991

Raw materials and supplies 11,056 - 11,056

Materials in transit 38,650 - 38,650

Total ￦ 128,357 ￦ (597) ￦ 127,760

A substantial portion of inventory is pledged as collateral to financial institution for borrowing (See Notes 14 and

15).

6. ACCOUNTS RECEIVABLE, LOANS AND OTHER FINANCIAL ASSETS:

(1) Accounts receivable, loans and other financial assets as of December 31, 2014 and 2013, consist of the

following:

December 31, 2014 December 31, 2013

Face value

Allowance

for doubtful

accounts

Present

value

discount

Net book

value Face value

Allowance

for doubtful

accounts

Net book

value


Accounts receivable:

Trade receivables ￦ 237,789 ￦ (30,990) - ￦ 206,799 ￦ 225,530 ￦ (23,679) ￦ 201,851

Construction receivables 17,070 (1,330) - 15,740 17,873 - 17,873

Total ￦ 254,859 ￦ (32,320) ￦ - ￦ 222,539 ￦ 243,403 ￦ (23,679) ￦ 219,724

Loans:

Short-term loans ￦ 780,818 ￦ (760,803) - ￦ 20,015 ￦ 768,395 ￦ (734,573) ￦ 33,822

Long-term loans 104,026 (104,000) - 26 105,689 (105,689) -

Total ￦ 884,844 ￦ (864,803) ￦ - ￦ 20,041 ￦ 874,084 ￦ (840,262) ￦ 33,822

Other current financial assets:

Other accounts receivable ￦ 26,059 ￦ (15,088) ￦ - ￦ 10,971 ￦ 23,791 ￦ (16,371) ￦ 7,420

Accrued income 13,908 (13,810) - 98 14,288 (13,811) 477

Derivative assets (Note 30) 11,537 - - 11,537 6,590 - 6,590

Guarantee deposits 706 - - 706 773 - 773

Total ￦ 52,210 ￦ (28,898) ￦ - ￦ 23,312 ￦ 45,442 ￦ (30,182) ￦ 15,260

Other financial assets:

Long-term accounts

receivable ￦ 219,719 ￦ (217,945) ￦ (457) ￦ 1,317 ￦ 217,945 ￦ (217,945) ￦ -

Long-term financial

instruments - - - - 223 - 223

Long-term other

receivables 10,224 (10,224) - - 10,224 (10,224) -

Long-term accrued income 914 (914) - - 914 (914) -

Derivative assets (Note 30) 723 - - 723 546 - 546

Guarantee deposits 3,580 - - 3,580 3,400 - 3,400

Total ￦ 235,160 ￦ (229,083) ￦ (457) ￦ 5,620 ￦ 233,252 ￦ (229,083) ￦ 4,169

- 18 -

(2) Allowance for doubtful accounts

1) Aging analyses of accounts receivable, loans and other financial assets in arrears but not impaired as of

December 31, 2014 and 2013, are as follows:

December 31, 2014

Less than 6 months 6 months–1 year More than 1 year Total


Accounts receivable ￦ 37,040 ￦ 14,438 ￦ 17,398 ￦ 68,876

Short-term loans 335 9,000 5,207 14,542

Other current financial

assets 441 379 4,407 5,227

Total ￦ 37,816 ￦ 23,817 ￦ 27,012 ￦ 88,645

December 31, 2013



Accounts receivable ￦ 24,970 ￦ 12,380 ￦ 25,437 ￦ 62,787

Short-term loans 9,000 - 24,822 33,822


assets 511 2,637 513 3,661

Total ￦ 34,481 ￦ 15,017 ￦ 50,772 ￦ 100,270

2) Aging analyses of accounts receivable, loans and other financial assets impaired as of December 31, 2014

and 2013, are as follows:

December 31, 2014



Accounts receivable ￦ 200 ￦ - ￦ 32,120 ￦ 32,320

Long-term accounts

receivable - - 217,945 217,945

Short-term loans - - 760,803 760,803

Long-term loans - - 104,000 104,000


assets - - 28,898 28,898

Other financial assets - - 11,138 11,138

Total ￦ 200 ￦ - ￦ 1,154,904 ￦ 1,155,104

December 31, 2013



Accounts receivable ￦ - ￦ - ￦ 23,679 ￦ 23,679

Long-term accounts

receivable - - 217,945 217,945

Short-term loans - - 734,573 734,573

Long-term loans - - 105,689 105,689


assets - - 30,182 30,182

Other financial assets - - 11,138 11,138

Total ￦ - ￦ - ￦ 1,123,206 ￦ 1,123,206

- 19 -

3) The changes in allowance for doubtful accounts of accounts receivable, loans and other financial assets for

the years ended December 31, 2014 and 2013, are as follows:

2014

Beginning Impairment

Reversal of

Impairment Other Ending


Accounts receivable ￦ 23,679 ￦ 8,659 ￦ (18) ￦ - ￦ 32,320

Long-term accounts

receivable 217,945 - - - 217,945

Short-term loans

(*1) 734,573 10,345 (571) 16,456 760,803

Long-term loans 105,689 - (1,689) - 104,000

Other current

financial assets 30,182 2,756 (4,040) - 28,898

Other financial

assets 11,138 - - - 11,138

Total ￦ 1,123,206 ￦ 21,760 ￦ (6,318) ￦ 16,456 ￦ 1,155,104

(*1) Financial guarantee liabilities recognized for the NT Development I Co., Ltd. and Dok-san 1st

Commercial-residential building Development PFV Co., Ltd. are executed in 2014, and decrease of

financial guarantee contract liability was accounted for increase in short-term loan and its allowance for

doubtful.

2013

Beginning Impairment

Reversal of

Impairment Other Ending


Accounts receivable

(*1) ￦ 21,631 ￦ 2,048 ￦ - ￦ - ￦ 23,679

Long-term accounts

receivable (*1) - 195,877 - 22,068 217,945

Short-term loans

(*1 and 2) 583,020 136,633 (487) 15,407 734,573

Long-term loans (*1) 74,714 28,876 (25) 2,124 105,689

Other current

financial assets 13,483 11,338 (40) 5,401 30,182

Other financial

assets (*1) - 9,816 - 1,322 11,138

Total ￦ 692,848 ￦ 384,588 ￦ (552) ￦ 46,321 ￦ 1,123,206

(*1) The Company recognized impairment loss on receivables with related parties, including Taihan Systems

Co., Ltd., since collectability of receivables was determined to be low in 2013.

(*2) Financial guarantee contract liability for NT Development Co., Ltd., was paid in 2013, and decrease of

financial guarantee contract liability was accounted for increase in short-term loan and its allowance for

doubtful.

Accounts receivable, loans and other financial assets are assessed for impairment on an individual analysis basis.

When book values of accounts receivable, loans and other financial assets are less than their collectible amounts,

the Company provides an allowance for doubtful accounts.

- 20 -

7. AFS FINANCIAL ASSETS:

(1) AFS financial assets as of December 31, 2014 and 2013, consist of the following:


Current Non-current Current Non-current


Marketable equity securities ￦ - ￦ - ￦ - ￦ 1,498

Non-marketable equity securities - 25,305 - 24,205

Debt securities 3,269 26,362 18,880 30,896

Total ￦ 3,269 ￦ 51,667 ￦ 18,880 ￦ 56,599

(2) Details of AFS financial assets as of December 31, 2014 and 2013, are as follows:

Acquisition cost Book value

Gain (loss) on valuation

of AFS (*1)

December

31, 2014

December

31, 2013

December

31, 2014

December

31, 2013

December

31, 2014

December

31, 2013


Marketable equity securities

(*2) ￦ - ￦ 9,909 ￦ - ￦ 1,498 ￦ - ￦ (569)

Non-marketable equity

securities (*2 and 3) 144,335 40,389 25,305 24,205 5,274 4,426

Debt securities (current) (*2) 25,769 59,707 3,269 18,880 - -

Debt securities (non-current)

(*2) 32,396 30,896 26,362 30,896 - 673

Total ￦ 202,500 ￦ 140,901 ￦ 54,936 ￦ 75,479 ￦ 5,274 ￦ 4,530

(*1) After tax effects as of December 31, 2014 and 2013, of ￦1,160 million and ￦997 million, respectively,

valuation gain (loss) on AFS financial assets as of December 31, 2014 and 2013, are ￦4,114 million

and ￦3,533 million, respectively (see Note 24).

(*2) As of December 31, 2014, a substantial portion of the Company’s investment shares is pledged as

collateral for the Company and subsidiaries’ borrowings (see Note 30).

(*3) With the commencement of rehabilitation process for TEC Construction Co., Ltd. at May 27, 2014, the

Company reclassified its investment from subsidiary to AFS. Also, TEC&R Co., Ltd.’s associate company,

Siheung-dong Mixed-use Residential Development PFV Inc. was reclassified as available-for-sale

securities (see Note 8).

(3) Changes in AFS financial assets for the years ended December 31, 2014 and 2013, are as follows:

2014

Beginning Acquisition Disposal

Valuation

gain/loss Impairment

Transfer Ending


Marketable equity

securities ￦ 1,498 ￦ - ￦ (1,498) ￦ - ￦ - ￦ - ￦ -

Non-marketable

equity securities 24,205 251 - 849 - - 25,305

Debt securities

(current) 18,880 60 (14,171) - - (1,500) 3,269

Debt securities

(non-current) 30,896 1 (1) - (6,034) 1,500 26,362

Total ￦ 75,479 ￦ 312 ￦ (15,670) ￦ 849 ￦ (6,034) ￦ - ￦ 54,936

- 21 -

2013

Beginning Acquisition Disposal

Valuation

gain/loss Impairment

Transfer Ending


Marketable equity

securities ￦ 2,570 ￦ - ￦ (148) ￦ (569) ￦ (355) ￦ - ￦ 1,498

Non-marketable

equity securities 21,026 210 (3,900) 1,356 (3,544) 9,057 24,205

Debt securities

(current) 39,085 5,004 (5,004) 725 (1) (20,929) 18,880

Debt securities

(non-current) 8,691 1 (24) 1,299 - 20,929 30,896

Total ￦ 71,372 ￦ 5,215 ￦ (9,076) ￦ 2,811 ￦ (3,900) ￦ 9,057 ￦ 75,479

8. INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES:

(1) Investments in subsidiaries, associates and joint ventures as of December 31, 2014 and 2013, consist of the

following:

Acquisition cost Book value

December 31,

2014

December 31,

2013

December 31,

2014

December 31,

2013


Subsidiaries ￦ 1,321,813 ￦ 1,421,712 ￦ 167,022 ￦ 245,720

Associates 34,872 35,622 23 23

Joint ventures 4,885 4,885 4,885 4,885

Total ￦ 1,361,570 ￦ 1,462,219 ￦ 171,930 ￦ 250,628

(2) Details of investments in subsidiaries, associates and joint ventures as of December 31, 2014 and 2013, are

as follows:

Ownership (%) Acquisition cost Book value

Company

December 31,

2014

December 31,

2013

December 31,

2014

December 31,

2013

December 31,

2014

December 31,

2013


Subsidiaries:

TEC Construction Co., Ltd.(*1 and 2) - 41.43 ￦ - ￦ 99,899 ￦ - ￦ 32,593

TEC Media Co., Ltd. 100.00 100.00 6,324 6,324 - -

TEC&Co Co., Ltd. (*2) 58.24 58.24 79,448 79,448 5,037 14,348

Standard Telecom Congo 51.00 51.00 8,500 8,500 - -

T. E. USA, Ltd. 100.00 100.00 1,670 1,670 - -

Taihan Global Holdings Ltd. 100.00 100.00 885,442 885,442 5,496 25,020

TSC Co., Ltd. 70.00 70.00 19,074 19,074 12,357 12,357

Kookmin Cable Investment Fund II

Co. (*2) 99.50 99.50 100,000 100,000 100,000 100,000

Muju Enterprise City Co., Ltd. 100.00 96.07 4,000 4,000 1,879 4,000

NT Development I Co., Ltd. (*2) 94.98 94.98 37,517 37,517 - -

NPS07-1 Corporate Restructuring Fund

QCP12 (*2) 53.07 53.07 87,780 87,780 - -

TEC 2nd Co., Ltd. (*3) 0.00 0.00 - - - -

Consus Muju-Pine Stone Real estate

Investment Trust 71.06 71.06 54,985 54,985 42,253 42,253

Berry IB Holdings Co., Ltd. 100.00 100.00 37,073 37,073 - 15,149

Subtotal

1,321,813 1,421,712 167,022 245,720

Associates:

Berry Networks Co., Ltd. 49.97 49.97 32,500 32,500 - -

Siheung-dong Mixed-use Residential

Development PFV Inc. (*4) - 15.00 - 750 - -

ALD I Co., Ltd. (*2) 46.98 46.98 2,349 2,349 - -

AMP Partners Co., Ltd. 46.98 46.98 23 23 23 23

Subtotal

34,872 35,622 23 23

- 22 -

Ownership (%) Acquisition cost Book value

Company

December 31,

2014

December 31,

2013

December 31,

2014

December 31,

2013

December 31,

2014

December 31,

2013


Joint ventures:

Malesela T. E. C., Ltd. 48.93 48.93 ￦ 4,885 ￦ 4,885 ￦ 4,885 ￦ 4,885

Subtotal

4,885 4,885 4,885 4,885

Total

￦ 1,361,570 ￦ 1,462,219 ￦ 171,930 ￦ 250,628

(*1) With the commencement of rehabilitation process for TEC construction Co., Ltd. at May 27, 2014, the Company

reclassified its investment from subsidiary to AFS after impairment recognized. As of December 31, 2013, TEC

Construction Co., Ltd., was classified as a subsidiary since the Company and its subsidiaries’ total ownership

exceeds 50%. TEC Construction Co., Ltd., issues both common shares and preferred shares and the ownership ratio

has been computed on the total number of common shares. As subsequent event, TEC Construction Co., Ltd. has

received the decision of the court is the recovery plan as of January, 28, 2015.

(*2) As of December 31, 2014, a substantial portion of the Company’s investment shares is pledged as collateral to

financial institution for the Company and its related parties’ borrowings (see Note 30).

(*3) Special-purpose entity, established for securitization of trade receivables, is classified as a subsidiary.

(*4) Until December 31, 2013, the Company classified as associates since the Company and its subsidiaries’total

ownership is more than 20%., however, in 2014 as TEC&R is excluded from subsidiary, so reclassified as available-

for-sale securities

(3) The changes in investments in subsidiaries, associates and joint ventures

1) The changes in investments in subsidiaries, associates and joint ventures for the year ended December 31,

2014, are as follows:

Company Beginning Acquisition Disposal

Impairment

(*3) Ending


Subsidiaries:

TEC Construction Co., Ltd. (*1,2,3) ￦ 32,593 ￦ 3,057 ￦ (14,911) ￦ (20,739) ￦ -

TEC Media Co., Ltd. - - - - -

TEC&Co Co., Ltd. (*3) 14,348 - - (9,311) 5,037

Standard Telecom Congo - - - - -

T. E. USA, Ltd. - - - - -

Taihan Global Holdings Ltd. (*3) 25,020 - - (19,524) 5,496

TSC Co., Ltd. 12,357 - - - 12,357

Kookmin Cable Investment

Fund II Co. 100,000 - - - 100,000

Taihan Techren Co., Ltd. - - - - -

Muju Enterprise City Co., Ltd. 4,000 - (2,121) - 1,879

NT Development I Co., Ltd. - - - - -

JP I&C Co., Ltd. - - - - -

NPS07-1 Corporate Restructuring

Fund QCP12 - - - - -

TEC 2nd

Co., Ltd. - - - - -

Consus Muju-Pine Stone Real

estate Investment Trust 42,253 - - - 42,253

Berry IB Holdings Co., Ltd. (*3) 15,149 - - (15,149) -

Subtotal 245,720 3,057 (17,033) (64,723) 167,022

Associates:

Berry Networks Co., Ltd. - - - - -

Siheung-dong Mixed-use

Residential Development PFV Inc. - - - - -

CEP 1st Private Equity Fund - - - - -

ALD I Co., Ltd. - - - - -

AMP Partners Co., Ltd. 23 - - - 23

Subtotal 23 - - - 23

Joint ventures:

Malesela T.E.C., Ltd. 4,885 - - - 4,885

Subtotal 4,885 - - - 4,885

Total ￦ 250,628 ￦ 3,057 ￦ (17,033) ￦ (64,723) ￦ 171,930

- 23 -

(*1) TCI Investment Co., Ltd. exercised its put option to sell the common stock of TEC Construction Co., Ltd

in 2014. As a result, the Company has acquired 4,589,799 shares of common stock of TEC Construction

Co., Ltd. (see Note 30) with consideration of ￦38,950 million of cash and cash equivolent and in kind ,

and treated the difference between the fair value and the cost of the acquired shares provided by financing

costs. The Company sold 22,372,400 shares of common stock and 41,182 shares of convertible preferred

shares of TEC Engineering & Construction Co., Ltd to Berry IB Holdings Co., Ltd., the consideration of

￦15,671 million were offset against the debt to Berry IB Holdings Co., Ltd. As a result, gains from the

disposal of investments in subsidiaries of ￦761 million occurred.

(*2) With the commencement rehabilition of TEC Construction Co., Ltd on May 27, 2014, the Company

recognized an impairment loss of ￦20,739 million. The rehabilition plan was approved from the Court on

January 28, 2015.

(*3) Impairment loss has been recognized for the collectible amounts less than carrying amounts (higher of fair

value less cost to sell and value in use) as of December 31, 2014.

2) The changes in investments in subsidiaries, associates and joint ventures for the year ended December 31,


Company Beginning Acquisition Disposal

Impairment

(*1) Ending


Subsidiaries:

TEC Construction Co., Ltd. ￦ 32,593 ￦ - ￦ - ￦ - ￦ 32,593

TEC Media Co., Ltd. - - - - -

TEC&Co Co., Ltd. (*1) 19,172 - - (4,824) 14,348

Standard Telecom Congo - - - - -

T. E. USA, Ltd. (*1) 1,290 - - (1,290) -

Taihan Global Holdings Ltd. (*1) 78,391 - - (53,371) 25,020

TSC Co., Ltd. 12,357 - - - 12,357

Kookmin Cable Investment

Fund II Co. 100,000 - - - 100,000

Taihan Techren Co., Ltd. - - - - -

Muju Enterprise City Co., Ltd. (*2) 44,000 - (40,000) - 4,000

NT Development I Co., Ltd. - - - - -

JP I&C Co., Ltd. 98 - (98) - -

NPS07-1 Corporate Restructuring

Fund QCP12 (*1) 44,997 - - (44,997) -

TEC 2nd

Co., Ltd. - - - - -


estate Investment Trust (*1) 54,985 - - (12,732) 42,253

Berry IB Holdings Co., Ltd. (*1) 23,599 - - (8,450) 15,149

Subtotal 411,482 - (40,098) (125,664) 245,720

Associates:

Berry Networks Co., Ltd. - - - - -


Residential Development PFV Inc. - - - - -

CEP 1st Private Equity Fund - - - - -

ALD I Co., Ltd. - - - - -

AMP Partners Co., Ltd. 23 - - - 23

Subtotal 23 - - - 23

Joint ventures:

Malesela T.E.C., Ltd. 4,885 - - - 4,885

Subtotal 4,885 - - - 4,885

Total ￦ 416,390 ￦ - ￦ (40,098) ￦ (125,664) ￦ 250,628

(*1) Impairment loss has been recognized for the collectible amounts less than carrying amounts (higher of fair

value less cost to sell and value in use) as of December 31, 2013.

(*2) Muju Enterprise City Co., Ltd. determined reduction of capital with consideration according to the

decision of the board of directors’ meeting held on May 24, 2013. The Company offset consideration for

the share of ￦40,000 million (8,000,000 shares) for Muju Enterprise City Co., Ltd and the Company’s

short-term borrowings of ￦40,000 million in accordance with the mutual contract in 2013.

- 24 -

(4) As of December 31, 2014 and 2013, the following is market price of marketable subsidiaries, associates and

joint ventures.

December 31, 2014(*1) December 31, 2013

Market price

per share Market value

Market price

per share Market value

(In millions of Korean won, except market price per share)

TEC&Co Co., Ltd. ￦ 1,650 ￦ 5,037 ￦ 470 ￦ 14,348

(*1) Number of stocks decreased due to 10 to 1 capital reduction without consideration on September 29, 2014.

9. PROPERTY, PLANT AND EQUIPMENT:

(1) Property, plant and equipment as of December 31, 2014 and 2013, consist of the following:


Acquisition

cost Less (*1) Book value

Acquisition

cost Less (*1) Book value


Land ￦ 102,846 ￦ (5,505) ￦ 97,341 ￦ 103,072 ￦ (5,505) ￦ 97,567

Buildings 256,496 (22,448) 234,048 257,592 (15,734) 241,858

Structures 47,738 (6,584) 41,154 47,682 (4,596) 43,086

Machinery and equipment 198,709 (77,778) 120,931 198,231 (72,766) 125,465

Office equipment 41,527 (31,259) 10,268 42,191 (29,418) 12,773

Vehicles 3,211 (2,703) 508 3,251 (2,527) 724

Construction in process 590 - 590 10,252 - 10,252

Total ￦ 651,117 ￦ (146,277) ￦ 504,840 ￦ 662,271 ￦ (130,546) ￦ 531,725

(*1) Deduction for land represents the government grant, and other deductions of property, plant and equipment

represent accumulated depreciation.

(2) The changes in property, plant and equipment.

1) The changes in property, plant and equipment for the year ended December 31, 2014, are as follows:

Beginning Acquisition Disposal Depreciation Transfer(*1) Ending


Land ￦ 97,567 ￦ - ￦ (226) ￦ - ￦ - ￦ 97,341

Buildings 241,858 - (940) (6,870) - 234,048

Structures 43,086 48 - (1,988) 8 41,154

Machinery and equipment 125,465 3,204 - (8,523) 785 120,931

Office equipment 12,773 1,530 - (4,063) 28 10,268

Vehicles 724 78 (4) (279) (11) 508

Construction in process 10,252 7 (640) - (9,029) 590

Total ￦ 531,725 ￦ 4,867 ￦ (1,810) ￦ (-)21,723 ￦ (8,219) ￦ 504,840

(*1) The difference is the amount of money that has been superseded by such intangible assets from construction

in process.

- 25 -

2) The changes in property, plant and equipment for the year ended December 31, 2013, are as follows:

Beginning Acquisition Disposal Depreciation Transfer(*1) Ending


Land ￦ 106,197 ￦ - ￦ (9,203) ￦ - ￦ 573 ￦ 97,567

Buildings 246,864 - (1,376) (6,841) 3,211 241,858

Structures 44,595 - - (1,978) 469 43,086

Machinery and equipment 125,107 - (80) (8,082) 8,520 125,465

Office equipment 13,831 32 (16) (4,183) 3,109 12,773

Vehicles 587 257 (14) (280) 174 724

Construction in process 24,728 15,861 (8) - (30,329) 10,252

Total ￦ 561,909 ￦ 16,150 ￦ (10,697) ￦ (21,364) ￦ (14,273) ￦ 531,725

(*1) The difference is transfer of intangible assets from construction in process.

(3) Pledged property, plant and equipment

Details of property, plant and equipment pledged as collateral for borrowing as of December 31, 2014 and 2013,

are as follows:

Creditor Pledged assets

December 31,

2014

December 31,

2013


The Korea Development Bank and others (*1) Land and buildings ￦ 300,000 ￦ 300,000

Hana bank and others Land and buildings 306,800 306,800

IBK capital Land 8,800 8,800

Dangjin City Land and buildings 6,606 6,606

￦ 622,206 ￦ 622,206

(*1) Insurance coverage amounting to ￦427,917 million was pledged in relation with to the contracts for the

collateralized factory building and other tangibles assets.

(4) Insured assets

Details of insured property, plant and equipment as of December 31, 2014 and 2013, are as follows:

Insured

December 31,

2014

December 31,

2013 Company


Fire insurance and

others Buildings ￦ 239,712 ￦ 230,684 Hyundai Marine & Fire

Insurance Co., Ltd.

and others Machinery and equipment 218,242 217,740

Inventories 113,866 93,298

Others 33,810 35,262

Total

￦ 605,630 ￦ 576,984

In addition, the Company carries business compensation liability insurance for directors and comprehensive

automobile insurance.

- 26 -

10. INTANGIBLE ASSETS:

(1) Intangible assets as of December 31, 2014 and 2013, consist of the following:

December 31, 2014

Acquisition

cost

Accumulated

amortization

Accumulated

impairment Book value


Development cost ￦ 237 ￦ (237) ￦ - ￦ -

Membership 10,501 - (8,523) 1,978

Other intangible assets 20,578 (3,203) - 17,375

Total ￦ 31,316 ￦ (3,440) ￦ (8,523) ￦ 19,353

December 31, 2013

Acquisition

cost

Accumulated

amortization

Accumulated

impairment Book value


Development cost ￦ 237 ￦ (194) ￦ - ￦ 43

Membership 10,501 - (7,965) 2,536

Other intangible assets 14,273 (1,249) - 13,024

Total ￦ 25,011 ￦ (1,443) ￦ (7,965) ￦ 15,603

(2) The changes in intangible assets

1) The changes in intangible assets for the year ended December 31, 2014, are as follows:

Beginning Acquisition Disposal Amortization Impairment Transfer Ending


Development cost ￦ 43 ￦ - ￦ - ￦ (43) ￦ - ￦ - ￦ -

Membership 2,536 - - - (558) - 1,978

Other intangible

assets 13,024 1,590 - (1,954) - 4,715 17,375

Total ￦ 15,603 ￦ 1,590 ￦ - ￦ (1,997) ￦ (558) ￦ 4,715 ￦ 19,353

2) The changes in intangible assets for the year ended December 31, 2013, are as follows:

Beginning Acquisition Disposal Amortization Impairment Transfer Ending


Development cost ￦ 91 ￦ - ￦ - ￦ (48) ￦ - ￦ - ￦ 43

Membership 4,501 - - - (1,965) - 2,536

Other intangible

assets - - - (1,249) - 14,273 13,024

Total ￦ 4,592 ￦ - ￦ - ￦ (1,297) ￦ (1,965) ￦ 14,273 ￦ 15,603

(3) Pledged intangible assets

Details of intangible assets pledged as collateral for borrowing as of December 31, 2014 and 2013, are as

follows:

Creditor Pledged assets

December 31,

2014

December 31,

2013


Hana bank and others Membership ￦ 10,501 ￦ 10,501

- 27 -

11. INVESTMENT PROPERTY:

(1) Investment property as of December 31, 2014 and 2013, consists of the following:


Acquisition

cost

Accumulated

depreciation Book value

Acquisition

cost

Accumulated

depreciation Book value


Land ￦ 433 ￦ - ￦ 433 ￦ 433 ￦ - ￦ 433

Buildings 248 (20) 228 248 (14) 234

Total ￦ 681 ￦ (20) ￦ 661 ￦ 681 ￦ (14) ￦ 667

(2) The changes in investment property

1) The changes in investment property for the year ended December 31, 2014, are as follows:

Beginning Acquisition Disposal Depreciation Ending


Land ￦ 433 ￦ - ￦ - ￦ - ￦ 433

Buildings 234 - - (6) 228

Total ￦ 667 ￦ - ￦ - ￦ (6) ￦ 661

2) The changes in investment property for the year ended December 31, 2013, are as follows:

Beginning Acquisition Disposal Depreciation Ending


Land ￦ 433 ￦ - ￦ - ￦ - ￦ 433

Buildings 240 - - (6) 234

Total ￦ 673 ￦ - ￦ - ￦ (6) ￦ 667

(3) The fair value of investment property as of December 31, 2014 and 2013, is as follows:


Book value Fair value Book value Fair value


Land ￦ 433 ￦ 1,018 ￦ 433 ￦ 977

Buildings 228 228 234 234

Total ￦ 661 ￦ 1,246 ￦ 667 ￦ 1,211

(4) Income and expense on investment property for the years ended December 31, 2014 and 2013, are as

follows:

2014 2013


Rent income ￦ - ￦ -

Operating expense (6) (6)

Total ￦ (6) ￦ (6)

- 28 -

12. OTHER CURRENT ASSETS:

Other current assets as of December 31, 2014 and 2013, consist of the following:


Face value

Allowance

for doubtful

accounts Book value Face value

Allowance

for doubtful

accounts Book value


Due from customers ￦ 21,788 ￦ (31) ￦ 21,757 ￦ 16,567 ￦ - ￦ 16,567

Prepaid VAT 3,041 - 3,041 4,495 - 4,495

Advance payments 11,687 (6,831) 4,856 13,714 (3,023) 10,691

Prepaid expenses 6,089 - 6,089 3,902 - 3,902

Total ￦ 42,605 ￦ (6,862) ￦ 35,743 ￦ 38,678 ￦ (3,023) ￦ 35,655

13. NON-CURRENT ASSETS HELD FOR SALE:

Non-current assets held for sale as of December 31, 2014 and 2013, consist of the following:


Acquisition

costs

Impairment

loss

Book value

(*1)

Acquisition

costs

Impairment

loss

Book value

(*1)


Investments in associates:

KTC Co., Ltd. (*2) ￦ 1,990 ￦ (1,990) ￦ - ￦ 1,990 ￦ - ￦ 1,990

(*1) Book value of the non-current assets classified as held for sale is measured at the lower of carrying amount

and fair value less costs of disposal.

(*2) The Company entered into a sales agreement to transfer 199,000 shares of KTC Co., Ltd., at ￦23,650

million, which was approved by board of directors’ meeting held on July 18, 2012, for financial structure

improvement. TCI Investment Co., Ltd. exercised the put option to sell the common stock of TEC

Construction Co., Ltd in 2013. The Company provided shares of KTC Co., Ltd. for the consideration.

However, the Company did not derecognized shares of KTC, because the transaction did not meet the book-

off requirements. The Company estimated the possibility of disposal of its share high, so reclassified

assets held for sale. And the Company recognized a full impairment loss because the Company estimated

net fair value of the shares is low as of December 31, 2014.

14. SHORT-TERM BORROWINGS:

Short-term borrowings as of December 31, 2014 and 2013, consist of the following:

Creditor

Annual interest

rates (%)

December 31,

2014

December 31,

2013


Short-term borrowings in Korean

won currency:

General-term borrowings Kookmin Bank and others 5.00 ￦ 54,870 ￦ 25,423

Overdraft Woori Bank 2.88 1,800 -

Discount on trade receivables IBK Capital and others 5.24~5.40 18,827 16,350

Subtotal

75,497 41,773

Short-term borrowings in foreign

currency:

Usance Kookmin Bank and others 0.62~3.34 75,627 24,986

Subtotal

75,627 24,986

Total

￦ 151,124 ￦ 66,759

A substantial portion of the Company’s inventory, financial assets, property, plant and equipment, intangible

assets are pledged as collateral for borrowings (see Notes 4, 5, 9 and 10).

- 29 -

15. LONG-TERM BORROWINGS AND OTHERS:

(1) Long-term borrowings and others as of December 31, 2014 and 2013, consist of the following:




Borrowings ￦ 307,559 ￦ 248,487 ￦ 60,035 ￦ 535,273

Debentures 40,000 - 10,000 35,000

Total ￦ 347,559 ￦ 248,487 ￦ 70,035 ￦ 570,273

A substantial portion of the Company’s inventory, financial assets, property, plant and equipment, intangible

assets are pledged as collateral for borrowings (see Notes 4, 5, 9 and 10).

(2) Details of long-term borrowings as of December 31, 2014 and 2013, are as follows:

Creditor

Annual interest

rates (%)

December 31,

2014

December 31,

2013


General term borrowings (*1) Woori Bank and others 3.50~5.00 ￦ 155,559 ￦ 186,007

Facilities borrowings Korea Development Bank and

others 3.50 250,000 250,000

Securitized debt (*1) TEC 2nd

Co., Ltd. 3.50 152,000 161,480

Subtotal 557,559 597,487

Less: Current maturities (307,559) (60,035)

Less: Present value discount (1,513) (2,179)

Total ￦ 248,487 ￦ 535,273

(*1) Creditors, including its principal creditor, the Hana Bank, decided to decrease interest rate on borrowings to

3.5% and postpone the repayment of the Company’s borrowings by December 31, 2015(except for some of the

general loans), in the voluntary committee of creditor banks on December 9, 2013 (see Note 32).

(3) Details of debentures as of December 31, 2014 and 2013, are as follows:

Maturity period

Annual interest

rates (%)

December 31,

2014

December 31,

2013


Privately offered debentures (*1) 2015. 12. 31 5.00 ￦ 40,000 ￦ 45,000

Less : Current maturities (40,000) (10,000)

Non-current debentures ￦ - ￦ 35,000

(*1) The debenture’s maturity date was arrived during the previous year, however, the maturity date was

extended for two years and interest rate was changed to 5% by entering into the agreement for debt

settlement with a debenture holder. Meanwhile, proceeds from disposal or dividends of 60,000 shares of

NP07-1 Corporate Restructuring Fund QCP12 should be used for debentures repayment regardless of the

maturity of the debentures.

- 30 -

16. CONVERTIBLE SECURITIES:

(1) Convertible securities as of December 31, 2014 and 2013, consist of the following:




Bonds with stock warrants ￦ 14,266 ￦ - ￦ 17,033 ￦ -

(2) Details of bonds with stock warrants as of December 31, 2014 and 2013, are as follows:

Maturity date

Annual

interest

rates (%)

December 31,

2014

December 31,

2013


152nd

bonds with stock warrants 2015. 03. 21 3.00 ￦ 12,406 ￦ 15,943

Addition: Redemption premium

2,085 2,679

Less: Conversion right adjustment

(210) (1,479)

Less: Discount on bonds

(15) (110)

Subtotal

14,266 17,033

Less: Current maturities

(14,266) (17,033)

Non-current bonds with stock warrants

￦ - ￦ -

(*1) A portion of early extinguishment option imposed on bondholders was exercised in 2014, ￦3,537 million

(on a par value basis) was repaid before the maturity and related loss of ￦75 million was incurred.

Major terms of the 152th

bonds with stock warrants are as follows:

Issuance date: March 21, 2011

Issuance price: ￦250,000 million

Interest: Payable every three months from the issuance date

Redemption method: If the bonds are not previously redeemed, converted or purchased and canceled, the bonds

shall then be redeemed at an amount equal to 116.8128% of the principal on March 21, 2015.

Redemption at the option of the holders: The holders can claim the early redemption every three months, one

and two years after issuing date. The redemption ratio in the case of early redemption is as follows:

Exercise date Advance redemption rate Exercise date Advance redemption rate

2013. 03. 21 107.85% 2013.06.21 108.91%

2013. 09. 21 109.98% 2013.12.21 111.07%

2014. 03. 21 112.18% 2014.06.21 113.31%

2014. 09. 21 114.46% 2014.12.21 115.63%

Conversion period: From April 21, 2011 to February 21, 2015

Conversion price (*1): ￦5,240 per share

(70% of original exercise price, adjusted every three months after three months from the issuance date)

Conversion stock: Common stock

(*1) Exercise price of bonds with stock warrants as of December 31, 2014, was adjusted to ￦14,000 per share

due to decrease in share price, capital reduction without consideration and paid-in capital increase. On the

other hand, due to capital reduction on the January 30, 2015, exercise price has been adjusted to ￦70,000.

The Company should comply with conditions required in the contract of subscription of debenture, such as

maintenance debt-to-equity ratio to less than 700%, limitation on establishment of pledge, limitation of disposal

of assets until repayment of principal and interests will be completed. But, as of December 31, 2014, the

Company should repay a debt early even prior to the due date if there is a requirement of creditors, because of

failure to comply various matters.

- 31 -

17. ACCOUNTS PAYABLE AND OTHER FINANCIAL LIABILITIES:

(1) Accounts payable and other financial liabilities as of December 31, 2014 and 2013, consist of the

following:

December 31,

2014

December 31,

2013


Accounts payable Accounts payable ￦ 270,766 ￦ 333,903


liabilities Other accounts payable ￦ 56,566 ￦ 32,387

Accrued expenses 11,621 14,801

Derivative liabilities (Note 30) 6,648 5,037

Financial guarantee contract liability 15,297 17,173

Deposits received 1,026 1,064

Total ￦ 91,158 ￦ 70,462

Other financial liabilities Other non-current accounts payable ￦ 103 ￦ 103

Financial guarantee contract liability 625 993

Derivative liabilities (Note 30) 211 251

Rental deposit 855 674

Total ￦ 1,794 ￦ 2,021

(2) Financial guarantee contract liability

1) Financial guarantee contract liability as of December 31, 2014 and 2013, is as follows:




Financial guarantee contract liability ￦ 15,297 ￦ 625 ￦ 17,173 ￦ 993

2) Changes in financial guarantee contract liability for the years ended December 31, 2014 and 2013, are as

follows:

2014

Beginning Increase Decrease Paid Ending


Current ￦ 17,173 ￦ 15,517 ￦ (938) ￦ (16,455) ￦ 15,297

Non-current 993 - (368) - 625

Total ￦ 18,166 ￦ 15,517 ￦ (1,306) ￦ (16,455) ￦ 15,922

2013

Beginning Increase Decrease Paid Ending


Current ￦ 10,672 ￦ 22,613 ￦ (704) ￦ (15,408) ￦ 17,173

Non-current 3,834 1,086 (3,927) - 993

Total ￦ 14,506 ￦ 23,699 ￦ (4,631) ￦ (15,408) ￦ 18,166

- 32 -

3) Details of financial guarantee contract liability as of December 31, 2014, are as follows:

Guaranteed company Financial institution

Guaranteed

period

Guaranteed

amount

Applying

rate (%) Current Non-current


Taihan Global Holdings Ltd. Woori Bank and others 2012.09.11–

2015.06.09 ￦ 24,057 1.47 ￦ 323 ￦ -

NT 1st Development PFV Co.,

Ltd. (*1)

Meritz Securities Co., Ltd.

and others

2012.07.25–

2015.07.25 175,500 1.47 12,211 -

ALD I PFV Co., Ltd. POSCO Construction Co.,

Ltd.

2013.09.11–

2016.09.12 25,000 1.47 - 625

Consus Muju Pine Stone Real

estate Investment Trust

NH Bank and others 2013.12.06–

2015.12.06 61,500 1.47 905 -

Dok-san 1st Commercial-

residential building

Development PFV Co., Ltd.

(*2)

Shinhan Bank and others

- 28,000 1.47 1,858 -

Total

￦ 314,057

￦ 15,297 ￦ 625

(*1) Expected expenditure on financial guarantee contract provided to NT 1st Development PFV Co., Ltd., was

recognized as financial guarantee contract liability as of December 31, 2014.

(*2) The payment guarantee for Dok-san 1st Commercial-residential building Development PFV Co., Ltd. is

obligation to supplement interest to be incurred until the senior loans will be repaid.

18. EMPLOYEE BENEFITS:

The Company provides a defined benefit plan to its employees. According to the plan, the employees will be

paid their average salary amount of the final three months and bonuses and allowances by the number of years

vested. Actuarial valuation on plan assets and defined benefit obligations is calculated by an independent

actuary, Korea Development Bank, using the projected unit credit method.

(1) Employee benefit obligations as of December 31, 2014 and 2013, consist of the following:

December 31,

2014

December 31,

2013


Present value of defined benefit obligation ￦ 18,164 ￦ 12,902

Fair value of plan asset (5,592) (6,497)

Net defined benefit liability ￦ 12,572 ￦ 6,405

- 33 -

(2) The changes in the net defined benefit liability (assets) for the years ended December 2014 and 2013, are as

follows:.

2014 2013

Defined benefit

obligation Plan assets Total

Defined benefit

obligation Plan assets Total


Beginning ￦ 12,902 ￦ (6,497) ￦ 6,405 ￦ 14,717 ￦ (6,901) ￦ 7,816

Current service cost 2,933 - 2,932 4,028 - 4,028

Interest expenses (income) 415 (237) 178 488 (226) 262

Subtotal 16,250 (6,734) 9,516 19,233 (7,127) 12,106

Remeasurement factors:

Return on plan assets (excluding

amounts included in interest

income above) - 84 84 - 14 14

Actuarial gain arising from

changes in the demographic

assumptions (67) - (67) 97 - 97

Actuarial gain (loss) arising from

changes in financial

assumptions 3,484 - 3,484 (3,795) - (3,795)

Adjustment 536 - 536 - - -

Subtotal 3,953 84 4,037 (3,698) 14 (3,684)

Benefit paid from funds

Payments (1,729) 963 (766) (2,646) 622 (2,024)

Settlement payments (271) 79 (192) - - -

Other (transfer from (to) affiliates) (39) 16 (23) 13 (6) 7

Ending ￦ 18,164 ￦ (5,592) ￦ 12,572 ￦ 12,902 ￦ (6,497) ￦ 6,405

(3) Plan assets as of December 31, 2014 and 2013, consist of the following:



Bank deposit ￦ 5,592 ￦ 6,497

Investment strategy about plan assets seek to balance the pursuit of profit and risk reduction. Objective of

minimizing variability of asset related to liability is basically met through diversification of assets, partial assets

and liabilities response strategies and hedging. Plan asset is diversified for reducing variability of asset related to

liability (risk adjusted) and achieving the target revenue. Asset allocation to obtain stable revenue is similar to

bond and correspond partially to pension liability with long maturities.

(4) Actuarial assumptions used for the years ended December 31, 2014 and 2013, are as follows:

2014 2013

Discount rate 2.90 3.91

Weighted average of salary increase

-office job 3.90 2.20

-production worker 4.30

- 34 -

(5) The sensitivity analysis for significant actuarial assumption as of December 31, 2014 and 2013, showing

how the defined benefit obligation would have been affected by changes in the relevant actuarial

assumption, is as follows:

2014 2013

Increase Decrease Increase Decrease


100 basis point (bp) changes in the

discount rate ￦ (1,332) ￦ 1,550 ￦ (725) ￦ 830

1% change in the expected rate of

salary increase 1,523 (1,336) 839 (746)

The sensitivity analysis indicates the change in the amounts of defined benefit obligation when each assumption

changes without change in the remaining assumptions. The sensitivity of defined benefit obligations is

determined by the same methods as the projected unit credit method used in calculating net defined benefit

liability recognized in the separate statements of financial position.

19. OTHER CURRENT LIABILITIES:

(1) Other current liabilities as of December 31, 2014 and 2013, consist of the following:

December 31,

2014

December 31,

2013


Due to customers ￦ 2,000 ￦ 2,146

Unearned revenues 683 478

Advance from customers 42,842 42,445

Withholdings 5,895 6,004

Total ￦ 51,420 ￦ 51,073

(2) Provision

1) Provision as of December 31, 2014 and 2013, consist of the following:


Current Non-current Total Current Non-current Total


Litigation

provisions ￦ 11,042 ￦ - ￦ 11,042 ￦ - ￦ - ￦ -

Other

provisions 43,972 2,900 46,872 31,083 - 31,083

Provision for

construction

warranty - 766 766 - - -

Other long-term

employee

benefits - 1,363 1,363 - - -

Total ￦ 55,014 ￦ 5,029 ￦ 60,043 ￦ 31,083 ￦ - ￦ 31,083

- 35 -

2) The changes in provisions in 2014, are as follows:

Beginning Transfer Reversal End


Litigation provisions ￦ - ￦ 11,752 ￦ (710) ￦ 11,042

Other provisions(*1) 31,083 15,789 - 46,872

Provision for construction warranty - 879 (113) 766

Other long-term employee benefits - 1,363 - 1,363

Total ￦ 31,083 ￦ 29,783 ￦ (823) ￦ 60,043

(*1) In 2014, EU FTC imposed a penalty for collusion in EU areas, and the Company provided of ￦8,468

million as other provisions. Meanwhile, the Company recognized ￦35,077 million as a provision on the

guarantee for Stone Construction Co., Ltd (see Note 30).

3) The changes in provisions in 2013 are as follows:

Beginning Transfer Reversal End


Other provisions 5,015 31,018 (4,950) 31,083

20. CONSTRUCTION CONTRACTS:

Construction contracts as of December 31, 2014 and 2013, consist of the following:

December 31,

2014

December 31,

2013


Cost incurred ￦ 242,453 ￦ 299,499

Addition: Accrued income 24,486 43,020

Total of accumulated contract revenue 266,939 342,519

Less: Progress billings (247,151) (328,098)

Total ￦ 19,788 ￦ 14,421

Due from customers (Note 12) 21,788 ￦ 16,567

Due to customers (Note 19) (2,000) (2,146)

Total ￦ 19,788 ￦ 14,421

21. SHAREHOLDERS’ EQUITY:

(1) Capital stock

1) Capital of common stocks as of December 31, 2014 and 2013, are as follows:



Authorized number of shares 700,000,000 shares 700,000,000 shares

Number of outstanding common stocks: 207,856,685 shares 196,634,401 shares

Common stock 163,536,685 shares 152,314,401 shares

Convertible preferred assets 44,320,000 shares 44,320,000 shares

Face value per share ￦ 2,500 ￦ 2,500

Capital of common stocks: ￦ 519,642 ￦ 491,586

Common stock 408,842 380,786

Convertible preferred assets 110,800 110,800

- 36 -

2) Changes in capital stock for the years ended December 31, 2014 and 2013, are as follows:

2014 2013


Beginning ￦ 491,586 ￦ 262,842

Paid-in capital by debt-for-equity swap 28,056 228,744

Ending ￦ 519,642 ￦ 491,586

3) Debt-for-equity swap

Details of debt-for-equity swap for the year ended December 31, 2014, are as follows (See Note 32) :

Common stock


Amount of debt-for-equity swap(*1) ￦ 28,056

Number of shares issued 11,222,284 shares

Issue price per share(in Korean won) ￦ 2,500

(*1) In 2014, the Company measured equity instruments issued through debt-for-equity swap at fair value at the

time of issue, the difference between the fair value of equity instruments issued and financial liabilities

decreased was recognized as profit from debt restructuring. Debt of ￦28,056 million was converted to

equity through debt-for-equity swaps, and share issue costs of ￦138 million and profit from debt

restructuring of ￦4,264 million were deducted directly from capital.

Details of debt-for-equity swap for the year ended December 31, 2013, are as follows:

Common stock

Convertible preferred

stock Total


Amount of debt-for-equity

swap(*1)

117,944 554,000 671,944

Number of shares issued 47,177,716 shares 44,320,000 shares

Issue price per share 2,500 won 12,500 won

Terms for issuing convertible

preferred stock

- Cumulative participating (non-voting)

- Preferred dividend rate: 3.0% (based on face value)

- Conversion price: ￦2,500 (Conversion rate of 1:5 without refixing due to

change of market price)

- Conversion period: From 1 month after issuance date to 10 years

(mandatory conversion to common stock after the end of the period)

- Conversion of convertible preferred stock into common stock is restricted

until the end of the M&A.

- In case if there are dividends payable, the conversion date is mandatorily

extended until completion of payment

Disposal restriction on shares - Shares acquired through debt-for-equity swap are locked up for one year

- Except additional decision of the voluntary committee of creditor banks,

disposal of shares is prohibited until December 31, 2015

(*1) In 2013, the Company measured equity instruments issued through debt-for-equity swap at fair value at the

time of issue, the difference between the fair value of equity instruments issued and financial liabilities

decreased was recognized as profit from debt restructuring. Debt of ￦671,944 million was converted to

equity through debt-for-equity swaps, and stock issuance costs of ￦1,140 million and profit from debt

restructuring of ￦9,407 million were deducted directly from capital.

- 37 -

(2) Other contributed capital

1) Other contributed capital as of December 31, 2014 and 2013, consists of the following:



Capital surplus ￦ - ￦ 535,124

Gain on capital reduction (4,402) -

Treasury stock (53,932) (53,932)

Total ￦ (58,334) ￦ 481,192

2) Changes in other contributed capital for the years ended December 31, 2014 and 2013, are as follows:

Capital

surplus

Discounts

on stocks

issuance

Gain on

capital

reduction

Treasury

stock Others Total


January 1, 2013 ￦ 165,386 ￦ - ￦ 377,050 ￦ (53,932) ￦ 7,923 ￦ 496,427

Debt-for-equity swap (*1) 432,652 - - - - 432,652

Disposition of deficit (62,914) - (377,050) - (7,923) (447,887)

December 31, 2013 ￦ 535,124 ￦ - ￦ - ￦ (53,932) ￦ - ￦ 481,192

January 1, 2014 ￦ 535,124 ￦ - ￦ - ￦ (53,932) ￦ - ￦ 481,192

Debt-for-equity swap (*2) - (4,402) - - (4,402)

Disposition of deficit (535,124) - - - (535,124)

December 31, 2014 ￦ - ￦ (4,402) ￦ - ￦ (53,932) ￦ - ￦ (58,334)

(*1) Common stock of 47,177,716 shares and convertible preferred stock of 44,320,000 shares were issued by

debt-for-equity swap in 2013. As a result, capital surplus of ￦432,652 million was incurred.

(*2) Common stock of 11,222,284 shares was issued by debt-for-equity swap in 2014. As a result, discounts on

stocks issuance of ￦4,402 million were incurred.

3) Treasury stock

Changes in treasury stock for the years ended December 31, 2014 and 2013, are as follows:

2014 2013

Number of shares Amount Number of shares Amount


Treasury stock 278,112 ￦ (53,932) 278,112 ￦ (53,932)

239,418 shares are provided to Hana Bank as collateral, for guarantee business normalization implementation.

(3) Other components of capital

1) Other components of capital as of December 31, 2014 and 2013, consist of the following:

December 31,

2014

December 31,

2013


Gain on valuation of AFS financial assets (Note 7) ￦ 4,226 ￦ 5,368

Loss on valuation of AFS financial assets (Note 7) (112) (1,835)

Total ￦ 4,114 ￦ 3,533

- 38 -

2) Changes in components of other capital for the years ended December 31, 2014 and 2013, are as follows:

2014 2013


Beginning ￦ 3,533 ￦ 1,313

Valuation of AFS financial assets 662 2,192

Disposal of AFS financial assets (81) 28

Ending ￦ 4,114 ￦ 3,533

(4) Deficit

1) Deficit as of December 31, 2014 and 2013, consists of the following:



Actuarial gain (loss) ￦ (3,148) ￦ 2,874

Undisposed deficit (426,459) (706,654)

Total ￦ (429,607) ￦ (703,780)

2) Changes in deficit for the years ended December 31, 2014 and 2013, are as follows:

2014 2013


Beginning ￦ (703,780) ￦ (447,887)

Net loss (257,803) (706,654)

Actuarial gain (loss) (3,148) 2,874

Disposition of deficit 535,124 447,887

Ending ￦ (429,607) ￦ (703,780)

3) Separate statements of disposition of deficit for the years ended December 31, 2014 and 2013, are as

follows:

2014 2013


DEFICIT BEFORE DISPOSITION:

Deficit at the beginning of a period ￦ 168,656 ￦ -

Net loss 257,803 706,654

Actuarial loss (gain) 3,148 (2,874)

429,607 703,780

DISPOSITION:

Paid-in capital in excess of par value - 535,124

- 535,124

UNDISPOSED DEFICIT TO BE CARRIED

FORWARD TO SUBSEQUENT YEAR ￦ 429,607 ￦ 168,656

22. OPERATING INCOME AND EXPENSE:

(1) Details of sales for the years ended December 31, 2014 and 2013, are as follows:

2014 2013


Merchandise sales ￦ 316,313 ￦ 539,978

Product sales 1,187,530 1,272,488

Construction revenue 68,826 51,710

Others 44,827 45,849

Total ￦ 1,617,496 ￦ 1,910,025

- 39 -

(2) Details of cost of sales for the years ended December 31, 2014 and 2013, are as follows:

2014 2013


Cost of merchandise sold ￦ 307,920 ￦ 531,615

Cost of product sold 1,084,068 1,205,172

Construction costs 60,494 54,383

Others 41,387 39,192

Total ￦ 1,493,869 ￦ 1,830,362

(3) Details of selling and administrative expenses for the years ended December 31, 2014 and 2013, are as

follows:

2014 2013


Selling expenses:

Advertisements ￦ 726 ￦ 458

Export expenses 26,370 20,522

Subtotal 27,096 20,980

Administrative expenses:

Salaries 15,553 16,566

Postemployment

benefits 1,844 1,693

Welfare expenses 2,640 2,790

Depreciation 1,253 1,640

Amortization 1,830 1,167

Rent 3,851 4,668

Commission 17,653 16,332

Tax and dues 684 1,244

Insurance 319 185

Bad debt expenses 9,147 197,925

Others 14,423 10,112

Subtotal 69,197 254,322

Distribution cost:

Transport charge 689 872

Subtotal 689 872

Total ￦ 96,982 ￦ 276,174

23. NON-OPERATING INCOME AND EXPENSE:

(1) Financial income and expenses

1) Details of financial income for the years ended December 31, 2014 and 2013, are as follows:

2014 2013


Interest income ￦ 1,617 ￦ 10,338

Dividend income 441 587

Gain on disposition of AFS financial assets 29 239

Gain on disposition of investments in associates - 77

Gain on disposition of investments in subsidiaries 761 -

Gain on transactions of financial derivatives 140 457

Gain on foreign exchange translation 1,053 593

Gain on foreign currency transaction 8,857 13,635

Reversal of financial guarantee contract liability 1,306 4,631

Other reversal of allowance for doubtful accounts 6,299 552

Others 63 9

Total ￦ 20,566 ￦ 31,118

- 40 -

2) Details of financial expenses for the years ended December 31, 2014 and 2013, are as follows:

2014 2013


Interest expense ￦ 31,880 ￦ 70,340

Loss on disposition of accounts receivable 630 1,007

Loss on disposition of AFS financial assets 5,143 580

Loss on impairment of AFS financial assets 6,034 3,900

Loss on disposition of investments in subsidiaries - 4

Loss on impairment of investments in subsidiaries

(Note 8) 64,723 125,664

Loss on valuation of financial derivatives (Note 30) 109 31

Loss on transactions of financial derivatives - 6,478

Loss on stake purchase contract 35,894 -

Loss on foreign exchange translation 2,432 1,409

Loss on foreign currency transaction 14,571 13,667

Transfer of financial guarantee contract liability 15,517 23,699

Other bad debt expenses 13,986 186,863

Loss on redemption of debentures 75 14,341

Loss on impairment of non-current assets held for sale 1,990 -

Other 19,319 11,070

Total ￦ 212,303 ￦ 459,053

3) Details of financial income and expenses according to the categories of financial instruments for the years

ended December 31, 2014 and 2013, are as follows:

Financial income Financial expenses

2014 2013 2014 2013


Financial assets

Loans and receivables ￦ 17,889 ￦ 24,575 ￦ 88,821 ￦ 214,016

AFS financial assets 1,231 903 75,901 130,148

Financial derivative assets (*1) - - - 6,478

Subtotal 19,120 25,478 164,722 350,642

Financial liabilities

Financial liability at amortized cost 1,306 5,183 47,472 108,380

Financial derivative liabilities (*1) 140 457 109 31

Subtotal 1,446 5,640 47,581 108,411

Total ￦ 20,566 ￦ 31,118 ￦ 212,303 ￦ 459,053

(*1) Financial income and expenses are related to financial derivatives for fair value hedge purpose.

(2) Other non-operating income and expenses

1) Other non-operating income for the years ended December 31, 2014 and 2013, consists of the following:

2014 2013


Gain on foreign currency transaction ￦ 13,719 ￦ 14,658

Gain on foreign currency translation 3,806 4,346

Gain on valuation of financial derivatives 12,315 6,944

Gain on transactions of financial derivatives 5,305 5,310

Gain on disposition of tangible assets 742 3,961

Reversal of allowance for doubtful accounts 17 -

Reversal of provision for litigation liabilities 760 64

Profit from debt restructuring 4,264 9,407

Others 2,861 6,055

Total ￦ 43,789 ￦ 50,745

- 41 -

2) Other non-operating expenses for the years ended December 31, 2014 and 2013, consist of the following:

2014 2013


Loss on foreign currency transaction ￦ 11,474 ￦ 15,518

Loss on foreign currency translation 5,822 3,938

Loss on valuation of financial derivatives 6,907 5,188

Loss on transactions of financial derivative 7,188 5,805

Loss on disposition of tangible assets 2 561

Impairment loss on intangible assets (Note 10) 558 1,965

Transfer of provision for litigation 12,512 -

Transfer of other provision (Note 30) 15,789 31,083

Other bad debt expenses 2,923 501

Others 2,281 3,758

Total ￦ 65,456 ￦ 68,317

24. INCOME TAX:

(1) Income tax expense for the years ended December 31, 2014 and 2013, consists of the following:

2014 2013


Income tax currently payable (Including income tax

supplementary payment and amount of refund) ￦ 745 ￦ 204

Changes in deferred taxes due to temporary differences 69,410 65,242

Deferred taxes directly charged to equity 888 (810)

Income tax expense ￦ 71,043 ￦ 64,636

(2) Reconciliation between income tax expense and loss before income tax expense for the years ended

December 31, 2014 and 2013, is as follows:

2014 2013


Loss before income tax ￦ (186,759) ￦ (642,018)

Applicable tax rate 23.95% 24.13%

Income tax expense calculated at applicable tax rate (44,734) (154,906)

Non-taxable income (1,988) (3,159)

Non-deductible expenses 13,636 20,473

Change in temporary differences unrecognized 99,795 200,329

Additional payment of income taxes (income tax refund) 745 204

Income tax expense directly charged to equity 888 (810)

Others 2,701 2,505

Income tax expense ￦ 71,043 ￦ 64,636

Effective tax rate (income tax expense/income before tax)(*1) - -

(*1) Effective tax rate was not calculated since the Company recorded loss before income tax.

- 42 -

(3) Changes in temporary differences and deferred tax assets (liabilities)

1) Changes in temporary differences and deferred tax assets (liabilities) for the year ended December 31, 2014,

are as follows:

Temporary differences Beginning Increase(*1) Decrease(*1) Ending

Deferred tax

assets

(liabilities)


Depreciation ￦ (11,827) ￦ (166) ￦ (2,347) ￦ (9,646) ￦ (2,805)

Bad debt allowance 1,186,213 1,155,475 1,117,367 1,224,321 72,481

Impairment loss on investment assets 74,869 6,034 7,880 73,023 17,108

Loss on valuation of derivatives (1,875) (12,326) (8,810) (5,391) (1,279)

Investment in subsidiaries, associates and joint

ventures 1,340,354 100,703 106,713 1,334,344 206,192

Hybrid (combined) financial instrument 1,202 - (675) 1,877 144

Present value discount of long-term borrowings (2,179) - (666) (1,513) (517)

Division of transfer gain (172,354) - (43,088) (129,266) (40,873)

Government grants 5,608 - - 5,608 1,305

Loss on monetary assets and liabilities

denominated in foreign currencies (1,111) - (1,598) 487 -

Accrued income 59,699 2,229 (266) 62,194 14,157

Employee benefits 6,676 6,487 1,197 11,966 386

Financial guarantee contract liabilities 17,469 14,674 17,173 14,970 56

Borrowing cost (1,617) - (66) (1,551) (382)

Investment property 1 - - 1 -

Litigation provisions and other provisions 40,144 32,458 1,613 70,989 -

Tax deficit 47,192 3,220 - 50,412 -

Subtotal 2,588,464 1,308,788 1,194,427 2,702,825 265,973

AFS financial assets

(1,160)

Gain on revaluation of property, plant and

equipment

(2,795)

Temporary differences not recognized (198,708)

Deferred tax assets

￦ 63,310

(*1) Adjustment to the temporary differences arising from the prior-year tax return and the final tax assessment

is included in the increase and decrease.

The temporary differences as of December 31, 2014, which were not recognized as deferred tax assets, are as

follows:

Temporary

differences

Deferred tax assets

(liabilities)


Impairment loss on investment assets ￦ 882 ￦ 209

Investments in subsidiaries, associates and joint ventures 464,866 110,241

Bad debt allowance 918,679 217,860

Other temporary differences 146,420 34,723

Tax deficit 50,412 11,955

Others (*1) - 198,708

Total ￦ 1,581,259 ￦ 573,696

(*1) The recoverable amount of the deferred tax asset as of December 31, 2014, was estimated. The deferred

tax asset is reduced to its recoverable amount and the differences are recognized as income tax expense.

- 43 -

2) Changes in temporary differences and deferred tax assets (liabilities) for the year ended December 31, 2013,

are as follows:

Temporary differences Beginning Increase(*1) Decrease(*1) Ending

Deferred tax

assets

(liabilities)


Depreciation ￦ 7,442 ￦ - ￦ 19,269 ￦ (11,827) ￦ (2,805)

Bad debt allowance 788,926 1,117,802 720,515 1,186,213 72,481

Impairment loss on investment assets 82,087 10,816 18,034 74,869 17,546

Loss on valuation of derivatives - (6,960) (5,085) (1,875) (445)

Investment in subsidiaries, associates and joint

ventures 1,244,229 146,744 50,619 1,340,354 206,192

Hybrid (combined) financial instrument 753 29 (419) 1,202 285

Present value discount of long-term borrowings (2,790) - (611) (2,179) (517)

Division of transfer gain (215,442) - (43,088) (172,354) (40,873)

Government grants 6,035 103 530 5,608 1,305

Loss on monetary assets and liabilities

denominated in foreign currencies 395 (1,506) - (1,111) (263)

Accrued income 59,699 - - 59,699 14,157

Employee benefits 7,829 1,132 2,284 6,677 396

Financial guarantee contract liabilities 13,620 3,848 - 17,468 3,230

Adjustment on deemed cost of property, plant

and equipment (21,403) 21,403 - - -

Borrowing cost (1,683) - (66) (1,617) (384)

Investment property 1 - - 1 -

Litigation provisions and other provisions 11,029 34,272 5,157 40,144 (15)

Tax deficit 153,453 (106,261) - 47,192 -

Subtotal 2,134,181 1,221,422 767,139 2,588,464 270,290

AFS financial assets

(997)

Gain on revaluation of property, plant and

equipment

(3,676)

Temporary differences not recognized (132,737)

Deferred tax assets

￦ 132,880

(*1) Adjustment to the temporary differences arising from the year before last tax return and the final tax

assessment is included in the increase and decrease.

The temporary differences as of December 31, 2013, which were not recognized as deferred tax assets, are as

follows:

Temporary

differences

Deferred tax assets

(liabilities)


Impairment loss on investment assets ￦ 882 ￦ 209

Investments in subsidiaries, associates and joint ventures 470,876 111,666

Bad debt allowance 880,571 208,823

Other temporary differences 49,164 11,659

Tax deficit 21,423 5,080

Others (*1) - 132,737

Total ￦ 1,422,916 ￦ 470,174

(*1) The recoverable amount of the deferred tax asset as of December 31, 2013, was estimated. The deferred

tax asset is reduced to its recoverable amount and the differences are recognized as income tax expense.

- 44 -

(4) Details of taxes directly charged to equity as of December 31, 2014 and 2013, are as follows:


Before tax Tax effect After tax Before tax Tax effect After tax


Gain on valuation of

AFS financial assets ￦ 5,274 ￦ (1,160) ￦ 4,114 ￦ 4,530 ￦ (997) ￦ 3,533

Gain on revaluation of

property, plant and

equipment 12,705 (2,795) 9,910 16,709 (3,676) 13,033

Actuarial gain (loss) (4,036) 888 (3,148) 3,684 (810) 2,874

Total ￦ 13,943 ￦ (3,067) ￦ 10,876 ￦ 24,923 ￦ (5,483) ￦ 19,440

25. THE CLASSIFICATION OF EXPENSES BY NATURE:

The classification of expenses by nature for the years ended December 31, 2014 and 2013, is as follows:

2014 2013

Cost of sales

Selling and

administrative

expenses Total Cost of sales

Selling and

administrative

expenses Total


Changes in inventories ￦ 699 ￦ - ￦ 699 ￦ 43,816 ￦ - ￦ 43,816

Used raw materials 1,006,898 - 1,006,898 997,582 - 997,582

Employee benefits 39,237 20,037 59,274 36,321 21,049 57,370

Depreciation 20,475 1,253 21,728 19,730 1,640 21,370

Amortization expenses

on intangible assets 167 1,830 1,997 130 1,167 1,297

Rent 4,163 3,851 8,014 3,183 4,668 7,851

Commission 2,764 17,653 20,417 5,523 16,332 21,855

Export expenses - 26,370 26,370 - 20,522 20,522

Packing charge 4,424 - 4,424 3,815 - 3,815

Outsourcing 38,691 - 38,691 29,938 - 29,938

Bad debt expenses - 9,147 9,147 197,925 197,925

Others 376,351 16,841 393,192 690,324 12,871 703,195

Total ￦ 1,493,869 ￦ 96,982 ￦ 1,590,851 ￦ 1,830,362 ￦ 276,174 ￦ 2,106,536

26. EARNINGS (LOSSES) PER SHARE:

(1) Basic earnings (losses) per common share

Basic losses per common share for the years ended December 31, 2014 and 2013, are calculated as follows:

2014 2013

(In millions of Korean won,

except per share amount)

Net loss ￦ (257,802) ￦ (706,654)

Weighted-average number of common shares outstanding 32,135,182 shares 21,281,924 shares

Basic losses per common share ￦ (8,022) won ￦ (33,204) won

- 45 -

1) The weighted-average number of common shares outstanding for the year ended December 31, 2014, is

computed as follows:

Period Changed shares

reduction of

capital stock

without any

refund(*1) Shares

Weighted-average

number of common

shares

Beginning(*1) 2014.01.01~2014.03.25 - 30,407,258 6,997,835

Debt-for-equity swap 2014.03.26~2014.12.31 11,222,284 (8,977,837) 32,651,705 25,137,347

Total 32,135,182

(*1) As the capital reduction without consideration, on January 30, 2015, weighted-average number of common

shares have been adjusted retroactively proportionally before capital reduction without consideration.

2) The weighted-average number of common shares outstanding for the year ended December 31, 2013, is

computed as follows:

Period Changed shares

reduction of

capital stock

without any

refund(*1) Shares

Weighted-average

number

of common

shares

Beginning(*1) 2013.01.01–2013.12.19 - 20,971,715 20,282,234

Debt-for-equity swap 2013.12.20–2013.12.31 47,177,716 (37,742,173) 30,407,258 999,690

Total 21,281,924

(*1) As the capital reduction without consideration, on January 30, 2015, weighted-average number of common

shares have been adjusted retroactively proportionally before capital reduction without consideration.

(2) Diluted earnings per share

The diluted earnings per share calculated net income for common stock and dilutive potential common stock.

Diluted earnings per share are calculated assuming that all dilutive potential common stock are converted into

common shares.

1) Diluted losses per share for the years ended December 31, 2014 and 2013, are as follows:

2014 2013

(In millions of Korean won,

except per share amount)

Diluted net loss of common stock ￦ (257,802) ￦ (706,654)

Weighted-average number of common shares and potential

shares of diluted securities outstanding during the year 32,135,182 shares 21,281,924 shares

Diluted losses per common share ￦ (8,022) won ￦ (33,204) won

2) Diluted net loss for the years ended December 31, 2014 and 2013, is as follows:

2014 2013


Net loss ￦ (257,802) ￦ (706,654)

Adjustment - -

Diluted net loss ￦ (257,802) ￦ (706,654)

- 46 -

3) Weighted-average number of diluted shares outstanding for the years ended December 31, 2014 and 2013,

is as follows:

2014 2013

(Number of shares)

Weighted-average number of common shares outstanding 32,135,182 21,281,924

Potential shares of diluted securities - -

Weighted-average number of diluted shares outstanding 32,135,182 21,281,924

4) Since there is no diluted effect on bonds with stock warrants and convertible preferred stock in 2014, the

Company did not calculate the diluted earnings per share.

Expenses after

tax

Weighted-

average number

of shares

Earnings per

share

Dilution for

2014

Dilution for

2013

(In millions of

Korean won)

(Number of

shares) (In Korean won)

Bonds with stock warrants

(152nd

) (*1) \ 1,223 - \ - × ×

Convertible preferred stock \ - - \ - × ×

(*1) Bonds with stock warrants are classified as antidiluted securities as the exercise price is higher than

average share price.

(3) Dilutive potential shares

Details of dilutive potential shares as of December 31, 2014, are as follows:

Period

Number of common

shares to be issued(*1)

Bonds with stock warrant (152nd

) 2011.04.21–2015.02.21 16,477,295

Convertible preferred stock 2014.01.20–2023.12.20 221,600,000

(*1) The number of common shares to be issued has been changed to 3,295,459 shares and 44,320,000 shares,

respectively, due to reduction of capital stock without consideration on January 30, 2015.

- 47 -

27. CASH FLOW INFORMATION:

(1) Cash flows from operating activities for the years ended December 31, 2014 and 2013, are as follows:

2014 2013


Net loss ￦ (257,802) ￦ (706,654)

Adjustments to reconcile net loss to net cash provided by

operating activities: 299,430 719,852

Depreciation 21,723 21,364

Depreciation of investment property 6 6

Amortization of intangible assets 1,997 1,297

Severance benefits 3,110 4,290

Other long-term employee benefits 1,363 -

Bad debt expenses 9,147 197,925

Other bad debt expenses 10,610 186,811

Loss on disposition of accounts receivable 630 1,007

Loss on foreign exchange translation, net 3,395 408

Loss on impairment of AFS financial assets 6,034 3,900

Gain on disposition of AFS financial assets, net 5,114 342

Loss on disposition of investment in subsidiaries, net (761) 4

Impairment loss on investment in subsidiaries 64,723 125,664

Loss (gain) on disposition of investments in associates, net - (77)

Gain on disposition of property, plant and equipment, net (740) (3,401)

Impairment loss on intangible assets 558 1,965

Loss (gain) on valuation of financial derivatives, net (5,299) (1,724)

Loss on redemption of debentures 75 14,341

Transfer of financial guarantee contract liability, net 14,211 19,069

Transfer(Reversal) of provision for litigation 11,752 (64)

Transfer of provision for construction warranty 879 -

Transfer of other provision 15,789 31,083

Profit from debt restructuring (4,264) (9,407)

Loss on impairment of non-current assets held for sale 1,990 -

Others 137,388 125,049

Changes in operating assets and liabilities: ￦ (77,044) ￦ 85,575

Increase (decrease) in accounts receivable (10,425) 52,113

Increase (decrease) in other current financial assets (2,726) 15,344

Increase (decrease) in other current assets (330) 8,216

Decrease in inventories 700 43,816

Increase in other financial assets (1,342) (181)

Decrease in accounts payable (66,997) (26,416)

Increase in other current financial liabilities 5,293 2,138

Decrease in current provision (710) (4,951)

Increase (decrease) in other current liabilities 347 (485)

Increase (decrease) in other financial liabilities 241 (2,002)

Decrease in defined benefit obligation (981) (2,017)

Decrease in provision (114) -

Total ￦ (35,416) ￦ 98,773

- 48 -

(2) Significant transactions not involving cash flows for the years ended December 31, 2014 and 2013, are as

follows:

2014 2013


Reclassification of non-current AFS financial assets to current AFS

financial assets ￦ - ￦ 10,690

Reclassification of current AFS financial assets to non-current AFS

financial assets 1,500 30,895

Reclassification of long-term financial instruments to short-term

financial instruments 223 -

Reclassification of current receivables to non-current receivables - 41,896

Reclassification of current other receivables to non-current other

receivables - 3,664

Reclassification of deposit to AFS financial asset - 9,057

Valuation of AFS financial asset 4,678 4,732

Reclassification of construction in progress to property, plant and

equipment 9,039 30,329

Offsetting of financial guarantee contract liability and short-term

loans 16,456 15,407

Reclassification of short-term borrowing to long-term borrowing - 100,454

Reclassification of current portion of long-term borrowings to

long-term borrowings due to maturity extension - 343,740

Reclassification of current bond to non-current bond due to

maturity extension - 35,000

Reclassification of long-term borrowings to current portion of

long-term borrowings 321,028 382,035

Remeasurement factors of defined employee benefit obligation 4,037 3,684

Decrease in capital stock due to capital reductions without refund - 377,050

Offset of investment in subsidiary and short-term loans 15,672 40,000

Increase in capital and other contributed capital by debt-for-equity

swap 28,056 662,537

- 49 -

28. RELATED-PARTY TRANSACTIONS:

(1) General

The Company is the controlling company in the highest level, which prepares the consolidated financial

statements. The list of related parties of the Company, which consists of the significant influential company,

subsidiaries, associates and joint ventures, is as follows:

No. Name

Domestic subsidiaries 14 Muju Enterprise City Co., Ltd.,

NT Development I Co., Ltd.,

Kookmin Cable Investment Fund II Co.,

TEC&Co Co.,Ltd.,

Consus Muju-Pine Stone Real estate Investment Trust,

Pinestone Resort Co., Ltd.,

Pinestone Golf Club Co., Ltd.,

TEC Media Co., Ltd.,

NPS07-1 Corporate Restructuring Fund QCP12,

Daekyung Machinery & Engineering Co., Ltd.,

TEC 2nd

Co., Ltd.,

Berry IB Holdings Co., Ltd.,

Berry M&C Co., Ltd.,

DongAn Development & Information Co., Ltd (Formerly: JP I&C Co., Ltd.)

Overseas subsidiaries 8 T. E. USA, Ltd.,

Taihan Global Holdings Ltd.,

Silkroad Telecom Ltd.,

Taihan Luxemburg Investment Ltd.,

TSC Co., Ltd.,

Standard Telecom Congo,

P.T. Daekyung Indah Heavy Industry,

Yingchu International Trade (Shanghai) Co., Ltd.

Domestic associates 3 Berry Networks Co., Ltd.,

ALD I Co., Ltd.,

AMP Partners Co., Ltd.

Overseas associates and

joint ventures

3 Malesela T.E.C., Ltd.,

Bulace Investments Ltd.,

Aldex Canada Enterprises Ltd.

Other related

parties(*1)

9 Taihan Systems Co., Ltd.,

Taihan Fiberoptics Co., Ltd.,

TEC Construction Co., Ltd.,

TEC&R Co., Ltd.,

Dok-san 1st Commercial-Residential Building Development PFV Co., Ltd.,

Siheung-dong Mixed-use Residential Development PFV Inc.,

OTC Realty Co., Ltd.,

Pan-Gyo 1st Facilities Land Development PFV Co., Ltd.,

KTC Co., Ltd.

(*1) With the commencement of rehabilitation process for TEC Construction Co., Ltd., TEC Construction Co.,

Ltd. and its subsidiary TEC & R Co., Ltd., Dok-san 1st Commercial-Residential Building Development

PFV Co., Ltd. have been excluded from the subsidiary, and classified as other related parties.

- 50 -

(2) Significant transactions of related parties for the years ended December 31, 2014 and 2013, are as follows:

2014

Company

Revenue Expenses

Sales of

goods

Rental

revenue

Service

revenue Other

Cost of

goods sold

Selling and administrative

expenses Other


Subsidiary:

TEC&Co Co., Ltd. ￦ 23,494 ￦ 486 ￦ 1,615 ￦ 12 ￦ 3,891 ￦ 117 ￦ -


Investment Trust - - - 945 - - -

Pinestone Resort Co., Ltd. - - - - - 26 -

DongAn Development & Information

Co., Ltd (Formerly:JP I&C Co., Ltd.) - - - - - 6 -

NT Development I Co., Ltd. - - - - - - 12,431

Berry IB Holdings Co., Ltd. - - - - - - 89

Berry M&C Co., Ltd. - - - - - 8 -

TEC 2nd Co., Ltd. - - - - - - 5,507

Muju Enterprise City Co., Ltd. - - - - - - 66

T.E.USA, Ltd. 22,865 - - - - - -

TSC Co., Ltd. 405 - - - 7,311 - -

Standard Telecom Congo - - - - - - 176

Taihan Global Holdings Ltd. - - - - - - 146

Associate:

ALD I Co., Ltd. - - - 368 - - -

KTC Co., Ltd. - - - - 165 - 2,313

Malesela T.E.C., Ltd. 154 - - 904 - - -

Other:

Taihan Systems Co., Ltd. 20,336 355 11 36 27,965 5,019 -

Taihan Fiberoptics Co., Ltd. 25 107 410 147 948 55 -

TEC Construction Co., Ltd. - 413 - 30 - - 764

TEC&R Co., Ltd. - 125 - 2 - - -

Dok-san 1st Commercial-residential

building Development PFV Co., Ltd. - - - - - - 1,372

Total ￦ 67,279 ￦ 1,486 ￦ 2,036 ￦ 2,444 ￦ 40,280 ￦ 5,231 ￦ 22,864

- 51 -

2013

Company

Revenue Expenses

Sales of

goods

Rental

revenue

Service

revenue Other

Cost of

goods sold

Selling and

administrative

expenses Other


Subsidiary:

TEC&Co Co., Ltd. ￦ 23,627 ￦ 221 ￦ 1,693 ￦ 98 ￦ 13,023 ￦ 134 ￦ -

TEC Construction Co., Ltd. - 447 - 137 220 - -

TEC&R Co., Ltd. - 165 - 248 - - -


Investment Trust - - - 41 - - -

Pinestone Resort Co., Ltd. - - - - - 59 -

NT Development I Co., Ltd. - - - - - - 20,251


building Development PFV Co., Ltd. - - - - - - 5,064

TEC Media Co., Ltd. - - - - - - 7

Taihan Techren Co., Ltd. - - - 418 - - -

Berry IB Holdings Co., Ltd. - - - - - - 849

Berry M&C Co., Ltd. - - - - - 7 -

TEC 2nd Co., Ltd. - - - 3,834 - - 8,474

Muju Enterprise City Co., Ltd. - - - - - - 1,570

T.E.USA, Ltd. ￦ 6,459 ￦ - ￦ - ￦ - ￦ - ￦ - ￦ -

TSC Co., Ltd. 5,818 - - - 6,686 - -

Standard Telecom Congo - - - 63 - - -

Taihan Global Holdings Ltd. - - - 28 - - 351

Associate:

ALD I Co., Ltd. - - - 387 - - 86,617

Siheung-dong Mixed-use Residential

Development PFV Inc. - - - - - - 3,678

Pan-Gyo 1st Facilities Land

Development PFV Co., Ltd. - - - - - - 1,500

KTC Co., Ltd. 2,115 - - 12,800 13 - -

Other:

Taihan Systems Co., Ltd. 24,373 343 6 5,677 28,367 7,730 215,569

Taihan Fiberoptics Co., Ltd. 1,345 97 454 34 1,459 351 -

Total ￦ 63,737 ￦ 1,273 ￦ 2,153 ￦ 23,765 ￦ 49,768 ￦ 8,281 ￦ 343,930

- 52 -

(3) Significant balances of accounts receivable and payable of related parties as of December 31, 2014 and


December 31, 2014

Company

Receivables Payables

Trade

receivables

Other trade

receivables Loans Other

Trade

payables

Others

trade

payables

Borrowing

s Other


Subsidiary:

TEC&Co Co., Ltd. ￦ 11,486 ￦ 906 ￦ - ￦ - ￦ - ￦ 5 ￦ - ￦ 250


estate Investment Trust - - 9,000 3,562 - - - 1,060

Pinestone Resort Co., Ltd. - - - 6,000 - 3 - -

NT Development I Co., Ltd - - 38,349 - - - - 12,210

TEC Media Co., Ltd. - - - 7 - - - -

TEC 2nd Co., Ltd. - - - - - - 152,000 15

T.E.USA, Ltd. 13,065 - - - - - - -

TSC Co., Ltd. 33 - - - 3,245 - - 19

Standard Telecom Congo - 5,400 4,397 760 - - - -

Taihan Global Holdings Ltd. 4,948 351 - - 20,702 - - 282

Associate:

ALD I Co., Ltd. - - 94,880 - - - - 625


Residential Development

PFV Inc. - - 361,696 6,584 - - - -


Development PFV Co., Ltd. - - 1,500 - - - - -

KTC Co., Ltd. 844 1,469 - - - - - -

Joint venture:

Malesela T.E.C., Ltd. - - - 3,268 - - - -

Other:

Taihan Systems Co., Ltd. 217,948 10,229 12,000 1,057 3,598 744 - 365

Taihan Fiberoptics Co., Ltd. 12 164 - - 1,372 376 - 112

TEC Construction Co., Ltd. - 765 - - - 35 - 5

TEC&R Co., Ltd. - 387 - - - 3 - 83



Development PFV Co., Ltd. - - 23,773 - - - - 1,073

Total ￦ 248,336 ￦ 19,671 ￦ 545,595 ￦ 21,238 ￦ 28,917 ￦ 1,166 ￦ 152,000 ￦ 16,099

- 53 -

December 31, 2013

Company

Receivables Payables

Trade

receivables

Other

trade

receivables Loans Other

Trade

payables

Others

trade

payables Borrowings Other


Subsidiary:

TEC&Co Co., Ltd. ￦ 15,009 ￦ 382 ￦ - ￦ - ￦ 31 ￦ - ￦ - ￦ 248

TEC Construction Co., Ltd. - 498 - 3,421 - 35 - -

TEC&R Co., Ltd. - 169 3,000 210 - - - -


estate Investment Trust - - 9,000 67 - - - 1,060

Pinestone Resort Co., Ltd. - - - 9,500 - 8 - -

NT Development I Co., Ltd. - - 25,918 - - - - 12,210



Development PFV Co., Ltd. - - 21,914 - - - - 1,328

TEC Media Co., Ltd. - - - 7 - - - -

Berry IB Holdings Co., Ltd. - - - - - - 18,900 1,273

TEC 2nd Co., Ltd. - - - - - - 161,480 18

Muju Enterprise City Co., Ltd. - - - - - - - 2,055

T.E.USA, Ltd. 7,021 - - - - - - 12

TSC Co., Ltd. 989 - - - 557 - - -

Standard Telecom Congo - 5,400 4,221 760 - - - -

Taihan Global Holdings Ltd. 10,261 325 - - 23,086 - - 136

Associate:

ALD I Co., Ltd. - - 94,880 - - - - 993


Residential Development

PFV Inc. - - 361,361 6,584 - - - -


Development PFV Co., Ltd. - - 1,500 - - - - -

KTC Co., Ltd. 2,863 11 - - - - - -

Joint venture:

Malesela T.E.C., Ltd. - 408 - 3,269 - - - -

Other:

Taihan Systems Co., Ltd. 217,989 10,224 12,000 2,146 3,746 4,221 - 460

Taihan Fiberoptics Co., Ltd. - 108 - 97 11 29 - 42

Total ￦ 254,132 ￦ 17,525 ￦ 533,794 ￦ 26,061 ￦ 27,431 ￦ 4,293 ￦ 180,380 ￦ 19,835

Allowance for doubtful accounts on related parties receivables as of December 31, 2014 and 2013, are

￦785,097 million and ￦754,551 million, respectively. Impairment loss on related parties receivables for the

year ended December 31, 2014, is ￦30,546 million. Impairment loss and reversal of impairment loss on related

parties receivables for the year ended December 31, 2013, are ￦291,629 million and ￦489 million,

respectively.

- 54 -

(4) Loan transactions of related parties as of December 31, 2014 and 2013, are as follows:

2014

Company Account Beginning

Increase

(decrease) Ending


Subsidiary:



Short-term loan ￦ 9,000 ￦ - ￦ 9,000

NT Development I Co., Ltd Short-term loan 25,918 12,431 38,349

Allowance for doubtful

accounts (25,918) (12,431) (38,349)

Standard Telecom Congo. Short-term loan 4,221 176 4,397


accounts (4,221) (176) (4,397)

Associate:

ALD I Co., Ltd. Short-term loan 75,880 - 75,880


accounts (66,532) (9,348) (75,880)

Long-term loan 19,000 - 19,000


accounts (19,000) - (19,000)


Residential

Development PFV Inc.

Short-term loan 361,361 335 361,696


accounts (361,361) - (361,361)



Short-term loan 1,500 - 1,500


accounts (1,500) - (1,500)

Other:

Taihan Systems Co., Ltd. Long-term loan 12,000 - 12,000


accounts (12,000) - (12,000)

TEC&R Co., Ltd. Short-term loan 3,000 (3,000)


building Development PFV

Co., Ltd.

Short-term loan 21,914 1,859 23,773


accounts (15,861) (1,372) (17,233)

- 55 -

2013


Increase

(decrease) Ending


Subsidiary:

TEC&R Co., Ltd. Short-term loan ￦ 3,500 ￦ (500) ￦ 3,000



Short-term loan

- 9,000 9,000

Pinestone Golf Club Co., Ltd. Short-term loan 5,016 - 5,016


accounts (5,016) - (5,016)

NT Development I Co., Ltd. Short-term loan 9,787 16,131 25,918


accounts (9,787) (16,131) (25,918)


building Development PFV

Co., Ltd.

Short-term loan 20,704 1,210 21,914


accounts (12,125) (3,736) (15,861)

Taihan Techren Co., Ltd. (*1) Short-term loan 1,000 (1,000) -


accounts (1,000) 1,000 -

Standard Telecom Congo Short-term loan 4,284 (63) 4,221


accounts (4,284) 63 (4,221)

Associate:

ALD I Co., Ltd. Short-term loan 69,802 6,078 75,880


accounts - (66,532) (66,532)

Long-term loan 19,000 - 19,000


accounts - (19,000) (19,000)


Residential

Development PFV Inc.

Short-term loan 365,426 (4,065) 361,361


accounts (357,426) (3,935) (361,361)



Short-term loan 1,500 - 1,500


accounts - (1,500) (1,500)

Other:

Taihan Systems Co., Ltd. Long-term loan 12,000 - 12,000


accounts - (12,000) (12,000)

(*1) Taihan Techren Co., Ltd. was excluded in related parties due to disposal during the previous year.

(5) Borrowing transactions of related parties as of December 31, 2014 and 2013, are as follows:

2014


Increase

(decrease) Ending


Subsidiary Berry IB Holdings Co., Ltd. Borrowings ￦ 18,900 ￦ (18,900) ￦ -

TEC 2nd

Co., Ltd. Borrowings 161,480 (9,480) 152,000

- 56 -

2013


Increase

(decrease) Ending


Subsidiary Muju Enterprise City Co., Ltd. Borrowings ￦ 40,000 ￦ (40,000) ￦ -

Berry IB Holdings Co., Ltd. Borrowings 18,900 - 18,900

TEC 2nd

Co., Ltd. Borrowings 184,230 (22,750) 161,480

(6) Details of financial guarantees and payment guarantees provided to related parties are explained in Notes

17 and 30 as of December 31, 2014.

(7) Compensation for key management officers for the years ended December 31, 2014 and 2013, is as

follows:

2014 2013


Short-term employee benefits ￦ 499 ￦ 1,080

Post-employment benefits 87 545

Total ￦ 586 ￦ 1,625

Key management officers include directors and audit committee members having duties and responsibilities over

planning, operations and control of the Company’s business activities.

29. OPERATING SEGMENT INFORMATION:

(1) Information of operating segments

The Company’s operating segments consist of only the cable operation segment in accordance with the operating

structure of the Company.

(2) Sales per regional segment for the years ended December 31, 2014 and 2013, and non-current assets per

regional segment as of December 31, 2014 and 2013, are as follows:

Sales

Non-current assets

(property, plant and equipment

and intangible assets)

2014 2013 December 31, 2014 December 31, 2013


Domestic ￦ 1,055,566 ￦ 1,550,649 ￦ 523,775 ￦ 546,793

Asia 488,040 304,752 328 401

North America 23,441 8,458 - -

South America 15 38 - -

Oceania 8,412 10,373 22 44

Africa 12,676 18,164 30 39

Europe 29,347 17,591 39 51

Total ￦ 1,617,497 ￦ 1,910,025 ￦ 524,194 ￦ 547,328

(3) Main customers are Prime Global Corporation, Korea Electric Power Corporation, KT and others. Sales for

Prime Global Corporation account for 10.6% and 20.9% of the Company’s total sales for the years ended

December 31, 2014 and 2013, respectively.

- 57 -

30. COMMITMENTS AND CONTINGENCIES:

(1) As of December 31, 2014, six blank notes have been provided as collaterals for creditors and guarantors in

relation to the Company's construction performance warranties and other commitments.

(2) ALD I PFV Co., Ltd., an associate, entered into the construction contract with POSCO E&C Co., Ltd., a

constructor, on August 30, 2013, for apartment building project on Anyang factory, acquired from the

Company, and made the business and loan agreements with the constructor and financial institutions (“other

lenders”) on September 11, 2013. In this regard, ALD I PFV Co., Ltd. has payment obligations to POSCO

E&C Co., Ltd. for construction payables according to construction contracts and future debt due to default

according to business and loan agreements.The Company entered into the debt guarantee agreement up to

￦25 billion with POSCO E&C Co., Ltd., in the event that POSCO E&C Co., Ltd. repays payables and

loans instead of ALD I PFV Co., Ltd. or takes responsibility to compensation for damage in case ALD I

PFV Co., Ltd. terminates the construction contract or cannot pay the construction payables or is unable to

repay loan principal and interest. Moreover, in accordance with the debt guarantee agreement, investments

and loan receivables, the Company has invested in ALD I PFV Co., Ltd., can be liquidated after other

creditors’ loans are liquidated, the Company established the right of pledge for the investments in ALD I

PFV Co., Ltd. for other creditors. As of December 18, 2013, ALD I PFV Co., Ltd. has fully completed the

sale of apartment regarding the project mentioned above.

(3) Related to the development of Nambu terminal sites that NT Development 1st PFV Co., Ltd., acquired from

the Company, the Company has obligation to supplement principal and interest of the PF loans and

business operation fund upon request of representative financial institution in the event of default for

borrowings of ￦175.5 billion, among total borrowings of ￦210 billion. Meanwhile, NT Development 1st

PFV Co., Ltd. is negotiating to sell the sales of Nambu terminal sites for elimination of contingent

liabilities related to the Company’s obligation to supplement principal and interest.

(4) For the Dok-san dong 1007-13 commercial-residential building development project by Dok-san 1st

Commercial-residential building Development PFV Co., Ltd., the Company made business and loan

agreement with several financial institutions, Dok-san 1st Commercial-residential building Development

PFV Co., Ltd. and other financial agencies on March 29, 2011. Under this agreement, the Company is

obligated to supplement the fund on interest of senior loans of ￦28 billion for Dok-san 1st Commercial-

residential building Development PFV Co., Ltd. and TEC&R Co., Ltd., has joint liability.

Meanwhile, Dok-san 1st Commercial-residential building Development PFV Co., Ltd. entered into with

Yoobok construction Co., Ltd. on September 10, 2012 to sell the real estate property owned at ￦51 billion

MOU in order to decrease loan and interest expense. The contract commitment period of the MOU is 360

days from the contract date; however, as of December 31, 2014, a formal contract was not entered between

the parties and the contract period has been extended so that the selling process will be completed by

October 2015.

(5) The Company submitted supplemental funding letter to creditors of Consus Muju-Pine Stone Real estate

Investment Trust on April 20, 2011, as a result of sales of Muju Deogyusan Resort Co., Ltd. According to

this supplemental funding letter, the Company has obligation to supplement the fund on Consus Muju-Pine

Stone Real estate Investment Trust’s borrowings ￦61.5 billion (net of loan of ￦9 billion by the

Company) among total borrowings of ￦70.5 billion. Meanwhile, Pinestone Golf Club Co., Ltd., a

subsidiary, is parceling out villas, and a purchaser can request by letter to refund purchase price to

Pinestone Golf Club Co., Ltd., since 30 days before the tenth year following the date of full payment. The

Company guarantees the return obligation of purchase price for Pinestone Golf Club Co., Ltd., and the

guaranteed amount is ￦43,023 million as of December 31, 2014.

(6) Stone Construction Co., Ltd. (formerly, Deokwon Trading Co., Ltd.), has entered into loan agreement with

several financial institutions (the “creditors”) on May 13, 2010, for borrowings of ￦78 billion. Under

this agreement, the creditors have loan principal receivables, other receivables and a security right (the

“secured assets”). The Company also has call options and put options agreement with these creditors.

When the loan principal is not paid within three months after the maturity of November 14, 2011, or

payment for interest is not made for more than two months, creditors may exercise put option of asset

transfer as a written representation to the Company. When put option is exercised, but the Company does

not pay for the asset transfer, creditors may make disposal of assets to other third party or have other

security rights in accordance with the terms of contract. The Company has obligation to compensate

creditors for remaining receivables.

- 58 -

Meanwhile, the Company has call option to buy the assets at any time before maturity as a written

representation to the Creditors. When call option is exercised and payment for transfer is not made,

creditors may make disposal of assets to other third parties or have other security rights in accordance with

the terms of contract. The Company has obligation to compensate creditors for remaining receivables.

According to the loan agreement, the Company has obligation to make interest payment on borrowings of

￦78 billion for Stone Construction Co., Ltd., if it is not paid.

As of December 31, 2014, the Korea Deposit Insurance Corporation, who is bankruptcy trustee of the

creditors, exercised put option to the Company, and auction procedures for the assets are in progress.

However, the Company asked for reorganization process initiation as creditor of Stone Construction Co.,

Ltd., and has initiated the reorganization process as of July 8, 2014. The Company estimated the residual

payment liability to repay for the creditors in accordance with the option agreement and recognized as other

provisional liabilities of ￦35,077 million.

(7) The Company, TEC Construction Co., Ltd., and National Agricultural Cooperative Federation (“NACF”)

have made an option agreement to invest in 2nd MPLUS Private equity real estate investment trusts on

October 28, 2009. With this agreement, Sang-am IT tower located in Mapo-gu, Seoul, Korea, is acquired

and beneficiaries receive operating profit derived from the property. NACF invested ￦22 billion for

beneficiary certificate issued by the trust, and the Company and TEC Construction Co., Ltd. are liable for

9% profit on NACF investment. The Company and TEC Construction Co., Ltd. should compensate for the

profit sharing of NACF within seven business days if it does not exceed 4.5% on a semiannual basis. In

the event of disposal of the property or investment trust liquidation, the Company and TEC Construction

Co., Ltd. are liable for 9% of the total profits plus the 5% of principal investment for the period starting

from the end of the previous accounting period to the liquidation date for NACF within 10 business days.

Three years after investing in real estate investment trust, NACF may exercise put option to sell the right at

principal investment plus 5% profits guaranteed on investment. If the Company and TEC Construction Co.,

Ltd. cannot compensate for these payments, a third party should be arranged to make payments. Three

years after investing in real estate investment trust, the Company and TEC Construction Co., Ltd. may

exercise call option to buy the right at the same price (principal investment, plus 5% profits guaranteed on

investment). Counterparty should be compensated by multiple amount of principal investment if options

cannot be exercised. Also, the Company has sold the real estate investment trust on February 17, 2014, to

TCI Investment Co., Ltd. (from now referred to as the "grantee").

(8) In relation to capital increase and convertible bonds issuance of TEC Construction Co., Ltd., the Company

has contracted to purchase the investors’ participated amounts when certain requirements are not met on

September 4, 2008. In year prior to 2013 the acquirer of the convertible bonds exercised all of the put

options available, ￦20,000 million in total of convertible bonds were purchased. Participants of capital

increase exercised some of their purchase put options, and ￦27,051 million among the total of ￦70,000

million was purchased. In addition, the Company made revision to previous purchase agreement on

September 6, 2011, with TCI Investment Co., Ltd., the capital increase participant.

Meanwhile, TCI Investment Co., Ltd., which owns option, exercised put option early on February 17, 2014,

and as a result, the Company bought 4,589,799 common stocks of TEC Construction Co., Ltd., and the

Company recognized as share purchase commitment loss of ￦35,894 million, the difference between

option exercise value and the fair value of obtained shares. The Company transferred cash, financial assets

and tangible assets for implementation of the agreement. Disposal process share of KTC Co., Ltd. has

been delegated to the Company, and if TCI Investment Co., Ltd. collects less than ￦15,000 million by

April 30, 2015, the Company has to pay the amount difference to the option holder, and all or part of non-

exercised bonds can be swapped to debt-for-equity by issuing/distributing the Company’s new shares or

providing actual assets to balance the accounts. On the contrary, if TCI Investment Co., Ltd. collects more

than ￦15,000 million, TCI Investment Co., Ltd. has to pay the Company the excess amount.

(9) As of December 31, 2014, Taihan Techren Co., Ltd. provided efficiency guarantee for solar power

generation to Sigma ETN Co., Ltd., and the Company provides joint guarantee related to the efficiency

guarantee to Taihan Techren Co., Ltd. The Company recognized ￦3,327 million of other provision for

guaranty.

- 59 -

(10) As of December 31, 2014, the Company provides guarantee for the principal and interest of $16,658,500,

which Taihan Global Holdings Ltd. to the borrowings from financial institution (Woori bank, etc.).

(11) As of December 31, 2014, the Company is a defendant in seven legal cases involving a power cable

collusion compensation for damage which Korea electric power corporation sued for, and litigation cost is

￦70,748 million. As of December 31, 2014, the Company has recognized a provision of ￦11,042 million

for the cases. The result of the cases could not be anticipated as of December 31, 2014.

(12) The outstanding derivative contracts as of December 31, 2014, are as follows:

1) Copper futures contracts

Counterparty Maturities Position Price (USD/ton)

Quantity

(in tons)

Hyundai Futures

Corporation and others 2015.01.05–2015.08.19 Buying 6,244~7,596 13,575

Hyundai Futures

Corporation and others 2015.01.05–2015.08.19 Selling 6,272~7,084 15,800

Derivative assets recognized on futures contract as of December 31, 2014 and 2013, are ￦12,260 million and

￦7,136 million, respectively. Derivative liabilities recognized on futures contract as of December 31, 2014

and 2013, are ￦6,859 million and ￦5,257 million, respectively.

2) Forward exchange contracts

As of December 31, 2014, all forward exchange contracts were terminated, and derivative liabilities recognized

on forward exchange contracts as of December 31, 2013, are ￦31 million.

3) Valuation gain or loss on outstanding derivative contracts for the years ended December 31, 2014 and 2013,

is as follows:

2014 2013

Valuation gain Valuation loss Valuation gain Valuation loss


Non-operating income and

expenses:

Fair value hedge

Futures contracts (*1) ￦ 12,315 ￦ 6,907 ￦ 6,944 ￦ 5,188

Forward exchange contracts - 109 - 31

Total ￦ 12,315 ￦ 7,016 ￦ 6,944 ￦ 5,219

(*1) The Company entered into copper futures contract to hedge against the price changes. Valuation losses

from confirmed contract in 2014 and 2013, are ￦4,591 million and ￦(-)1,526 million, respectively.

Valuation gain (loss) on copper futures contract for the purpose of fair value hedge in 2014 and 2013, is

￦(-)4,499 million and ￦1,629 million, respectively. The Company recognizes valuation gain (loss) on

transaction of futures contract as cost of sales.

Valuation gain (loss) on copper futures contract and forward exchange contracts for fair value hedge purpose is

recorded in current operations.

- 60 -

(13) Investment securities pledged as collateral

Details of investment securities pledged as collateral to the Company’s creditors are as follows:

Debtor Type of assets Pledged securities Number of shares Details

Woori Bank

Investments in subsidiaries Kookmin Cable Investment

Fund II Co. 100,000,000,000

Collateral for borrowings

Kookmin Bank AFS financial assets KR1 CR-REIT Co., Ltd. 75,069 Collateral for borrowings

AFS financial assets Youngnam Savings Bank 1,000,000 Collateral for borrowings

Kwangju Bank AFS financial assets Gyunggi Mutual Savings Bank 2,000,000 Collateral for borrowings

Jinheung Savings Bank and

3 other banks

Investments in subsidiaries TEC&Co Co., Ltd. 609,298


Korea Development Bank Investments in subsidiaries NP07-1 Corporate

Restructuring Fund QCP12 60,000


Hana Bank Investments in subsidiaries TEC&Co Co., Ltd. 1,042,085 Collateral for borrowings

Treasury stock Taihan Electric Wire Co.,

Ltd. 239,418


Shinbo Chae-An Fund

First Securitization

Specialty Co., Ltd.(*1)

Investments in subsidiaries NP07-1 Corporate

Restructuring Fund QCP12 60,000


NH Bank and other 3 banks Investments in subsidiaries NT Development I Co., Ltd. 3,751,710 Collateral for borrowings

Korea Exchange Bank Investments in associates ALD I Co., Ltd. 234,900 Collateral for borrowings

Creditors AFS financial assets TEC Construction Co., Ltd. 300,000 Collateral for borrowings

Machinery Financial

Cooperative

AFS financial assets Machinery Financial

Cooperative 49,000

Business guarantee

Creditors AFS financial assets TEC Construction Co., Ltd.

(preferred stocks) 1,000,000


TCI Investment Co., Ltd. Investments in subsidiaries Berry Networks Co., Ltd.

(preferred stocks) 50,000

Collateral for exercising

option

(*1) In accordance with the agreement by Shinbo Chae-An Fund First Securitization Specialty Co., Ltd.

proceeds from disposal of 60,000 shares of NP07-1 Corporate Restructuring Fund QCP12 or dividends

should be used for debentures repayment regardless of the maturity of the debentures (see Note 15).

31. RISK MANAGEMENT:

(1) Capital risk management

The Company manages its capital to ensure that entities in the Company will be able to continue while maximizing the return to shareholders through the optimization of the debt and equity balance. The Company’s overall capital risk management strategy remains unchanged from that of the prior year.

Details of the Company’s managerial accounts for capital risk management as of December 31, 2014 and 2013, are as follows:



Total liabilities ￦ 1,249,189 ￦ 1,219,049

Total equity 35,815 272,531

Debt to equity ratio 3,487.89% 447.31%

(2) Categories of financial instruments

Significant accounting policies for categories of financial assets, liabilities and equity (recognition criteria,

measurement basis and recognition criteria for revenue and expenses) are explained in Note 2 in detail.

- 61 -

1) Categories of financial assets as of December 31, 2014 and 2013, are as follows:

December 31, 2014

Financial

assets

at FVTPL

Loans and

receivable

AFS financial

assets

Held-to-

maturity

securities

Financial

derivative

assets Total


Cash and cash equivalents ￦ - ￦ 30,818 ￦ - ￦ - ￦ - ￦ 30,818

Short-term financial assets - 4,267 - - - 4,267

Current AFS financial assets - - 3,269 - - 3,269

Accounts receivable - 222,539 - - - 222,539

Short-/long-term loans - 20,041 - - - 20,041

Other current financial assets - 11,775 - - 11,537 23,312

AFS financial assets - - 51,667 - - 51,667

Other financial assets - 4,897 - - 723 5,620

Total ￦ - ￦ 294,337 ￦ 54,936 ￦ - ￦ 12,260 ￦ 361,533

December 31, 2013

Financial

assets

at FVTPL

Loans and

receivable

AFS financial

assets

Held-to-

maturity

securities

Financial

derivative

assets Total


Cash and cash equivalents ￦ - ￦ 31,383 ￦ - ￦ - ￦ - ￦ 31,383

Short-term financial assets - 14,188 - - - 14,188

Current AFS financial assets - - 18,880 - - 18,880

Accounts receivable - 219,724 - - - 219,724

Short-/long-term loans - 33,822 - - - 33,822

Other current financial assets - 8,670 - - 6,590 15,260

AFS financial assets - - 56,599 - - 56,599

Other financial assets - 3,623 - - 546 4,169

Total ￦ - ￦ 311,410 ￦ 75,479 ￦ - ￦ 7,136 ￦ 394,025

2) Categories of financial liabilities as of December 31, 2014 and 2013, are as follows:

December 31, 2014


at FVTPL


at amortized cost

Financial

derivative liabilities Total


Accounts payable ￦ - ￦ 270,766 ￦ - ￦ 270,766

Short-term borrowings - 151,124 - 151,124

Current portion of long-term

liabilities - 361,825 - 361,825


liabilities - 84,510 6,648 91,158

Long-term borrowings - 248,487 - 248,487

Other financial liabilities - 1,583 211 1,794

Total ￦ - ￦ 1,118,295 ￦ 6,859 ￦ 1,125,154

December 31, 2013


at FVTPL


at amortized cost

Financial

derivative liabilities Total


Accounts payable ￦ - ￦ 333,903 ￦ - ￦ 333,903

Short-term borrowings - 66,760 - 66,760


liabilities - 87,069 - 87,069


liabilities - 65,425 5,037 70,462


Other financial liabilities - 1,770 251 2,021

Total ￦ - ￦ 1,125,200 ￦ 5,288 ￦ 1,130,488

- 62 -

(3) Financial risk management

The Company is exposed to various risks related to its financial instruments, such as market risk (currency risk,

interest rate risk and price risk) and credit risk. The Company monitors and manages the financial risks relating

to the operations of the Company through internal risk reports that analyze exposures by degree and magnitude

of risks.

Items managed as financial risk by the Company are cash and cash equivalents, short-term financial assets, AFS

financial assets, accounts receivable, short-/long-term loans and other financial assets. Financial liabilities

consist of accounts payable and other financial liabilities.

1) Market risk management

① Foreign exchange risk management

The Company is exposed to foreign currency risk since it makes transactions in foreign currencies, such as USD

and EUR. The Company regularly monitors and manages the exposure to foreign exchange risks using

management system for receivables/payables denominated in foreign currencies.

Monetary assets and liabilities denominated in foreign currencies as of December 31, 2014 and 2013, are as

follows:

Assets Liabilities

Foreign currency

December 31,

2014

December 31,

2013

December 31,

2014

December 31,

2013


USD ￦ 58,406 ￦ 67,348 ￦ 95,809 ￦ 161,362

EUR - - 230 179

JPY 179 268 1 16

AUD 3,862 6,957 125 31

KWD 24,559 22,295 1,778 1,366

Others 23,196 20,058 4,269 9,861

Sensitivity analyses on monetary assets and liabilities denominated in foreign currencies other than functional

currency as of December 31, 2014 and 2013, are as follows:

Foreign currency


Increase

by 10%

Decrease

by 10%

Increase

by 10%

Decrease

by 10%


USD ￦ (3,740) ￦ 3,740 ￦ (9,401) ￦ 9,401

EUR (23) 23 (18) 18

JPY 18 (18) 25 (25)

AUD 374 (374) 693 (693)

KWD 2,278 (2,278) 2,093 (2,093)

Others 1,892 (1,892) 1,019 (1,019)

It is the measure of the changes in income before income tax that is sensitive to changes in Korean won against

the foreign currencies by 10%. This 10% is a sensitivity of management’s valuation on rational changes of

foreign currency, and it is applied when reporting internally the foreign currency risk to management. It only

includes unsettled monetary accounts denominated in foreign currencies and adjusts foreign currency translation

expecting changes of foreign currency by 10% at the end of the fiscal year.

As monetary liabilities are more sensitive to currency movements than monetary assets, loss increases when

functional currency (Korean won) appreciates. Sensitivity analysis is not determined to be representative of

inherent foreign exchange risk as exposure to the risk as of the reporting date as it does not reflect the overall

risk of the year.

- 63 -

② Interest rate risk management

The Company is exposed to interest rate risk since it borrows funds with fixed and variable interest rates. The Company maintains a balance between borrowings with variable interest rate and fixed interest rate or commits interest swap contract to manage interest rate risk. Aversion activity is evaluated regularly with adjusting conditions and nature of its interest rates. The Company hedges interest rate risk by adjusting accounts in the separate statement of financial position or using different interest rate cycles.

When all the other variables are constant and when interest rate changes by 100 basis points (bp), the effects on

interest income and expense (before tax) from borrowings with variable interest rate and financial deposits for

the years ended December 31, 2014 and 2013, are as follows:

2014 2013

Increase by 100 bp Decrease by 100 bp Increase by 100 bp Decrease by 100 bp


Interest expense ￦ 567 ￦ (567) ￦ 345 ￦ (345)

Interest income - - - -

③ Other price risks management

The Company is exposed to equity price risks arising from its equity investments. Equity investments are held

for strategic rather than trading purposes. The Company does not actively trade these investments.

When all the other variables are constant and when the price of equity instrument changes by 10%, the effects on

comprehensive income and equity (before tax) are as follows:

2014 2013

Increase by 10% Decrease by 10% Increase by 10% Decrease by 10%


Gain or loss on valuation

of AFS financial assets ￦ 2,491 ￦ (2,491) ￦ 2,531 ￦ (2,531)

2) Credit risk management

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument

fails to meet its contractual obligations. The Company uses publicly available information and its own internal

data related to accounts receivables, to rate its major customers and to measure the credit risk that a counterparty

will default on a contractual obligation. As the majority of the Company’s accounts receivables are due from

customers with certain credit rating, the Company does not have significant credit risk exposure. The

Company’s exposure and credit ratings of its counterparties are continuously reviewed and managed for

accuracy by credit risk management department.

Credit risk dependency on counterparties is relatively high for trade receivables, short-/long-term loans and other

financial assets as of December 31, 2014. Also, the collection of loans provided for project financing is

delayed. As a result, potential changes in credit risk due to assets’ impairment and counterparty insolvency are

estimated to be very high. Maximum exposure to credit risk as of December 31, 2014, represents the book

value of categories of financial assets.

Maximum exposure to financial guarantee contract liability is the guaranteed amount, which the Company is

obligated to pay when there is a request. The maximum guaranteed amount as of December 31, 2014, is

￦314,057 million, and the amounts recognized as financial guarantee contract liabilities related to financial

guarantee contracts as of December 31, 2014, are ￦15,922 million (see Note 17).

3) Liquidity risk management

The management monitors a corporation’s liquidity position through its examination process of cash flows and

by maintaining adequate reserve as well as placing limits on the aggregate borrowing. Also, the Company

maintains its liquidity position through the maturity mismatch approach. The Company issues asset-backed

securities and arranged with financial institutions to discount trade receivables and for overdraft of fund

management.

- 64 -

Liquidity risk is centrally managed and controlled by the Financial Planning Department, which reports on

liquidity analysis and statistics, including liquidity gap, liquidity ratio, maturity mismatch ratio and liquidity risk

situation. The Company’s financial liabilities by residual contractual maturity as of December 31, 2014, are

classified as follows:

Less than 1 year 1–5 years More than 5 years Total


Accounts payable ￦ 270,766 ￦ - ￦ - ￦ 270,766

Current portion of other

financial liability 84,510 - - 84,510

Derivative liability 6,648 211 - 6,859

Other financial liability - 1,583 - 1,583

Short-term borrowings 151,124 - - 151,124


liability 361,825 - - 361,825


Interest expense (*1) 18,335 18,045 - 36,380

Financial guarantee contract

liability (*2) 252,557 61,500 - 314,057

Total ￦ 1,145,765 ￦ 329,826 ￦ - ￦ 1,475,591

(*1) It means total interest payable on short-/long-term borrowings for the expected maturity.

(*2) It means total amount of obligation under the financial guarantee contract.

(4) Transfer of financial assets

Financial assets transferred that are not derecognized and related liabilities as of December 31, 2014, are as

follows:

Accounts receivable (*1)


2014 2013

Book value of the assets transferred ￦ 18,827 16,350

Book value of related liabilities (18,827) (16,350)

(*1) The Company retains a contractual obligation relating to the transferred accounts receivables of ￦18,827

million and ￦16,350 million for the years ended December 31, 2014 and 2013, respectively. As the

Company retains substantially all the risks and rewards of ownership of the transferred receivables, the

Company continues to recognize the receivables and also recognizes a collateralized borrowing for the

proceeds received (see Note 14).

(5) Fair value estimation

Financial instruments that are measured at fair value subsequent to initial recognition are grouped into Level 1, 2

or 3, based on the degree to which the fair value is observable, as described below:

Level 1: Fair value measurements are those derived from quoted prices (unadjusted) in active markets for

identical assets or liabilities.

Level 2: Fair value measurements are those derived from inputs other than quoted prices included within

Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e.,

derived from prices).

Level 3: Fair value measurements are those derived from valuation techniques that include inputs for the asset

or liability that are not based on observable market data (unobservable inputs).

- 65 -

1) Fair value measurements by fair value hierarchy levels as of December 31, 2014 and 2013, are as follows:


Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total


AFS financial assets:

Marketable equity

securities ￦ - ￦ - ￦ - ￦ - ￦ 1,498 ￦ - ￦ - ￦ 1,498

Non-marketable

equity securities - - 24,913 24,913 - - 23,814 23,814

Debt securities - - - - - - 14,111 14,111

Derivative assets - 12,261 - 12,261 - 7,134 - 7,134

Derivative liabilities - 6,859 - 6,859 - 5,288 - 5,288

2) Details of changes in book values of AFS financial assets classified as Level 3 for the years ended

December 31, 2014 and 2013, are as follows:

2014

Beginning Acquisition Disposal Valuation Impairment Transfer Ending



Non-marketable equity securities ￦ 23,813 ￦ 251 ￦ - ￦ 849 ￦ - ￦ - ￦ 24,913

Debt securities 14,112 - (14,112) - - - -

2013

Beginning Acquisition Disposal Valuation Impairment Transfer Ending


Short-term financial assets ￦ 7,500 ￦ - ￦ (7,500) ￦ - ￦ - ￦ - ￦ -


Non-marketable equity securities 18,232 210 (3,900) 1,357 (3,497) 11,412 23,814

Debt securities 12,089 - - 2,022 - - 14,111

3) As of December 31, 2014 and 2013, the following is financial asset’s breakdown and book value, which did

not announce fair value information due to the impossibility of measuring reliable fair value among

financial assets which should take subsequent measurement to the fair value.

2014 2013

AFS financial assets : (In millions of Korean won) Equity securities(*1) 392 392

Debt securities(*1) 29,630 35,664

(*1) Above assets have been measured by cost method because the Group could not obtain reliable and enough

information for valuation.

32. AGREEMENT FOR THE IMPLEMENTATION OF NORMALIZATION OF BUSINESS WITH

CREDITORS:

(1) Maturity extension and agreement for management improvement

On February 7, 2012, the Company signed a memorandum of understanding (MOU) with creditors, including

Hana Bank, the principal creditor, for supporting additional loan of ￦280 billion and additional credit line of

￦150 billion. Under this MOU, 2,804,828 shares of common stock of the Company have been provided as

collateral to financial institutions.

- 66 -

(2) Business restructuring agreement with creditors

On August 7, 2012, the Company entered into a business restructuring agreement with creditors (Representative :

Hana Bank). Under this agreement, the Company should implement external cash funding including paid-in

capital increase, a capital reduction without consideration, the disposal of defined assets and settlement of real

estate project financing liabilities, etc. The Company and its principal shareholder should transfer rights on

stocks of the Company and affiliated company to creditors.

(3) Borrowings repayment delay and debt-to-equity swap

1) By the resolution of Creditor’s committee on December 9, 2013, interest term and maturity of loans from

creditor’s committee was adjusted as follows.

Description

Postponement of right of

recourse

Debts included to calculate voting right of the voluntary committee of creditor banks,

new borrowings previously supported, 1-1 ABL of TEC 2nd

Co., Ltd. held by Hana

bank

Grace period Until December 31, 2015

(Repayment method after the grace period will be determined in the light of

operating cash flows within three months before the grace period ends in the

voluntary committee of creditor banks)

Application of interest

rate

Secured debts, unsecured debts, new borrowings previously supported (general

borrowings), 1-1 ABL of TEC 2nd

Co., Ltd. held by Hana bank: annual 3.5%

2) Debt-for-equity swap

The Company’s creditor decided debt-for-equity swap of ￦700,000 million in the voluntary committee of

creditor banks on November 29, 2013, so that the Company converted creditor’s borrowings of ￦671,944

million into common stocks and convertible preferred stock on December 20, 2013. Also, through board of

directors’ decision on March 12, 2014, the Company converted remaining creditor’s borrowings of ￦28,056

million into common stocks on March 26, 2014.

33. GOING-CONCERN UNCERTAINTIES:

The separate financial statements are prepared on a going-concern basis. Assets and liabilities are recorded on

the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course of its

business.

However, the Company incurred net loss of ￦257,802 million and ￦706,654 million respectively during

current and previous accounting periods and total current liabilities exceed total current assets by ￦513,713

million as of December 31, 2014. In addition, related-party receivables of ￦49,743 million (net of allowance

for doubtful accounts and other) as of December 31, 2014, may not be collectible if the recovery plan is not

fulfilled as planned. Moreover, contingent liabilities on financial guarantee contract provided for related parties

and others of ￦314,057 million are exposed to credit risk.

These factors mean that there are significant uncertainties about the Company’s ability to continue as a going

concern. Therefore, the Company’s ability to continue as a going concern depends on financing plan,

achievement of stable operating profit as a result of financial structure improvement agreement and agreement of

implementation for normalization of business, collection of related-party receivables and resolution of contingent

liabilities on financial guarantee contract. The Company may not be able to continue as a going concern if it does

not operate as planned, and therefore, the Company will not be able to realize its assets and discharge its

liabilities in the normal course of its business. The ultimate effect of these significant uncertainties cannot

presently be determined in the accompanying separate financial statements.

- 67 -

34. SUBSEQUENT EVENTS:

(1) The Company reduced its capital stock without consideration on January 30, 2015, by the resolution of

temporary shareholders’ general meeting on December 26, 2014.

(2) Creditors committee has determined financial support through new loan facility (line of credit: ￦130 billion

and letter of guarantee: $20 million) to the Company on February 2, 2015.

(3) The Company’s stock investors of 121 people raised the lawsuit the Company, management, etc., for

compensation for damage of ￦5,727 million to Seoul Central District Court on March 13, 2015.

Deloitte Anjin LLC 9F., One IFC, 10, Gukjegeumyung-ro, Youngdeungpo-gu, Seoul 150-945, Korea

Tel: +82 (2) 6676 1000

Fax: +82 (2) 6674 2114

www.deloitteanjin.co.kr

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”),

its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities.

DTTL (also referred to as “Deloitte Global”) does not provide services to clients.

Please see www.deloitte.com/kr/about for a more detailed description of DTTL and its member firms.

Member of Deloitte Touche Tohmatsu Limited

Internal Accounting Control System (IACS) Review Report

English Translation of a Report Originally Issued in Korean on March 20, 2015.

To the President of

Taihan Electric Wire Co., Ltd.:

We have reviewed the accompanying Report on the Management’s Assessment of IACS (the “Management’s

Report”) of Taihan Electric Wire Co., Ltd. (the “Company”), as of December 31, 2014. The Management’s

Report and the design and operation of IACS are the responsibility of the Company’s management. Our

responsibility is to review the Management’s Report and issue a review report based on our procedures. The

Company’s management stated in the accompanying Management’s Report that “based on the assessment of the

IACS as of December 31, 2014, the Company’s IACS has been appropriately designed and is operating effectively

as of December 31, 2014, in all material respects, in accordance with the IACS Framework established by the

Korea Listed Companies Association.”

We conducted our review in accordance with the IACS Review Standards established by the Korean Institute of

Certified Public Accountants. Those standards require that we plan and perform a review, objective of which is to

obtain a lower level of assurance than an audit, of the Management’s Report, in all material respects. A review

includes obtaining an understanding of a Company’s IACS and making inquiries regarding the Management’s

Report and, when deemed necessary, performing a limited inspection of underlying documents and other limited

procedures.

The Company’s IACS represents internal accounting policies and a system to manage and operate such policies to

provide reasonable assurance regarding the reliability of financial statements prepared, in accordance with Korean

International Financial Reporting Standards, for the purpose of preparing and disclosing reliable accounting

information. Because of its inherent limitations, IACS may not prevent or detect a material misstatement of the

financial statements. Also, projections of any evaluation of effectiveness of IACS to future periods are subject to

the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance

with the policies or procedures may deteriorate.

Based on our review, nothing has come to our attention that causes us to believe that the Management’s Report

referred to above is not fairly stated, in all material respects, in accordance with the IACS Framework established

by the Korea Listed Companies Association.

Our review is based on the Company’s IACS as of December 31, 2014, and we did not review its IACS subsequent

to December 31, 2014. This report has been prepared pursuant to the Acts on External Audit for Stock Companies

in the Republic of Korea and may not be appropriate for other purposes or for other users.

March 20, 2015

Documents

TAIHAN ELECTRIC WIRE CO., LTD