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Business Report

 (Period No. 48)

Period

from January 1, 2010

to June 30, 2010

To: Financial Services Commission

Korea Exchange Aug. 13, 2010

Company NameS&T Dynamics Co., Ltd.

President & CEOPark, Jae-seok (Peter)

Head Office853-5 Woe-dong, Seongsan, Changwon, Gyeongnam,Korea

(Tel) 82-55-280-5000

(Website) http://hisntd.com

Prepared by: (Title) Director            (Name) Jung, Woon-sik

(Tel. No) 82-55-280-5361

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I. Description of the Company

1. General description

a. Legal and commercial name of the company

중공업주식회사   The name of the company is "S&T " in Korean.

   It is "S&T DYNAMICS CO., LTD" in English

   It can be simply called "S&T DYNAMICS".

b. Brief history (Date of foundation and name change)

We were founded as Tongil Industrial Co., Ltd. (Yeohwa Shotgun Manufacturer)

on April 1, 1959, specializing in the manufacture and sale of machine tools

(such as CNC lathes), special devices, vehicle parts (power transmission

equipment) and other casts. After merging with Tongil Industrial Co., Ltd., it

changed the name to Tongil Co., Ltd., in February 1984. Then, it changed its

name to Seil Heavy Industries Co., Ltd in April 1991. The name was once

again changed to Tongil Heavy Industries Co., Ltd in April 1995 before

becoming S&T Dynamics Co., Ltd in June 2005. In addition, it was listed on

the Securities Market in the Korea Exchange.

c. Head Office's address, telephone no. and web site

Address: 853-5 Woe-dong, Seongsan-gu, Changwon City, Gyeongnam Province,

Korea

Tel. No : +82-55-280-5000

Web site: http://www.hisntd.com

 

d. Category of the company

We do not belong to the category of small and medium sized companies as of

the date of this report according to Article 2 of the Basic Act of Small and

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Medium Sized Companies and Article 3 of its Enforcement Decree.

e. Main businesses

We have been supplying defense products, vehicle power train products,

machine tools and casting material products using the technologies and

experiences we have accumulated for many years. As a new growth engine,

we have been developing and investing in wind power train, and aircraft power

train.

As for defense products, we supply automatic transmissions and firearms for

the defense industry and have participated in the development of new

equipment for modernization projects of the Korean Military.

The vehicle power train is the core part in the vehicles and includes

transmissions and axles for trucks and buses and construction heavy

equipment. We are supplying those parts through strict QA and our products

are recognized for their excellent quality and performance.

We manufacture machine tools such as large and medium sized vertical lathes,

gear machining tools, machining centers, gear cutting machines, lathes, milling

machines and grinding machines.

As for cast products, our vehicle parts, machine tool parts and heavy

equipment parts are well accepted as industrial materials and our aluminum

die-casting and aluminum ingot are well accepted in the market.

▶ For more detail, see II. businesses.

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f. Subsidiaries

The subsidiaries are as follows as of Jun. 30, 2010

Category

Subsidiaries Business field Remarks

Listedonexchange

S&T HoldingsHolding company, managementadvisory service

Domesticsubsidiaries

S&T CorporationAir cooling heat exchanger,waste heat recovery system,and denitrification equipment

S&T DynamicsVehicle parts, machine tools,defense equipment and castingproducts

S&T DaewooVehicle parts and defenseequipment

S&T MotorsManufacturing and sale ofmotorcycle

Unlisted onexchange

S&T Federation of SavingsBank

Financing

S&T Canberra Hotel Tour and hotel service

S&T SolutionInformation andtelecommunication

S&T Electronics Electronics parts for vehicle

KMJ-TECH Automotive parts

S&T AMT Automotive parts

Guanzhou S&T Co., Ltd. China Automotive parts Overseassubsidiaries

Senyang Jinbei-TongilAutomotive System Co., Ltd.

Automotive parts

Qingdao S&T Co, Ltd., China Automotive parts

S&T America Ltd Automotive parts

Yentai Daewoo PrecisionIndustries Co., Ltd. China

Automotive parts

Hyosung Motors America Inc Sale of motorcycle

S&T Polska Sp Automotive parts

S&T Daewoo AutomotiveComponents(Kunshan) Co., Ltd

Automotive parts

S&T Daewoo India Private Ltd Automotive parts

Jiangshu hwasung AutomotiveComponents Co., Ltd China

Automotive parts

S&T Automotive Mexico Automotive parts

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g. Credit rating

- The credit ratings for the last 5 years are as follows.

Date ofevaluation

Corporatecredit rating

Equivalentbond rating

Credit ratingcompany

Evaluationperiod

May 27. 2010 e-AA0 AA0SCI(Seoul credit &Information)

Periodic

Apr. 05. 2010 e-3+ A+KIS (Korea

Information Service)Periodic

Apr. 01. 2009 e-3+ A+ KIS Periodic

Apr. 24. 2008 e-3+ A+ KIS Periodic

Apr. 13. 2007 e-3- A- KIS Periodic

Apr. 19. 2006 e-4+ BBB+ KIS Periodic

Definition of corporate credit rating□

Credit ratingEquivalent

bond ratingDescription

Excell

ent

e-1 AAA

Best credit grade for commercial trading. The company

is well capable of coping with any change in corporate

environment.

e-2 AA

Excellent credit grade for commercial trading. The

company is properly capable of coping with any

change in corporate environment.

e-AA0 AA0

The company's general credit rating is excellent but

the company may be subject to future rapid business

environment changes.

Good

e-3 A

Good credit grade for commercial trading. The

company has limited capability of coping with any

change in corporate environment.

e-4 BBB

Good credit grade for commercial trading. The

company has the possibility of lowered transaction

stability according to management conditions and

worsened environment.

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Avera

ge

e-5 BB

Average credit grade for commercial trading. The

company has the possibility of lowered transaction

stability according to management conditions and

worsened environment.

e-6 B

Average credit grade for commercial trading. The

company has the high possibility of lowered transaction

stability according to management conditions and

worsened environment.

Inferio

r

e-7 CCC

Below average credit grade for commercial trading. The

company is expected to have lowered transaction

stability, requiring other companies to have cautious

approach.

e-8 CCVery low credit grade for commercial trading and low

stability in transaction.

Bad

e-9 CLowest credit grade for commercial trading and highly

likely to cause the transactional danger.

e-10 DCurrently causing the credit danger or put in equivalent

situation.

Reser

vedR R

Having the financial statements of less than year or

subject to the rapidly changing management

environment (such as in merger, assignment of

operation or change in business field), the company

has been reserved of its credit assessment by KIS.

Depending on the necessity of evaluator, the grade can be more segmented※

using +, 0, and -.

2. History of the company

a. Changes after foundation

Tongil Industrial Co., Ltd.

Apr. 1, 1959 Yeohwa Shotgun was founded.

Apr. 23, 1973Designated by the Government as a specialized manufacturer of

defense products.

May 6, 1975 Awarded a bronze industrial accomplishment prize.

Jun 5, 1978 Designated as a national corrective test institute.

Apr. 6, 1979 Designated as an important company for national mechanical fields.

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Jun 7, 1979Designated as Class 1 company in the fields of mechanical

accurateness.

May 1, 1980 Designated as a testing laboratory for Ministry of Defense.

Apr. 8, 1981 Designated as a steel company.

Sep. 20, 1981Designated as a company for development of new equipment.

(Domestic Product No. 1)

Nov. 19, 1982 Appointed as a critical company in the steel fields.

Nov. 30, 1982 Awarded a silver industrial accomplishment prize.

Apr. 22, 1983 Designated as a Class 1 company for quality control.

Dongyang Machinery Industrial Co., Ltd.

Aug. 31, 1962 Dongyang Gear Industrial Co., Ltd. was founded

Oct. 4, 1965 A plant for manufacturing transmission was permitted.

Apr. 15, 1967 Changed its name to Dongyang Machinery Industrial Co., Ltd.

Apr. 21, 1971 Received an investment from Bogner Warner of USA.

Apr. 21, 1971 Changed its name to Dongyang Warner.

June 28, 1971 Moved to new office (233-18 Jangsa-dong, Jongro-gu, Seoul)

June 23, 1972 Developed transmissions and axles for the first time in Korea.

Oct. 1, 1972 Moved to new office (6-ga Munrae-dong, Youngdeungpo-gu)

Sept. 8, 1975 Moved to new office (2-ga, Yangpyeong-dong, Youngdeungpo-gu)

Dec. 10, 1975 Bogner Warner sold its equity and left.

Feb. 18, 1976 Changed its name to Dongyang Machinery Industrial Co., Ltd.

July 8 1976 Started the public offering of its stocks.

July 7, 1979Designated as a company specialized in the manufacture of steering

devices.

Dec. 31, 1979 Completed its machinery plant in Changwon.

Aug. 22, 1981 Entered into a cooperative agreement with Korea Development Bank.

June 15, 1982 Established a R&D Lab.

Dec. 2, 1982The composition of main stockholders changed. (Tongil Industrial

Co., Ltd.)

Jan. 5, 1983Move the main office to new place (Youido-dong,

Youngdeungpo-gu.)

Jan. 1, 1984 Merged with Tongil Industrial Co., Ltd. (1 to 1)

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Tongil Co., Ltd.

Feb. 25, 1984 Changed its name to Tongil Co., Ltd.

Apr. 21, 1984Terminated with a cooperative agreement with Korea Development

Bank.

Nov. 15, 1986Awarded the Presidential Prize for dedication to tue development of

machinery tool industry.

Dec. 21, 1987Moved the office to new location (292-20 Dohwa-dong, Mapo-gu,

Seoul)

July 26, 1988 Established Seoul branch of R&D Center.

Seil Heavy Industries Co., Ltd.

Apr. 1, 1995 Changed its name to Seil Heavy Industries Co., Ltd.

Nov. 30, 1993 Awarded the industrial peace prize from the Ministry of Labor.

Tongil Heavy Industries Co., Ltd.

Apr. 1, 1995 Changed its name to Tongil Heavy Industries Co., Ltd.

Oct. 7, 1995 Acquired ISO 9001 certificate.

Jan. 30, 1996 Nominated as an exemplary business of CALS.

Dec. 1, 1996Nominated as a company sponsoring CIM task project for leading

technology in G-7.

Nov. 26, 1998 Acquired QS 9000 certificate.

Nov. 30, 1998 Become insolvent.

Dec. 5, 1998 Reduced the capital from 170.4 billion won to 11.3 billion won).

Dec. 23, 1998 Decided the preservation of the corporate asset by court.

Jan. 26, 1999 Nominated as a receiver for preservation of common property.

Apr. 23, 1999 Started the corporate restructuring process.

Apr. 23, 1999 Appointed with a receiver.

Feb. 1, 2000 Restructuring process is allowed by the Seoul District Court.

Feb. 24, 2000 Acquired a certificate of National Defense Quality Control.

Apr. 1, 2000 Moved to new place (371-36 Gasan-dong, Geumcheon-gu)

Apr. 3, 2000 Acquired CE certificate for machine tools.

Apr. 8, 2000 Reduced the capital from 11.3 billion won to 2 billion won.

June 19, 2000Increased the capital by converting loan to equity (from 2 billion

won to 96.7 billion won.)

May 19, 2001 Acquired KOLAS certificate. (national calibration institute)

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Apr. 7, 2002Largest stockholder is changed from Tongil Church Foundation to

Jung Gap-jin.

July 6, 2002Largest stockholder is changed from Jung Gap-jin to Korea

Development Bank.

July 11, 2002 Acquired KOLAS certificates. (international calibration institute)

July 26, 2002Largest stockholder is changed from Korea Development Bank to

KAMCO (Korea Asset Management Corporation).

Feb. 7, 2003The plan for change in corporate restructuring was permitted by the

Seoul District Court.

Mar. 15, 2003

Largest stockholder is changed from KAMCO to Samyoung Co., Ltd.

Stock split (from face value of 5,000 won to 500 won)

Change in capital (capital reduction by 25:1 and increase in capital)

from 102.5 billion to 80.7 billion won

Apr. 10, 2003Declared of the finishing of restructuring plan by the Seoul District

Court.

June 17, 2003 Moved to new location. (853-5 Oidong, Changwon, Gyeongnam

S&T Dynamics Co., Ltd.

July 3, 2005 Changed its name to S&T Dynamics Co., Ltd.

Nov. 3, 2005

Acquired several management system certifications (from DNV).

- ISO/TS 16949 , - ISO 9001

- ISO 14001, - OHSAS 18001

Mar. 24, 2006Consolidated the shares by changing face value from 500 won to

2,500 won

Nov. 29, 2006Acquired an aerospace quality management system (AS 9100) from

DNV.

June 24, 2008Redeemed 1 million shares, making the total number of outstanding

shares from 32,265,514 to 31,265,514.

Aug. 1, 2008Increased the capital by issuing new 627,871 shares, making the

number of total outstanding shares from 31,265,514 to 31,893,385.

Nov. 12, 2008

Increased the capital by acquiring S&T Brake Co. by issuing 338,315

new shares, making the number of total outstanding shares from

31,893,385 to 32,231,700

Jan. 30, 2009 Acquired the certificate of NADCAP for special aerospace process.

Feb. 1, 2009

Increased the capital by converting loans to equity issuance by

241,739, making the number of total outstanding shares from

31,231,739,514 to 32,473,439.

Nov. 25, 2009 Awarded Korea National Quality Award from President.

Mar. 3, 2010Awarded the faithful taxpayer prize from Ministry of Strategy and

Finance.

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b. Change of company names

Date of

changeBefore After Cause

Apr. 15, 1967 Dongyang Gear Industrial

Co., Ltd.

Dongyang Machinery

Industrial Co., Ltd.

Apr. 21, 1971Dongyang Machinery

Industrial Co., Ltd.

Dongyang Warner

Co., Ltd.

Feb. 18, 1976Dongyang Warner Co.,

Ltd.

Dongyang Machinery

Industrial Co., Ltd.

Feb. 25, 1984Dongyang Machinery

Industrial Co., Ltd.Tongil Co., Ltd.

Merged with

Tongil Industrial

Co., Ltd.

Apr. 1, 1991 Tongil Co., Ltd.Seil Heavy Industries

Co., Ltd.

Apr. 1, 1995Seil Heavy Industries

Co., Ltd.

Tongil Heavy

Industries Co., Ltd.

Jun. 3, 2005Tongil Heavy Industries

Co., Ltd.

S&T Dynamics Co.,

Ltd.

c. Mergers and others

- According to the resolution of the board of directors held on Sept. 2, 2008

and the merger contract entered into on Sept. 5, 2008, our merger and

acquisition with S&T Brake Co., Ltd., was fulfilled on Nov. 10, 2008.

     

d. Occurrence of important facts related to management activities

1) Capital decrease by redemption of shares with profits

According to the decision on the redemption of shares, we bought in 1,000,000

common shares from the stock exchange on Mar. 19, 2008 and retired them

on June 24, 2008.

2) Capital increase by converting loan to equity

We fully paid the loans and obligations in March 2003 when the receivership

was finished. So, we decided to convert the unpaid loans to equity as follows

as requested by the creditors.

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- Issuance of 627,871 common shares on Aug. 1, 2008 with the capital

increase of 1,569,677,500 won.

- Issuance of 241,739 common shares on Feb. 1, 2009 with the capital

increase of 604,347,500 won

3. Changes in capital

a. Changes in capital

The capital changed as follows.

(Unit: Korean Won, Number of shares )

Dateof

changeCategory

Shared redeemed or newly issued

Type QuantityFacevalue

Value pershare forissuance (orredemption)

Remarks

Aug. 1,2008

Conversion ofloan to equity

Commonstocks

7,784 2,500 62,500 -

Aug. 1,2008

Conversion ofloan to equity

Commonstocks

533,645 2,500 187,500 -

Aug. 1,2008

Conversion ofloan to equity

Commonstocks

86,442 2,500 312,500 -

Nov.12,2008

New issuance(to thirdparties)

Commonstocks

338,315 2,500 4,698

 Issuanceof newstocks dueto M&A

Feb. 1,2009

Conversion ofloan to equity

Commonstocks

221,399 2,500 312,500 -

Feb. 1,2009

Conversion ofloan to equity

Commonstocks

20,340 2,500 187,500 -

b. Plan of capital change

According to Chapter 9 of our corporate restructuring change plan, the

expected number of shares to be issued due to the conversion of loan to

equity amounts to 91,932.

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4. Total number of shares

a. Total number of shares

As of Jul. 31, 2010 when this report was prepared, the number of authorized

shares is 240,000,000 while that of shares issued and outstanding is

32,473,439. We have not issued shares other than common stocks.

Category

Type of shares

RemarksCommonstocks

Preferredstocks

Total

. Total number of authorizedⅠshares

240,000,000 - 240,000,000

. Number of shares issued upⅡto now

44,143,176 - 44,143,176

. Number of shares redeemedⅢup to now

11,669,737 - 11,669,737

1. Capital decrease 10,669,737 - 10,669,737

2. Retirement with profit 1,000,000 - 1,000,000

3. Redemption of redeemableshares

- - -

4. Others - - -

. Number of shares issued andⅣoutstanding ( - )Ⅱ Ⅲ

32,473,439 - 32,473,439

. Number of treasury stocksⅤ 1,635,300 - 1,635,300

. Number of sharesⅥoutstanding ( - )Ⅳ Ⅴ

30,838,139 - 30,838,139

 

b. Acquisition and disposition of treasury stocks

According to Article 165-2 of the Capital Market Act, we disposed 211,450

shares due to the exercise of stock options by employees and we have the

treasury stocks of 1,635,300 in total as of July 31, 2010, the date of

preparation of this report. There is no other stock acquired as of the date of

this report.

(As of Jul. 31, 2010 (Unit: share)

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AcquisitionType ofstock

BeginningAcquisition (+)

Disposition (-)

Ending Remarks

Direct acquisitionaccording to Article165-2 of CapitalMarket Act

Commonstock

1,846,750 - 211,450 1,635,300

Indirect acquisitionthrough trustagreement, etc

Commonstock

- - - - -

TotalCommonstock

1,846,750 - 211,450 1,635,300

5. Voting rights

The number of shares issued up to now is 32,473,439, which is 13.5% of the

number of authorized shares. There are no stocks issued other than common

stocks and we have 1,635,300 treasury stocks. If the treasury stocks have no

voting rights, the number of common stocks having voting rights amounts to

30,838,139.

CategoryNumber ofshares

Remarks

Number of shares issued (A)Common stock 32,473,439

Preferred stock -

Number of shares having no votingrights (B)

Common stock 1,635,300

Preferred stock -

Number of shares whose voting rightsare restricted by related laws (C)

Common stock -

Preferred stock -

Number of shares whose voting rightshave been recovered (D)

Common stock -

Preferred stock -

Number of shares whose voting rightscan be exercised (E = A - B - C +D)

Common stock 30,838,139

Preferred stock -

(As of Jul. 31, 2010) (Unit: share)

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6. Dividends

a. Dividend policy

We have a stockholder oriented dividend policy by which a certain portion of

net profit is allocated to stockholders as decided at the general stockholders'

meeting according to the dividend provisions in our Article of Incorporation. As

for the dividends of the 2009 fiscal year, we have paid 200 won for every

share on March 5, 2010. In the future, we will continue to allocate our profit

to our shareholders as dividends taking into account both our reservation for

growth and the dividends to our shareholders.

[Articles of Incorporation]

Article 42 (Dividend from profit)

The dividend from profit can be done in cash or shares.①

If the dividend from profit is allocated in the form of shares and the②

company has issued shares other than common stock, the company can

allocate the other kinds of shares as dividend if it is decided at the general

stockholders' meeting.

The dividend described in shall be paid to stockholders or pledgees③ ①

registered on the stockholders' list at the end of the appropriate fiscal year.

Article 43 (Extinctive prescription of claims for dividends)

The rights for dividends become invalidated if they are exercised within 5①

years.

The dividends invalidated by this clause are reversed to the company.②

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b. Dividends for last 3 years

Dividends for last 3 years

CategoryPeriod 48first half

Period 47 Period 46

Face value per share (Won) 2,500 2,500 2,500

Net profit (Million Won) 29,439 41,790 32,058

Net profit per share (Won) 958 1,468 1,169

Total cash dividends (Million Won) - 6,125 4,148

Total stock dividends (Million Won) - - -

Dividend payout ratio (%) - 15 13

Cash dividendpayout ratio (%)

Common stock - 1.2 1.8

Preferred stock - - -

Stock dividendpayout ratio (%)

Common stock - - -

Preferred stock - - -

Cash dividend pershare (Won)

Common stock - 200 150

Preferred stock - - -

Stock dividendsper share (Share)

Common stock - - -

Preferred stock - - -

- Net profit per share: Net profit / Weighted average number of outstanding

common stocks

- The cash dividend payout ratio is calculated by dividing the cash dividend

per share by the average stock price based on the prices quoted at stock

markets for the last 7 days starting on the day prior to the second day

after the day when the stockholders' list is closed.

   

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II. Businesses

1. Businesses

We have been supplying defense products, vehicle power train products,

machine tools and casting material products using the technologies and

experiences we have accumulated for many years. As a new growth engine,

we have been developing and investing in wind power trains and aircraft

power trains.

As for defense products, we supply automatic transmissions and firearms for

the defense industry and have participated in the development of new

equipment for modernization projects of the Korean Military.

The vehicle power train is the core part in vehicles and includes transmissions

and axles for trucks and buses and heavy construction equipment. We are

supplying those parts through strict QA and our products are recognized for

their excellent quality and performance.

We manufacture machine tools such as large and medium sized vertical lathes,

gear machining tools, machining centers, gear cutting machines, lathes, milling

machines and grinding machines.

As for cast products, our vehicle parts, machine tool parts and heavy

equipment parts are well accepted as industrial materials and our aluminum

die-casting and aluminum ingot are well accepted in the market.

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a. Sale by business fields                                (Unit: Million Won)

Businessfields

ItemsSales

Remarks2010first half

2009first half

2008first half

Vehicleparts

Axle, transmission, brake and otherparts.

88,726 74,165 80,606 -

Machinetools

Lathe, milling machine, grindingmachine, CNC lathe, machiningcenter and others

22,016 16,183 20,448 -

OthersVehicle casting, machinery casting,aluminum ingot and defenserelated equipment

169,832 118,663 109,445 -

Total 280,574 209,011 210,499 -

b. Current situation by business field

Characteristics of businesses◎

1) Vehicle power train

(1) The quality, price and technology of vehicle parts affect the

competitiveness of the finished vehicle. The independent development of

vehicles is impossible without the independent design capability of vehicle

parts. Also, without the development of advanced parts the development of

the next-generation vehicle is almost impossible. In addition, the growth of

other industries is affected as they are closely related to automotive parts.

(2) The automotive parts manufacturing industry is composed of many levels of

vendors with the first level vendor supplying the parts to the manufacturer

of finished cars and second level vendors and third level vendors

supplying parts to first level vendors. Except for a few large parts

manufacturers, most vendors are small and inferior in terms of technology,

price, delivery and quality. On the other hand, the competitiveness of the

finished car manufacturers depends on the competitiveness of parts

suppliers, making close cooperative relations between them very important

in maintaining their competitiveness.

2) Machine tools

(1) The machine tools were originally meant to indicate the machines which

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cut or grind metal materials. However, recently the term has had wider

applications as more machine tools not using cutting or grinding have

appeared. This includes machines using electrical discharge, electrolysis

and ultrasonic waves.

(2) The machine tool industry is classified into the cutting process and forming

process. It can be applied to wider manufacturing industries such as cars,

aircraft and ships, enabling the creation of high values. In addition, it is

sensitive to investment trends in the manufacturing sector. As it is the

foundation of the general machine industry, electronics and electric

industries and telecommunication and semiconductor industries, it leads the

indicators of other industries. It is greatly affected by the automotive

industry.

(3) Most machine tool companies in Korea are small in terms of size and

profit. Because of the importance placed by domestic customers on price,

large or medium sized machine tool companies are introducing the

automation system and targeting the unmanned production system. In

addition, the main customers of machine tools are more concentrated in the

automotive part industry using the standard equipment. Due to globalization,

automotive manufacturers and automotive parts companies can buy machine

tools anywhere around the globe, making the market open to everyone.

3) Material industry

The casting industry is closely related to the automotive parts industry,

machine tool industry, industrial machinery field and others, contributing to the

industrial growth of a country. One of the functions of the casting industry is

to melt metal scraps and pig iron in electrical furnaces and put the molten

metal into the mold, which is made of molding sand. It is kept there for a

certain period of time in order to produce the materials required in many

industries. The casting of automotive parts requires a lot of high technology in

terms of tension, strength and precision as it is closely related to the safety

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of the vehicle. Accordingly, the casting sector for automotive parts leads the

casting industry for others in respect of quality and technology. In particular,

casting technology is very important in leading the materials for vehicle parts.

Growth of the industries◎

1) Vehicle power train

As the world's large car manufacturers merge with each other to enhance their

competitiveness to maximize benefits they get from the economy of scale, the

automotive parts industry is also progressing toward the global M&A trend,

making the automotive parts companies bigger in preparation for global

sourcing. In accordance with the world trend, domestic car makers are

increasing their global outsourcing and putting emphasis on the acquisition of

technology through cost reduction, quality improvement and R&D investment.

Although the sales volume of the automotive parts industry is increasing along

with the sales of finished vehicles, the hike in oil prices and commodities in

the world market is negatively affecting the bottom line of the industry. When

we consider the continuing trend of cost reduction and global outsourcing by

finished car manufacturers, it seems many companies that are not competitive

will be in trouble. Only the competitive automotive parts companies can survive

in the rapidly changing environment. Accordingly, the main task for the future

automotive parts industry is to have its own technology and expand exports to

overseas car makers.

2) Machine tools

The technology in the machine tool industry is moving in the direction of

innovations in high speed, high precision, high efficiency and eco-friendliness.

Moreover, as the various telecommunication functions through the opening and

networking of CNC technology are added, the industry has advanced to the

stage where machine tools located in remote places can be manipulated

through a total control system that is connected with design, sales and service

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information. Now the industries where machine tools are in high demand, such

as the automotive parts and molding sectors are showing recovery and the

investment is mainly put into shipbuilding, heavy equipment and wind power

industries. So, the domestic machine tool companies are trying to create new

demand by developing new products, thereby expanding their sales volume.

3) Material industry

The casting industry is the manufacturing sector of parts for vehicles, ship

engines, industrial machines and machine tools and will keep growing as long

as the demand from related industries keeps growing. The vehicle casting

parts industry is the one which is directly affected by sales trends of finished

car manufacturers. The demand for casting parts has shown rapid growth due

to increasing demand for new cars, but it has suffered from some consolidation

recently.

Characteristics of economic trends◎

1) Vehicle power train

Considering the expanding production of parts by finished car manufacturers in

foreign countries and the encroaching entry of import cars in the domestic

market as well as the hike in prices of commodities such as steels and raw

materials as well as the decrease in demand of commercial vehicles due to

high oil prices, we can assume that the market situation would be not be

bright in the future.

2) Machine tools

As the machine tools are often produced in small quantities, they are often

made by small sized companies. However, from the perspective of production

volume, a few large companies take a lion's share of the market. As the

industry is closely related to the economic trend of backward and forward

industries (machinery industry), it tends to easily be affected by the general

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economic trend. In addition, its trend goes forward in an economic downturn

and goes backward in economic recovery. The recent machine tool market

shows a stable and improving trend due to stable domestic growth in

automobile and IT industries and the recovering overseas arising from the

improving world economy.

3) Materials industry

This industry is significantly affected by the demand trend in manufacturing

industry and particularly automotive industry as well as changes in exchange

rate, oil price and raw material prices.

Competition factors◎

1) Defense products

The defense industry may be affected by the Government's decision on military

demand. But as the defense industry is generally related to the long term

supply contract, it is less susceptible to the short term fluctuation. We are

participating in the automatic transmission for K2 tank, development of next

generation heavy machine guns and CTA-Gun and the development of power

trains for the aerospace field.

2) Vehicle power train

The demand for vehicle parts is limited to the domestic finished car

manufacturers with their orders for specific sizes and models. Parts for

commercial vehicle in particular are greatly affected by the economic situation

in the construction industry. The domestic passenger car market in the first

half of 2010 increased 14.2% YoY due to the economic recovery, restored

consumer confidence and demand for new carsas well as increased potentials.

The commercial vehicle market size also increased 17% YoY due to the

increasing export and import transportation demand and the Government's

investment in construction. Supported by the economic recovery from the

- 22 -

recession in US and Western European countries and the recovering demand

for new cars in Latin and South America and Middle Eastern countries, as well

as the enhanced and improved quality of domestically manufactured cars, the

car export sector has shown a steady fast increase. Also, with the outsourcing

trend in the parts market by large overseas automobile manufacturers and their

increased entry into the domestic market, the parts manufacturers which have

advanced technologies and a variety of sales networks are expected to have

good performance as more global car makers plan to outsource their parts

from overseas suppliers. According to this trend, we are trying to develop

multi-staged transmissions for improved fuel efficiency and driving

convenience, and high power and high class products such as power trains for

high power vehicles such as low height buses and electric mid-size buses.

3) Machine tools

The machine tool industry is one of the main industries for national

competitiveness as it greatly affects other industries. Accordingly, as the

demand for machinery depends on investments in the machine and capital

investment, the demand for machine tools fluctuates with that of the machine

industry. The domestic machine tool markets in the first half of 2010 grew by

116% YoY. The increase was also caused by greater investments in facilities

by industries such as automobile, electrics, electronics and IT and advance

purchases by purchasers in preparation for a price increase. According to this

trend, the company will focus on super large machine tools including wind

power equipment, marine plants, ship parts and engines as well as medium and

large-sized vertical lathes.

4) Material parts

The casting business makes the main materials for vehicle castings, machine

tools, industrial machinery, ship and wind power plants and others and is

closely related to them. Accordingly, it is dependent on the demand from the

- 23 -

automotive industry and machine industry, which demand a lot of casting

volumes as basic materials as well as the capital investment. We are making

efforts to enter into new markets by developing high valued casting products

such as those for ships and heavy equipment as well as parts for power

generation facilities such as wind power plants.

 

New businesses◎

We have already decided to develop our own power train for wind power

plants by developing our own technology as a way to increase sales, which

will also be done by acquiring a new growth engine and by diversifying ranges

of businesses. We are now designing high tech power train products for gear

boxes(speed increasing device), pitch reduction gear and others. Through the

manufacture of prototypes and trial and evaluation and international

certification procedure, we are planning to supply them step by step, starting

with the 2 MW to 5 MW medium and large sized power train products for wind

power plants.

2. Key products and services

We are manufacturing and selling parts for commercial vehicles, machine tools,

casting products and defense related equipment. The composition of our sales

in the first half of 2010 is as follows in terms of the sales amount.

(Unit: million won )

Businesses

Sales Items Application TrademarksSalesamount

Composition (%)

Vehicleparts

Goodsandproducts

Axle, T/M and otherparts

VehicleOEM

production88,726 31.6

Machine tools

Goodsandproducts

Lathe, milling machine,grinding machine, CNClathe, machining centerand others

Industrialequipment

TIPL-410,ST-850

VD,TNV-40A,ST-25/35

  22,016 7.9

OthersGoodsandproducts

Casting products anddefense products, etc

Vehicle andmachinetools, etc.

-  169,832 60.5

Total - - -  280,574 100.0

- 24 -

Price trends of key products                             (Unit: 1,000 won)□

- The above table was prepared based on the supply price for key products

by year.

- The cause of price change was mainly the change in raw materials and the

price is adjusted as agreed on with customers.

3. Main raw materials

a. Current key raw materials (Unit: Million Won)

BusinessesType ofpurchasing

Item ApplicationAmount

RemarksAmount

Composition

AutomotivepartsMachinetoolsCastings

Raw materialsBRG, steelplate

Manufacturingof products

140,538 97.2 -

SuppliesConsumabl

esManufacturingof products

4,080 2.8 -

Total 144,618 100.0 -

ItemsPeriod 48first half

Period 47 Period 46

Vehicleparts

Transmission

Hyundai BUS(V515-15) 2,011 2,011 2,011

Tata Daewoo CommercialVehicle (V524-10)

3,618 3,502 3,502

Daewoo Bus (V544-17) 1,872 1,872 1,750

Axle

Tata Daewoo CommercialVehicle (VT11-01)

3,276 3,019 3,019

Daewoo Bus (V342-07) 1,400 1,400 1,400

Ssangyong Motors(667-08)

231 231 231

Machinetools

Machining center (TNV-40A(S)) 90,000 90,000 88,000

NC lathes (ST-850VD) 255,000 255,000 250,000

General purpose lathe(T-410(1060)) 18,000 18,000 18,000

General purpose grinding machine(TGU-32(500))

40,000 40,000 40,000

General purpose milling machine(TMVH-2D)

32,000 32,000 32,000

Castings

FC (Castings for machine tools) 1.71 1.64 1.81

FCD(Castings for vehicle parts) 1.78 1.82 2.00

ADC 4.96 5.40 4.70

- 25 -

b. Changes in price of key raw materials (Unit: Won)

ItemsPeriod 48first half

Period 47 Period 46

Automotiveparts

Machine toolsCastings

CUP-BRG. EA 1,535 1,459 1,459

Round bars (SCM4) KG 1,500 1,400 1,580

Press rolled andcompressed scrap

KG 505 440 370

AL INGOT KG 1,892 1,687 2,011

- The objects for price were selected among the main raw materials for the

products based on the price as of June 30, 2010.

4. Production and equipment

a. Basis of production capacity and its calculation

(1) Production capacity (Unit: million won )

Businesses Items LocationPeriod 48first half

Period 47 Period 46 Period 45

Automotiveparts

Axle

Changwon

67,776   135,552 109,152 109,152

Transmission 42,132   84,264 84,264 84,264

Others 27,108   54,216 47,000 47,000

Subtotal 137,016 274,032 240,416 240,416

Machinetools

NC machine tools

Changwon

16,200   32,400 28,800 28,800

General purposemachine tools

14,400   28,800 28,800 28,800

Subtotal 30,600 61,200 57,600 57,600

Castings(ton)

Changwon 36,000   72,000 66,000 66,000

Others Changwon and Seoul 58,000  116,000 100,000 100,000

Total 261,616 523,232 464,016 464,016

- 26 -

(2) Calculation of production capacity

(a) Calculation method

Criteria①

Maximum production capacity : (16 hour/day) × (20 days/month) × 6 months.

Method of calculation (Unit: million won)②

Category Items Calculation criteria Production amount

Automotiveparts

Axle 11,296 mill/month ×6 month 67,776

Transmission 7,022mill/month ×6 month 42,132

Others 4,518mill/month ×6 month 27,108

Machinetools

CNC machine tools 2,700mill/month ×6 month 16,200

General purposemachine tools

2,400mill/month ×6 month 14,400

Castings (ton) 6,000mill/month ×6 month 36,000

Others 9,666.7mill/month ×6 month 58,000

(b) Average running time

BusinessesAverage dailyrunning hours

Averagemonthly running

days

Running daysin currentperiod

Running daysin currentperiod

Automotiveparts

2,217.4 20.3 122.0 270,528

Machine tools 198.1 20.3 122.0 24,164

Castings 77.1 20.3 122.0 9,411

Others 625.4 20.3 122.0 76,296

- 27 -

b. Production performance and operation rate

(1) Production performance (Unit: million won )

Businesses Items LocationPeriod 48first half

Period 47 Period 46

Automotiveparts

Axle

Changwon

42,515 74,700 88,587

Transmission 25,076 50,166 53,484

Others 11,095 67,824 23,737

Subtotal 78,686 192,690 165,808

Machinetools

NC machine tools

Changwon

12,451 28,144 26,603

General purposemachine tools

254 831 372

Others 308 690 638

Subtotal 13,013 29,665 27,613

Castings and others Changwon 110,216 122,913 130,555

Total 201,915 345,268 323,976

(2) Operation rate in the current period (Unit: hour)

BusinessesPossible annualrunning hour

Actual annualrunning hour

Average runningrate

Automotive parts 427,356 270,528 63.3%

Machine tools 36,531 24,164 66.1%

Castings 16,348 9,411 57.6%

Others 128,344 76,296 59.4%

Total 608,579 380,399 62.5%

c. Current production equipment

(1) Current production equipment

[Assets: Property, land, and equipment (Unit: million won)

- 28 -

AssetsOwnership

LocationAreaorset

Beginning bookvalue

ChangeDepreciation

Currentbookvalue

RemarksIncrea

seDecrease

Land S&TChangwon& Seoul

378,708㎡

352,787 0 0 0 352,787 -

Buildings

S&TChangwon& Seoul

233,397㎡

35,750 0 0 897 34,853 -

Structures

S&TChangwon& Seoul

371 5,218 56 0 257 5,017 -

Machinery

S&T Changwon 2,448 27,278 3,738 1,566 2,466 26,984 -

Vehicles

S&TChangwon& Seoul

118 314 112 0 84 342 -

Others S&TChangwon& Seoul

- 7,039 1,311 88 1,431 6,831 -

Total 428,386 5,217 1,654 5,135 426,814 -

- The company has head office at Woe-dong, Seongsan-gu and plant at

Daewon-dong, Uichang-gu, Changwon.

- The company has land of 378,708 , whose re-evaluation value amounts to㎡

352,787,000,000 won.

- The future expansion of production capability would be possible without

additional land. With no large scale investment expected, the company is

expecting enhanced price competitiveness in the future through cost

reduction.

d. Plan of purchasing new equipment (Unit: million won)

Location

Period ofinvestment

Objectsfor

investment

Investmenteffect

Totalinvestment

Investmentconductedup to now

Futureinvestment

Remarks

Changwonplant

Jan. 1, 2010-

Dec. 31, 2010

Buildingsandstructures

Extension ofservice period

500 56 444 -

Jan. 1, 2010-

Dec. 31, 2010

Machinery Improvementincompetitiveness and quality

6,000 3,738 2,262 -

Others 4,500 3,473 1,027 -

Total 11,000 7,267 3,733 -

- 29 -

- We plan to purchase production equipment and testing equipment according

to the development project of 1500 HP, KHP project and power train for a

wind power plant as well as to maintain the plant facilities.

5. Sales

a. Sales performance (Unit: million won)

Businesses SalesPeriod 48first half

Period 47 Period 46

Automotiveparts

Domestic 59,066 183,881 153,612

Export 29,660 35,450 37,290

Subtotal 88,726 219,331 190,902

Machine tools

Domestic 18,201 34,003 37,250

Export 3,815 11,666 3,845

Subtotal 22,016 45,669 41,095

Others

Domestic 159,033 175,176 176,133

Export 10,799 27,485 26,883

Subtotal 169,832 202,661 203,016

Total

Domestic 236,300 393,060 366,995

Export 44,274 74,601 68,018

Subtotal 280,574 467,661 435,013

b. Sales network and method

(1) Sales organization

(a) Sales organization :

Sales of automotive parts - Sales and customer service of automotive parts.

Machinery sales - Sales (including export) and customer services of machine

tools and their parts.

Special sales - Sales and export of defence related products.

- 30 -

Overseas sales - Export of automotive parts.

Sales of materials - Sale and export of casting products

(b) Agencies: Eleven for machine tools and eight for automotive parts

(2) Sales network

Businesses Sales network Composition Remarks

Automotive parts

Direct salesSales through agencies

Export

63.2%

3.4%

33.4%

Total 100.0%

Machine tools

Direct salesSales through agencies

Export

45.5%37.2% 17.3%

Total 100.0%

Casting products

Direct salesSales through agencies

Export

94.1%  0.0% 5.9%

Total 100.0%

(3) Terms of payment

(a) Automotive parts: cash or promissory note for payment within 3-4 months.

(b) Machine tools: sales through cash or promissory note.

(c) Casting products : cash or promissory note within 3 months.

c. Sales strategy

a) Vehicle power train

We plan to classify the advanced market by regions and industries. We also

plan to expand the market through invasion of global Big 3 car manufacturers'

markets, diversification of customers, expansion of global marketing,

cooperation with global car makers and reinforced cooperation with the group's

- 31 -

subsidiaries for global marketing, and common development of new products

with subsidiaries.

b) Machine tools

We plan to expand the sales volume through the selection of highly profitable

types of machine tools, increased sales promotion for key types of machine

tools, expansion into markets of large green industrial machine tools for wind

power plants and marine plants, entry into the specialized machine tools

market such as CNC gear machining devices, reinforced cooperative market

with subsidiaries and development of new foreign customers.

c) Materials parts

We plan to make every effort to enter into new markets by developing highly

profitable products such as those for ships or heavy equipment castings as

well as casting products for power generating plants such as wind power

plants. 

6. Getting orders

The sales of our key products are dependent on the volume of short term

orders from car makers. As the change in demand from those industries and

changes in the economic situation are difficult to predict, we are not in a

position to check the order volume and remaining order volumes.

7. Market risks and risk management

a. Key market risks

The commercial vehicle market may be adversely affected by the hike in

prices of diesel fuel and raw materials. With the recession continuing across

the world, the possible stoppage of production by car makers due to strikes

(time off system and wage negotiations) can affect on our sales volume.

 

- 32 -

b. Risk management

We have tried to minimize the risk from exchange rate fluctuations and

realized stable management through improvement of financial structure and

predictable management. We have also adopted several exchange rate

management techniques such as collection of payment and change of the

currencies to minimize the exchange risks.

8. Trading of derivatives

a. Putback option

The Company, as a representative of S&T Consortium, and financial investor,

made a stock sales agreement with Woori Bank, which is the key creditor

bank of S&T Daewoo (former Daewoo Precision Co., Ltd.) for acquisition of

51% of common stocks (4,931,442 shares) and 100% of preferred stocks

(2,764,600) to purchase the S&T Daewoo Co., Ltd. As of the end of first half

year, the financial investor has the following rights of putback options.

Financial

investor

Number of

exercisable stocks

Exercisable

periodExercise price

KDB

Capital

966,949

common shares

from Sept.

13, 2009 to

Sept. 12,

2011

According to the consortium

agreement, the exercise price is

the per share acquisition price

(22,838 won) plus the annually

compounded interest of 3%.

On the other hand, the price of S&T Daewoo as of the end of this half year

was 27,950 won. The fair value of the putback options above as of the end of

the first half is 433,000,000 won (459 won per share).

9. R&D activities

a. Description of R&D activities

We have expanded the investment in engineering personnel in order to develop

the products related to the new growth engine such as the 1500 HP automatic

- 33 -

transmission, gear box for Korean helicopters (KHP), next generation heavy

machine guns and gear boxes for wind power plants. On top of that, we are

developing multi-stage transmission and axles for low height buses for the

improvement of fuel efficiency and the convenience of drivers. We are also

developing the transmissions and axles for the eco-friendly, no pollution

electric car and new commercial vehicles for OEM purchaser as well as the

medium and large sized vertical lathes.

 

b. R&D Organization

See the R&D organization chart

c. R&D expenses

The R&D expenses are as follows.

(Unit: million won)

AccountsPeriod 48first half

Period 47 Period 46 Remarks

Raw materials 717 3,666 2,811

Labor 1,053 2,706 2,872

Depreciation 405 717 115

Outsourcing fee 543 4,945 5,145

Others 139 1,506 3,496

Total in R&D expenses 2,857    13,540 14,439

Accounting

Sales and administrativeexpenses

-         - -

Manufacturing costs 963     1,264 619

Development cost (intangibleassets)

1,894    12,276 13,820

R&D expenses/sales amount[R&D expenses÷Sales amount in current

period×100]1.02% 2.90% 3.32%

- 34 -

d. R&D performances

The recent R&D performances are as follows.

Proje

ct

Instit

uteExpected effects Products

Deve

o p m

e n t

o f

trans

missi

on

Intern

a l

R & D

cente

r

New development of T/M in

preparation for possible domestic

demand and export (OEM).

Mass production of all kinds of transmissions

for EURO-5 and export in compliance with

export requirements (OEM).

Development of T/M in preparation

for new car designed car

manufacturer (OEM).

Completion of the development of middle sized

(LB) proto and development of axles for heavy

duty engines

Entry into market for potential

items

Development of heavy duty multi speeds

transmission (9 speeds transmissions of: T19S9

and T16S & 12 speeds transmission of

T24S12)

Entry into new markets and

increase in sales

Development of transmission specific for 5 ton

truck and development of hybrid gear boxes

for speed increase and speed decrease

Deve

lopm

ent

of

axles

Intern

al

R&D

cente

r

New development of T/M in

preparation for possible domestic

demand and export (OEM).

Mass production of EURO-5 for all kinds of

vehicles and development of axles for heavy

equipment designed by John Deere

Development of T/M in preparation

for new car designed car

manufacturer (OEM).

Development of independent suspension axle

system for low height bus and SUV and mass

production of axles for heavy duty engines

Entry into market for potential

items

Development/mass production of bogie of light

rail, completion of development of Proto for

medium sized bus (LB) and development of

lateral and traverse axles.

Entry into new markets and

increase in sales

Development of axles and axle housing for

dump truck and tractor for export and

development of axles and speed reduction gear

box for electric bus

Deve

lopm

ent

of

mac

hine

tools

Intern

al

R&D

cente

r

Expansion of market shareDevelopment of large CNC vertical lathe

(ST-25/35VC, ST-40/50VC)

Improvement of processing

efficiency and market

competitiveness

Development of CNC vertical lathe

(ST-16/22V(M))

Domestic sales and localization of

imported products

Development of gear grinder (GHO-350A,

GSP-1000, SGM-3500)

- 35 -

10. Other requirements for investment decision making

a. Environment related restrictions

We are subject to environment-related laws and regulations (concerning

air/water and waste). Having acquired the international environment

certification of ISO14001 in Nov. 2005, we have complied with

environment-related laws and regulations. There are no specific matters

concerning the environment as of the date of submitting the business report.

- 36 -

III. Items related to finance

1. Financial summary (Unit: Million Won)

AccountPeriod 48first half

Period 47 Period 46 Period 45 Period 44

[Current assets] 366,806 386,273 273,664 250,831 174,695

Quick assetsㆍ 273,847 305,047 194,948 196,222 122,094

Inventoriesㆍ 92,959 81,226 78,716 54,609 52,601

[Non-current assets] 490,653 485,973 483,524 210,329 263,198

Investmentsㆍ 53,383 50,044 54,636 47,946 101,874

Property, plant andㆍequipment

426,814 428,386 426,875 148,837 146,830

Intangible assetsㆍ 4,971 2,939 1,105 1,249 5,067

Other non-currentㆍassets

5,485 4,604 908 12,297 9,427

Total assets 857,459 872,246 757,188 461,160 437,893

[Current liabilities] 184,972 226,130 168,866 162,551 148,792

[Non-currentliabilities]

88,703 84,822 90,745 39,992 63,180

Total liabilities 273,675 310,952 259,611 202,543 211,972

[Capital stock] 83,684 83,684 83,079 80,664 80,664

[Paid-in capital] 29,658 29,539 21,811 11,162 -

[Capital adjustment] (11,490) (12,800) (30,771) (19,167) (16,737)

[Accumulated othercomprehensiveincome]

219,141 221,450 221,678 (703) (1,874)

[Retained earnings] 262,791 239,421 201,779 186,661 163,868

Total capital 583,784 561,294 497,576 258,617 225,921

Sales 280,574 467,661 435,013 378,219 313,764

Operating income 31,384 50,162 36,040 25,291 20,543

Net income 29,439 41,790 32,057 26,249 27,943

Basic earnings perㆍshare (won)

958 1,468 1,169 901 993

Diluted earningsㆍper share (won)

944 1,427 1,118 864 973

- 37 -

2. Notes to financial information

a. Preparation criteria for preparing the financial information

1. Significant accounting policy

The Company prepares the consolidated financial statements in accordance

with generally accepted accounting principles in the Republic of Korea and

applied the same accounting policies that were adopted for the preparation of

financial statements as of Dec. 31, 2009.

The significant accounting policies followed by the Company in the preparation

of the accompanying consolidated financial statements are summarized below:

(1) Revenue recognition

The Company’s revenue categories consist of goods sold and services

rendered.

Revenue from the sale of goods is measured at the fair value of the

consideration received or receivable, net of returns and allowances, trade

discounts and volume rebates. Revenue is recognized when the significant risks

and rewards of ownership have been transferred to the buyer, recovery of the

consideration is probable, the associated costs and possible return of goods

can be estimated reliably, and there is no continuing Company involvement

with the goods.

Revenue from services provided is recognized by applying the percentage of

completion method when the amount of revenue, the costs incurred, the costs

to complete and stage of completion of the balance sheet date can be reliably

measured, and it is probable that future economic benefits will flow into the

Company.

(2) Allowance for doubtful accounts

Allowance for doubtful accounts is estimated based on an analysis of individual

accounts and past experience of collection and presented as a deduction from

trade accounts and notes receivable.

- 38 -

When the terms of trade accounts and notes receivable (the principal, interest

rate or term) are modified, either through a court order, such as a

reorganization, or by mutual formal agreement, resulting in a reduction in the

present value of the future cash flows due to the Company, the difference

between the carrying value of the relevant accounts and notes receivable and

the present value of the future cash flows is recognized as bad debt expense.

(3) Inventories

The costs of inventories are determined using the weighted average method

for products and goods or moving-weighted average for raw materials and

supplies while materials-in-transit are determined using the specific

identification method. Amounts of inventory are written down to net realizable

value due to losses occurring in the normal course of business and the

allowance is reported as a contra inventory account, while the related charge

is recognized in cost of goods sold. Gains and losses pertaining to physical

inventory adjustments are also included in cost of goods sold. Losses from

evaluation of inventories are deducted form the inventories. The recovery of

evaluation losses on inventories in current period of 637,551,000 won was

deducted from the cost of goods sold while the amount of 58,856,000 won in

the losses of evaluation on inventories in previous period was added to the

cost of goods sold.

(4) Investments in Securities

Upon acquisition, the Company classifies debt and equity securities (excluding

investments in affiliates and joint ventures) into the following categories:

held-to-maturity, available-for-sale or trading securities. This classification is

reassessed at each balance sheet date.

Investments in debt securities which the Company has the intent and ability to

hold to maturity are classified as held-to-maturity. Securities that are acquired

- 39 -

principally for the purpose of selling in the short term are classified as trading

securities. Investments not classified as either held-to-maturity or trading

securities are classified as available-for-sale securities.

A security is recognized initially at its acquisition cost, which includes the

market value of the consideration given and any other transaction costs. After

initial recognition, held-to-maturity securities are accounted for at amortized

costs in the balance sheet and trading and available for-sale securities are

accounted for at their fair values. However, non-marketable securities are

accounted for at their acquisition costs if their fair values cannot be reliably

estimated.

Trading securities are subsequently carried at fair value and indicated with the

quoted price as of the end of period of reporting. In cases where

non-marketable securities can reasonably be estimated with future cash flow

and has the credit rating assessed by an independent credit rating company, it

can be carried at fair value by discounting it with the proper discount rate in

consideration of the company's credit rating. The beneficiary's certificate which

is not marketable is carried at the fair value according to the quoted prices

posted by the fund operating company.

The unrealized gains and losses arising from changes in the fair value of

trading securities are recognized as the current income or fewer items while

cumulative unrealized gains and losses arising from changes in the fair value

of available-for-sale securities are recognized as accumulated other

comprehensive income (loss), net of tax, directly in equity. Held-to-maturity

investments are carried at amortized cost with interest income and expense

recognized in the income statement using the effective interest method.

- 40 -

Management reviews investments in securities whenever events or changes in

circumstances indicate that the carrying amount of the investments may not be

recoverable. Impairment losses are recognized as current income or losses

when the estimated recoverable amounts are less than the carrying amount and

it is not obviously evidenced that impairment is unnecessary.

Trading securities are presented as current assets. Available-for-sale

securities, which mature within one year from the balance sheet date or where

the likelihood of disposal within one year from the balance sheet date is

probable, are presented as current assets. Held-to-maturity securities, which

mature within one year from the balance sheet date, are presented as current

assets.

(5) Equity method investments

Investments in equity securities of companies, over which the Company has the

ability to exercise a significant influence, are recorded using the equity method

of accounting. Under the equity method, the Company records changes in its

proportionate ownership in the book value of the investee in current

operations, as current income or losses (equity method gains or losses), as

adjustments to retained earnings or adjustments to equity capital

(comprehensive gains or losses), depending on the nature of the underlying

change in the book value of the investee.

When the value of investment equity becomes 0due to the accumulated deficit

of investee, the application of equity method is stopped and the value of

investment equity is carried at zero. This is provided that the losses of the

investee are continued to be carried when the company has the investment

related assets over the investee such as preferred stock or long term

receivables.

- 41 -

The excess of the acquisition cost of an investment in an investee over the

Company’s share of the fair value of the identifiable net assets acquired is

amortized using the straight-line method over a period not exceeding 3 years.

When acquisition cost of investments in an investee is less than the Company’s

interest on the fair value of the identifiable net assets acquired, such

difference is recognized using the straight line method as a gain over the

weighted average period of useful lives of the depreciable and amortizable

non-monetary assets. The amount attributable to the non-depreciable assets is

recovered when they are disposed (or expended). Also, the Company’s interest

on the difference between fair value and carrying value of identifiable assets

and liabilities of an investee, at the time of acquisition, is depreciated or

reversed in accordance with accounting policies of related assets or liabilities

of an investee.

When applying the equity method by translating the financial statements of an

investee operating overseas, the Company applies (a) the foreign exchange

rate as of the Company’s period end date of reporting to the investee’s assets

and liabilities, (b) the foreign exchange rate as of the date on which the

Company acquired its equity interest in the investee to the Company’s share of

the investee’s equity interest. After translating into Korean Won, if there is the

difference between the total equity translated with the exchange rate on the

date of acquisition and the amount obtained by deducting liabilities from assets

translated with the exchange rate on the end of reporting period, the amount

relating to the Company’s share of the investee’s equity interest is accounted

for as accumulated other comprehensive income (loss).

The company recognized the amount reflected in the book among the amount

of losses and gains obtained during the transaction between the company and

the investee multiplied by the equity ratio as the unrealized losses or gains.

Any unrealized gains were deducted from the equity method applied investment

- 42 -

equity while the unrealized losses were added to the equity method applied

investment equity.

Unless the balance of equity method applied investments becomes zero and the

equity method is no longer applied, the company makes an accounting in a way

that the net profit and net assets in the financial statements of the holding

company are consistent with the holding company's equity over the net profit

and net assets in the consolidated financial statements as long as the investee

is the company's subsidiary.

(6) Property, Plant and Equipment

The acquisition cost of property, plant and equipment is comprised of its

purchase price or manufacturing costs and any other directly attributable costs

of bringing the assets to the working condition of its intended uses. In case

the assets were acquired through contribution in kind, gift or for free, their

fair values at the time of acquisition will be the fair value. The book value of

assets to be given shall be the fair value of the assets acquired if the assets

are acquired in exchange of the similar type of assets, while the fair value of

the assets to be given will be the fair value of the assets acquired when the

assets were acquired in exchange with the dissimilar types of assets. In this

case, if the fair value of the assets given is uncertain, the fair value of the

assets acquired will be the fair value of the assets acquired.

Expenditures that result in the enhancement of the value or extension of the

useful lives of the facilities involved are treated as additions to property, plant

and equipment while routine maintenance and repairs are expended as

incurred.

Depreciation is computed using the straight-line method, based on the

estimated useful lives of the assets as described below.

- 43 -

Assets Useful lives (year) Assets Useful lives (year)

Buildings 40 Vehicles 5

Structures 20 Tools 5

Machinery 8 Office supplies 5

The interest incurred on borrowings to finance the purchase of construction of

property, plants and equipment and manufacture of inventories are charged to

current income.

The Company assesses any possible recognition of impairment loss when there

is an indication that expected future economic benefits of a tangible asset are

considerably less than its carrying amount as a result of technological

obsolescence or rapid decline in market value. When it is determined that a

tangible asset may have been impaired and that its estimated total future cash

flows from continued use or disposal is less than its carrying amount, the

carrying amount of a tangible asset is reduced to its recoverable amount and

the difference is recognized as an impairment loss.

The company has adopted the reevaluation model according to the revision of

Article 5 (Property, plant and equipment) of Korean Accounting Standards and

applied it to the land to state its value at the fair value at the date of

reevaluation. If the book value of asset is increased due to reevaluation, the

increased value is charged to the Accumulated other comprehensive income.

However, if some of the increase is recognized as the gains before, it is

recognized as the current gains. On the other hand, if the value of assets is

decreased due to the reevaluation, the decreased amount is recognized as the

current losses. If some of the losses are related to the Accumulated other

comprehensive income related to the assets, it is deduced from accumulated

other comprehensive income. According to the interim measure, this accounting

change is gradually applied.

- 44 -

(7) Intangible assets

The costs incurred in relation to the development of new products and new

technologies are recognized as development costs or intangible assets only if it

is probable that future economic benefits that are attributable to the asset will

flow into the entity and the cost of the asset can be measured reliably. In

addition, the expenses related to research activities are charged to sales and

administrative expenses as the account of research expenses.

The development costs charged to the Intangible assets are amortized by

dividing the acquisition cost by 3 years with the residual value of 0 in a

straight line method, starting from the year end when the products related to

the intangible assets can be sold or used. The amortization expenses are

charged to cost of sales or sales and administrative expenses.

Except for the development costs, intangible assets are stated at cost, which

includes acquisition cost, production cost and other costs required to prepare

the asset for its intended use. Intangible assets are stated net of accumulated

amortization computed using the straight-line method and others over the

estimated useful lives as described below.

Category Useful lives

Intellectual property rights 5~10 years

Management assesses the potential impairment of intangible assets when there

is evidence that events or changes in circumstances have made the recovery

of an asset’s carrying value to be unlikely. The carrying value of the intangible

asset is reduced to the estimated realizable value, and an impairment loss is

recorded as a reduction in the carrying value of the related asset and charged

to current operations.

- 45 -

(8) Government subsidy

When the company is subsidized by the Government in acquiring assets, all

funds acquired prior to the acquisition of the assets are stated as a deduction

of other assets and when the related assets are acquired, are carried as the

deduction of the acquired asset.

When the subsidy is granted without meeting some requirements, the subsidy

which is directly related to the sales activities is carried as operating income.

If not, it is carried as non-operating income. If there are any expenses

opposite to it, it is set off with those specific expenses and then the rest is

carried as the current losses or gains.

(9) Accrued Severance Benefits

Employees and directors with at least one year of service are entitled to

receive a lump-sum payment upon termination of their employment with the

Company based on their length of service and rate of pay at the time of

termination. Accrued severance benefits represent the amount which would be

payable assuming all eligible employees and directors were to terminate their

employment as of the balance sheet date. The amount which is larger between

the accrued severance amounts and the amount calculated according to the

Basic Labor Act) are all carried as Accrued severance benefits.

The amount deposited into the severance insurance system which is assured of

paying it to employees is carried as deduction from the accrued severance

benefits.

In accordance with the National Pension Act, a certain portion of the accrued

severance benefits is deposited with the National Pension Fund and deducted

from the accrued severance benefits liability.

- 46 -

(10) Valuation of Receivables and Payables at Present Value

Receivables and payables arising from long-term installment transactions,

long-term cash loans (borrowings) and other similar loans (borrowings)

transactions are stated at present value, if the difference between nominal

value and present value is material. The difference between nominal value and

present value is presented as a present value discount. The present value

discount is amortized using the effective interest method, and the amortization

is included in interest expense or interest income.

When the interest rate and repayment period are changed unfavorably against

the creditor by composition proceedings, reorganization, or liquidation

procedures, or by mutual agreements and the difference between nominal value

and present value is material, the difference is expended using the allowance

for doubtful accounts. The difference between the nominal value and present

value is amortized using the effective interest method, and amortization is

included in interest income.

(11) Translation of foreign currency denominated assets and liabilities

The Company maintains its non-monetary foreign currency denominated assets

and liabilities at the exchange rate when they are borne or acquired. On the

other hand, the monetary foreign currency denominated assets and liabilities

are translated to Korean won using the exchange rate quoted by Seoul Money

Brokerage Services, Ltd. with the gains or losses from translation stated in the

income statement.

For overseas affiliates whose financial statements are prepared in foreign

currency, monetary assets and liabilities are translated at the exchange rate at

the period end date while non-monetary assets and liabilities are translated at

the historical exchange rate.

(12) Stock options

The stock option program allows the Company’s employees and other

- 47 -

customers to acquire shares of the Company for a specified price at specified

times. The Company values equity-settled stock options based on an option

pricing model where the fair value of stock options is measured based on the

fair value of goods or services provided or if not, the fair value of equity

instrument granted and then as an expense and capital adjustment over the

period in which the options vest. If the conditions of granted equity instrument

are too complex to measure its fair value at the date of measuring, its fair

value is measured using the intrinsic value and changes the estimates so that

it ultimately becomes consistent with the quantity of equity goods acquired.

In case of compensation cost for cash settled stock option, the fair value stock

option is measured based on the value of goods or service to be provided or

the liabilities to bear to recognize the compensation expense and liabilities.

The compensation cost for cash-settled stock options is measured each period

based on the current stock price and is recognized as an expense and a

liability over the service period.

(13) Provisions and Contingent Liabilities

A provision is a liability of uncertain timing or amount and shall be recognized

when all of the following conditions are met: 1) An entity has a present

obligation (legal or constructive) as a result of a past event; 2) It is probable

that an outflow of resources embodying economic benefits will be required to

settle the obligation; and 3) A reliable estimate can be made of the amount of

the obligation.

If there is a big difference between the nominal amount and the present value

of provision, the current value of provision is stated which is expected to be

required in order to perform an obligation.

(14) Income tax expense

The income tax expense is calculated by adding or deducting the change in

- 48 -

deferred tax assets or liabilities to and from the tax expenses to be paid.

Income tax expense is determined by adding or deducting the total income tax

and surtaxes to be paid for the current period and the changes in deferred

income tax assets or liabilities. Deferred tax is recognized on differences

between the carrying amounts of assets and liabilities in the financial

statements and the corresponding tax bases used in the computation of taxable

profits. Deferred tax liabilities are generally recognized for all taxable

temporary differences with some exceptions and deferred tax assets are

recognized to the extent that it is probable that taxable profit will be available

against which the deductible temporary difference can be utilized. Deferred tax

assets and liabilities are classified as current or non-current based on the

classification of the related assets or liabilities for financial reporting and

according to the expected reversal date of the specific temporary difference if

they are not related to an asset or liability for financial reporting, including

deferred tax assets related to carry forwards.

(15) Use of estimates

Korea's generally accepted accounting principles require management to make

estimates and assumptions that affect the reported amounts of assets and

liabilities, the disclosure of contingent assets and liabilities at year-end and the

reported amounts of revenues and expenses during the year. Significant items

subject to such estimates and assumptions include useful lives, salvage values

and recovery of property, plant and equipment; recoverability of goodwill and

intangible assets; valuation allowances for receivables, inventories and

realization of deferred income tax assets and fair values of derivatives. Actual

results could differ materially from the estimates and assumptions used.

b. Mergers during last 3 years

The company decided at the board of directors meeting on Sept. 2, 2008 to

merge with S&T Brake Co. Ltd on Nov. 10, 2008 and submitted the merger

- 49 -

filing sheet (or security filing sheet or main report). The objective of the

merger is to actively cope with domestic and overseas management

environments, improve efficiency and get synergistic effect for long term value

improvement. As of the base date of the merger, the assets and liabilities

transferred from the acquired company are 7,099,000,000 won and

3,799,000,000 respectively.

c. Introduction to Korea International Financial Accounting Standard K-IFRS)

We plan to apply the Korea International Financial Reporting Standard (K-IFRS)

from the 2011 fiscal year in preparing financial statements. For this, we have

organized a special introduction team to find out its effect and the introduction

of new accounting system, and train concerned personnel about it. In addition,

we have regularly reported the introduction plan and current situation to the

board of directors and management. The detailed introduction plan and

progress are as follows.

Main activities Plan Progress

Operation of TFT

for introduction of

IFRS

Construction of cooperative

structure between

subsidiaries for the

introduction of successful

K-KFRS.

Final determination of the master

plan for introduction of IFRS in

June 2009 and start of TFT

activities in the 2nd half of 2009

Analysis of effect

of the

introduction of

IFRS and

establishment of

policy

Effect analysis and policy

establishment from the 2nd

half of 2010.

Preparation of accounting

regulation and manuals and

training of staff members

Since May 2010, the company has

been studying the effect of the

introduction of FRS supported by

an external advisory institute, and

educational sessions have been

conducted for employees on its

effect.

Construction of

IFRS system and

calculation of

financial

information based

on IFRS

Calculation of K-IFRS

system, financial

statements and additional

data (including comparative

data) by the 3rd quarter of

2010

The IFRS task force team well

understands the difference

between K-GAAP and K-IFRS. It

now reflects the effect of the

review of the current system and

its effect analysis on its financial

information.

- 50 -

If the company prepares the financial statements based on the current valid

K-IFRS as of Jun. 30, 2010, a significant difference from those based on the

current K-GAAP is expected to appear. The information below shows the

expected differences. These do not encompass all differences and they can be

subject to change after we conduct additional analysis in the future. In

addition, there are cases in which the detailed effect from significant

difference cannot be obtained.

Category K-IFRS K-GAAP

Payroll

for

employe

es

The expected severance

benefits are accrued and

calculated to the present

value payroll by using the

discount rate and actuarial

concept according to the

forecast and prediction

method.

Employees and directors with at least one

year of service are entitled to receive a

lump-sum payment upon termination of their

employment with the Company based on their

length of service and rate of pay at the time

of termination. Accrued severance benefits

represent the amount which would be payable

assuming all eligible employees and directors

were to terminate their employment as of the

balance sheet date.Property

, plant

and

equipme

nt

Evaluation of fair value or

deemed value

Dual adoption of acquisition cost and fair

value (re-evaluation)

Scope of

consolid

ation

The subsidiaries are

subject to consolidation

when the ownership over

them is over 50% and

they are actually

controlled by the

company.

If the company is not subject to Outside

Auditing Act on Stock Company, the company

does not need to prepare consolidated

financial statements.

d. Other notes

Period Description47

first half-

46 -45 The company applied the reevaluation model described in Article 5

(Property, plant and equipment) of revised accounting standard to get the

assets increase of 269,973,000,000 won and deferred corporate tax

liabilities and re-evaluation income of 59,394,000,000 won and

210,579,000,000 won respectively

- 51 -

IV. Opinion of Auditors

a. Auditors

The company is audited by Samjong KPMG Group.

Period 48 first half Period 47 first half Period 46 Period 45

Samjong KPMG Inc. Samjong KPMG Inc. Samjong KPMG Inc. Samjong KPMG Inc.

b. Audit procedure

I reviewed the balance sheets of S&T Dynamics Co, Ltd. (the Company) as of

June 30, 2010, and the related statements of income for 3months and 6 months

then ended, statement of changes in shareholders' equity and statements of

cash flows for 6 months then ended. These financial statements are the

responsibility of the Company's management. Our responsibility is to express

an opinion on these financial statements based on our audits.

I conducted our audits in accordance with auditing standards generally

accepted in the Republic of Korea. Those standards require that we plan and

perform the audit to obtain reasonable assurance about whether the financial

statements are free of material misstatement. The review was mainly

conducted by question and analysis procedure that it only provides a conviction

which is lower in quality than audit. Also as I did not perform an audit, I do

not express my auditor's opinion.

As a result of my review, I did not found out any evidence that the financial

statements above were prepared not in compliance with the Korea's generally

accepted accounting principle.

c. Auditor's opinion

I was reported that balance sheet as of the end of the half year of 2010,

- 52 -

income statements and statements of the appropriations of its retained earnings

and changes in its shareholders' equity and cash flow for 6 months then ended

were prepared in compliance with Korea's accounting audit standard. So, I

express that my opinion on the financial statements above for Period 47 and

46 is "Unqualified".

Period Auditor's opinion Description

48 first half - -

47 Unqualified -

46 Unqualified -

d. Auditing service agreements

The time and fee of the auditing service are as follows. The company did not

make any auditing service contract other than the one below.

(Unit: Korean Won)

Period Auditor Contents FeesRequired time(hours)

48first half

Samjong KPMGOutside accounting

audit75,000,000 350

47 Samjong KPMGOutside accounting

audit70,000,000 930

46 Samjong KPMGOutside accounting

audit60,000,000 906

- The fees are for a year.

d. Internal accounting control system

Based on their review, the auditors confirm that nothing came to their

attention that caused them to believe that the Management Report referred to

above is not fairly stated, in respect of significance, in accordance with the

IACS Framework.

- 53 -

V. Director's management diagnosis and analytical opinion

According to the Standard of Preparing Corporate Disclosure Form, the

company does not prepare V. Director's management diagnosis and analytical

opinion on the quarterly and half year reports.

VI. The company's internal organization such as board of directors

and subsidiaries

1. Board of directors

a. Description of board of directors

The board of directors as of the day when the business report is prepared is

composed of 4 directors (3 standing directors and 1 outside director). The

board of directors makes decisions on the main management policies. For

careers and job descriptions for each director, see Chapter 9 Officers.

b. Main agenda

The main agenda on the board of directors' meeting in the current period were

as follows.

No Date AgendaPassed orrejected

Outsidedirector

1 Jan.25,2010Approval of 2009 balance sheets andincome statements.

Passed Attended

2 Jan.26,2010 Cash dividends. Passed Attended

3 Feb.03,2010Call of No. 47 ordinary generalstockholders' meeting.

Passed Attended

4 Feb.24,2010Mnutes of ordinary general stockholders'meeting.

Passed Attended

5 Apr.29,2010Extension of validity period of letter ofcredit.

Passed Attended

c. Director's independence

- 54 -

The company discloses all information on directors if any directors (including

outside directors) are to be elected at the general meeting of stockholders so

that all can get independence from others. The disclosed information includes

who recommended the director, his relationship with the largest shareholder,

and his transaction with the company.

2. Auditing system

a. Auditing

The company has no auditing committee as of the date when the report is

submitted. One auditor (Mr. Choi, Hong-gyu) is in charge of auditing of the

company. He was elected through a resolution at a general meeting of

stockholders.

The auditor can supervise the director's works independently by attending the

board of directors and ask the related department to submit the related books

and document. If required, he can get a briefing on the company's

management, and can access the management information in the proper way.

For more details on the auditor, see Chapter 9 officers.

b. Main activities of auditor

The auditor has conducted the following activities.

No. Date AgendaPassed or

rejectedRemarks

1Jan.25,

2010

Aproval of 2009 balance sheets and

income statements.Passed -

2 Jan.26,2010 Cash dividends. Passed -

3 Feb.23,2010Call of No. 47 General Stockholders'

MeetingPassed -

4 Feb.24,2010Minutes of ordinary general stockholders'

meeting.Passed -

5 Apr.29,2010Extension of validity period of letter of

credit.Passed -

- 55 -

3. Exercise of voting rights by shareholders

There was no exercise of the right of minority shareholders' right and

management battle for control over the company during the period of

disclosure. For the exercise of the shareholder's voting right, see the Article

of Incorporation attached to the business report which is already disclosed.

4. Subsidiaries

a. Subsidiaries

1) The company is a subsidiary of S&T Group. As of Jun. 30, 2010, the S&T

Group has 5 listed companies and 17 non-listed companies.

Listed

companies (5)Unlisted companies (17)

S&T Holdings,

S&T Dyanamics,

S&T Corporation,

S&T Daewoo,

S&T Motors

S&T Federation of Savings Bank, S&T Canberra Hotel, S&T

Solution, S&T Electronics, KMJ-Tech, S&TAMT, Guanzhou S&T

Co., Ltd. China, Senyang Jinbei-Tongil Automotive System Co.,

Ltd., Qingdao S&T Co, Ltd., China, S&T America Ltd, Yentai

Daewoo Precision Industries Co, Ltd. China, Hyosung Motors

America Inc, S&T Polska Sp, S&T Daewoo Automotive

Components(Kunshan) Co., Ltd. S&T Daewoo India Private Ltd,

Jianshu hwasung Automotive Components Co., Ltd. China , S&T

Automotive Mexico.

 2) The mutual investments between subsidiaries are as follows.

(Feb. 28, 2010) (Unit: %)

- 56 -

Holdingcompany

Subsidiary Share Remarks

S&THoldings

S&T Dyanamics 29.78%

S&T Daewoo 37.81%

S&T Corporation 32.32%

S&T Motors 33.44%

S&T Holdings 55.00%

S&TDynamics

S&T Daewoo 6.04%

S&T AMT 100.00%

Qingdao S&T Co, Ltd., China 100.00%

Senyang Jinbei-Tongil AutomotiveSystem Co., Ltd.

51.00%

Jiangshu HwasungmotiveComponents Co., Ltd. China

100.00% S&T AMT owns 100%.

S&TDaewoo

S&T Electronics 100.00%

KMJ-Tech 100.00%

Guanzhou S&T Co., Ltd. China 100.00%

S&T America Ltd 100.00%

Yentai Daewoo Precision industriesCo, Ltd. China

100.00%

S&T Polska Sp 100.00%

S&T Daewoo AutomotiveComponents(Kunshan) Co., Ltd.

100.00%

S&T  Daewoo India Private Ltd 100.00%

S&T Automotive Mexico 100.00%

S&T Motors Hyosung Motors America Inc 80.00%Including equityowned by relatedparty

Choi,Pyeong-gyu

S&T Holdings 57.28%

S&T Federation of Savings Bank 100.00%

Canberra Tourism Co., Ltd. 95.55%Including equityowned by relatedparty

b. Investee

The company has invested in 9 companies including associates and others for

the purpose of investment and management control. The securities invested in

- 57 -

the company over which the company gets significant control are stated using

the equity method while others are classified into the available-for-sale

securities. The investments in other companies by the company are as follows

as of June 30, 2010.

[Jun. 30, 2010) (Unit: share, million won, %)

Company

Purposeofinvestment

Beginning balanceIncrease(decrease)

Endingbalance

Financialstate inlast fiscalyear

Quantity

Shares

Bookvalue

Acquisition(disposal)

Lossesandgainsfromevaluation

Quantity

Share

Bookvalue

Totalassets

Netincome

Quantity

Amount

DoosanCapitalCo., Ltd.

Tradingforprofit

1million

55,000

- - -1mill.

55,000

2,074,426

1,262

Kyungnam

Newspaper

〃1,738

0.07 6 - - -1,738

0.07

6 - -

KoreaAutoIndustries Corp.Association

〃 108 1.59 6 - - - 1081.59

6 - -

CapitalGoodsDeduction

Association

〃7,800

1.691,930

- - 297,800

3.11

1,959

- -

SsangyongMotors

"656,169

-4,921

-437,446

--1,859

218,723

0.63,062

1,388,474

-346,270

S&TDaewoo

Participation inmanagement

883,851

6.0421,537

- - 2,064883,851

6.04

23,601

707,839

8,822

- 58 -

S&T AMT "111,000

100 1,322 - - 317111,000

100

1,639

- -

QingdaoS&T Col,Ltd.,China

" - 100 - -3,817

-974 -100

2,843

- -

SenyangJinbei-TongilAutomotive

SystemCo., Ltd.

〃 - 5115,262

- - -61 - 5115,201

37,409

77

Total - -49,984

-437,446

3,817

-484 -53,317

-

- As Ssanyong Motors reduced its capital 3 to 1 ratio on Jan. 17, 2010, the

number of shares owned as of Feb. 28, 2010has changed from 656,169 to

218,723.

- Qingdao S&T Co., Ltd., China was subject to the equity method from the

current period. So, its shares were reclassified to equity investment, and the

losses on valuation of equity investment were computed.

- 59 -

VII. Stockholders

a. Shares owned by the largest shareholder and its special related parties

S&T Holdings and its special related parties own 30.18% of the company's

issued shares. S&T Holding, the largest shareholder, owns 9,670,441 with an

ownership percentage of 29.78% while Park Jae-seok and Hong, Young-gi

have80,007 and 48,702 respectively. The details are as follows.

(July. 31, 2010) (Unit: share, %)

Name

Relation

Kindofshare

Number of shares owned (portion)

Cause ofchange

BeginningIncrease

Decrease

Ending

Number ofsharesowned

Percentageofownership

Number ofsharesowned

Percentageofownership

Number ofsharesowned

Percentage ofownership

S&THoldings

Largestshareholder

Commonstock

9,670,441

29.78 - -9,670,4

4129.78 -

ParkJae-seok

Officer

Commonstock

80,000 0.25 - - 80,007 0.25

Purchasingthroughstock

exchange

Hong,Young-gi

Officer ofsubsidiary

Commonstock

18,152 0.06 30,550 - 48,702 0.15Exercising ofstock options

계Commonstock

9,768,600

30.09 30,550 -9,799,1

5030.18

- 60 -

b. Description of the largest shareholder

S&T Holdings, the largest shareholder is a holding company which has

controlling power over its subsidiaries. The largest shareholders are as follows

as of the end of the reporting period.

- Address (head office): 853-5 Oidong, Seongsan, Changwon, Gyeongnam

- It has 5 registered officers (3 inside directors, 1 outside director and 1

auditor) as follows.

Title (standing ornon-standing)

Name Career Job

Representativesdirector/chairman(Standing)

ChoiPyeong-gyu

Chairman of S&T Group.

Presiding directorin board of

director meeting(Representativedirector)

Director(standing)Park

Jae-seok

Representative director/president of S&T Dynamics.Co., Ltd

Management

Director(standing)

KimDo-hwan

Legal Team of WooriInvestment and Securities. - Lawyer

Planning

Outside director(non-standing)

Geum,Nan-sae

Director of GyeonggidoPhilharmonic Orchestra

Outside director

Auditor (standing)Kim,

Chi-geolLawyer Auditor

- The largest shareholder for S&T Holding as of June. 30, 2010 is Cho,

Pyeong-gyu who owns 57.28% of total equity with the related parties having

7.51%.

- As of December 31, 2009, the assets of S&T Holdings are 398,373,000,000

Won while its liabilities and stockholders' equity (stock equity) are

36,625,000,000 Won and 361,748,000,000 Won (7,662,000,000 Won)

respectively.

- The sales (sales revenues) in 2009 are 31,729,000,000 won while operating

income and net income are 21,542,000,000 won and 17,114,000,000 won

respectively.

- 61 -

c. Changes in largest shareholders

The changes in the equity of the largest shareholder are as follows.

(Unit: share, % )

Largestshareholder

Date of changeof equity

Number of sharesowned

Percentage ofownership

Remarks

S&T Holdings(including

related parties)

July. 07, 2010 9,799,150 30.18 -

Apr. 20, 2010 9,785,448 30.13 -

Dec. 23, 2009 9,768,600 30.08 -

July. 17, 2009 9,767,960 30.08 -

- The number of shares owned is prepared by including shares owned by the

largest shareholder and its related parties. For more details, see the shares

owned by the largest shareholder and its related parties.

d. Ownership of shares

1) Shareholders having 5% or more of the number of outstanding shares as of

Aug. 10, 2010 are as follows.

[ Aug. 10, 2010 ] (Unit: share, %)

No.Shareholder

s

Common stock Preferred stock Subtotal

Number ofsharesowned

Percentageof

ownership

Number ofsharesowned

Percentage ofownership

Number ofsharesowned

Percentage of

ownership

1

AllianzGlobalInvestorsKoreaLimited

3,467,563 10.68 - - 3,467,563 10.68

2NationalPensionFund

2,391,232 7.36 - - 2,391,232 7.36

3

UBS HanaAsset

Management Co., Ltd.

2,035,840 6.27 - - 2,035,840 6.27

Total 7,894,635 24.31 - - 7,894,635 24.31

- 62 -

- The number of shares owned by Samsung Asset Management was reduced

from 5.18% (1,683,127 shares) to 4.16% (1,349,684 shares) on Aug. 6, 2010.

Therefore, it was removed from the group of shareholders having shares of

5% or more.

e. Minority shareholders

The company's minority shareholders are as follows. (Dec. 31, 2009)

CategoryNumber ofshareholders

Percentageof number ofshareholders

Number ofshared owned

Percentage ofshareholders'ownership

Remarks

Total 5,808 99.67 13,047,107 40.18

Minorityshareholders(corporate)

362 6.21 8,327,242 25.64

Minorityshareholders(individual)

5,446 93.46 4,719,865 14.54

f. Stocks

The followings are about the stock options and other stock related works

specified in the Article of Incorporation.

Stock

option in

articles of

incorporati

on

Article 9 (Preemptive rights)

New shares to be issued by the Company shall be allocated to the①shareholders in proportion to their respective number of shares.

Notwithstanding the above Paragraph 1, new shares may be allocated to②persons other than shareholders in the following cases:

1. If the Company issues new shares or causes underwriters to underwritenew shares within 50% of the number of shares issued and outstandingshares.

2. If the Company issues new shares by public offering within 50% of thenumber of shares issued and outstanding shares according to Article165-6 of the Capital Market & Financial Investment Business Act.

3. If the Company allocates new shares preferentially to members of theEmployee Stock Ownership Association according to Article 165-7 of theCapital Market & Financial Investment Business Act.

4. If new shares are issued by the exercise of stock options in accordancewith Articles 340-2 and 542-3 of the Commercial Act.

5. If the Company issues new shares for the issuance of depositaryreceipts (DR) not exceeding 30% of the number of shares issued andoutstanding shares according to Article 165-16 of the Capital Market &Financial Investment Business Act.

- 63 -

6. If the Company issues new shares to the extent of 40% of the total

issued and outstanding shares, to foreign investors to obtain financing

urgently, or to induce technology there from, etc. according to the Foreign

Investment Promotional Act.

When the new shares are issued according to , 1, 2, 4 and 6. The③ ②

kinds and number of shares to be issued and the issue price.

If shareholders waive or lose their preemptive right to new shares issued④

or if there are fractional shares at the time of allocation of new shares,

such shares may be handled by a resolution of the Board of Directors.

Article 9-2 Preemptive Rights

The Company may grant stock options to its officers and employees①

(including officers and employees of related companies as specified in

Article 9 of the Enforcement Decree of Commercial Act) within 15% of the

number of shares issued and outstanding shares by a special resolution of

the general meeting of shareholders; provided, however, that the Company

may grant the stock options to its officers and employees (except for the

directors of the Company) by a resolution of the Board of Directors within

3% of the number of shares issued and outstanding shares.

When the stock options are granted by the resolution of the Board of

Directors, the granting shall be approved by a resolution of the general

shareholders' meeting held first after granting. If the stock options are

granted by a resolution of the board of directors or the general

shareholders' meeting, they could be granted in a way that the profit can

be related to the satisfaction of management target or the market index.

The persons to whom stock options may be granted are the officers②

and employees who have contributed or have the capacity to contribute to

the establishment, management, overseas business, technical innovation,

etc., of the Company

The shares to be issued to the officers or employees by the exercise of③

their stock options (in case the Company pays, either in cash or treasury

shares, the difference between the exercise price of stock options and the

market price, they refer to the shares which are the basis for such

calculation) shall be determined among the kinds of shares described in

Article 7 by a resolution of the general shareholders' meeting or the board

of directors meeting.

The stock options may be granted to officers and employees working at④

the company when they are granted. The stock options granted to one

officer or employee shall not exceed 5% of the number of shares issued.

The exercise price of the stock option for a share shall be more than⑤

either of the prices below.

1. In case when the new shares are issued, the larger price of

a. the real price of a share as of the day of granting of the stock option

b. the face value of a share.

- 64 -

resolution of the general shareholders' meeting held first after granting. If the

stock options are granted by a resolution of the board of directors or the

general shareholders' meeting, they could be granted in a way that the profit

can be related to the satisfaction of management target or the market index.

The persons to whom stock options may be granted are the officers and②

employees who have contributed or have the capacity to contribute to the

establishment, management, overseas business, technical innovation, etc., of

the Company

The shares to be issued to the officers or employees by the exercise of③

their stock options (in case the Company pays, either in cash or treasury

shares, the difference between the exercise price of stock options and the

market price, they refer to the shares which are the basis for such

calculation) shall be determined among the kinds of shares described in

Article 7 by a resolution of the general shareholders' meeting or the board

of directors meeting.

The stock options may be granted to officers and employees working at④

the company when they are granted. The stock options granted to one

officer or employee shall not exceed 5% of the number of shares issued.

The exercise price of the stock option for a share shall be more than⑤

either of the prices below.

1. In case when the new shares are issued, the larger price of

a. the real price of a share as of the day of granting of the stock option

b. the face value of a share.

2. When the treasury stock is given, the real price of a share as of the date

of granting.

The stock option can be exercised from the third year after date of⑥

resolution described in 1 above but within 7 years.

The person to whom a stock option is granted should have served the⑦

Company for at least two (2) years after the date of such resolution but

within 7 years.

However, if the person who is granted with stock options dies within 2 years

after the date of resolution described in 1 above or retires due to age limit

or resigns for reasons which are attributable to his/her own fault, he/she

can exercise the stock option within the exercise period.

The provision of Article 9-3 applies to new issues by the exercise of⑧

stock options as far as the profit dividend is concerned..

The Company may cancel the granting of stock options by a resolution⑨

of the Board of Directors in any of the following cases:

1. In case the option grantees voluntarily retire from their office

or leave the Company after the grant of stock options

2. In case the option grantees cause substantial damage to the

Company due to their willful misconduct or negligence;

- 65 -

3. The company is not in a position to accept the request for exercise

of stock option due to the bankruptcy or dissolution of the company.

4. In case any of the causes for cancellation set forth in the stock

option agreement occurs.

Article 9-3 Base date for dividend for new issues

When the company issues new shares due to the rights issue, bonus

issue or stock dividend, the new issues are presumed to have been

issued on the end date of the previous fiscal year as far as the

dividend is concerned.

Closing date Dec. 31Periodic general shareholders'

meetingwithin 3 months

Book Closure and

Record Datefrom Jan. 1 to Jan. 31 every year

Share certificates 8 types: 1 share, 5 shares, 10 shares, 50 shares, 100 shares,

500 shares, 1,000 shares and 10,000 shares.

Transfer Agent Korea Securities Depository

Special benefits to

stockholdersNone Public notice

Hankuk Economic

Newspaper

g. Stock price and turn over

(Unit: Won, share)

Kind Jan Feb Mar Apr May June

Commonstock

High 16,460 14,600 16,150 16,050 17,550 19,400

Low 13,650 12,550 14,000 14,000 14,500 15,850

Monthlyturnover

4,266,985 2,239,207 2,764,797 3,406,025 7,054,531 4,169,360

- 66 -

VIII. Officers and employees

1. Officers and employees

a. Officers

The company has 16 officers composed of 5 registered officers and 11

unregistered officers. The officers are as follows.

1) Officers

(Unit: share)

Title(standing ornon-standing)

Registration

Name

Dateofbirth

Career Job

Number ofshared owned

RemarksCommonstock

Preferredstock

Director(Standing)

Registered

ChoiPyeong-gyu

Sept.5,2952

- KyungheeUniversity - Emeritus doctorof Sejong University - Chairman of S&TC. - Chairman of S&TGroup.

Presidingdirector inboard ofdirectormeeting(chairman)

0 0 Appointedon

(Mar. 26,2003).

Extended onMar. 20,2009

Representativedirector(standing)

Registered

ParkJae-seok

Nov.27,1959

- Yonsei University - Daewoo Group. - Director of GreenCross Corp. - Vice president ofS&T Dynamics. Co.,Ltd.

C E O(President)

80,007 0 Appointedon Feb. 19,2005

(Extendedon Mar. 20,2009)

Director(standing)

Registered

KimDo-hwan

FEb. 7,1972

- SungkyunkwanUniversity - Legal Team ofWoori Investmentand Securities. - Lawyer

Insidedirector

0 0 Appointedon Mar. 20,2009

Auditor(standing)

Registered

Cho,Hong-gyu

Mar.15,1947

- Konkuk Univ. - Teacher ofChanguyeongJonghap HighSchool - Non-standingdirector ofSamyoung Co., Ltd.

Standingauditor

0 0 Appointedon Mar. 26,2003

(Extendedon Mar. 20,2009)

- 67 -

Outsidedirector(non-standing)

Registered

Ahn,Cheon-hak

Apr.20,1935

- Kyunghee Univ. - Managing directorof SsangyongCement - President ofSsangyong HeavyIndustries. - President ofHanjung Co., Ltd.

Outsidedirector

0 0 Appointedon Feb. 21,2004

(Extendedon Feb. 24,2010)

Executiveofficer(standing)

Unregistered

Kim,Young-deok

Aug.16,1953

- Doctor ofMechanicalEngieering, SeoulNational Univ. - National Defenseand Science Institute

C T O(Vice

president)

0 0 -

Executiveofficer(standing)

Unregistered

Hong,Ki-bong

Sept.21,1953

- Director of TongilHeavy Industries

Specialbusinessteam

(Executivedirector)

7,840 0 -

Executiveofficer(standing)

Unregistered

Choi,Jong-seong

Jan.17,1959.

- MechanicalEngineering, YonseiUniv. - Daewoo Motors

Leader invehicledept.

(managingdirector)

5,114 0 -

Executiveofficer(standing)

Unregistered

Kim,Su-yeop

May. 9,1956

- Yeungnam Univ. - Gen. manager ofTongil HeavyIndustry. Co. Ltd. - Leader in vehicledepartment of S&TDynamics

Leader inR&D dept.(director)

4,408 0 -

Executiveofficer(standing)

Unregistered

Kim,Gwon-jung

Mar. 3,1960

- Yonsei Univ. - Daewoo Telecom. - President ofTianjin DaewooTelecom.

Overseasbusiness(director)

3,470 0 -

Executiveofficer(standing)

Unregistered

Kim,Gyeong-seok

Oct.17,1959

 - MechanicalEngineering ofHanyang Univ. - Rotem

R&D(director)

1,528 0 -

Executiveofficer(standing)

Unregistered

Lee,Gyeong-sik

Nov.26,1957

- MechanicalEngineering ofBusan National Univ. - Hyundai HeavyIndustries

R&D(director)

1,760 0 -

Executiveofficer(standing)

Unregistered

Lee,Young-gil

Nov. 6,1960

- MechanicalEngineering ofKyungnam Univ. - Gen. manager ofS&T Dynamics

OverseasbusinessP.M

(Director)

3,610 0 -

- 68 -

Executiveofficer(standing)

Unregistered

Jung,Un-sik

Jul.5,1952

- Changwon JuniorCollege - Director of S&TC - Director of S&TMotors

Financialplanning(Director)

1,578 0 -

Executiveofficer(standing)

Unregistered

Joh,Yong-man

Dec.19,1962

- Law Dept. ofKyungnam Univ. - General managerof S&T Dynamics.

H/R(Director)

0 0 -

Executiveofficer(standing)

Unregistered

Jung,Eun-sik

Aug.22,1960

- Mechanical Deptof Busan NationalUniv. - General mangerof S&T Dynamics

Mechanicaldept. P.M(Director)

0 0 -

- The number of shares owned is based on data as of July 31, 2010.

2) Officers working for other companies

Title Name Companies Remarks

ChairmanChoi

Pyeong-gyu

S&T HoldingsRepresentativedirector

S&T CorporationRepresentativedirector

S&T Daewoo Director

S&T Federation of Savings Bank Director

S&T Canberra Hotel Director

Senyang Jinbei-Tongil AutomotiveSystem Co., Ltd.

Director

S&T Electrics Director

Hyosung Motor America Inc Director

Representative director

ParkJae-seok

S&T Holdings Director

S&T Daewoo Director

Senyang Jinbei-Tongil AutomotiveSystem Co., Ltd.

Director

Qingdao S&T Co, Ltd., China Director

S&T Electrics Director

S&T Solution Director

DirectorKim

Do-hwan

S&T Holdings Director

S&T Corporation Director

S&T Motors Director

S&T AMT Auditor

- 69 -

b. Employees

The company has 1,186 employees as of June. 30, 2010. Their average

service year is 20.3 and their annual wage and average wage are as follows.

(Unit: person, 1,000 won)

Category

Number of employees Averageserviceyear

Totalannualwages

Averagewage pera person

Remarks

Administrative

Production

Others Total

Male 327 800 14 1,141 20.6 22,095,207 19,365

Female 29 14 2 45 12.4 610,642 13,570

Total 356 814 16 1,186 20.3 22,705,849 19,145

2. Remuneration for officers

a. Remuneration of officers

The limit of remuneration to be paid to the directors is determined by a

resolution of the general meeting of shareholders; it was 1 billion won for

directors in Period 48. The remunerations paid in Period 48 are as follows.

                                                                  (Unit: won)

Category Total paymentLimit approved at thegeneral shareholders'

meeting

Averageremuneration

Remarks

Director 254,450,040

1,000,000,000

84,816,680 -

Outsidedirector

20,150,000 20,150,000 -

Auditor 57,450,000 150,000,000 57,450,000 -

- The above is based on the registered officers.

- 70 -

b. Granting and exercise of stock options

The company has granted stock options to its officers and employees 7 times

from July 28, 2004 to Feb. 18, 2006. As of Jul. 31, 2010, the company gave

2,570,500 shares due to the exercise of stock options by employees. The

unexercised number of shares amounts to 445,500. The detailed granting and

exercise of stock options are as follows.

Grantee

Status

Dateofgranting

Grantingmethod

Typeofstock

Change in number

Unexercised

Period ofexercise

Exercise priceGrante

dExercises

Cancelled

ParkJae-seok

Registeredofficer

Jul.28,2004

Treasurystock

Commonstock

40,000 2,600 037,40

0

July 28,2006 toJuly 27,2013

2,900

Hong,Ki-bong

Unregisteredofficer

Jul.28,2004

Treasurystock

Commonstock

20,000 2,600 017,40

0

July 28,2006 toJuly 27,2013

2,900

Kim,Su-yeop

Unregisteredofficer

Feb.21,2005

Treasurystock

Commonstock

20,000 5,800 014,20

0

Feb. 21,2007.to Feb.20,2014.

4,000

Kim,Gwon-jung

Unregisteredofficer

Feb.21,2005

Treasurystock

Commonstock

20,000 4,500 015,50

0

Feb. 21,2007.to Feb.20,2014.

4,000

Ahn,Cheon-hak

Registeredofficer

June3,2005

Treasurystock

Commonstock

20,000 2,300 017,70

0

Jun. 3,2007 toJun. 2,2014

5,100

[Base date: Jul. 31, 2010] (Unit: share, won)

- 71 -

Choi,Jong-seong

Unregisteredofficer

Feb.18,2006

Treasurystock

Commonstock

20,000 6,600 013,40

0

Feb. 18,2008 toFeb. 17,2015

6,100

JoGeon-heeand1,181others

- -Treasurystock

Commonstock

3,074,000

2,546,100

198,000

329,900

- -

Total - - -3,214,000

2,570,500

198,000

445,500

IX. Transaction with related parties

Non applicable

- 72 -

X. Matters required to protect investors

a. Progress of main management items

Dateoffiling

Title Description Progress

Apr.

15,

2009

Business

diversificatio

n by

independent

development

of power

train for

wind power

plant

Development◆

- Development and production of 750KW rotor hub

since 2008

- Development of 1.65~2 MW class gearbox

housing and cover as requested by companies in

Germany and Finland and sample products are

now under test.

- Advanced large machine tool for processing

wind power gear box is now under development

- Basic design and detailed design completed.

Products under development◆

- Main products: power trains for wind power

including gear box (speed increasing) for wind

power generation, pitch gear box, hydraulic braking

device, and heat exchanger.

- Method of development: our own design and

testing

- Plan to roll out new large power train products

of 2 MW to 5 MW in 2011.

Expected investment◆

- R&D and facility investment: 30 billion won

(stage by stage investment up to 2013)

Under

progress

- 73 -

b. Minute of general stockholders' meeting

Date AgendaPassed or

rejectedRemarks

General

stockhold

ers'

meeting

for

Period 47

(Feb. 24,

2010)

Agenda 1: Approval of financial statements

          (Cash dividend of 200 won per share)

Agenda 2: Appointment of a director

          (Mr. Ahn, Cheon-hak, outside director)

Agenda 3: Approval of remuneration limit for

directors ( from 500,000,000 won to 1 billion won)

Agenda 4: Approval of remuneration limit for

auditor (150,000,000 won the same as previous

period)

                 

Passed as

proposed

General

stockhold

ers'

meeting

for

Period 46

(Mar. 20,

2009)

Agenda 1: Approval of financial statements

          (Cash dividend of 150 won per share)

Agenda 2: Partial change in Articles of

Incorporation

Agenda 3: Approval of directors (Cho Pyeong-gyu,

Park Jae-seok and Kim Do-hwan)

Agenda 4: Appointment of auditor (Choi Hong-gyu)

Agenda 5: Approval of remuneration limit for

directors ( 500,000,000 the same as before)

Agenda 6: Approval of remuneration limit for

auditor (150,000,000 won the same as previous

period)

Passed as

proposed

General

stockhold

ers'

meeting

for

Period 45

(Feb. 29,

2008)

Agenda 1: Approval of financial statements

          (Cash dividend of 150 won per share)

Agenda 2: Approval of directors (Hong Young-gi

and Ahn Cheon-hak)

Agenda 3: Approval of remuneration limit for

directors ( 500,000,000 the same as before)

Agenda 4: Approval of remuneration limit for

auditor (150,000,000 won the same as previous

period)

Passed as

proposed

- 74 -

c. Important lawsuits

As of the end of the period, the company is undergoing 5 proceedings of

lawsuits (1 case worth 20,000,000 won as a plaintiff and 5 cases worth

908,000,000 won as a defendant). How the lawsuits will end is unpredictable

for now.

Use of proceeds from public offerings

Category

Date ofdeposit

Amount ofdeposit

Planned application of fundaccording to filed sheet

Actual use of fund

- -- - -

- Non applicable

(Unit: won)

- 75 -

XI. financial statements

Balance Sheet

Accounts FY 2010 FY 2009 FY 2008

Assets      

.Current AssetsⅠ 366,805,667,922 386,272,613,698 273,663,779,222

 (1)Quick Assets 273,847,141,606 305,047,188,326 194,947,844,256

 1.Cash and CashEquivalents 108,232,511,797 82,546,590,050 64,548,965,306

 Government Subsidy for Cash and Cash Equivalents

(284,373,904) (61,539,250) (9,842,617)

 2.Short-term Financial Instruments 18,300,000,000 84,300,000,000 14,380,898,426

 3.Trade Receivable 141,743,673,420 131,314,671,352 122,062,189,106

 Allowance for Doubtful Accounts for Trade Receivables

(12,725,786,741) (11,132,415,709) (11,391,084,317)

 4.Other Receivables 3,672,620,531 4,034,058,381 125,939,293

 Allowance for Doubtful Accounts for Other Receivables

(91,142,479) (54,206,326) (89,595,106)

 5.Accrued Income 545,111,006 844,123,969 119,982,380

 6.Advance Payments 10,299,914,610 11,326,670,830 2,515,940,907

 7.Prepaid Expenses Total 1,465,273,197 294,975,946 517,069,791

 8.Deferred Income Taxes Assets Current 2,689,340,169 1,634,259,083 2,167,381,087

(2)Inventories 92,958,526,316 81,225,425,372 78,715,934,966

 1.Merchandises 1,029,400,000 0 21,000,000

 2.Finished Goods 24,052,063,866 25,152,836,539 22,747,680,246

 Allowance for Loss on Valuation of Finished Goods

0 0 (274,368,575)

 3.Works in Process 30,219,810,759 27,756,575,108 26,417,823,451

As Of    06/30/2010

As Of    12/31/2009

As Of    12/31/2008

(Unit : Won)

- 76 -

 Allowance for Loss on Valuation of Works in Process

0 0 (141,006,495)

 4.Raw Materials 30,288,710,817 21,897,337,330 22,508,094,671

 Allowance for Loss on Valuation of Raw Materials

0 0 (222,175,601)

 5.Supplies 307,042,918 308,803,138 307,120,986

 6.Goods in Transit 7,061,497,956 6,109,873,257 7,351,766,283

.Non-current AssetsⅡ 490,653,025,354 485,973,459,968 483,523,747,622

 (1)Investment Assets 53,382,646,016 50,043,871,804 54,635,945,082

 1.Long-term Financial Instruments 6,000,000 6,000,000 6,000,000

 2.Long-term Investment in Securities 10,093,647,111 11,917,398,328 6,047,206,711

 3.Equity Method Securities 43,282,998,905 38,120,473,476 48,582,738,371

 (2)Property, Plant and Equipment 426,814,320,329 428,386,118,708 426,875,405,777

 1.Land 352,787,496,000 352,787,496,000 352,787,496,000

 2.Buildings 58,172,695,805 58,172,695,805 57,574,789,972

 Accumulated Depreciation for Buildings (23,319,447,978) (22,422,455,426) (20,637,518,331)

 3.Structures 12,178,111,597 12,121,611,597 11,760,008,597

 Accumulated Depreciation for Structures (7,161,512,835) (6,904,544,081) (6,396,290,575)

 4.Machinery 127,531,651,045 126,922,367,956 119,400,498,862

 Accumulated Depreciation for Machinery(100,547,580,029

)(99,644,858,491) (95,450,869,522)

 5.Vehicles 1,985,019,298 1,873,101,698 1,880,145,089

 Accumulated Depreciation for Vehicles (1,643,206,691) (1,559,487,225) (1,449,685,490)

 6.Tools 16,825,974,860 15,818,971,874 13,017,409,265

 Accumulated Depreciation for Office Equipment

(11,466,625,352) (10,298,333,726) (8,087,894,624)

 7.Office Equipment 4,100,022,906 3,878,185,806 3,572,890,556

 Accumulated Depreciation for Tools (2,810,013,062) (2,547,941,296) (2,012,528,301)

 8.Construction in Progress 0 0 188,854,218

 9.Machinery in Transit for Property Plant and Equipment

57,601,791 65,175,243 603,967,087

 10.Timberlands for Property Plant and Equipment

124,132,974 124,132,974 124,132,974

 (3)Intangible Assets 4,970,744,871 2,938,755,667 1,104,704,607

 1.Industrial Property Rights 37,015,796 35,229,973 20,353,635

- 77 -

 2.Development Costs 4,893,373,254 2,999,663,827 1,179,508,355

 Government Subsidy for Development Costs

(244,543,479) (96,138,133) (95,157,383)

 3.Computer Software 284,899,300 0 0

 (4)Other Non-current Assets 5,485,314,138 4,604,713,789 907,692,156

 1.Long-term Trade Receivables 4,757,226,524 4,757,226,524 0

 Allowance for Doubtful Accounts for Long-term Trade Receivables

(1,451,428,532) (1,600,557,891) 0

 2.Deposits Provided 2,156,454,646 1,424,983,656 814,630,656

 3.Others in Other Non-current Assets 23,061,500 23,061,500 93,061,500

Total Assets 857,458,693,276 872,246,073,666 757,187,526,844

Liabilities      

.Current LiabilitiesⅠ 184,972,428,014 226,130,155,266 168,865,968,492

 (1)Trade Payable 101,926,957,756 97,732,375,842 74,483,325,907

 (2)Short-term Borrowings 10,000,000,000 60,000,000,000 45,000,000,000

 (3)Other Payables 7,659,339,948 4,836,930,820 3,198,981,907

 (4)Advance for Customers 45,971,905,911 45,337,096,026 24,026,971,097

 (5)Withholdings 1,141,993,353 1,321,856,676 2,898,235,259

 (6)Accrued Expenses 9,645,803,338 10,599,558,721 11,295,806,999

 (7)Income Taxes Payable 8,626,427,708 6,302,337,181 6,816,966,345

 (8)Current Portion df Long-term Other Payables

0 0 1,250,167,000

 Present Value Discount for Other Payables 0 0 (104,486,022)

.Non-current LiabilitiesⅡ 88,702,755,365 84,822,174,360 90,745,418,802

 (1)Long-term Other Payables 207,240,000 92,880,000 45,000,000

 Present Value Discount for Long-term Borrowings

0 0 0

 (2)Deposits Received for Non-current Liabilities

2,454,747,948 2,512,624,515 6,917,516,937

 (3)Provisions for Retirement and Severance Benefits

33,477,316,686 32,224,337,986 32,965,388,015

 Deposits for Retirement and Severance Benefits Long-term Liabilities

(19,868,450) (1,835,621,498) (20,564,757)

 Transfer to National Pension Fund (505,267,200) (540,674,700) (650,893,380)

 (4)Deferred Income Taxes Liabilities Non-current

53,088,586,381 52,368,628,057 51,488,971,987

Total Liabilities 273,675,183,379 310,952,329,626 259,611,387,294

- 78 -

StockHolders' Equity      

.Capital StockⅠ 83,683,597,500 83,683,597,500 83,079,250,000

 (1)Common Stock 83,683,597,500 83,683,597,500 83,079,250,000

.Capital SurplusⅡ 29,658,444,770 29,539,350,637 21,811,623,187

 (1)Additional Paid-in Capital 7,486,189,361 7,486,189,361 6,515,468,981

 (2)Other Capital Surplus 22,172,255,409 22,053,161,276 15,296,154,206

 1.Gains on Sale of Treasury Stock 11,361,632,074 11,610,868,660 4,287,921,529

 2.Other Capital Surplus 10,810,623,335 10,442,292,616 11,008,232,677

.Capital AdjustmentsⅢ (11,490,352,682) (12,800,186,126) (30,771,387,456)

 (1)Treasury Stock in Capital Adjustments (12,687,946,482) (14,308,417,676) (35,473,708,556)

 (2)Debt to be Swapped for Equity in Other Capital Adjustments

520,417,300 520,417,300 2,080,743,600

 (3)Stock Options in Other Capital Adjustments

677,176,500 987,814,250 2,621,577,500

Ⅳ.Accumulated Other Comprehensive Income

219,140,933,098 221,450,299,520 221,677,671,859

 (1)Gains on Valuation of Available for Sale Securities in Capital Adjustments

0 1,279,529,892 0

 (2)Losses on Valuation of Available for Sale Securities in Capital Adjustments

(170,604,625) 0 0

 (3)Gains on Valuation of Equity Method Securities

9,972,797,074 9,591,955,286 11,098,857,517

 (4)Losses on Valuation of Equity Method Securities

(1,240,073,693) 0 0

 (5)New Account for Accumulated Other Comprehensive Income

210,578,814,342 210,578,814,342 210,578,814,342

.Retained Earnings or Accumulated DeficitⅤ 262,790,887,211 239,420,682,509 201,778,981,960

 (1)Appropriated Retained Earnings for Statutory Reserve

2,528,000,000 1,915,000,000 1,500,000,000

 (2)Retained Earnings Before Appropriations or Accumulated Deficit Before Disposition on Balance Sheet

260,262,887,211 237,505,682,509 200,278,981,960

Total Stockholders Equity 583,783,509,897 561,293,744,040 497,576,139,550

Total Liabilities and Stockholders Equity 857,458,693,276 872,246,073,666 757,187,526,844

- 79 -

Income Statement

From    01/01/2010    To    06/30/2010

From    01/01/2009    To    06/30/2009

From    01/01/2009    To    12/31/2009

From    01/01/2008    To    12/31/2008

(Unit : Won)

Accounts

FY 2010 FY 2009

FY 2009 FY 2008

3 Months 6 Months 3 Months 6 Months

.Sales RevenueⅠ153,875,46

6,385280,573,544

,359112,039,559

,089209,010,789

,133467,661,410

,336435,012,986

,525

1.Sales Revenue of Finished Goods

135,446,143,174

248,444,671,145

103,567,215,767

193,548,078,248

419,212,867,934

385,008,160,251

2.Sales Revenue of Merchandises

18,429,323,211

32,128,873,214

8,472,343,32215,462,710,

88548,448,542,

40250,004,826,

274

Ⅱ.Costs of Goods and Services Sold

129,614,416,508

238,164,322,486

93,225,400,700

175,095,103,972

399,798,734,727

380,909,368,644

 1.Cost of Finished Goods Sold112,102,80

7,680207,403,344

,55085,202,075,

438160,340,051

,849352,763,068

,261332,102,968

,919

 A.Beginning Inventory of Finished Goods

31,018,147,482

25,152,836,539

24,448,813,599

22,747,680,246

22,747,680,246

11,469,993,833

 B.Cost of Finished Goods103,318,62

0,392201,915,732

,06181,255,413,

213153,410,900

,358345,267,992

,951323,976,096

,472

 C.Transfer from Other Accounts

2,265,294,0785,909,577,8

562,281,053,8

747,100,754,3

3812,494,369,

46020,875,425,

624

 D.New Account for Cost of Finished Goods Sold

0 0 0 0 0 859,066,288

 E.Transfer to Other Accounts(447,190,40

6)(1,522,738,0

40)(895,161,04

1)(1,031,238,8

86)(2,594,137,8

57)(2,329,933,0

52)

 F.Ending Inventory of Finished Goods

(24,052,063,866)

(24,052,063,866)

(21,888,044,207)

(21,888,044,207)

(25,152,836,539)

(22,747,680,246)

 2.Cost of Merchandises Sold17,511,608,

82830,760,977,

9368,023,325,2

6214,755,052,

12347,035,666,

46648,806,399,

725

 A.Beginning Inventory of Merchandises

135,500,000

0 292,670,000 21,000,000 21,000,000 33,080,000

 B.Cost of Merchandises Purchased

18,466,461,858

31,951,183,866

8,229,106,06215,241,395,

48347,391,599,

59749,284,723,

145

- 80 -

 C.Transfer to Other Accounts(60,953,030

)(160,805,93

0)(269,880,80

0)(278,773,36

0)(376,933,13

1)(490,403,42

0)

 D.Ending Inventory of Merchandises

(1,029,400,000)

(1,029,400,000)

(228,570,000)(228,570,00

0)0 (21,000,000)

.Gross Profit or LossⅢ24,261,049,

87742,409,221,

87318,814,158,

38933,915,685,

16167,862,675,

60954,103,617,

881

Ⅳ.Selling and Administrative Expenses

6,033,801,51011,025,379,

4076,365,966,3

6610,992,781,

35217,700,935,

70418,063,337,

767

 1.Salaries and Wages1,462,355,1

172,924,919,8

801,072,321,2

152,565,679,4

105,263,160,3

505,080,229,3

08

 2.Retirement and Severance Benefits

115,878,294479,696,155 80,373,056 240,572,956 477,453,398 433,251,795

 3.Employee Benefits194,052,60

1405,558,859 116,860,950 232,231,260 468,729,244 453,295,760

 4.Travel Expenses 79,108,544 145,973,006 84,157,295 177,889,888 327,122,930 354,904,411

 5.Freight Expenses464,905,32

6934,684,246 377,163,358 715,718,155

1,604,959,3311,760,722,6

40

 6.Export Expenses628,229,26

41,119,195,2

32453,698,912 757,598,563

1,914,033,1451,100,052,7

35

 7.Commissions388,323,53

7731,311,531 432,905,323 971,441,913

2,064,054,3171,128,820,2

74

 8.Communication Expenses 14,845,201 30,858,028 14,669,554 31,392,614 64,523,854 53,840,031

 9.Utility Expenses 12,707,437 80,033,436 0 52,109,623 84,772,600 101,647,595

 10.Taxes and Dues 40,146,549 66,031,246 31,808,814 67,848,002 172,331,590 241,841,603

 11.Rental Expenses 11,428,560 18,496,200 7,853,080 15,518,780 30,652,490 22,517,800

 12.Depreciation 29,705,559 58,602,446 28,896,810 57,793,613 115,586,229 117,151,779

 13.Repair Expenses 43,445,910 51,895,278 4,492,800 7,995,300 35,306,830 104,254,538

 14.Insurance Premiums 47,770,580 111,227,697 239,756,328 308,434,329 461,537,628 486,231,472

 15.Entertainment Expenses228,772,47

7573,783,649 88,911,273 201,236,536 777,187,635 458,289,893

 16.Advertising Expenses564,403,97

6653,476,704 186,253,438 266,598,438 603,576,278 632,622,251

 17.Supply Expenses 6,743,601 16,296,380 7,360,937 11,552,717 22,789,285 19,188,622

- 81 -

 18.Vehicle Maintenance Expenses

24,630,929 45,923,933 11,817,128 19,939,788 60,534,925 48,114,716

 19.Overseas Marketing Expenses

371,389,001576,063,334 284,143,185 474,693,374 964,874,258 771,188,992

 20.Warranty Expenses263,454,80

5471,308,808 125,248,965 221,452,427 527,486,854 543,069,691

 21.Publication Expenses 20,279,425 91,484,758 18,883,355 41,966,755 129,722,634 69,999,154

 22.Electronic Data Processing Expenses for Selling and Administrative Expenses

896,819 1,577,275 776,546 1,141,092 2,354,276 5,224,731

 23.Compensations Expenses Associated with Stock Options

0 0 0 0 0 3,911,916

 24.Expenses of Allowance for Doubtful Accounts

1,017,423,2571,429,328,7

382,692,104,5

233,540,057,0

591,505,931,5

774,057,065,3

61

 25.Miscellaneous Expenses 2,312,013 3,962,133 2,071,229 5,624,320 13,526,365 12,852,589

 26.concil 592,728 3,690,455 3,438,292 6,294,440 8,727,681 3,048,110

.Operating Income or LossⅤ18,227,248,

36731,383,842,

46612,448,192,

02322,922,903,

80950,161,739,

90536,040,280,

114

.Non-Operating RevenuesⅥ4,715,848,0

0210,604,060,

3832,676,238,1

158,478,557,9

4014,198,690,

27920,200,944,

702

 1.Interest Income714,583,89

71,592,798,3

41677,481,723

1,368,223,4743,261,189,6

122,773,240,6

40

 2.Dividend Income 0 28,360,600 0 91,337,800 91,337,800 250,000,000

 3.Rental Income600,844,08

21,183,060,5

52437,258,816 932,460,806

2,023,226,2472,037,162,2

29

 4.Gains on Foreign Currency Translation

967,692,008637,297,767 0 267,501,290 129,733,831

2,453,392,874

 5.Gains on Foreign Currency Transactions

676,621,229769,249,360 290,133,875

2,335,095,5482,808,492,2

067,651,685,3

42

 6.Recovery of Impairment Losses on Available for Sale Securities in Investment Assets

03,817,129,1

630 0 0 0

 7.Gains on Valuation of Equity Method Securities

832,705,3341,322,600,6

88213,755,219 231,954,451 91,312,969 0

 8.Gains on Sale of Investment Securities for Non-Operating Revenues

0 0 0 0 0 10,148,600

- 82 -

 9.Gains on Sale of Property, Plant and Equipment

146,817,768146,817,768 96,728,000 249,567,000 257,562,000

1,188,509,900

 10.Gains on Sale of Equity Method Securities

0 0 01,467,448,1

001,467,448,1

000

 11.Gain on Sale of Trading Securities

0 0 0 0 01,669,137,5

88

 12.Reversal of Allowance for Doubtful Accounts

1,151,333 0 0 0 35,388,780 0

 13.Miscellaneous Income775,432,35

11,106,746,1

44960,880,482

1,534,969,4714,032,998,7

342,167,667,5

29

.Non-Operating ExpensesⅦ1,633,719,8

433,882,343,8

283,779,295,7

926,312,729,1

2712,341,100,

46410,335,484,

932

 1.Interest Expenses152,876,71

2369,128,765 816,799,588

1,869,152,5963,573,861,3

593,142,820,4

68

 2.Losses on Foreign Currency Transactions

326,420,940893,937,075 823,359,064 953,231,303

2,004,447,835616,188,047

 3.Donations116,000,00

0131,000,000 0 0 23,190,000 30,000,000

 4.Losses on Foreign Currency Translation

0 919,058,020 756,432,076 147,779,5781,131,098,5

04745,781,983

 5.Losses on Valuation of Equity Method Securities

295,414,191681,386,805 984,475,309

2,335,048,8782,110,020,5

53532,683,861

 6.Other Allowance for Doubtful Accounts

  36,936,153 0 0 0 32,250,927

 7.New Account for Non-Operating Expenses

0 0 0 14,741,580 14,741,5804,021,787,9

50

 8.Losses on Sale of Trading Securities

0 0 0 0 0 29,816,199

 9.Miscellaneous Losses743,008,00

0850,897,010 398,229,755 992,775,192

3,483,740,6331,184,155,4

97

Ⅷ.Income Loss Before Income Taxes Expenses

21,309,376,526

38,105,559,021

11,345,134,346

25,088,732,622

52,019,329,720

45,905,739,884

.Income Taxes ExpensesⅨ4,666,228,8

618,666,513,6

632,404,726,3

654,959,353,7

8710,229,649,

17113,848,088,

000

.Net Income or LossⅩ16,643,147,

66529,439,045,

3588,940,407,9

8120,129,378,

83541,789,680,

54932,057,651,

884

XI.Earnings or Losses Per Share            

 1.Basic Earnings or Net Loss Per Share

541Won 958Won 317Won 719Won 1,468Won 1,169Won

 2.Diluted Earnings or Losses Per Share

533Won 944Won 308Won 694Won 1,427Won 1,118Won

- 83 -

Statement of Appropriation of Retained Earnings Statement of

Disposition of Accumulated Deficit

From 01/01/2009 To 12/31/2009

From 01/01/2008 To 12/31/2008

From 01/01/2007 To 12/31/2007

(Unit : Won)

Accounts FY 2009 FY 2008 FY 2007

.Retained Earnings BeforeⅠAppropriations or Accumulated

Deficit Before Disposition

237,505,682,509 200,278,981,960 185,592,626,746

1.Unappropriated Retained Earnings

or Undisposed Accumulated Deficit

from Beginning Year

195,716,001,960 180,842,196,646 159,343,378,584

2.Retirement of Treasury Stock 0 -12,620,866,570 0

3.Net Income or Loss 41,789,680,549 32,057,651,884 26,249,248,162

.Subtotal of Retained EarningsⅡBefore Appropriation

237,505,682,509 200,278,981,960 185,592,626,746

.Appropriations of RetainedⅢEarnings

6,738,337,800 4,562,980,000 4,750,430,100

1.Legal Reserves in Statement of

Appropriation Retained Earnings613,000,000 415,000,000 432,000,000

2.Dividends 6,125,337,800 4,147,980,000 4,318,430,100

A.Cash Dividends 6,125,337,800 4,147,980,000 4,318,430,100

Dividends Per Share and Dividend

Rate Per Share200 150 150

.Disposition of DeficitⅣ

.Unappropriated Retained EarningsⅤor Undisposed Accumulated Deficit

Carried over to Subsequent Year

230,767,344,709 195,716,001,960 180,842,196,646

- 84 -

Statement of Cash Flows

From    01/01/2010    To    06/30/2010

From    01/01/2009    To    06/30/2009

From    01/01/2009    To    12/31/2009

From    01/01/2008    To    12/31/2008

(Unit : Won)

AccountsFY 2010

Semi-annualFY 2009Semi-annual

FY 2009 FY 2008

.Cash Flows from Operating ActivitiesⅠ 19,676,191,107 41,408,870,755 53,997,384,028 29,053,278,064

 1.Net Income or Loss 29,439,045,358 20,129,378,835 41,789,680,549 32,057,651,884

 2.Additions of Expenses of Non-Cash Transactions

10,990,578,299 12,376,950,670 20,343,677,142 24,305,300,824

 A.Depreciation 5,134,971,336 4,863,179,367 10,029,881,990 8,804,144,261

 B.Losses on Foreign Currency Translation

303,505,582 146,886,385 831,272,905 268,054,089

 C.Expenses of Allowance for Doubtful Accounts

1,429,328,738 3,540,057,059 1,505,931,577 4,057,065,361

 D.Expenses of Allowance for Other Doubtful Accounts

36,936,153 0 0 32,250,927

 E.Losses on Sale of Trading Securities 0 0 0 29,816,199

 F.Amortization of Intangible Assets 34,807,734 40,725,963 81,916,181 656,149,628

 G.Interest Expenses 0 52,243,011 0 200,239,648

 H.Losses on Valuation of Equity Method Securities

681,386,805 2,335,048,878 2,110,020,553 532,683,861

 I.Retirement and Severance Benefits 3,369,641,951 1,384,068,427 5,769,912,356 5,699,196,984

 J.Compensation Expenses Associated with Stock Options

0 0 0 3,911,916

 K.New Account for Additions of Expenses of Non-Cash Transactions

0 14,741,580 14,741,580 4,021,787,950

 3.Deduction of Revenues of Non-Cash (5,952,053,851) (2,187,631,930) (1,980,717,442) (4,893,148,128)

- 85 -

 Transactions

 A.Gains on Foreign Currency Translation

637,145,632 238,662,379 129,005,593 2,025,352,040

 B.Gains on Sale of Property, Plant and Equipment

146,817,768 249,567,000 257,562,000 1,188,509,900

 C.Gains on Sale of Long-Term Investment Securities

0 0 0 10,148,600

 D.Gains on Sale of Trading Securities 0 0 0 1,669,137,588

 E.New Account for Deduction of Revenues of Non-Cash Transactions

28,360,600 0 0 0

 F.Recovery of Impairment Losses on Available for Sale Securities in Investment Assets

3,817,129,163 0 0 0

 G.Gains on Valuation of Equity Method Securities

1,322,600,688 231,954,451 91,312,969 0

 H.Gains on Sale of Equity Method Securities

0 1,467,448,100 1,467,448,100 0

 I.Reversal of Allowance for Doubtful Accounts

0 0 35,388,780 0

 4.Changes in Assets and Liabilities from Operating Activities

(14,801,378,699) 11,090,173,180 (6,155,256,221) (22,416,526,516)

 A.Decrease or Increase in Trade Receivables

(10,094,214,757) 5,908,231,256 (9,511,150,854) (6,827,688,530)

 B.Decrease or Increase in Other Receivables

361,437,850 (710,391,304) (3,908,119,088) 1,216,974,867

 C.Decrease or Increase in Accrued Revenues

299,012,963 (100,502,893) (724,141,589) 284,739,766

 D.Decrease or Increase in Advance Payments

1,026,756,220 235,436,744 (8,810,729,923) (707,273,444)

 E.Decrease or Increase in Prepaid Expenses

(1,170,297,251) (906,534,008) 222,093,845 (196,840,494)

 F.Decrease or Increase in Curret Portion of Deferred Income Taxes Assets

(1,055,081,086) (927,297,435) 533,122,004 593,388,697

 G.Decrease or Increase in Inventories (12,764,572,622) (10,456,524,138) (7,939,211,120) (23,407,398,187)

 H.Decrease or Increase in Long-term Trade Receivables

0 0 (5,366,986,160) 0

 I.Decrease or Increase Other Operating Assets

0 70,000,000 0 0

- 86 -

 J.Increase or Decrease in Trade Payables

4,193,434,653 (8,301,579,204) 23,251,168,573 5,475,865,522

 K.Increase or Decrease in Other Payables

2,822,409,128 1,494,102,387 1,637,948,913 (208,885,995)

 L.Increase or Decrease in Advances from Customers

634,809,885 29,442,612,638 21,310,124,929 7,962,889,250

 M.Increase or Decrease in Accrued Expenses

(953,755,383) 723,322,921 (696,248,278) (201,006,605)

 N.Increase or Decrease in Income Taxes Payable

2,324,090,527 689,262,412 (514,629,164) (1,673,216,346)

 O.Increase or Decrease in Withholdings (164,950,388) (915,276,973) (1,576,378,583) 1,674,327,331

 P.Increase Decrease Withholdings Quarantee Deposits

(57,876,567) (4,802,630,464) (4,404,892,422) (1,935,098,141)

 Q.Increase or Decrease in Deferred Income Taxes Liabilities

62,920,832 (210,911,467) (1,441,426,858) (11,516,154,363)

 R.Decrease or Increase in Deferred Income Taxes Assets

0 0 0 10,783,174,283

 S.Payment for Retirement and Severance Benefit

(2,116,663,251) (146,233,292) (6,510,962,385) (4,135,746,991)

 T.Increase or Decrease in National Pension Fund

35,407,500 0 110,218,680 60,998,900

 U.Decrease or Increase Deposits for Retirement Severance Benefits

1,815,753,048 5,086,000 (1,815,056,741) (5,816,236)

 V.New Account for Changes in Assets and Liabilities from Operating Activities

0 0 0 346,240,200

.Cash Flows from Investing ActivitiesⅡ 60,816,848,561 (20,410,299,365) (74,998,082,689) 23,661,587,795

 1.Cash Inflows from Investing Activities 84,372,378,723 67,191,986,900 7,718,000,450 61,096,783,994

 A.Proceeds from Sale of Short-term Financial Instruments

84,200,000,000 59,481,986,450 0 23,045,344,779

 B.Decrease in Short-term Loans 0 0 0 89,390,733

 C.Proceeds from Sale of Long-term Investment Securities

0 0 0 47,974,000

 D.Proceeds from Sale of Trading Securities

0 0 0 16,489,590,782

- 87 -

 E.Decrease in Deposits Provided 23,380,000 0 0 3,000,000

 F.Proceeds from Sale of Land 0 0 0 1,169,750,000

 G.Proceeds from Sale of Machinery 148,998,723 244,180,000 245,680,000 179,713,363

 H.Proceeds from Sale of Vehicles 0 5,400,000 11,900,000 1,710,337

 I.Proceeds from Sale of Office Equipment

0 0 0 2,000,000

 J.Proceeds from Sale of Equity Method Securities

0 7,460,420,450 7,460,420,450 20,068,310,000

 2.Cash Outflows from Investing Activities

(23,555,530,162) (87,602,286,265) (82,716,083,139) (37,435,196,199)

 A.Purchase of Short-term Financial Instruments

18,200,000,000 81,701,088,024 69,919,101,574 0

 B.Purchase of Long-term Investment Securities

0 945,502,800 4,229,769,117 20,070,000

C.Purchase of Trading Securities 0 0 0 14,850,269,393

 D.Purchase of Equity Method Securities 0 0 0 7,592,972,350

 E.Increase in Deposits Provided 754,850,990 421,753,000 540,353,000 75,000,000

 F.Purchase of Buildings 0 0 362,000,000 542,988,000

 G.Purchase of Structures 56,500,000 55,000,000 361,603,000 742,645,006

 H.Purchase of Machinery 1,139,798,000 1,705,841,970 2,305,844,500 7,842,239,000

 I.Purchase of Vehicles 111,917,600 0 48,524,184 112,079,963

 J.Purchase of Tools 921,404,500 554,666,400 1,913,918,131 1,989,886,840

 K.Purchase of Office Equipment 226,237,100 108,426,250 305,295,250 1,152,718,545

 L.Increase Machinery in Transit for Property Plant and Equipment

78,025,034 1,735,824,326 756,255,527 1,834,833,377

 M.Purchase of Construction in Progress 0 57,451,615 57,451,615 72,526,463

 N.Purchase of Industrial Property Rights 4,521,000 4,155,000 19,006,000 4,327,000

- 88 -

 O.Purchase of Development Costs 1,762,381,938 312,576,880 1,896,961,241 602,640,262

 P.Purchase of Computer Software 299,894,000 0 0 0

.Cashflows from Financing ActivitiesⅢ (55,029,952,575) 14,946,390,275 38,946,626,772 (38,850,908,604)

 1.Cash Inflows from Financing Activities 1,095,385,225 54,094,370,275 44,285,287,750 45,659,058,150

 A.Proceeds from Short-term Borrowings 0 50,000,000,000 15,000,000,000 45,000,000,000

 B.Increase in Long-term Other Payables

114,360,000 0 92,880,000 0

 C.Exercise of Stock Options 981,025,225 0 0 659,058,150

 D.Proceeds from Sale of Treasury Stock

0 4,094,370,275 29,192,407,750 0

 2.Cash Outflows from Financing Activities

(56,125,337,800) (39,147,980,000) (5,338,660,978) (84,509,966,754)

 A.Payments in Dividends 6,125,337,800 4,147,980,000 4,147,980,000 4,318,430,100

 B.Repayments of Short-term Borrowings

50,000,000,000 35,000,000,000 0 55,083,049,294

 C.Purchase of Treasury Stock 0 0 0 23,858,319,360

 D.Decrease in Current Portion df Long-term Other Payables

0 0 1,145,680,978 1,250,168,000

 E.Repayments of Long-term Other Payables

0 0 45,000,000 0

Ⅳ.Increase in Other Cash and Cash Equivalents

0 0 0 29,012,649

Ⅴ.Decrease in Other Cash and Cash Equivalents

0 0 0 0

Ⅵ.Increase or Decrease in Cash and Cash Equivalents

25,463,087,093 35,944,961,665 17,945,928,111 13,892,969,904

Ⅶ.Cash and Cash Equivalent at Beginning

82,485,050,800 64,548,965,306 64,539,122,689 50,646,152,785

.Cash and Cash Equivalent at EndⅧ 107,948,137,893 100,493,926,971 82,485,050,800 64,539,122,689

- 89 -

Statement of Changes in Equity

From    01/01/2010    To    06/30/2010

From    01/01/2009    To    06/30/2009

From    01/01/2008    To    12/31/2008

From    01/01/2009    To    12/31/2009

(Unit : Won)

AccountsCapitalStock

CapitalSurplus

CapitalAdjustments

Accumulated Other

Comprehensive Income

RetainedEarnings orAccumulated Deficit

Total Equity

2009.01.01 (beginning)83,079,250,

00021,811,623,

187(30,771,387,

456)221,677,671

,859201,778,981

,960497,576,139,5

50

1.Dividends        (4,147,980,0

00)(4,147,980,000

)

2.Retained Earnings AfterAppropriations

       197,631,001

,960493,428,159,5

50

3.Sale of Treasury Stock    21,165,290,

880   

21,165,290,880

4.Gains(Loss) on Sale ofTreasury Stock

 7,322,947,1

31      7,322,947,131

5.Debt to be Swapped for Equityin Other Capital Adjustments

604,347,500 970,720,380(1,560,326,3

00)    14,741,580

6.Stock option    (1,633,763,2

50)   

(1,633,763,250)

7.Gains on Valuation of EquityMethod Securities

     (1,506,902,2

31) (1,506,902,231

)

8.Losses on Valuation ofAvailable for Sale Securities

     1,279,529,8

92  1,279,529,892

9.New Account for TotalEquity(3)

 (565,940,06

1)      (565,940,061)

10.Net Income or Loss        41,789,680,

54941,789,680,54

9

2009.12.31 (end)83,683,597,

50029,539,350,

637(12,800,186,

126)221,450,299

,520239,420,682

,509561,293,744,0

40

2008.01.01 (beginning)80,663,785,

00011,161,546,

083(19,166,573,

966)(702,827,68

2)186,660,626

,746258,616,556,1

81

1.Dividends        (4,318,430,1

00)(4,318,430,100

)

2.New Account for TotalEquity(5)

   12,620,866,

570 (12,620,866,

570) 

3.Retained Earnings AfterAppropriations

       169,721,330

,076254,298,126,0

81

4.Sale of Treasury Stock    1,486,707,5

84    1,486,707,584

- 90 -

5.Gains(Loss) on Sale ofTreasury Stock

 (457,929,52

7)      (457,929,527)

6.Debt to be Swapped for Equityin Other Capital Adjustments

1,569,677,5004,114,068,1

50(1,661,957,7

00)    4,021,787,950

7.Stock option    (192,110,58

4)    (192,110,584)

8.Gains on Valuation of EquityMethod Securities

     11,096,576,

941 11,096,576,94

1

9.New Account for Total Equity    (23,858,319,

360)   

(23,858,319,360)

10.Increase Paid in Capital andCapital Surplus

845,787,5002,401,400,8

31      3,247,188,331

11.New Account for TotalEquity(3)

 4,592,537,6

50      4,592,537,650

12.Losses on Valuation of EquityMethod Securities

      705,108,258   705,108,258

13.New Account for TotalEquity(7)

     210,578,814

,342 210,578,814,3

42

14.Net Income or Loss        32,057,651,

88432,057,651,88

4

2008.12.31 (end)83,079,250,

00021,811,623,

187(30,771,387,

456)221,677,671

,859201,778,981

,960497,576,139,5

50

2009.01.01 (beginning)83,079,250,

00021,811,623,

187(30,771,387,

456)221,677,671

,859201,778,981

,960497,576,139,5

50

1.Dividends        (4,147,980,0

00)(4,147,980,000

)

2.Retained Earnings AfterAppropriations

       197,631,001

,960493,428,159,5

50

3.Sale of Treasury Stock    6,419,506,6

32    6,419,506,632

4.Gains(Loss) on Sale ofTreasury Stock

 (768,889,88

8)      (768,889,888)

5.Debt to be Swapped for Equityin Other Capital Adjustments

604,347,500 970,720,380(1,560,326,3

00)    14,741,580

6.Stock option    (1,310,769,7

50)   

(1,310,769,750)

7.Gains on Valuation of EquityMethod Securities

     1,706,137,1

69  1,706,137,169

8.New Account for TotalEquity(3)

  702,120,691       702,120,691

9.Net Income or Loss        20,129,378,

83520,129,378,83

5

2009.06.30 (end)83,683,597,

50022,715,574,

370(27,222,976,

874)223,383,809

,028217,760,380

,795520,320,384,8

19

2010.01.01 (beginning)83,683,597,

50029,539,350,

637(12,800,186,

126)221,450,299

,520239,420,682

,509561,293,744,0

40

1.Dividends        (6,125,337,8

00)(6,125,337,800

)

- 91 -

2.Retained Earnings AfterAppropriations

       233,295,344

,709555,168,406,2

40

3.New Account for TotalEquity(8)

        56,497,144 56,497,144

4.Sale of Treasury Stock    1,620,471,1

94    1,620,471,194

5.Gains(Loss) on Sale ofTreasury Stock

 (249,236,58

6)      (249,236,586)

6.Stock option    (310,637,75

0)    (310,637,750)

7.Gains on Valuation of EquityMethod Securities

      380,841,788   380,841,788

8.New Account for TotalEquity(6)

  368,330,719       368,330,719

9.Losses on Valuation ofAvailable for Sale Securities

     (1,240,673,6

93) (1,240,073,693

)

10.Losses on Valuation of EquityMethod Securities

     (1,450,134,5

17) (1,450,134,517

)

11.Net Income or Loss        29,439,045,

35829,439,045,35

8

2010.06.30 (end)83,683,597,

50029,789,360,

392(11,490,352,

682)219,140,933

,098262,790,887

,211583,783,509,8

97

- 92 -

XII. Supplementary schedules

2. Consolidated financial statements

- See the attached half-year report forthe notes to the financial statements.

3. Allowance for doubtful accounts

a. Allowance for doubtful accounts

(1) Allowance for doubtful accounts for the recent 3 years

(Unit: won)

Period Accounts Total receivablesAllowance fordoubtful account

Rate of allowancefor doubtful accountto total receivables

48firsthalf

Trade receivables 146,500,899,944 14,177,215,273 9.68%

Other receivables 3,672,620,531 91,142,479 2.48%

Total 150,173,520,475 14,268,357,752 9.50%

47

Trade receivables 136,071,897,876 12,732,973,600 9.36%

Other receivables 4,034,058,381 54,206,326 1.34%

Total 140,105,956,257 12,787,179,926 9.13%

46

Trade receivables 122,062,189,106 11,391,084,317 9.33%

Other receivables 125,939,293 89,595,106 71.14%

Total 122,188,128,399 11,480,679,423 9.40%

- 93 -

(2) Changes in allowance for doubtful account for the last 3 years

(Unit: million won)

CategoryPeriod48

first half

Period47

Period46

1. Beginning balance of allowances for doubtfulaccounts

12,787 11,481 6,965

2. Net allowances for doubtful accounts ( ± )①－② ③ - 165 -

  Written off receivables① - 165 -

  Recovery of written off receivables② - - -

  Others③ - - -

3. Allowances for doubtful accounts 1,481 1,471 4,516

4. Ending balance of allowances for doubtfulaccounts

14,268 12,787 11,481

(3) Policy of setting allowance for doubtful accounts related to trade

receivables.

The company sets the allowance for doubtful accounts for the balance of trade

receivables as of the balance sheet date taking into consideration the individual

analysis method and past recovery performances.

a) Based on the balance of trade receivables.

 1% for trade receivables unpaid for 1 to 6 months.

  10% for trade receivables unpaid for the last to 12 months.

50% for trade receivables unpaid for the last 1 year to 2 years.

100% for trade receivables unpaid for 2 years or longer.

b) Based on the recoverableness of individual receivables.  

- 94 -

(4) Trade receivables as of the end of reporting period by unpaid period

(Unit: million won)

Category6 monthsor less

Longer than 6months butnot exceeding1 year

Exceeding 1year but notexceeding 2years

Exceeding2 years

Total

Amounts

Generaltransaction

89,752 10,570 5,000 11,481 116,803

Transactionwith relatedparties

23,717 1,937 2,608 1,436 29,698

Total 113,469 12,507 7,608 12,917 146,501

Composition 77.45 8.54 5.19 8.82 100.00

4. Inventories and inspections

(1) Inventories by business for the last 3 years

(Unit: million won)

Businesses AccountsPeriod 48first half

Period 47 Period 46 Remarks

Automotiveparts

Goods -           - -

Products 4,902     4,734 4,329

Work inprocess

9,753     8,949 10,126

Raw materials 10,331     9,602 9,958

Supplies 183       188 198

Goods in transit 543       509 3,057

Subtotal 25,712   23,982 27,668

Machinetools

Goods 1,029           - 21

Products 5,080     6,529 3,529

Work inprocess

4,145     3,711 3,597

Raw materials 4,066     3,894 4,417

Supplies 1          1 1

Goods in transit -       157 414

Subtotal 14,321   14,292 11,979

- 95 -

Castingproducts

Goods -           - -

Products 6,845     3,927 3,994

Work inprocess

641       737 452

Raw materials 3,424     2,379 3,364

Supplies -           - -

Goods intransit

153       100 1

Subtotal 11,063     7,143 7,811

Others

Goods -           - -

Products 7,225     9,962 10,622

Work inprocess

15,681   14,359 12,102

Raw materials 12,468     6,022 4,547

Supplies 123       120 108

Goods intransit

6,365     5,344 3,879

Subtotal 41,862   35,808 31,258

Total

Goods 1,029           - 21

Products 24,052   25,152 22,474

Work inprocess

30,220   27,756 26,277

Raw materials 30,289   21,897 22,286

Supplies 307       309 307

Goods intransit

7,061     6,110 7,351

Subtotal 92,958   81,225 78,716

Inventory to asset ratio (%)[Inventory ÷ ending assets

× 100]10.84% 9.31% 10.40%

Inventory turnover[Annual cost of sales ÷{(Beginning inventory ＋ending inventory)÷2}]

5.47 5.00 5.71

- 96 -

(2) Inventories

The company has its own property control team and the team surveys the

periodic property at the end of every month. Outside auditors are present for

the property survey which is conducted as of the end of every fiscal year.

Accordingly, as the company does not conduct the half-year property survey

in presence of outside auditors, the carrying value on the books as of the end

of the half-year is used for half-year financial statements.

Confirmation by expert【 】

1. Confirmation by expert

- N/A

2. Relation with expert

- N/A