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Samsung Heavy Industries Co., Ltd.Separate Financial Statements

December 31, 2013 and 2012

Samsung Heavy Industries Co., Ltd. IndexDecember 31, 2013 and 2012

Page(s)

Report on Independent Auditors.................................................................................................................... 1-2

Separate Financial Statements

Separate Statements of Financial Position ........................................................................................................ 3-4

Separate Statements of Income ........................................................................................................................... 5

Separate Statements of Comprehensive Income ................................................................................................. 6

Separate Statements of Changes in Equity .......................................................................................................... 7

Separate Statements of Cash Flows .................................................................................................................... 8

Notes to Separate Financial Statements ..................................................................................................... 9-53

Report of Independent Accountants’ Review of Internal Accounting Control System ............................. 54

Report on the Operations of the Internal Accounting Control System ..................................................... 55

Report of Independent Auditors

To the Board of Directors and Shareholders of Samsung Heavy Industries Co., Ltd.

We have audited the accompanying separate statements of financial position of Samsung Heavy Industries Co., Ltd. (the Company) as of December 31, 2013 and 2012, and the related separate statements of income, comprehensive income, changes in equity and cash flows for the years then ended, expressed in Korean won. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the separate financial statements, referred to above, present fairly, in all material respects, the financial position of Samsung Heavy Industries Co., Ltd. as of December 31, 2013 and 2012, and its financial performance and cash flows for the years then ended, in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (“Korean IFRS”).

Auditing standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report is for use by those who are informed about Korean auditing standards and their application in practice.

Seoul, Korea March 6, 2014

This report is effective as of March 6, 2014, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying separate financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

2

Samsung Heavy Industries Co., Ltd. Separate Statements of Financial Position December 31, 2013 and 2012

(In thousands of Korean won) Notes 2013 2012

Assets Current assets

Cash and cash equivalents 4,7,9 747,669,840 849,429,537 Short-term financial instruments 5,7,9 289,597,286 235,008,520 Trade accounts and notes receivable 7,9,10 448,356,469 523,715,945 Due from customers for contract work 6 5,333,381,608 4,412,295,493 Other accounts receivable 7,9,10 30,196,967 70,251,632 Advance payments 1,353,781,287 1,520,735,120 Prepaid expenses 85,320,181 80,315,719 Current derivative financial instruments 7,8,11,33 728,499,475 695,153,960 Current firm commitment assets 11 578,555,241 914,150,821 Inventories 12 823,331,665 683,624,916 Other current financial assets 7,13 59,930,736 70,533,072 Other current assets 117,316,635 127,340,092

10,595,937,390 10,182,554,827

Non-current assets Long-term available-for-sale financial assets 7,8,14 138,413,658 137,924,871

Investments in subsidiaries, associates and joint ventures 15 407,971,296 475,277,450

Property, plant and equipment 16 4,658,532,053 4,643,182,776 Investment properties 17 44,580,848 108,941,578 Intangible assets 18 131,640,047 32,814,174 Long-term prepaid expenses 17,909,336 25,102,040 Derivative financial instruments 7,8,11,33 517,100,379 338,635,829 Firm commitment assets 11 210,672,664 116,279,257 Non-current accounts receivable 7,9,10 165,520,903 142,131,902 Other financial assets 5,7,13 52,954,231 118,489,366

Deferred income tax assets 30 116,477,835 - 6,461,773,250 6,138,779,243

Total assets 17,057,710,640 16,312,334,070

3

Samsung Heavy Industries Co., Ltd. Separate Statements of Financial Position December 31, 2013 and 2012


LiabilitiesCurrent liabilities

Trade accounts and notes payable 7,33 1,630,782,842 1,442,953,839 Short-term borrowings 7,19,33 1,300,501,695 1,160,013,146 Other accounts payable 7,33 125,909,713 121,115,579 Advance receipts 617,532,539 1,238,223,683 Due to customers for contract work 6 3,223,642,465 2,729,780,615 Accrued expenses 7,33 524,132,024 563,179,208 Income tax payable 294,964,790 110,305,445 Current derivative financial instruments 7,8,11,33 373,809,474 407,645,607 Current firm commitment liabilities 11 621,214,125 595,777,531 Current portion of long-term debts 7,19,33 180,370,000 165,202,000 Provisions 21 163,295,071 134,106,279 Other current liabilities 139,891,181 110,475,451

9,196,045,919 8,778,778,383

Non-current liabilities Debentures 7,19,33 1,197,432,829 1,196,289,548 Long-term debts 7,19,33 7,562,664 438,595,384 Retirement benefit obligations 20 46,496,220 97,649,799 Other provisions 21 66,718,517 44,043,300 Derivative financial instruments 7,8,11,33 211,478,089 117,592,177 Firm commitment liabilities 11 518,640,891 336,939,070 Other financial liabilities 7,13,33 20,197,723 19,839,011 Deferred income tax liabilities 30 - 63,432,154

2,068,526,933 2,314,380,443

Total liabilities 11,264,572,852 11,093,158,826

Equity Capital stock 22

Common stock 1,154,376,930 1,154,376,930 Preferred stock 574,225 574,225

Premium on capital stock 22 417,172,244 417,172,244 Accumulated other comprehensive income 24 74,612,629 73,713,304

Other components of equity 23,24 (649,229,604) (650,927,722)Retained earnings 25 4,795,631,364 4,233,266,263

Total equity 5,793,137,788 5,228,175,244

Total liabilities and equity 17,057,710,640 16,321,334,070

4

Samsung Heavy Industries Co., Ltd. Separate Statements of Income Years ended December 31, 2013 and 2012

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

Notes 2013 2012

Revenue 6 14,706,097,960 14,423,916,279 Cost of sales 26 12,948,277,148 12,587,646,562

Gross profit 26,27 1,757,820,812 1,836,269,717 Selling and administrative expenses 833,265,731 686,299,252Operating profit 924,555,081 1,149,970,465

Other income 28 3,338,659,313 4,188,578,721Other expenses 27 3,172,872,844 4,413,108,262Financial income 29 477,610,139 310,200,652Financial costs 29 727,589,206 256,720,810

Profit before income tax 840,362,483 978,920,766Income tax expense 30 187,916,160 237,702,792

Profit for the year 652,446,323 741,217,974

Earnings per share

Basic earnings per share 31 3,007 3,419

Diluted earnings per share 31 3,006 3,416

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

5

Samsung Heavy Industries Co., Ltd. Separate Statements of Comprehensive Income Years ended December 31, 2013 and 2012

(In thousands of Korean won) Note 2013 2012

Profit for the year 652,446,323 741,217,974

Other comprehensive income 19,247,646 (11,972,035)Items that will not be reclassified to profit or loss Remeasurements of net defined benefit liabilities 20 24,206,228 1,019,791

Income tax (5,857,907) (246,789)

Items that will be reclassified to profit or lossChange in value of available-for-sale

financial assets 7,14,24 1,186,444 (23,745,787)

Gains and losses from derivative valuation 24 - 5,540,641Tax effects of other comprehensive (loss)income (287,119) 5,460,109

Total comprehensive income for the year 671,693,969 729,245,939


6

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7

Samsung Heavy Industries Co., Ltd. Separate Statements of Cash Flows Years ended December 31, 2013 and 2012


Cash flows from operating activities

Cash generated from(used in) operations 32 764,296,674 (1,111,525,131)Interest received 40,342,174 67,274,865Interest paid 19 (103,637,354) (68,196,365)Dividends received 1,369,903 1,094,661Income tax paid 30 (188,270,973) (161,585,475)

Net cash generated from(used in) operating activities 514,100,424 (1,272,937,445)

Cash flows from investing activities Disposal of short-term financial instruments (54,588,766) 248,445,705Acquisition of long-term available-for -sale financial assets

14 (658,839) (364,777)

Disposal of long-term available-for -sale financial assets

14 1,418,568 610,500

Acquisition of subsidiaries, associates and joint ventures

15 (1,067,860)

(43,084,669)Disposal of subsidiaries, associates and joint ventures

15 68,434,988 911,254

Acquisition of property, plant and equipment 16 (395,285,642) (222,112,565)Disposal of property, plant and equipment 16 24,988,091 14,207,969

Acquisition of investment properties 17 (2,385,453) -Disposal of investment properties 17 52,931,992 29,169,790Acquisition of intangible assets 18 (1,016,890) (1,816,428)Disposal of intangible assets 18 165,455 3,772,727Disposal of other current financial assets 21,650,983 22,770,698Acquisition of other current financial assets - (4,611,333)Disposal of other non-current financial assets 67,921,160 -Acquisition of other non-current financial assets (13,119,240) (96,484,258)

Net cash provided by (used in) investing activities (230,611,453) (48,585,387)

Cash flows from financing activities Proceeds(Repayments) of borrowings 19 140,852,273 728,054,627 Repayments of current portion of long-term debts 19 (165,202,000) (1,025,336,000)Proceeds from long-term borrowings 19 278,810,000 596,403,000 Repayments of long-term borrowings 19 (529,641,000) -Issue of bonds - 1,195,585,000 Disposal of treasury stock 24 610,920 637,340 Dividends paid 25 (108,429,543) (108,365,993)

Net cash used in financing activities (382,999,350) 1,386,977,974

Net increase in cash and cash equivalents (99,510,379) 65,455,142

Cash and cash equivalents at beginning of year 849,429,537 784,447,350Exchange losses on cash and cash equivalents (2,249,318) (472,955)

Cash and cash equivalents at the end of year 747,669,840 849,429,537


8

Samsung Heavy Industries Co., Ltd. Notes to Separate Statements December 31, 2013 and 2012

1. General information

The separate financial statements of the Company are prepared in accordance with Korean IFRS 1027, Consolidated and separate financial statements.

Samsung Heavy Industries Co., Ltd. (the “Company”) was incorporated in 1974 under the Commercial Code of the Republic of Korea to build ships and off-shore plants. The Company listed its shares on the Korea Exchange in January 28, 1994.

2. Significant Accounting Policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of Preparation

The Company maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul) in accordance with the International Financial Reporting Standards as adopted by the Republic of Korea (“Korean IFRS”). The accompanying separate financial statements have been condensed, restructured and translated into English from the Korean language financial statements.

Certain information attached to the Korean language financial statements, but not required for a fair presentation of the Company’s financial position, financial performance or cash flows, is not presented in the accompanying separate financial statements.

The Company’s financial statements for the annual period beginning on January 1, 2011, have been prepared in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (“Korean IFRS”). These are the standards, subsequent amendments and related interpretations issued by the International Accounting Standards Board ("IASB") that have been adopted by the Republic of Korea.

The preparation of the separate financial statements requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the separate financial statements are disclosed in Note 3.

2.2 Changes in Accounting Policy and Disclosures

(a) New and amended standards adopted by the Company

The Company pplied the following amended and enacted standards for the annual period beginning on January 1, 2013:

- Amendment to Korean IFRS 1001, Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income

The amendment requires entities to group items presented in other comprehensive income based on whether they are potentially reclassifiable to profit or loss subsequently. The Company applies the amendment retroactively and there is no impact of the application of this amendment on its total comprehensive income or

9


loss.

- Amendment to Korean IFRS 1019, Employee Benefits

The amendment requires entities to immediately recognize all actuarial gains and losses incurred in other comprehensive income or loss. All past service costs incurred are immediately recognized in accordance with the change of the plan, and the previous separate calculation of the interest cost and the expected returns on plan assets has been revised to calculate net interest expense (income) by applying the discount rate used in the defined benefit obligation measurement in the net defined benefit liabilities (assets). There is no material impact of the application of this amendment on the consolidated financial statements.

- Korean IFRS 1110, Consolidated Financial Statements

Korean IFRS 1110, Consolidated Financial Statements, introduces a single control concept and provides a specific guidance for the control. The adoption of this standard does not have an impact on consolidation scope in the consolidated financial statements.

- Korean IFRS 1111, Joint Arrangements

Korean IFRS 1111, Joint Arrangements, reflects the substance of joint arrangements and focuses on the rights and obligations of the parties to the joint arrangements rather than on the legal forms of the arrangements. Joint arrangements are classified into joint operations or joint ventures. The adoption of this standard does not have an impact on the consolidated financial statements.

- Korean IFRS 1112, Disclosures of Interests in Other Entities

Korean IFRS 1112, Disclosure of Interests in Other Entities, provides disclosure requirements for all types of equity investments in other entities including subsidiaries, associates, joint ventures and unconsolidated structured entities.

- Korean IFRS 1027, Separate Financial Statements

Korean IFRS 1027, Separate Financial Statements, contains accounting treatments and requirements for investments in subsidiaries, associates and joint ventures relating only to separate financial statements of the Controlling Company.

- Korean IFRS 1113, Fair Value Measurement

Korean IFRS 1113, Fair Value Measurement, provides a precise definition of fair value, and a single source of fair value measurement and disclosure requirements for use across K-IFRS. The Company has applied this standard prospectively according to the transitional provisions of K-IFRS 1113 and there is no material impact of the application of this standard on the consolidated financial statements.

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(b) New standards and interpretations not yet adopted

New standards, amendments and interpretations issued but not effective for the financial year beginning January 1, 2013, and not early adopted by the Company are as follows:

- Amendment to Korean IFRS 1110, Consolidated Financial Statements

Amendment to Korean IFRS 1110, Consolidated Financial Statements, provides that, if a parent company qualifies as an investment entity, it is required to measure its investments in subsidiaries at fair value through profit and loss instead of consolidating these subsidiaries in its consolidated financial statements. The amendment does not apply for a parent of an investment entity if the parent itself is not an investment entity. This amendment is effective for annual periods beginning on or after January 1, 2014, with early adoption permitted. The Company expects that the application of this amendment would not have a material impact on its consolidated financial statements.

- Amendment to Korean IFRS 1032, Financial Instruments: Presentation

Amendment to Korean IFRS 1032, Financial Instruments: Presentation, provides that the right to offset must not be contingent on a future event and must be legally enforceable in all of circumstances; and if an entity can settle amounts in a manner such that outcome is, in effect, equivalent to net settlement, the entity will meet the net settlement criterion. This amendment is effective for annual periods beginning on or after January 1, 2014, and the Company is assessing the impact of application of this amendment on its consolidated financial statements.

- Amendment to Korean IFRS 1039, Financial Instruments: Recognition and Measurement

Amendment to Korean IFRS 1039, Financial Instruments: Recognition and Measurement, allows the continuation of hedge accounting for a derivative that has been designated as a hedging instrument in a circumstance in which that derivative is novated to a central counterparty (CCP) as a consequence of laws or regulations. This amendment is effective for annual periods beginning on or after January 1, 2014, with early adoption permitted. The Company is assessing the impact of application of this amendment on its consolidated financial statements.

2.3 Segment Reporting

Information of each operating segment is reported in a manner consistent with the business segment reporting provided to the chief operating decision-maker (Note 34). The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments.

2.4 Foreign Currency Translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which the each entity operates (the “functional currency’). The consolidated financial statements are presented in Korean won, which is the Controlling Company’s functional and presentation currency.

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(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss.

Exchange differences arising on non-monetary financial assets and liabilities such as equity instruments at fair value through profit or loss and available-for-sale equity instruments are recognized in profit or loss and included in other comprehensive income, respectively, as part of the fair value gain or loss.

2.5 Financial Assets

2.5.1 Classification and measurement

The Company classifies its financial assets in the following categories: financial assets at fair value through profit or loss, available-for-sale financial assets, loans and receivables, and held-to-maturity financial assets. Regular purchases and sales of financial assets are recognized on trade date.

Regular purchases and sales of financial assets are recognized on the trade date. At initial recognition, financial assets are measured at fair value plus, in the case of financial assets not carried at fair value through profit or loss, transaction costs. Transaction costs of financial assets carried at fair value through profit or loss are expensed in the statement of income. After the initial recognition, available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables, and held-to-maturity investments are subsequently carried at amortized cost using the effective interest rate method.

Changes in fair value of financial assets at fair value through profit or loss are recognized in profit or loss and changes in fair value of available-for-sale financial assets are recognized in other comprehensive income. When the available-for-sale financial assets are sold or impaired, the fair value adjustments recorded in equity are reclassified into profit or loss.

(b) Impairment

The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or a group of financial assets that can be reliably estimated.

Impairment of loans and receivables is presented as a deduction in an allowance account. Impairment of other financial assets is directly deducted from their carrying amount. The Company writes off financial assets when the assets are determined to be no longer recoverable.

The objective evidence that a financial asset is impaired includes significant financial difficulty of the issuer or obligor; a delinquency in interest or principal payments over three months; or the disappearance of an active market for that financial asset because of financial difficulties. A decline in the fair value of an available-for-

12


sale equity instrument by more than 30% from its cost or a prolonged decline below its cost for more than six months is also objective evidence of impairment.

2.6 Derivative Financial Instruments

Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The resulting gain or loss is recognized in the statement of income within 'other income (expenses)' or 'finance income (costs)' according to the nature of transactions.

The Company applies fair value hedge accounting of firm commitments.

The Company documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The fair values of various derivative instruments used for hedging purposes are disclosed in Note 8. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item is more than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the statement of income, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The Company only applies fair value hedge accounting for hedging exchange risk of a firm commitment. The gain or loss relating to the effective portion of derivative instruments hedging exchange risk of a firm commitment is recognized in the statement of income within ‘other income (expenses)’. The gain or loss relating to the ineffective portion is recognized in the statement of income within ‘finance income (costs)’. Changes in the fair value of the hedge firm commitments attributable to exchange risk are recognized in the statement of income within ‘other income (expenses)’.

2.7 Inventories

Inventories are stated at the lower of cost and net realizable value. Raw materials for Shipbuilding and plant-building business are evaluated using moving weighted average method and individual method is applied for evaluating unfinished housing, merchandise in transit and land held for housing.

2.8 Property, Plant and Equipment

Property, plant and equipment is stated at its cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditures that is directly attributable to the acquisition of the items.

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Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate the difference between their cost and their residual values over their estimated useful lives, as follows:

Buildings 25 – 50 yearsStructures 1 - 50 yearsMachinery and Vehicles 2 - 30 yearsTools, furniture and fixtures 1 - 10 yearsThe depreciation method, residual values and useful lives of property, plant and equipment are reviewed at the end of each reporting period and, if appropriate, accounted for as changes in accounting estimates.

2.9 Borrowing Costs

Borrowing costs incurred in the acquisition or construction of a qualifying asset are capitalized in the period when it is prepared for its intended use, and investment income earned on the temporary investment of borrowings made specifically for the purpose obtaining a qualifying asset is deducted from the borrowing costs eligible for capitalization during the period. Other borrowing costs are recognized as expenses for the period in which they are incurred.

2.10 Government Grants

Government grants are recognized at their fair values when there is reasonable assurance that the grant will be received and the Company will comply with the conditions attaching to it. Government grants related to assets are presented by deducting the grants in arriving at the carrying amount of the assets, and grants related to income are deferred and presented by deducting the related expenses for the purpose of the government grants.

2.11 Intangible Assets

(a) Other intangible assets

Other intangible assets such as software which meet the definition of an intangible asset are amortized using the straight-line method over their estimated useful lives when the asset is available for use. Membership rights are regarded as intangible assets with indefinite useful life and not amortized because there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity. All membership rights are tested annually for impairment and stated at cost less accumulated impairment. Impairment losses are not reversed.

Other intangible assets 5 years

2.12 Investment Property

Property held to earn rentals or for capital appreciation or both is classified as investment property. Investment property is measured initially at its cost. After recognition as an asset, investment property is carried at cost less accumulated depreciation and impairment losses. Investment property, except for land, is depreciated using the straight-line method over their useful lives from 25 to 50 years.

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2.13 Impairment of Non-financial Assets

Goodwill or intangible assets with indefinite useful lives are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Non-financial assets, other than goodwill, that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

2.14 Financial Liabilities

(a) Classification and measurement

Financial liabilities at fair value through profit or loss are financial instruments held for trading. Financial liabilities are classified in this category if incurred principally for the purpose of repurchasing them in the near term. Derivatives that are not designated as hedges or bifurcated from financial instruments containing embedded derivatives are also categorized as held-for-trading.

The Company classifies non-derivative financial liabilities, except for financial liabilities at fair value through profit or loss, financial guarantee contracts and financial liabilities that arise when a transfer of financial assets does not qualify for derecognition, as financial liabilities carried at amortized cost and presented as ‘trade payables’, ‘borrowings’, and ‘other financial liabilities’ in the statement of financial position.

(b) Derecognition

Financial liabilities are removed from the statement of financial position when it is extinguished, for example, when the obligation specified in the contract is discharged, cancelled or expired or when the terms of an existing financial liability are substantially modified.

2.15 Financial Liabilities at fair value through profit or loss

The Group’s financial liabilities at fair value through profit or loss are financial instruments held for trading and designated as financial liabilities at fair value through profit or loss. Financial liabilities held for trading is not designated as hedges.

2.16 Provisions

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation and the increase in the provision due to passage of time is recognized as interest expense.

2.17 Current and Deferred Income Tax

The tax expense for the period consists of current and deferred tax. Tax is recognized on the profit for the period in the statement of income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively. The tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period.

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Deferred tax is recognized for temporary differences arising between the tax bases of assets and liabilities and their carrying amounts as expected tax consequences at the recovery or settlement of the carrying amounts of the assets and liabilities. However, deferred tax assets and liabilities are not recognized if they arise from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

Deferred tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilized.

Deferred tax liability is recognized for taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, except to the extent that the Company is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. In addition, deferred tax asset is recognized for deductible temporary differences arising from such investments to the extent that it is probable the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

2.18 Employee Benefits

The Company operates defined benefit plans. The schemes are generally funded through payments to insurance companies or trustee-administered funds, determined by periodic actuarial calculations.

A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognized in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds and that have terms to maturity approximating to the terms of the related pension obligation. The remeasurements of the net defined benefit liability are recognized in other comprehensive income.

If any plan amendments, curtailments, or settlements occur, past service costs or any gains or losses on settlement are recognized as profit or loss for the year.

(b) Share-based payments

Equity-settled share-based payments granted to employees are estimated at the grant date fair value of equity instruments and recognized as employee benefit expenses over the vesting period. The number of equity instruments expected to vest is remeasured with consideration to non-market vesting conditions at the end of the reporting period, with any changes from the original measurement recognized in the profit for the year and equity.

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When the options are exercised, the Company issues new shares. The proceeds received, net of any directly attributable transaction costs, are recognized as share capital (nominal value) and share premium.

2.19 Revenue Recognition

Revenue is measured the fair value of the consideration received or receivable, and represents amounts receivable for goods and services supplied, stated net of value-added tax, returns, rebates and discounts.

The Company recognizes revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the Company’s activities, as described below. The revenue can be reliably measured only when any contingency related to sales is resolved. The Company bases its estimate on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

(a) Construction contracts

A construction contract is defined by Korean IFRS 1011, Construction Contracts, as a contract specifically negotiated for the construction of an asset.

When the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable, contract revenue is recognized over the period of the contract by reference to the stage of completion. Contract costs are recognized as expenses by reference to the stage of completion of the contract activity at the end of the reporting period. When it is probable that total contract costs will exceed total contract revenue, the expected loss on the construction contract is immediately recognized as an expense. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized only to the extent of contract costs incurred that are likely to be recoverable. Variations in contract work, claims and incentive payments are included in contract revenue to the extent that may have been agreed with the customer and are capable of being reliably measured. Contract costs are recognized as an expense in the period in which they are incurred.

The Company uses the ‘percentage-of-completion method’ to determine the appropriate amount to recognize in a given period. The stage of completion is measured by reference to the contract costs incurred up to the end of the reporting period as a percentage of total estimated costs for each contract. Costs incurred in the year in connection with future activity on a contract are excluded from contract costs in determining the stage of completion. These amounts are recognized as inventory, prepaid expenses or other assets.

On the statement of financial position, the Company reports the net contract position for each contract as either an asset or a liability. A contract represents an asset where costs incurred plus recognized profits (less recognized losses) exceed progress billings (due from customers for contract work); a contract represents a liability where the opposite is the case (due to customers for contract work).

(b) Sales of goods

Sales of goods are recognized when the Company has delivered products to the customer.

(c) Interest income

Interest income is recognized using the effective interest method according to the time passed. When

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receivables are impaired, the Company reduces the carrying amount to its recoverable amount and continues unwinding the discount as interest income. Interest income on impaired receivables is recognized using the original effective interest rate.

(d) Dividend income

Dividend income is recognized when the right to receive payment is established.

2.20 Lease

A lease is an agreement, whereby the lessor conveys to the lessee, in return for a payment or series of payments, the right to use an asset for an agreed period of time. Leases where all the risks and rewards of ownership are not transferred to the Company are classified as operating leases. Lease payments under operating leases are recognized as expenses on a straight-line basis over the lease term.

Leases where the Company has substantially all the risks and rewards of ownership are classified as finance leases and recognized as lease assets and liabilities at the lower of the fair value of the leased property and the present value of the minimum lease payments on the opening date of the lease period.

2.21 Approval of Issuance of the Financial Statements

The issuance of the December 31, 2013 financial statements of the Company was approved by the Board of Directors on January 27, 2014.

3. Critical Accounting Estimates and Judgments

The Company makes estimates and assumptions concerning the future. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing adjustments to the carrying amounts of assets and liabilities after the end of the reporting date are addressed below.

(a) Income taxes

The Company is operating in numerous countries and the income generated from these operations is subject to income taxes based on tax laws and interpretations of tax authorities in numerous jurisdictions. There are many transactions and calculations for which the ultimate tax determination is uncertain (Note 30).

(b) Revenue recognition

The Company uses the ‘percentage-of-completion method’ in revenue recognition of the construction contracts. The stage of completion is measured by reference to the contract costs incurred up to the end of the reporting period as a percentage of total estimated costs for each contract. Revenues and earnings are subject to significant change, effected by early steps in a long-term projects, change in scope of a project, cost, period, and plans of the customers.

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(c) Provision for warranty

The Company has accrued warranty provision for the estimated costs of future repair, based on historical experience and terms of guarantees. The warranty provision is offset when costs related to repair incurred, and the remaining balances are reversed upon termination of the terms of guarantees. Repairing costs in excess of the corresponding provision is expensed in the period incurred.

(d) Net defined benefit liability

The present value of net defined benefit liability depends on a number of factors that are determined on an actuarial basis using a number of assumptions including the discount rate (Note 20).

(e) Provisions

As described in Note 21, the Company recognizes provisions for warranties and repairs and estimated returns as of the reporting date. The amounts are estimated based on historical data.

4. Cash and Cash equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of less than three months:

(In thousands of Korean won) 2013 2012

Cash 117,917 145,287Ordinary deposits 3,491,842 1,269,587Checking account 1,921 1,692Other deposits 744,058,160 848,012,971

747,669,840 849,429,537

5. Restricted Deposits

As of December 31, 2013, 25 million of long-term financial instruments are restricted to maintain checking

accounts. The 121,197 million in short-term financial instruments are subject to withdrawal restrictions as collaterals for government projects and others (Note 13).

6. Construction Contracts

The Company’s contract balances as of December 31, 2013, and the related revenues recognized for the year then ended are as follows:

(In thousands of Korean won) Opening

Balance Changes Recognized

Construction Revenue

Year-end Balance

Shipbuilding and plant-building contracts 29,683,460,827 8,802,365,097 14,117,370,552 24,368,455,373

Construction contracts 723,007,519 218,821,455 476,886,765 464,942,208Others 102,717,966 92,714,781 111,840,643 83,592,104

30,509,186,312 9,113,901,333 14,706,097,960 24,916,989,685

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As of the end of the reporting period, the Company is provided with performance guarantees and warranties of

1,257,951 million for the shipbuilding and plant-building contracts from several financial institutions including

Korea EXIM Bank. The Company is provided with performance guarantees and warranties of 712,479 million in relation to the construction contracts from several financial institutions including Construction Guarantee.

The following table presents the breakdown of in-progress construction contracts such as recognized construction profit or loss as of December 31, 2013:

(In thousands of Korean won)

Accumulativeconstruction cost

Accumulativeconstruction

revenue Unbilledamount

Overbilled amount

Shipbuilding and plant-building contracts 22,561,802,082 2,362,051,447 5,292,649,276 3,151,218,107

Construction contracts 1,761,806,159 140,434,057 32,065,741 61,019,449Others 200,387,533 (11,512,375) 8,666,591 11,404,909

Total 24,523,995,774 2,490,973,129 5,333,381,608 3,223,642,465

Changes in warranty provision and provision for construction losses for the year ended December 31, 2013, are as follows:

(In thousands of Korean won) BeginningBalance Changes Ending

Balance

Warranty provision 213,930,469 47,960,154 261,782,131Provision for construction losses 128,491,245 136,287,939 264,779,184

7. Financial Instruments by Category

A. Categorizations of financial instruments as of December 31, 2013 and 2012, are as follows:


2013

Assets at fair value through profit and loss

Loans and receivables

Derivative instruments for

hedging purpose

Assets classified as available-for-

sale

Total

Cash and cash equivalents - 747,669,840 - - 747,669,840Short-term financial instruments - 289,597,286 - - 289,597,286Trade receivables, net - 448,356,469 - - 448,356,469Derivative financial Instruments 7,474,663 - 1,238,125,191 - 1,245,599,854Long-term trade receivables - 165,520,903 - - 165,520,903Other financial assets - 143,081,934 - - 143,081,934Available-for-sale financial assets - - - 138,413,658 138,413,658

7,474,663 1,794,226,432 1,238,125,191 138,413,658 3,178,239,944


2013

Liabilities at fair value through profit and loss

Financial liabilities at amortized cost


hedging purpose Total

Trade payables - 1,630,782,842 - 1,630,782,842Borrowings - 1,308,064,359 - 1,308,064,359Current portion of long-term debts - 180,370,000 - 180,370,000Debentures - 1,197,432,829 - 1,197,432,829Derivative financial Instruments 9,589,291 - 575,698,273 585,287,564Other financial liabilities - 670,239,460 - 670,239,460

9,589,291 4,986,889,490 575,698,273 5,572,177,054

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2012

Assets at fair value through profit and loss

Loans and receivables


hedging purpose

Assets classified as available-for-

sale

Total

Cash and cash equivalents - 849,429,537 - - 849,429,537Short-term financial instruments - 235,008,520 - - 235,008,520Trade receivables, net - 523,715,945 - - 523,715,945Derivative financial Instruments 19,741,404 - 1,014,048,385 - 1,033,789,789Long-term trade receivables - 142,131,902 - - 142,131,902Other financial assets - - - 137,924,871 137,924,871Available-for-sale financial assets - 259,274,070 - - 259,274,070

19,741,404 2,009,559,974 1,014,048,385 137,924,871 3,181,274,634


2012

Liabilities at fair value through profit and loss

Financial liabilities at amortized cost


hedging purpose Total

Trade payables - 1,442,953,839 - 1,442,953,839Borrowings - 1,598,608,530 - 1,598,608,530Current portion of long-term debts - 165,202,000 - 165,202,000Debentures - 1,196,289,548 - 1,196,289,548Derivative financial Instruments 23,337,184 - 501,900,599 525,237,783Other financial liabilities - 704,133,797 - 704,133,797

23,337,184 5,107,187,714 501,900,599 5,632,425,497

B. Income and loss of financial instruments by category for the years ended December 31, 2013 and 2012, are as follows:


Available-for-sale financial assets

Valuation losses (Other comprehensive income) 1,186,444 (23,745,787)Loans and receivables

Gain(Loss) on foreign currency translation (20,815,618) (20,124,442) Interest income 42,231,066 69,944,395Impairment/Reversal losses (75,873,796) (126,161,705)

Assets at fair value through the profit and loss Valuation gains(losses) 5,906,487 19,373,796Transaction gains 400,541,326 59,510,638

Derivative instruments for hedging purpose(assets) Valuation gains 934,687,873 1,466,946,117Transaction gains 358,505,095 723,927,522

Liabilities at fair value through the profit and loss Valuation gains(losses) (8,335,535) (26,837,788)Transaction losses (643,190,913) (71,351,190)

Derivatives instruments for hedging purpose(liabilities) Valuation losses (491,809,213) (557,070,412)Transaction losses (434,037,962) (579,348,387)

Financial liabilities measured at amortized cost Interest expenses (104,341,227) (73,211,779)Gain(Loss) on foreign currency translation 19,841,598 16,984,683

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8. Fair Value

A. Fair Value of Financial Instruments by Category

Carrying amount and fair value of financial instruments by category as of December 31, 2013 and 2012, are as follows:

(In millions of Korean won) 2013 2012 Carrying amount Fair value

Carrying amount Fair value

Financial assets1 Available-for-sale financial assets2

123,752,594 123,752,594 123,916,336 123,916,336

Derivative financial instruments 1,245,599,854 1,245,599,854 1,033,789,789 1,033,789,789

Financial liabilities1

Derivative financial instruments 585,287,564 585,287,564 525,237,783 525,237,783

1 Short-term trade receivables and payables whose carrying amount is a reasonable approximation of fair value are excluded from the fair value disclosures.

2 If the fair value of equity instruments that do not have a quoted price in an active market, are measured at cost because their fair value cannot be measured reliably and are excluded from fair value disclosures.

B. Available-for-sale financial assets Measured at Cost

Details of available-for-sale financial assets measured at cost as of December 31, 2013 and 2012, are as follows:

(in millions of Korean won) 2013 2012

Unlisted securities 5,877,531 5,225,001

Investments 8,783,534 8,783,534

14,661,065 14,008,535

The above unlisted stocks and equity instruments are measured at cost because the variability of estimated cash flows is significant and the probabilities of the various estimates cannot be reasonably assessed.

C. Fair Value Hierarchy

Assets measured at fair value or for which the fair value is disclosed are categorized within the fair value hierarchy, and the defined levels are as follows:

Level 1 : Quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2 : Inputs other than quoted prices included within Level 1 that are observable for the asset or

liability, either directly (that is, as prices) or indirectly (that is, derived from prices) Level 3 : Inputs for the asset or liability that are not based on observable market data (that is,

unobservable inputs)

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Fair value hierarchy classifications of the financial assets and financial liabilities that are measured at fair value or its fair value is disclosed as of December 31, 2013 and 2012, are as follows:

(In thousands of Korean won) 2013 Level 1 Level 2 Level 3 Total

Assets Derivative financial instruments - 1,245,599,854 - 1,245,599,854Available-for-sale financial assets 99,419,813 - 24,332,781 123,752,594LiabilitiesDerivative financial instruments - 585,287,564 - 585,287,564

(In thousands of Korean won) 2012 Level 1 Level 2 Level 3 Total

Assets Derivative financial instruments - 1,033,789,789 - 1,033,789,789Available-for-sale financial assets 99,607,108 - 24,309,228 123,916,336LiabilitiesDerivative financial instruments - 525,237,783 - 525,237,783

D. Valuation Technique and the Inputs

Valuation techniques and inputs used in the recurring fair value measurements categorized within Level 2 and Level 3 of the fair value hierarchy as of December 31, 2013, are as follows:

2013 (In millions of Korean won)

Fair value levelValuation

techniques Inputs

Available-for-sale financial assets 24,332,780 3 Discounted cash

flow method

Perpetual growth rate Ratio of operating profit before tax

Derivatives assets 1,245,599,854 2 Present value technique -

Derivatives liabilities 585,287,564 2 Present value technique -

E. Valuation Processes for Fair Value Measurements Categorized Within Level 3

The Company values the fair value measurements based on the valuation report from Korea Asset Pricing. The Company’s finance department reports directly to the chief financial officer (CFO) and the audit committee (AC). Discussions of valuation processes and results are held between the CFO, AC and the valuation team at least once every quarter, in line with the Company’s quarterly reporting dates.

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9. Credit Quality of Financial Assets

The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates as of December 31, 2013 and 2012:

1 Customers of shipbuilding segment with no defaults in the past 2 Customers of E&I segment with no defaults in the past

1 The rest of ‘cash and cash equivalents’ in the statement of financial position is cash on hand

10. Trade and Other receivables

Trade accounts receivable and other accounts receivable, and their provisions for impairment of receivables as of December 31, 2013 and 2012, consist of the following:

(In thousands of Korean won) 2013 2012 Trade

accounts receivable

Other accounts receivable

Tradeaccounts receivable


Regular receivables 882,519,491 35,021,976 857,769,374 75,596,167Less: Provision for impairment (268,642,119) (4,800,810) (191,921,527) (5,344,535)Trade and other receivables, net 613,877,372 30,221,166 665,847,847 70,251,632Less: Non-current receivables (165,520,903) (24,199) (142,131,902) -

448,356,469 30,196,967 523,715,945 70,251,632


Group 11 303,129,311 287,843,090Group 22 58,904,940 136,662,935

362,034,251 424,506,025

(In thousands of Korean won) 2013 2012 Cash at bank and short-term bank deposits1

AAA 237,545,023 432,974,069AA 510,006,900 416,310,181

747,551,923 849,284,250

(In thousands of Korean won) 2013 2012 Short-term financial instruments

AAA 289,597,286 234,908,765AA - 99,755

289,597,286 235,008,520

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The aging analysis of trade and other receivables as of December 31, 2013 and 2012, are as follows:

1 Trade receivables past due but not impaired relate to a number of independent customers who have no recent history of default. 2 Provision for impaired receivables amount to 273,443 million as of December 31, 2013 (2012: 197,266 million). The individually impaired receivables mainly relate to customers, which are in unexpectedly difficult economic situations. It was assessed that a portion of the receivables is expected to be recovered.

Changes in the provision for impairment of receivables for years ended December 31, 2013 and 2012, are as follows:

(In thousands of Korean won) 2013 2012 Trade

accounts receivable


Tradeaccounts receivable


Beginning 191,921,527 5,344,535 117,241,578 8,982,836Provision for receivables impairment 77,730,141 - 78,206,002 5,294,240Foreign currency translation (780,321) - - -Receivables written-off during the year as uncollectible (229,228) - (3,526,053) (8,932,541)Unused amounts reversed - (543,725) - -Ending 268,642,119 4,800,810 191,921,527 5,344,535

The creation of provision for impaired receivables has been included in selling and administrative expenses in the statement of income. Reversal of unused amounts generally occurs due to recovery of impaired receivables.

The maximum exposure of trade receivables to credit risk at the reporting date is the book value.


Receivables not past due 362,034,251 424,506,025Past due but not impaired1

3 to 6 months 2,517,759 26,679,916Over 6 months 47,561,230 126,598,130

50,078,989 153,278,046Impaired2 505,428,228 355,581,470

917,541,468 933,365,541

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11. Derivatives

As of December 31, 2013, the Company have forward exchange contracts with RBS and 23 other banks to hedge foreign exchange fluctuation risk relation to the foreign advance receipts, foreign payables, foreign debentures, and foreign borrowings. The valuation gain (loss) of derivative contracts is as follows:

(In thousands of Korean won and other currencies) Gain(loss) from

derivative valuation

Gain(loss) from derivative

valuation for hedging purpose

Gain(loss) from firm commitment

valuation Firm

commitment Derivative financial

instrument Short position Long position

USD 21,681,383 KRW 24,434,687,161 4,716,274 864,233,391 (858,455,905) (935,405,068) 1,170,002,938USD 865,452 KRW 916,543,458 (4,360) (1,719,896) 12,218,769 (30,736,938) (1,724,256)EUR 9,709 KRW 14,548,106 - 101,329 (101,329) (18,220) 381,092EUR 9,403 KRW 13,682,652 - (48,880) 48,880 - (48,880)JPY 271,494 KRW 2,975,062 2,014 - - - 2,014NOK 559,645 KRW 105,231,026 - 7,696,208 (7,696,208) (8,212,194) 7,696,208NOK 205,765 KRW 35,545,487 - (231,598) 231,598 (816,021) (231,598)NOK 2,179,573 USD 378,112 - 27,562,156 (27,562,156) (27,584,183) 27,562,156NOK 13,929 USD 2,238 - (21,529) 21,529 (205,237) (21,529)USD 52,318 AUD 56,558 - (14,547,751) 14,547,751 5,100,648 (3,942,038)KRW 48,756,410 EUR 33,589 51,650 251,838 (251,838) 2,557,801 303,487KRW 28,371,778 EUR 18,943 (394,270) (57,328) 57,328 329,273 (723,543)USD 1,344,513 EUR 1,001,694 1,065,559 33,548,398 (33,548,398) (42,777,684) 38,296,521USD 35,950 EUR 25,477 - 832,855 (832,855) 867,212 (867,212)KRW 746,816 GBP 435 - 14,702 (14,702) (14,702) 14,702USD 8,880 GBP 5,435 - 98,599 (98,599) (255,463) 98,599KRW 702,979 JPY 66,781 (27,365) - - - (27,365)USD 4,583 JPY 449,732 - (259,481) 259,481 885,192 (293,162)KRW 38,527,206 NOK 222,677 - 189,839 (189,839) 531,186 189,839KRW 99,613,547 NOK 530,957 - (7,092,829) 7,092,829 7,889,716 (7,092,829)USD 86,206 NOK 530,878 157,259 501,256 (501,256) 1,595,218 648,409USD 112,569 NOK 663,315 (2,405,009) (1,843,592) 1,843,592 2,633,465 (4,208,644)USD 3,882 SEK 25,728 - 113,360 (113,360) (113,360) 113,360USD 386 SGD 483 - (4,399) 4,399 4,399 (4,399)KRW 233,682,364 USD 220,424 15,306 275,221 (275,221) 11,262,392 290,529KRW 12,299,372,675 USD 10,968,876 (5,508,717) (466,810,598) 466,810,598 661,855,457 (566,102,109)

(2,331,659) 442,781,271 (426,504,912) (350,627,111) 660,312,290

The Company applies the fair value hedge accounting and is exposed to fluctuations in fair value until April 20, 2018. The realized gain and loss on derivative transactions recognized upon the expiration of contracts during the year ended December 31, 2013, amounted to 684,155 million and 759,688 million(2012: 912,179 million and 767,600 million), respectively. The realized gain and loss on firm commitments recognized during the years ended December 31, 2013 amounts to 673,571 million and 654,174 million,(2012:

763,697 million and 846,544 million), respectively.

The maximum exposure to credit risk at the reporting date is the book value of the derivative financial assets in the statement of financial position.

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12. Inventories

Inventories as of December 31, 2013 and 2012, are as follows:


Finished goods - 10,570,077Work-in-process 26,540,143 3,831,577Raw materials 587,004,733 487,953,708Materials in-transit 209,786,789 123,115,590Finished housing - 11,935,999Unfinished vessel - 46,217,965

823,331,665 683,624,916

The cost of inventories recognized as expense and included in ‘cost of sales’ amounts to 7,935,909 million (2012: 7,586,514 million).

13. Other Financial Assets and Liabilities

Other financial assets and liabilities as of December 31, 2013 and 2012, are as follows:

(In thousands of Korean won) 2013 2012 Current Non-current Current Non-current

Other financial assetsLoans 45,460,640 33,497,592 54,703,077 92,516,433Accrued income 11,825,391 - 12,374,782 -Guarantee deposits 2,644,705 - 2,389,093 -Deposits - 19,407,839 - 22,545,838Held-to-maturity financial assets - - 1,066,120 3,396,995Long-term financial instruments - 24,600 - 30,100Non-trade receivables - 24,200 - -

59,930,736 52,954,231 70,533,072 118,489,366

Other financial liabilities Guarantee deposits received - 20,197,723 - 19,839,010

- 20,197,723 - 19,839,010

Short-term and long-term loans receivables as of December 31, 2013 and 2012, are as follows:

(In thousands of Korean won)Interest rates

as of December 31, 2013

2013 2012

Loans to employees 0.0-4.0% 15,194,396 16,316,550Loans to cooperative firms 6.0% 14,351,864 14,351,863Loans to customers 6.0% 62,602,212 130,890,541

92,148,472 161,558,954Less: Provision for impairment of receivables (13,190,240) (14,339,777)Less: Current portion (45,460,640) (54,703,077)

33,497,592 92,516,433

27


Held-to-maturity securities as of December 31, 2013 and 2012, are as follows:

(In thousands of Korean won) 2013 2012 Within 1 year 1,066,120Over 1 year and within 5 years 3,396,995

4,463,115

As of December 31, 2013, 25 million of long-term financial instruments are restricted to maintain checking accounts (Note 5).

The maximum exposure of other financial assets to credit risk at the reporting date is the book value.

14. Available-for-sale Financial Assets

Changes in available-for-sale financial assets for the years ended December 31, 2013 and 2012, are as follows:

(In thousands of Korean won) 2013 2012 Balance at the beginning of year 137,924,871 161,916,380Additions 658,839 364,778Unrealized loss on valuation of available for sale securities 1,232,785 (23,745,787)

Disposals (1,402,837) (610,500)Balance at the end of year 138,413,658 137,924,871

Details of available-for-sale financial assets as of December 31, 2013 and 2012, are as follows:

(In thousands of Korean won) 2013 2012 Marketable equity 98,280,859 98,416,214Non-marketable equity1,2 38,993,845 38,317,764Beneficiary certificates 1,138,954 1,190,893

138,413,658 137,924,871

1 Among the non-marketable equities, investments of Samsung Asset Management Co., Ltd., Samsung Venture Investment Corporation and Samsung Economics Research Institute were valuated at 24,333 million (2012: 24,309 million) by independent external valuers using reasonable valuation model and appropriate measurements based on professional judgments (Note 8).

2 The fair value of non-marketable equity securities, other than the investments mentioned above are presented at their acquisition cost of 14,661 million (2012: 14,009 million). The Company does not have any plans to dispose of the above-mentioned equities in the near future (Note 8). In addition, among these securities, 3,392 million is pledged as collateral for the long-term borrowings (Note 19).

28


Changes in unrealized gain (loss) for the years ended December 31, 2013 and 2012, are as follows:


Balance at the beginning of year 73,713,304 90,658,147Unrealized gain on valuation of available-for-sale securities 1,232,785 (23,745,787)Realized loss on disposal of available for sale securities (46,340) -Deferred income tax liabilities (287,120) 6,800,944

Balance at the end of year 74,612,629 73,713,304

15. Investments in Subsidiaries, Associates and Joint Ventures

Changes in ownership interests in subsidiaries, associates and joint ventures as of December 31, 2013 and 2012, are as follows:


Beginning balance 475,277,450 433,614,526Acquisition of subsidiaries, associates and joint ventures 1,067,860 43,084,669Disposal and transfer of subsidiaries, associates and joint ventures (68,374,014) (1,421,745)

Ending Balance 407,971,296 475,277,450

Investments in subsidiaries, associates and joint ventures as of December 31, 2013 and 2012, are as follows:

Investee Contry % of

ownership interest

2013 2012

Samsung Heavy Industries Ningbo Co., Ltd. China 100% 167,810,098 167,810,098Samsung Heavy Industries Rongcheng Co., Ltd. China 100% 163,647,755 163,647,755Rongcheng Gaya Heavy Industries Co., Ltd. China 100% 52,194,501 52,194,501Samsung Heavy Industries Brazil Brazil 100% 392,570 68,545,025Samsung Wind Energy, Inc. USA 100% 7,548,255 7,548,256Samsung Heavy Industries India Pvt.Ltd. India 100% 3,263,121 3,263,121Camellia Consulting Corporation USA 100% 2,473,656 2,473,656SVIC 13 New Technology Business Investment Korea 99% 2,207,700 2,207,700Samsung Heavy Industries (M) Sdn.Bhd Malaysia 100% 184,531 184,531SHI Brazil Construction Brazil 100% 24,711 24,711SHI Thailand Thailand 49% - 221,558Samsung Heavy Industries Trade(Shanghai) Co., Ltd. China 100% 190,220 122,360SHI Nigeria Ltd. Nigeria 100% 106,300 106,300Samsung Heavy Industries Hamburg GmbH Germany 100% 794,440 794,440MMHE-SHI LNG Sdn Bhd Malaysia 30% 291,959 291,959Daejung Offshore Wind Power Co., Ltd.1 Korea 50.1% 5,010,000 5,010,000Jeongam Wind Power Co., Ltd1 Korea 50% 1,000,000 -Offshore 1 Consulting Corporation1 USA 51.0% 831,479 831,479

407,971,296 475,277,450

1 All joint arrangements where in the Company has joint control, are structured through a separate entity and classified as joint ventures as parties with joint control on the joint arrangements have rights on the net assets of the arrangements.

29

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30

Samsung Heavy Industries Co., Ltd. Notes to Separate Statements December 31, 2013 and 20121 101,700 million (2012: 26,354 million) was transferred to intangible assets (Note 18).

Depreciation expense of 190,434 million (2012: 207,473 million) and 28,050 million (2012: 25,732million) has been charged to ‘cost of sales’ and ‘selling and administrative expenses’, respectively.

Acquisition of construction-in-progress includes capitalized borrowing costs amounting to 676 million (2012: 599million). Borrowing costs were capitalized at the weighted average rate of its general borrowings of

3.37%(2012: 3.32%).

17. Investment Property

Details of investment property as of December 31, 2013 and 2012, are as follows:

(In millions of 2013 2012 Korean won)

Cost Accumulated depreciation Book value Cost

Accumulated depreciation Book value

Land 18,215,431 (3,851,591) 14,363,840 48,280,648 (11,993,210) 36,287,438

Buildings 52,033,763 (21,816,755) 30,217,008 103,390,614 (30,736,474) 72,654,140

70,249,194 (25,668,346) 44,580,848 151,671,262 (42,729,684) 108,941,578

Changes in investment property for the years ended December 31, 2013 and 2012, are as follows:

(In thousands of Korean won) 2013 2012 Land Building Land Building

Beginning net book value 36,287,438 72,654,139 33,122,530 55,355,211Acquisition 980,452 1,405,001 23,012,752 52,982,368Disposal (20,629,410) (31,098,518) (12,293,475) (16,391,670)Depreciation - (1,321,313) - (1,096,386)Impairment losses (2,274,640) (11,422,301) (7,554,369) (18,195,383)Ending net book value 14,363,840 30,217,008 36,287,438 72,654,140

Rent income from investment property during the year ended December 31, 2013, is 665 million (2012: 768 million), and operating expenses (including repairs and maintenance) directly related to those

investment property is 452 million (2012: 848 million). Operating expenses (including repairs and maintenance) of 1,691 million (2012: 1,254 million) were incurred on properties from which no rental income was generated.

Fair value of investment property as of December 31, 2013, is 47,677 million (2012: 111,231 million) and is estimated by an independent valuer.

As of December 31, 2013, the use of certain property, plant and equipment is restricted in relation to the real estate lease for up to maximum of 6,500 million and (2012: 6,500 million).

31


18. Intangible Assets

Changes in intangible assets for December 31, 2013 and 2012, are as follows:

(In thousands of Korean won) 2013

Memberships Otherintangible assets Total

Beginning net book value 32,814,174 - 32,814,174Acquisition1 1,016,890 101,699,596 102,716,486Amortization - (1,694,992) (1,694,992)Disposal (180,600) - (180,600)Impairment losses (2,015,021) - (2,015,021)Ending net book value 31,635,443 100,004,604 131,640,047Acquisition cost 38,467,940 192,511,703 230,979,643Accumulated amortization and impairment (6,832,497) (92,507,099) (99,339,596)Net book amount 31,635,443 100,004,604 131,640,047


2012

Development costs Goodwill Memberships

Otherintangible

assets Total

Beginning net book value 40,593,142 - 39,572,129 866,942 81,032,213Acquisition1 26,354,195 - 1,816,428 - 28,170,623Amortization (5,294,758) - - (200,063) (5,494,821)Disposal - - (3,756,907) - (3,756,907)Impairment losses (61,652,579) - (4,817,476) (666,879) (67,136,934)Ending net book value - - 32,814,174 - 32,814,174

Acquisition cost 91,318,645 759,454 37,631,650 90,812,107 220,521,856Accumulated amortization and impairment (91,318,645) (759,454) (4,817,476) (90,812,107) (187,707,682)

Net book amount - - 32,814,174 - 32,814,174

1 The amount includes the 101,700 million representing the transfer from construction-in-progress(Note 16).

None of amortization (2012: 5,445 million) is included in the ‘cost of sales’ and amortization of 1,695million (2012: 50 million) is included in the ‘selling and administrative expenses’.

The Company recognized research and development expenses totaling of 147,611 million (2012: 155,436million) for the year ended December 31, 2013,

Non-financial assets with indefinite useful lives are not be amortized and instead are tested annually at the end of each year (as of December 31) or whenever there is evidence of impairment. An impairment charge of

2,015 million arose from a prolonged decline in the fair value of membership rights during 2013, recoverable amount is calculated as fair value less costs to sell determined by reference to market values obtained from an active market.

Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss for intangible

32


assets amounting to nil (2012: 62,320 million) was recognized due to impairment of development costs related to onshore wind power generator products.

19. Borrowings and Debenture

Details of borrowings as of December 31, 2013 and 2012, are as follows:

(In thousands of Korean won) Annual interest

rate(%) December 31, 2013 2013 2012

Debentures unsecured debenture 3.2-4.4 1,197,432,829 1,196,289,548Less : current portion - -

1,197,432,829 1,196,289,548Long-term borrowings Korea Exim bank 3.7 180,370,000 596,403,000Korea Housing guarantee Co., Ltd.1 1.0 7,562,664 7,394,384Less : current portion (180,370,000) (165,202,000)

7,562,664 438,595,384Short-term borrowings CP(Shinhan bank) 2.8 300,000,000 -Korea Development Bank and other 3.1-3.5 850,000,000 450,000,000Construction Guarantee 1.7 8,593,000 8,593,000Network Loan 3.4 128,400,000 63,393,000Banker’s usance 0.6-1.7 13,508,695 638,027,146

1,300,501,695 1,160,013,146Current maturities of long-term debts Current portion of long-term borrowings 180,370,000 165,202,000

180,370,000 165,202,0002,685,867,188 2,960,100,078

1 The borrowings are collateralized with available-for-sale financial assets (Note 14).

Details of debentures as of December 31, 2013 and 2012, are as follows:

(In thousands of Korean won) Annual interest rate(%)December 31, 2013 2013 2012

The 89-1st unsecured debenture 4.2 299,529,377 299,127,547The 89-2nd unsecured debenture 4.4 398,997,781 398,704,837The 90-1st unsecured debenture 3.2 299,415,962 299,093,772The 90-2nd unsecured debenture 3.3 199,489,709 199,363,392

1,197,432,829 1,196,289,548

33


Details of issue of debentures as of December 31, 2013, are as follows:

(In millions of Korean won)

The 89-1st unsecured debenture

The 89-2ndunsecured debenture

The 90-1st unsecured debenture

The 90-2nd unsecured debenture

Face amount 300,000 million 400,000 million 300,000 million 200,000 million

Issuing cost 1,212 million 1,543 million 990 million 670 millionInterest rate 4.2% 4.4% 3.2% 3.3%

Interest payment Payment of credit

every 3 months after issued date

Payment of credit every 3 months after

issued date

Payment of credit every 3 months after issued

date

Payment of credit every 3 months after issued

dateIssued date February 14, 2012 February 14, 2012 September 26, 2012 September 26, 2012

Maturity date February 14, 2015 February 14, 2017 September 26, 2015 September 26, 2017

Underwriter SK Securities SK Securities Korea Investment and Securities

Korea Investment and Securities

20. Net Defined Benefit Liability

Defined benefit liability recognized on the statements of financial position as of December 31, 2013 and 2012, is as follows:

(In thousands of Korean won) 2013 2012 Present value of funded defined benefit obligations 400,726,393 375,926,177Present value of unfunded defined benefit obligations 41,896,542 37,248,622

442,622,935 413,174,799Fair value of plan assets1 (396,126,715) (315,525,000)Liability on the statement of financial position 46,496,220 97,649,7991 The contributions to the National Pension Fund of 872 million are included in the fair value of plan assets as of December 31, 2013 (2012: 938 million).

Changes in the defined benefit obligations for the years ended December 31, 2013 and 2012, are as follows:


Beginning balance 413,174,798 410,858,701Current service cost 80,915,532 78,380,375Interest expense 14,008,024 17,667,717Remeasurements: Actuarial gains and losses arising from changes in demographic assumptions - 57,059

Actuarial gains and losses arising from changes in financial assumptions (26,566,731) 14,786,731

Others 450,511 (20,128,175)Payments from plans: Benefit payments (36,030,012) (88,315,777)Transfer from and to related companies (3,329,187) (131,832)

Ending balance 442,622,935 413,174,799

34


Changes in the fair value of plan assets for the years ended December 31, 2013 and 2012, are as follows:


Beginning balance 315,525,000 271,553,099Interest income 11,432,933 12,896,182Remeasurements: Return on plan assets (excluding amounts included in interest income) (1,909,992) (4,264,594)

Contributions: Employers 90,226,900 90,226,900Payments from plans: Benefit payments (19,120,861) (54,886,587)Transfer from and to related companies (27,265) -

Ending balance 396,126,715 315,525,000

Plan assets as of December 31, 2013 and 2012, consist of as follows:

(In thousands of Korean won) 2013 2012 Quoted price Composition Quoted price Composition

Cash and cash equivalents 395,254,639 99.78% 314,587,244 99.70%Others(National Pension Fund) 872,076 0.22% 937,756 0.30%Ending net book value 396,126,715 100.00% 315,525,000 100.00%

The principal actuarial assumptions as of December 31, 2013 and 2012, are as follows:

(In thousands of Korean won) 2013 2012 Discount rate 4.00% 3.55%Salary growth rate 4.51% 4.69%

The sensitivity of the defined benefit obligations as of December 31, 2013, to changes in the weighted principal assumptions is:

(in percentage, %) Effect on defined benefit obligation Changes in principal

assumption Increase in principal

assumption Decrease in principal

assumption

Discount rate 1.00% 9.64%decrease 11.42%increase Salary growth rate 1.00% 11.20%increase 9.65%decrease

A decrease in corporate bond yields will increase plan liabilities and expose the defined benefit liability to the most significant risk. The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. The sensitivity of the defined benefit obligation to changes in principal actuarial assumptions is calculated using the projected unit credit method, the same method applied when calculating the defined benefit obligations recognized on the statement of financial position.The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period.

The Company reviews the funding level on an annual basis and has a policy to eliminate deficit in the fund.

35


Expected contributions to post-employment benefit plans for the year ended December 31, 2014 are 77,337million and the weighted average duration of the defined benefit obligations is 10.53 years.

Expected maturity analysis of undiscounted pension benefits as of December 31, 2013, is as follows:

(In millions of Korean won)Less than 1

year Between 1 and

2 years Between 5 and 5

years Over 5 years Total

Pension benefits 45,157,896 32,443,216 110,292,646 2,620,093,099 2,807,986,857

21. Provisions, Contingent Liabilities and Commitments

A. Provisions

Details and changes in provisions for liabilities for the year ended December 31, 2013, are as follows:

(In thousands of Korean won) Reference January 1, 2013 Increase(Decrease) December 31,

2013 Long-term Incentives (A) 54,245,457 12,473,060 66,718,517Litigations (B) 123,904,122 39,390,949 163,295,071

178,149,579 51,864,009 230,013,588

(A) The Company has a long-term incentive plans for its executives based on three-year management performance criteria and has made a provision for the estimated incentive cost for the current year.

(B) As of December 31, 2013, the Company has a pending lawsuit amounting to 50,303 million against the Company for claiming additional payments of wages related to general wages. The Company recognizes the best estimate which is expected to be paid as provisions. The final liability of the Company is subject to change from the estimated amount depending on the outcome of this case. In addition, the Company has accrued warranty provision for the estimated costs of future repair, based on warranty period, the historical data and others, and the corresponding amount is recognized as warranty expenses.

B. Contingent liabilities

(A) As of December 31, 2013, the Company provides payment guarantees amounting to 15,154 million for borrowings by customers who purchased houses under construction to make their interim payments.

(B) As of December 31, 2013, the Company provides business operators with a cash deficiency support agreement amounting to 27,000 million and a guarantee agreement for the sales of real estate amounting to 644,000 million of which unsold real estate held-for-sale amount to 308,300 million.

(C) The Company provided payment guarantee in relation to borrowings from SC bank to Samsung Heavy Industries Nigeria Co.Ltd., a subsidiary, up to $ 21 million (Note 35).

(D) Based on the agreement entered into on August 24,1999, with respect to Samsung Motor Inc.’s (“SMI”) bankruptcy proceedings, Samsung Motor Inc.’s creditors (“the Creditors”) filed a civil action lawsuit against Mr. Kun Hee Lee, chairman of the Company, and 28 Samsung Group associates including the Company under joint and several liability for failing to comply with such agreement. Under the suit, the Creditors have sought

2,450 billion (approximately US$2.12 billion) for loss of principal on loans extended to SMI, a separate amount for breach of the agreement, and an amount for default interest.

36


SLI completed its Initial Public Offering (“IPO”) on May 7, 2010. After disposing of 2,277,787 of the shares

donated by Mr. Lee and payment of the principal balance owed to the Creditors, 878 billion (approximately US$0.76 billion) was deposited in to an escrow account. That remaining balance was to be used to pay the Creditors interest due to the delay in the SLI IPO. On January 11, 2011, the Seoul High Court ordered

Samsung Group associates to pay 600 billion (approximately US$0.52 billion) to the Creditors and pay 5% annual interest for the period between May 8, 2010 and January 11, 2011, and pay 20% annual interest for the period after January 11, 2011, until the amounts owed to the Creditors are paid. In accordance with the Seoul

High Court order, 620.4 million (which includes penalties and interest owed) was paid to the Creditors from the funds held in escrow during January 2011. On February 7,2011, the Samsung Group associates and the Creditors appealed to the Korean Supreme Court’s ruling to the Korean Supreme court and the appeal is currently in progress. The amount of loss related to this matter cannot be reasonably determined. Accordingly, the Company has concluded that no provision for loss should be reflected in the Company’s separate financial statements as of December 31, 2013.

(E) As of December 31, 2013, the Company is named as a defendant in 13 legal cases, excluding the case discussed above (D) and which recognized provision. The aggregate amounts of claims as the defendant

amounted to approximately 6,619 million. The said case is still pending in court and as of December 31, 2013, the outcome of these cases is uncertain. Accordingly, the ultimate effect of these matters on the financial position of the Company cannot be determined.

C. Commitments

(A) As of December 31, 2013, the Company has technical assistance agreements with eight foreign companies.

(B) As of December 31, 2013, the Company is provided with refund guarantee of US$ 7,500 million from Korea Exim bank and others. The ships under construction are pledged as collaterals for the guarantees provided by the financial institutions.

(C) Commitment limits made with financial institutions are as follows:

(In millions of Korean won) Financial Institution Contract limit Overdrawn Account Woori Bank and others 51,000Trade Finance Hana Bank and others 1,376,300

General Loan Korea Exim Bank and others 2,072,161

Purchase Card, others Nonghyup and others 570,000

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22. Share Capital and Premium

The Company’s total number of authorized shares is 300 million shares. As of December 31, 2013, total number of stocks issued is 230,990,231 shares, including 114,845 shares of preferred stock, and the par value per share is 5,000.

Number of shares outstanding (in shares)

Equity and share premium (in thousands of Korean won)

Common stock

Preferredstock Total Capital stock Share premium Total

January 1, 2013 216,732,757 114,845 216,847,602 1,154,951,155 417,172,244 1,572,123,399Exercise of stock options

(Treasury stock) 118,800 - 118,800 - - -

December 31, 2013 216,851,557 114,845 216,966,402 1,154,951,155 417,172,244 1,572,123,399

23. Stock Compensation Plans

The Company granted share options to its employees and directors, as approved by the Board of Directors on May 10, 2004. The compensation is payable with issuance of new shares or treasury stock.

A summary of the terms of stock options as of December 31, 2013, is as follows:

Date of grant May 10,

2004 Quantity of stock to be issued 64,400Exercise price per share 5,400 Exercisable period from the date of the grant 10 years

Changes in number of share options for the years ended December 31, 2013 and 2012, are as follows:


2013 2012 Shares Amount Shares Amount

Beginning of the year 183,200 232,447 310,300 295,341 Exercised 118,800 92,003 127,100 62,894

Ending of the year 64,400 140,444 183,200 232,447

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24. Accumulated Other Comprehensive Income and Other components of equity

Changes in accumulated other comprehensive income for the year ended December 31, 2013, is as follows:

(In thousands of Korean won) Beginning Increase

(Decrease) Ending Change in value of available-for-sale

financial assets 73,713,304 899,325 74,612,629

Changes in accumulated other comprehensive income represent net of tax effect amounts.

Other components of equity as of December 31, 2013 and 2012, are as follows:

(In thousands of Korean won) 2013 2012 Treasury stock (655,547,798) (657,161,685)Gain on disposal of treasury stock 6,177,749 6,001,516Stock purchase options 140,445 232,447

(649,229,604) (650,927,722)

As of December 31, 2013, the Company holds 14,024 thousand shares of its common stock amounting to 655,548 million. The treasury stock is recorded as other components of equity and is reserved for the

exercise of stock options and others.

25. Retained Earnings

Retained earnings as of December 31, 2013 and 2012, consist of:


Legal reserve1 87,120,000 76,270,000Discretionary reserves2 4,037,269,854 3,414,269,854Unappropriated retained earnings 671,241,510 742,726,409

4,795,631,364 4,233,266,263

1 The Commercial Code of the Republic of Korea requires the Company to appropriate for each financial period, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its issued capital stock. The reserve is not available for the payment of cash dividends, but may be transferred to capital stock or used to reduce accumulated deficit, if any, with the ratification of the Company’s majority shareholders.

2 The Company appropriates a certain portion of its retained earnings as reserves for financial structure improvement, and research and human resource development which are provided in order to obtain tax benefits under the Special Tax Treatment Control Law.

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The appropriation of retained earnings for the years ended December 31, 2013 and 2012, is as follows:


Unappropriated retained earnings carried over from prior year 446,865,702 735,433,342Net income (loss) 652,446,323,373 741,217,973,977Remeasurement of net defined liabilities 18,348,320,856 773,001,633Research and development reserves 97,000,000,000 -

Appropriation of retained earnings Earned profit reserves 10,850,000,000 10,850,000,000Dividend 108,488,943,250 108,429,543,250Reserve for facilities 588,000,000,000 563,000,000,000Research and development reserves 60,000,000,000 60,000,000,000

Unappropriated retained earnings to be carried forward 902,566,681 446,865,702

The dividends paid in 2013 and 2012 were 108,430 million ( 500 per share) and 108,366 million ( 500 per share), respectively.

A dividend in respect of the year ended December 31, 2013, of 500 per share, amounting to a total dividend of 108,489 million, is to be proposed at the annual general shareholders’ meeting on March 14, 2014. These financial statements do not reflect this dividend payable.

26. Expenses by nature

Expenses by nature for the years ended December 31, 2013 and 2012, are as follows:


Changes in inventories 46,015,474 26,543,492Raw-materials and supplies used 7,889,893,335 7,559,970,198Employee benefit expense 1,415,485,478 1,319,435,417Depreciation and amortization expenses 220,179,278 238,699,943Service fees 322,063,276 294,958,608Outsource expenses 2,411,210,728 2,731,594,333Others 1,476,695,310 1,102,743,823

13,781,542,879 13,273,945,814

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27. Selling, General and Administrative expenses

Details of selling, general and administrative expenses for the years ended December 31, 2013 and 2012, are as follows:

(In thousands of Korean won) 2013 2012 Employee benefit expense 293,378,522 170,287,065Service fees 188,812,566 184,258,983Warranty expense 1,021,209 91,197,595Provision for receivables impairment 77,730,141 78,206,002Depreciation and amortization 29,745,410 25,782,278Research and development 138,684,341 38,383,915Taxes and dues 9,492,032 8,808,872Others 94,401,510 89,374,542

833,265,731 686,299,252

28. Other Income and Expense

Details of other income and expenses for the years ended December 31, 2013 and 2012, are as follows:

(In thousands of Korean won) 2013 2012Other income Currency transaction differences 133,531,799 26,303,869 Currency translation differences 36,790,922 1,647,034 Gain from derivative valuation 936,678,271 1,575,102,841 Gain from derivative transactions 684,155,225 912,178,818 Gain from firm commitment valuation 493,897,000 665,227,136 Gain from firm commitment transactions 673,570,832 763,697,379 Others 380,035,265 244,421,644

3,338,659,314 4,188,578,721Other expenses Currency transaction differences 42,994,437 72,386,228 Currency translation differences 36,611,153 19,655,450 Loss from derivative valuation 493,897,000 665,227,136 Loss from derivative transactions 759,688,092 767,599,684 Loss from firm commitment valuation 920,401,912 1,567,769,512 Loss from firm commitment transactions 654,174,319 846,543,769 Impairment cost of intangible assets 2,015,021 67,136,934 Others 263,090,910 406,789,549

3,172,872,844 4,413,108,262

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29. Financial Income and Costs

Details of financial income and costs for the years ended December 31, 2013 and 2012, are as follows:

30. Income Tax

Income tax expense for the years ended December 31, 2013 and 2012, consists of:

(In thousands of Korean won) 2013 2012 Current tax

Current tax on profits for the year 367,119,314 174,521,400Origination and reversal of temporary differences (172,185,554) 57,156,498Deferred income tax due to tax loss carryforwards (8,104,800) 4,857,805Total deferred tax 186,828,960 236,535,703Deferred income tax charged to equity 1,087,200 1,167,091

Income tax expense 187,916,160 237,702,794

Reconciliation of net income before tax and income tax expense for the years ended December 31, 2013 and 2012, follows:


Profit before tax 840,362,483 978,920,766

Income tax based on statutory rate 202,905,721 236,436,825Adjustments (14,989,561) 1,265,967Tax deduction (2,156,922) (3,711,818)Permanent differences and others (12,832,639) 4,977,785

Income tax expense 187,916,160 237,702,792Effective tax rate (Income tax over profit before tax) 22.4% 24.3%


Financial income Interest income 23,236,528 45,035,130 Currency transaction differences 15,277,487 16,680,141 Currency translation differences 725,070 15,149,625 Gain from derivative valuation 6,008,063 20,238,034 Gain from derivative transactions 432,362,991 213,097,722

477,610,139 310,200,652

Financial costs Interest expense - 137,994 Currency transaction differences 42,358,046 3,661,547 Currency translation differences 1,878,860 280,968 Loss from derivative valuation 8,339,722 27,702,027 Loss from derivative transactions 675,012,578 224,938,274

727,589,206 256,720,810

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Changes in the temporary differences and related deferred tax assets and liabilities are as follows:

2013 Temporary differences Deferred tax assets(liabilities)

(In thousands of Korean won) Beginning Increase (Decrease) Ending Beginning Ending

Retirement benefit obligation 15,014,839 49,885,790 64,900,629 3,633,591 15,705,952

Accrued income (11,598,149) 271,559 (11,326,590) (2,806,752) (2,741,035)Inventories 43,011,655 4,460,521 47,472,176 10,408,821 11,488,267Property, plant and equipment (348,757,485) 32,213,674 (316,543,811) (84,399,311) (76,603,602)Associates (125,432,532) - (125,432,532) (23,291,528) (23,291,528)Impairment losses on investment 40,558,523 (12,022,794) 28,535,729 9,815,163 6,905,646Provision for impairment of receivables 146,579,893 71,554,832 218,134,725 35,472,334 52,788,603Currency translation differences 7,025,067 (6,754,393) 270,674 1,700,066 65,503Accrued expenses 238,764,910 185,536,524 424,301,434 57,781,108 102,680,947Warranty provision 213,821,977 47,960,154 261,782,131 51,744,918 63,351,276Provision for construction losses 128,491,245 136,287,939 264,779,184 31,094,881 64,076,563Provisions 134,106,279 29,188,792 163,295,071 32,453,720 39,517,407Other provisions 54,245,457 12,473,060 66,718,517 13,127,401 16,145,881Derivatives (591,167,727) 297,976,019 (293,191,708) (143,062,590) (70,952,393)Reserve for research and human resource development (266,000,000) (3,000,000) (269,000,000) (64,372,000) (65,098,000)

Others 117,270,488 (134,521,119) (17,250,631) 28,379,458 (4,174,653)(204,065,560) 711,510,558 507,444,998 (42,320,720) 129,864,834

Deferred income tax charged directly to shareholders' equity (98,266,894) (1,571,754) (99,838,648) (23,780,588) (24,160,953)

Tax deduction 2,426,504 7,368,000 9,794,504 2,669,153 10,773,954(63,432,155) 116,477,835

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2012 Temporary differences Deferred tax assets(liabilities)

(In thousands of Korean won) Beginning Increase (Decrease) Ending Beginning Ending

Retirement benefit obligation 28,504,928 (13,490,089) 15,014,839 6,898,192 3,633,591

Accrued income (15,056,306) 3,458,157 (11,598,149) (3,643,626) (2,806,752)Inventories 23,215,296 19,796,359 43,011,655 5,618,102 10,408,821Property, plant and equipment (372,570,030) 23,812,545 (348,757,485) (90,161,947) (84,399,311)Associates (126,511,568) 1,079,036 (125,432,532) (23,341,381) (23,291,528)Impairment losses on investment 29,894,005 10,664,518 40,558,523 7,234,349 9,815,163Provision for impairment of receivables 74,735,384 71,844,509 146,579,893 18,085,963 35,472,334Currency translation differences 5,378,672 1,646,395 7,025,067 1,301,639 1,700,066Accrued expenses 206,011,534 32,753,376 238,764,910 49,854,791 57,781,108Warranty provision 184,674,110 29,147,867 213,821,977 44,691,135 51,744,918Provision for construction losses 151,693,527 (23,202,282) 128,491,245 36,709,834 31,094,881Provisions 10,849,777 123,256,502 134,106,279 2,625,646 32,453,720Other provisions 41,723,514 12,521,943 54,245,457 10,097,090 13,127,401Debentures and borrowings (3,384,000) 3,384,000 - (818,928) -Derivatives (95,511,715) (495,656,012) (591,167,727) (23,113,835) (143,062,590)Reserve for research and human resource development (246,000,000) (20,000,000) (266,000,000) (59,532,000) (64,372,000)

Others 133,598,153 (16,327,665) 117,270,488 32,330,753 28,379,45831,245,281 (235,310,841) (204,065,560) 14,835,777 (42,320,720)

Deferred income tax charged directly to shareholders' equity (163,382,444) 65,115,550 (98,266,894) (39,538,552) (23,780,588)

Tax deduction 6,842,691 (4,416,187) 2,426,504 7,526,960 2,669,153 (17,175,815) (63,432,155)

Income tax effects related to components of other comprehensive income (expenses) for the years ended December 31, 2013 and 2012, are as follows:


Gain on valuation of available-for-sale securities (18,056,256) (23,533,799)Remeasurements (6,104,697) (246,789)

(24,160,953) (23,780,588)

Details of unrecognized deductible (taxable) temporary differences as deferred tax assets (liabilities) as of December 31, 2013 and 2012, are as follows:

(In thousands of Korean won) 2013 2012 Remark

Interests in subsidiary (19,561,949) (19,561,949) No plan for disposal

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The analysis of deferred tax assets and liabilities as of December 31, 2013 and 2012, is as follows:

2013 2012

(In thousands of Korean won) Within 1 year After more than 1 year Within 1 year After more than 1

year Deferred tax assets 78,153,268 468,007,659 46,615,889 358,089,904Deferred tax liabilities (23,198,612) (406,484,480) (17,336,940) (450,801,005)

54,954,656 61,523,179 29,278,949 (92,711,101)

31. Earnings per Share

A. Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year excluding ordinary shares purchased by the Company and held as treasury shares.

Basic earnings per ordinary share for the years ended December 31, 2013 and 2012, is as follows:

(In millions of Korean won except per share amount) 2013 2012 Profit attributable to equity holders of the Company 652,095 740,820Weighted average number of ordinary shares in issue (thousands) 216,826 216,697Basic earnings per share 3,007 3,419

B. Diluted earnings per share

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has one category of dilutive potential ordinary shares: Stock purchase option.

Diluted earnings per share for the years ended December 31, 2013 and 2012, is as follows:

(In millions of Korean won except per share amount) 2013 2012 Profit used to determine diluted earnings per share 652,095 740,820Weighted average number of ordinary shares for diluted earnings per share (thousands) 216,903 216,885Diluted earnings per share 3,006 3,416

Profit attributable to equity holders of the company for the years ended December 31, 2013 and 2012, are as follows:

(In millions of Korean won) 2013 2012 Profit for the year 652,446 741,218Adjustments (351) (398)Profit attributable to equity holders of the Company 652,095 740,820

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Weighted average number of ordinary shares in issue and those for diluted earnings for the years ended December 31, 2013 and 2012, are as follows:

(In millions of Korean won except per share amount) 2013 2012 Beginning 216,733 216,606Treasury stock 93 91Weighted average number of ordinary shares in issue 216,826 216,697Stock options 77 188Weighted average number of ordinary shares for diluted earnings per share 216,903 216,885

32. Cash Generated from Operations

Details of cash generated from operations for the years ended December 31, 2013 and 2012, consist of the following:(In thousands of Korean won) 2013 2012

Profit before income tax 840,362,483 978,920,766Adjustments for: Retirement benefits 83,490,623 83,151,910 Loss on valuation and disposal of inventory - 11,579,221 Provisions for receivables impairment 78,076,575 126,403,304 Reversal of provision for receivables impairment (2,202,779) (241,600)Currency translation differences(gains) (37,515,993) (16,796,659)Currency translation differences(losses) 38,490,013 19,936,418 Depreciation expense 218,484,286 233,205,122 Gain on disposal of property, plant and equipment (6,171,864) (4,247,121)Loss on disposal of property, plant and equipment 23,834,025 26,984,801 Amortization expense 1,694,993 5,494,821 Gain on disposal of intangible assets - (48,898)Loss on disposal of intangible assets 15,145 33,078 Impairment cost of intangible assets 2,015,021 67,136,934 Gain on disposal of investment property (1,773,728) (3,910,439)Loss on disposal of investment property 569,665 3,425,794 Impairment cost of investment property 13,696,941 25,749,752 Gains(losses) from derivative transaction and valuation (122,267,158) (1,035,150,295)Gains(losses) from firm commitment transaction and valuation 407,108,400 985,388,766 Interest income (42,231,066) (69,944,395)Interest expense 103,665,662 72,613,167 Dividend income (2,351,293) (1,094,661)Loss of valuation of equity method investments 1,244,607 32,381,093

757,872,075 562,050,113Changes in assets and liabilities Trade accounts and notes receivable (41,125,038) (110,310,510)Due from customers for contract work (921,086,115) (1,116,790,412)Due to customers for contract work 493,861,850 (753,988,311)Other accounts receivable 41,544,743 (24,364,846)Advance payments 166,953,832 174,275,129 Prepaid expenses 6,234,461 149,574 Inventories (139,491,417) (113,756,983)Other current financial assets (279,811) (251,810)Other current assets 10,023,456 (9,179,406)Long-term prepaid expenses (3,598,411) (21,742,417)Trade accounts and notes payable 195,297,510 603,167,335 Other accounts payable 21,676,966 (20,119,259)Advance receipts (620,691,143) (876,148,995)Unearned revenue (2,065,892) 670,433

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Accrued expenses (77,633,240) 16,992,011 Other current liabilities 31,565,974 4,666,323 Defined benefit obligation (110,437,973) (123,787,923)Provisions 103,214,589 135,778,445 Derivative financial instruments (29,493,127) (301,831,079)Firm commitment 41,232,189 (108,916,066)Other non-current financial assets 358,713 (7,007,243)

(833,937,884) (2,652,496,010)

Cash generated from operations 764,296,674 (1,111,525,131)

The Company’s cash flow statements are prepared using the indirect method, and the principal non-cash transactions for the years ended December 31, 2013 and 2012, are as follows:


Transfer of current portion of long-term borrowings 180,370,000 165,202,000Transfer of current portion of long-term prepaid expenses 10,791,115 21,696,663Transfer of construction in-progress to other property, plant and equipment 288,419,688 167,665,652

Transfer of current portion of other financial assets 10,489,622 3,498,236Reclassification of accounts receivable to investment property - 75,995,120Transfer of due from customers for contract work to unfinished vessel - 55,779,125

Cash receipts and payments arising from transactions occurring frequently on short-term borrowings and short-term financial instruments are presented on a net basis financial instruments.

33. Financial Risk Management

The Company’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance. The Company uses derivative financial instruments to hedge certain risk exposures.

Risk management is carried out by a central treasury department under policies approved by the board of directors. The Company treasury identifies, evaluates and hedges financial risks in close co-operation with the Company’s operating units. The board reviews and approves written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

33.1 Market risk

(a) Foreign exchange risk

The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar and Euro. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities.

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Management has set up a policy to require Group companies to manage their foreign exchange risk against their functional currency.

The Company’s risk management policy is to hedge 100% of anticipated cash flows related to firm commitment and it qualify as firm commitment for hedge accounting purposes.

The Company uses forward contracts and currency swaps to hedge its foreign exchange risk arising from all anticipated cash flows in foreign currencies. Therefore, the fluctuation in value of major foreign currencies has almost no impact on profit and loss.

(b) Price risk

The Company is exposed to equity securities price risk because of investments held by the Company and classified on the separate statement of financial position as available-for-sale. The market values for the

Company’s listed equity investments as of December 31, 2013 and 2012, are 98,281 million and 98,416million, respectively.

If there is a change in price of equity investment by 30%, the amount of other comprehensive income changes for the years ended December 31, 2013 and 2012, would be 22,349 million and 22,380 million, respectively.

(c) Cash flow and fair value interest rate risk

The Company’s cash flow interest rate risk arises from borrowings. Borrowings issued at variable rates expose the Company to cash flow interest rate risk which is partially offset by cash equivalents held at variable rates. Also, borrowings and debentures issued at fixed rates expose the Company to fair value interest rate risk.

The Company analyzes its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Company calculates the impact on profit and loss of a defined interest rate shift. For each simulation, the same interest rate shift is used for all currencies. The scenarios are run only for liabilities that represent the major interest-bearing positions.

Based on the simulations performed, the impact on the profit of a 0.1% shift would be a maximum increase (decrease) of 2,686 million (2012: 2,960 million).

33.2 Credit risk

Credit risk is managed on a company basis. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted.

If customers are independently rated, these ratings are used. If there is no independent rating, the credit quality of the customer is evaluated taking into account its financial position, past experience and other factors.

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Accordingly, credit exposure to the Company is expected to be restricted. The maximum exposure to credit risk at the end of the reporting date is the carrying value of the financial assets and includes guaranteed amounts of 64,315 million relating to the financial guarantee contract provided. 33.3 Liquidity risk

The Company monitors rolling forecasts of the Company’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Company does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into consideration the Company’s debt financing plans, covenant compliance, compliance with internal financial ratio targets and, if applicable external regulatory or legal requirements – for example, currency restrictions.

Details of the Company’s liquidity risk analysis as of December 31, 2013 and 2012, are as follows:

(In thousands of Korean won) 2013 Less than

1 year 1-2 years More than 2 years

Derivative financial assets 728,499,475 338,248,966 178,851,413Borrowings 1,492,794,404 95,333 8,442,864Debentures 46,400,000 631,920,339 629,837,490Trade accounts and note payable and other accounts payable 2,280,824,579 - 20,197,723Derivative financial liabilities 373,809,474 171,003,869 40,474,220Payment guarantee contracts1 49,161,300 15,154,145 -

(In thousands of Korean won) 2012 Less than

1 year 1-2 years More than 2 years

Derivative financial assets 691,477,667 257,087,608 85,224,513Borrowings 1,430,344,541 436,932,229 8,178,990Debentures 46,050,000 46,050,000 1,260,098,671Trade accounts and note payable and other accounts payable 2,127,248,626 - 19,839,010

Derivative financial liabilities 407,645,607 103,629,710 13,962,467Payment guarantee contracts1 19,465,008 - 25,654,199

1 Payment guarantee contracts present maximum amount to be paid upon principal debtor’s claim (Note 21).

Details of the Company’s recognized financial assets and liabilities subject to enforceable master netting arrangements or similar agreements are as follows:

(In thousands of Korean won) Presented in the statement of

financial position

Amounts not offset Net amount

Derivative financial assets 55,700,311 (24,621,900) 31,078,411Derivative financial liabilities 24,621,900 (24,621,900) -

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33.4 Capital risk management

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the Company monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including ‘current and non-current borrowings’ as shown in the separate statements of financial position) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the separate statements of financial position plus net debt.

The gearing ratios as of December 31, 2013 and 2012, are as follows:


Total borrowings (Note 19) 2,685,867,188 2,960,100,079

Less: Cash and cash equivalents (Note 4) 747,669,840 849,429,537

Net debts 1,938,197,348 2,110,670,542

Total equity 5,793,137,788 5,228,175,244

Total capital 7,731,335,136 7,338,845,786

Gearing ratio 25.1% 28.8%

34. Operating Segment Information

The strategic steering management has determined the operating segments, and reviewed the operating information of segments for the purposes of allocating resources and assessing performance.

General information by business segments

Segment SalesType Product and Services Main Customer Sales

ratio (%)

Shipbuilding Product Tanker, Drillship, LNG, off-shore platform, others

Foreign shipowners, others 96.8%

E&I Product Engineering works, construction, others Construction business owner, others 3.2%

100.0%

Financial information by business segments

50


(In thousands of Korean won) Shipbuilding E&I Total Sales

Gross sales 14,242,584,709 607,902,890 14,850,487,599

Inter-segment sales (13,373,514) (131,016,125) (144,389,639)

Net sales 14,229,211,195 476,886,765 14,706,097,960

Operating profit 1,108,720,080 (61,871,325) 1,046,848,755

Property, plant and equipment & intangible assets

4,773,491,237 16,680,863 4,790,172,100

Depreciation & amortization 218,720,267 1,459,012 220,179,279

Since most of the debts are jointly utilized debt, the Company does not report segment liabilities to its management.

Reconciliation between segment operating income and operating profit

Total segment operating income 1,046,848,755Internal income and other operating income/expense between segments -Undistributed selling and administrative expenses, other operating income/expense 122,293,674

Operating profit per statement of income 924,555,081

Undistributed selling and administrative expenses are not distributed to segments since they are centrally incurred costs.

35. Related Party Transactions

The subsidiaries as of December 31, 2013 and 2012, are as follows:

Percentage of ownership (%) 2013 2012

Samsung Heavy Industries Ningbo Co., Ltd. 100 100

Samsung Heavy Industries Rongcheng Co., Ltd. 100 100

Rongcheng Gaya Heavy Industries Co., Ltd. 100 100

Samsung Heavy Industries India Pvt. Ltd 100 100

Camellia Consulting Corporation 100 100

Samsung Heavy Industries(M) SDN.BHD 100 100

SVIC 13 New Technology Business investment 99 99

Samsung Wind Energy,Inc. 100 100

Samsung Heavy Industries Brazil 100 100

SHI Brazil Construction 100 100Samsung Heavy Industries Trade(Shanghai) Co., Ltd 100 100

SHI Thailand - 49

SHI Nigeria Ltd. 100 100

Samsung Heavy Industries Hamburg GmbH 100 100

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Details of associates and other related parties that have sales and other transactions with the Company or have receivables and payables balances as of December 31, 2013 and 2012, are as follows:

2013

(In thousands of Korean won) Sales Purchase Unbilled

constructionAdvance payments Trade payables

Samsung Heavy Industries

Ningbo Co.,

Ltd. - 115,321,650 - 4,325,139 8,537,721


Rongcheng Co., Ltd. - 114,624,122 - 8,135,247 7,930,983

Rongcheng Gaya Heavy

Industries Co., Ltd. - 39,138,022 - 4,715,787 4,464,997


India

Pvt. Ltd - 9,906,271 - - -

Camellia Consulting

Corporation - 1,960,355 - - -


Trade(Shanghai) Co., Ltd - 863,577 - - -


Brazil - 896,371 - - -


Hamburg GmbH - 5,142,100 - - -

Samsung Heavy Industries(M)

SDN.BHD - 356,510 - - -


Nigeria Co.

Ltd 32,997,320 511,861 32,826,110 2,906,184 -

32,997,320 288,720,839 32,826,110 20,082,357 20,933,701

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2012

(In thousands of Korean won)Sales Purchases

Advance

payments Payables

Subsidiaries

Samsung Heavy Industries Ningbo Co., Ltd. - 160,446,462 12,852,534 5,860,801

Samsung Heavy Industries Rongcheng Co., Ltd. - 160,873,884 7,513,935 12,035,514

Rongcheng Gaya Heavy Industries Co., Ltd. - 53,530,296 3,468,437 3,623,277

Samsung Heavy Industries India Pvt. Ltd - 9,062,796 - -

Fukuoka Engineering Center - 1,973,255 - -

Samsung Heavy Industries Trade(Shanghai) Co., Ltd - 809,759 - -

Samsung Heavy Industries Brazil - 1,076,274 -

Samsung Heavy Industries Hamburg GmbH - 1,859,333 - -

SHI Nigeria Ltd. - 1,013,134 - -

Samsung Heavy Industries(M) SDN.BHD - 321,953 - -

- 390,967,146 23,834,906 21,519,592

Associates

A major associate of the Company as of December 31, 2013, is MMHE-SHI LNG SDN BHD and there are no transactions with an associate or receivables and payables balances for the year ended December 31, 2013.

Joint ventures

Joint ventures of the Company as of December 31, 2013, are Daejung Offshore Wind Power Co., Ltd. and Offshore 2 Consulting Corporation.

Payment guaranteed provided by the Company

The Company provided a payment guarantee in relation to borrowings from SC bank to Samsung Heavy Industries Nigeria Co.Ltd., a subsidiary up to $ 21 million (Note 21).

Key Management Compensation

For the year ended December 31, 2013, key management compensation consists of 3,489 million (2012: 2,716 million) in short-term benefits and 2,692 million (2012: 3,607 million) in long-term, severance and

other benefits which are highly probable to be paid in the future. Key management consists of registered executive officers who have authorities and responsibilities for planning, directing and controlling of operations of the Company.

53

Report of Independent Accountants' Review of Internal Accounting Control System

To the President of Samsung Heavy Industries Co., Ltd.

We have reviewed the accompanying management’s report on the operations of the Internal Accounting Control System (“IACS”) of Samsung Heavy Industries Co., Ltd. (the “Company”) as of December 31, 2013. The Company’s management is responsible for designing and operating IACS and for its assessment of the effectiveness of IACS. Our responsibility is to review the management’s report on the operations of the IACS and issue a report based on our review. The management’s report on the operations of the IACS of the Company states that “based on its assessment of the operations of the IACS as of December 31, 2013, the Company’s IACS has been designed and is operating effectively as of December 31, 2013, in all material respects, in accordance with the IACS standards established by the Internal Accounting Control System Operations Committee (IACSOC) of the Korea Listed Companies Association.”

Our review was conducted in accordance with the IACS review standards established by the Korean Institute of Certified Public Accountants. Those standards require that we plan and perform, in all material respects, the review of management’s report on the operations of the IACS to obtain a lower level of assurance than an audit. A review is to obtain an understanding of a company’s IACS and consists principally of inquiries of management and, when deemed necessary, a limited inspection of underlying documents, which is substantially less in scope than an audit.

A company’s IACS is a system to monitor and operate those policies and procedures designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the Republic of Korea. Because of its inherent limitations, IACS may not prevent or detect a material misstatement of the financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on our review, nothing has come to our attention that causes us to believe that management’s report on the operations of the IACS, referred to above, is not presented fairly, in all material respects, in accordance with the IACS standards established by IACSOC.

Our review is based on the Company’s IACS as of December 31, 2013, and we did not review management’s assessment of its IACS subsequent to December 31, 2013. This report has been prepared pursuant to the Acts on External Audit for Stock Companies in Korea and may not be appropriate for other purposes or for other users.

Samil PricewaterhouseCoopers March 6, 2014

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Report on the Operations of the Internal Accounting Control System

To the Board of Directors and Audit Committee of Samsung Heavy Industries Co., Ltd.

I, as the Internal Accounting Control Officer (“IACO”) of Samsung Heavy Industries Co., Ltd. (“the Company”), assessed the status of the design and operations of the Company’s internal accounting control system (“IACS”) for the year ended December 31, 2013.

The Company’s management including IACO is responsible for designing and operating IACS. I, as the IACO, assessed whether the IACS has been effectively designed and is operating to prevent and detect any error or fraud which may cause any misstatement of the financial statements, for the purpose of establishing the reliability of financial reporting and the preparation of financial statements for external purposes. I, as the IACO, applied the IACS standard for the assessment of design and operations of the IACS.

Based on the assessment on the operations of the IACS, the Company’s IACS has been effectively designed and is operating as of December 31, 2013, in all material respects, in accordance with the IACS standards.

January 27, 2014

Won Tae Jeong, Internal Accounting Control System Officer

Dae Young Park, Chief Executive Officer and President

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