DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2014

(With Independent Auditors’ Report Thereon)

Contents

Page

Independent Auditors’ Report 1

Consolidated Statements of Financial Position 3

Consolidated Statements of Loss 5

Consolidated Statements of Comprehensive Income (Loss) 6

Consolidated Statements of Changes in Equity 7

Consolidated Statements of Cash Flows 9

Notes to the Consolidated Financial Statements 10

Independent Auditors’ Report

Based on a report originally issued in Korean

The Board of Directors and Shareholders Doosan Engineering & Construction Co., Ltd.:

We have audited the accompanying consolidated financial statements of Doosan Engineering & Construction Co., Ltd. and its subsidiaries (the “Group”), which comprise the consolidated statements of financial position as at December 31, 2014 and 2013, the consolidated statements of loss, comprehensive income (loss), changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Korean International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Korean Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

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

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2014 and 2013 and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with Korean International Financial Reporting Standards.

Emphasis of Matter

Without qualifying our opinion, we draw attention to Note 19 to the consolidated financial statements which states that the Group reduced its share capital, by 10:1 for common shareholders, without consideration on January 13, 2014. Losses per shares was adjusted accordingly. As a result, share capital amount and the number of shares for common shares were reduced to W285,926 million and 55,185,231 shares, respectively.

Other Matter

The accompanying consolidated statement of financial position of the Group as of December 31, 2013, and the related consolidated statements of loss and other comprehensive income, changes in equity and cash flows for the year then ended, were audited by us in accordance with the previous auditing standards generally accepted in the Republic of Korea.

The procedures and practices utilized in the Republic of Korea to audit such consolidated financial statements may differ from those generally accepted and applied in other countries.

Seoul, Korea March 6, 2015

This report is effective as of March 6, 2015, 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 accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

2

DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES Consolidated Statements of Financial Position As of December 31, 2014 and 2013

(In millions of won) December 31, December 31, Note 2014 2013

Assets Cash and cash equivalents 5,11 W 167,498 158,121 Short-term financial instruments 11 - 304 Short-term investments in securities 6,11,16 9,944 11,907 Accounts and notes receivable 7,11,26,35,36 573,241 601,826 Receivables from unbilled construction contracts 7,26,36 790,259 655,210 Other accounts receivables 7,11,36 143,152 165,941 Advances payments 7,36 62,680 34,653 Short-term loans 7,11,36 520,565 591,951 Short-term derivative instruments 10,11 3,654 10,487 Firm commitments 10 2,720 89 Inventories 8 28,514 32,097 Other current assets 7,11 254,894 272,050 Current assets 2,557,121 2,534,636

Long-term financial instruments 5,11 54 57 Long-term investments in securities 9,11,16,35 135,677 135,688 Investments in associates 12,16,35 85,221 103,099 Property, plant and equipment 13,16,35 1,062,152 1,066,221 Intangible assets 14 327,440 332,617 Investment property 15,16,35 68,725 69,834 Long-term derivative instruments 10,11 794 897 Firm commitments 10 1,088 37 Deferred tax assets 31 208,533 236,184 Other non-current assets 7,11 686,286 471,146 Non-current assets 2,575,970 2,415,780

Total assets 24 W 5,133,091 4,950,416

See accompanying notes to the consolidated financial statements. 3

DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES Consolidated Statements of Financial Position, Continued As of December 31, 2014 and 2013

(In millions of won) December 31, December 31, Note 2014 2013 Liabilities Accounts payable 11,36 W 798,585 668,863 Short-term borrowings 11,16,35 608,813 559,276 Asset backed liabilities 11,16,36 397,348 270,000 Current portion of long-term liabilities 11,16 403,346 323,097 Short-term advances 13,762 14,985 Advances from construction contracts 26,36 142,482 231,672 Other accounts payable 11,36 106,495 97,538 Accrued expenses 11 38,298 56,564 Income taxes payable 31 105 877 Short-term derivative instrument liabilities 10,11 7,691 1,152 Firm commitments 10 797 3,120 Other current liabilities 11 130,945 81,083 Current liabilities 2,648,667 2,308,227

Bonds 11,16,35 242,475 235,682 Long-term borrowings 11,16,35 26,136 153,156 Asset backed liabilities 11,16,35,36 42,678 - Defined benefit obligations 17 42,282 57,019 Long-term other accounts payable 11 7,584 3,364 Long-term derivative instrument liabilities 10,11 3,435 290 Firm commitments 10 190 520 Provision - others 18 64,614 74,561 Deferred tax liabilities 31 13,313 30,424 Long-term guarantee deposits received 11 45,518 51,316 Other non-current liabilities 11 33,603 20,414 Non-current liabilities 521,828 626,746 Total liabilities 24 3,170,495 2,934,973

Equity Capital stock 19 399,563 2,882,898 Capital surplus 20 601,215 614 Other capital adjustments 21 (6,784) (676,395) Accumulated other comprehensive income 9,10,22 164,653 160,800 Retained Earnings (Accumulated deficit) 23 803,949 (352,474) Total equity 1,962,596 2,015,443

Total equity and liabilities W 5,133,091 4,950,416

See accompanying notes to the consolidated financial statements.

4

DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES Consolidated Statements of Loss For the years ended December 31, 2014 and 2013

(In millions of won except losses per share)

Note 2014 2013

Revenue 24,25,26,36 W 2,363,893 2,355,215 Cost of sales 26,27,36 (2,094,578) (2,107,411) Gross profit 269,315 247,804

Selling, general and administrative expenses 27,28,36 (126,347) (190,434) Operating income (loss) 24 142,968 57,370

Financial income 11,29 34,912 49,752 Financial costs 11,29 (178,832) (190,924) Non-operating income 30 21,384 98,976 Non-operating expenses 30 (61,669) (55,642) Losses on equity method investments 12 (18,893) (31,467) Loss before income taxes (60,130) (71,935)

Income tax benefits(expense) 31 (8,450) 11,610

Loss for the year 24 W (68,580) (60,325)

Losses per share 32 Basic losses per share W (1,249) (1,370) Diluted losses per share W (1,249) (1,370)

See accompanying notes to the consolidated financial statements. 5

DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (Loss) For the years ended December 31, 2014 and 2013

(In millions of won) 2014 2013

Loss for the year W (68,580) (60,325)

Other comprehensive income (loss) Items that will never reclassified to profit or loss Defined benefit plan actuarial losses, net of tax 5,150 4,608 Revaluation of property, plant and equipment - 157,505 5,150 162,113 Items that may be reclassified subsequently to profit or loss Net change in unrealized fair value of available-for-sale financial assets, net of tax 1,591 (20,274) Unrealized gains and losses on valuation of derivative Instrument, net of tax 1,466 (513) Changes in equity for the comprehensive income of investments in associates, net of tax 747 (38) Foreign operations-foreign currency translation differences 1,102 (1,385) 4,906 (22,210) Other comprehensive income for the year, net of income tax 10,056 139,903 Total comprehensive income (loss) for the year W (58,524) 79,578

See accompanying notes to the consolidated financial statements. 6

DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES Consolidated Statements of Changes in Equity For the years ended December 31, 2014 and 2013

Accumulated other Share Capital Other capital comprehensive Retained Total (In millions of won) capital surplus adjustments income earnings equity

Balance at January 1, 2013 W 877,335 145,288 1,704 25,505 (442,045) 607,787 Total comprehensive income for the year: Loss for the year - - - - (60,325) (60,325) Other comprehensive loss - - - 135,295 4,608 139,903 Total comprehensive income for the year - - - 135,295 (55,717) 79,578 Transactions with owners of the Company, recognized directly in equity: Stock issuance from capital increase in cash 833,333 - (454,994) - - 378,339 Stock issuance from business combination 1,058,544 - (486,930) - - 571,614 Issuance of preferred stock 113,636 - 276,113 - - 389,749 Exercise of convertible bonds 50 - 5 - - 55 Acquisition of treasury stock - - (11,768) - - (11,768) Compensation expenses associated with share- based payments - 614 (525) - - 89 Disposition of deficit - (145,288) - - 145,288 - Total transactions with owners of the Company W 2,005,563 (144,674) (678,099) - 145,288 1,328,078 Balance at December 31, 2013 2,882,898 614 (676,395) 160,800 (352,474) 2,015,443

7

DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES Consolidated Statements of Changes in Equity, Continued For the years ended December 31, 2014 and 2013

Accumulated other Share Capital Other capital comprehensive Retained Total (In millions of won) capital surplus adjustments income earnings equity

Balance at January 1, 2014 W 2,882,898 614 (676,395) 160,800 (352,474) 2,015,443 Total comprehensive income for the year: Loss for the year - - - - (68,580) (68,580) Other comprehensive income - - - 3,853 6,203 10,056 Total comprehensive income (loss) for the year - - - 3,853 (62,377) (58,524) Transactions with owners of the Company, recognized directly in equity: Capital reduction without consideration (2,483,335) 2,483,335 - - - - Trade of treasury stock - - 3,929 - - 3,929 Issuance of convertible bonds - 1,669 - - - 1,669 Compensation expenses associated with share- based payments - 202 (123) - - 79 Disposition of deficit - (1,884,605) 665,805 - 1,218,800 - Total transactions with owners of the Company (2,483,335) 600,601 669,611 - 1,218,800 5,677 Balance at December 31, 2014 W 399,563 601,215 (6,784) 164,653 803,949 1,962,596

See accompanying notes to the consolidated financial statement. 8

DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended December 31, 2014 and 2013

(In millions of won) 2014 2013 Cash flows from operating activities Cash generated by (used in) operating activities (note 37) W 133,630 (345,898) Interest received 7,362 12,022 Interest paid (141,641) (168,073) Dividends received 83 124 Income taxes refunded (paid) (4,348) 75 Net cash used in operating activities (4,914) (501,750) Cash flows from investing activities Proceeds from disposition of short-term financial instruments 310 71,465 Proceeds from disposition of short-term investments in securities 73,072 46,599 Receipt of payments from short-term loans 157,553 119,339 Proceeds from disposition of long-term financial instruments 3 4 Proceeds from disposition of long-term investment in securities 3,564 89,447 Receipt of payments from long-term loans 74,221 20 Proceeds from disposition of property, plant and equipment 9,345 99,199 Proceeds from disposition of intangible assets 500 1,657 Proceeds from disposition of investment properties - 56,476 Proceeds from disposition of other non-current assets 5,794 11,396 Increase of additory cash (business combination and change in scope

of consolidated entity) - 411,727 Acquisition of short-term financial instruments (6) (890) Acquisition of short-term investments in securities (65,228) (39,282) Issuance of short-term loans (87,185) (380,167) Acquisition of long-term investment in securities (8,950) (17,043) Acquisition of investment in associates (268) (298) Issuance of long-term loans (290,670) (18,370) Acquisition of property, plant and equipment (26,631) (33,124) Acquisition of intangible assets (5,709) (2,434) Acquisition of investment properties - (377) Acquisition of other non-current assets (6,484) (14,657) Net cash provided by (used in) investing activities (166,769) 400,687 Cash flows from financing activities Proceeds from issuance of common stock

(including preferred stock) - 768,089 Proceeds from short-term borrowings 1,148,055 1,301,915 Proceeds from issuance of short-term bonds 30,000 117,000 Proceeds from asset backed liabilities 938,000 620,000 Proceeds from issuance of bonds 50,000 445,950 Proceeds from long-term borrowings - 140,066 Disposition of treasury stock 3,964 - Proceeds from long-term asset backed liabilities 90,000 - Proceeds from insurance of convertible bonds 190,798 - Acquisition of treasury stock (35) (11,768) Repayment of short-term debt (1,106,189) (1,515,915) Repayment of asset backed liabilities (819,350) (656,800) Repayment of short-term bonds (269,094) (698,321) Repayment of current portion of long-term borrowings (33,009) (61,670) Repayment of long-term borrowings - (15,000) Repayment of bonds - (195,642) Repayment of convertible bonds (16,814) (21,730) Repayment of bonds with stock warrants (15,376) (92,802) Repayment of long-term asset backed liabilities (10,000) - Net cash provided by financing activities 180,950 123,372 Net increase in cash and cash equivalents 9,267 22,309 Cash and cash equivalents at January 1 158,121 135,832 Effect of exchange rate fluctuations on cash held 110 (20) Cash and cash equivalents at December 31 W 167,498 158,121

See accompanying notes to the consolidated financial statement.

9 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

1. Reporting Entity

(1) Description of the Controlling Company

Doosan Engineering & Construction Co., Ltd. (the “Controlling Company”) was incorporated on April 7, 1976 within the framework of the Commercial Law of Korea in order to engage in rendering construction services. The Controlling Company is listed on the Korea Stock Exchange (currently, “Korea Exchange”). The par value of common stock as of December 31, 2014 is W399,563 million (see note 19).

On April 30, 2004, Doosan Construction & Engineering Co., Ltd. (“DCEC”) and Korea Industrial Development Co., Ltd. (“KIDC”) were merged to enhance their competitiveness and business efficiency. DCEC was the parent company of KIDC before the merger, and for the purpose of financial reporting, DCEC was considered the acquiring company, although under Korean business law, KIDC has legally emerged as the acquirer and surviving company for having issued the equity interests to stockholders of DCEC. After the merger, the name of KIDC was changed to Doosan Industrial Development Co., Ltd. on May 6, 2004. The Controlling Company also merged with Doosan Enterprise Co., Ltd., a wholly owned subsidiary of the Controlling Company.

The Controlling Company spun off its leisure business and ready-mix concrete business on December 21, 2006, and established new companies named Rexcon Co., Ltd. and Doosan Cuvex Co., Ltd. Pursuant to the resolution at the stockholders’ meeting on March 16, 2007, the Company’s name was changed from Doosan Industrial Development Co., Ltd. to Doosan Engineering & Construction Co., Ltd. Moreover, the Controlling Company acquired Doosan Mecatec on November 1, 2010 and Heat Recovery Steam Generator business from Doosan Heavy Industries and Construction Co., Ltd. on April 17, 2013. The consolidated financial statements is comprised of the Controlling Company, its subsidiaries (together referred to as the “Group” and individually are as “Group entities”) and the Group’s interests in associates.

The Controlling Company merged with Rexcon Co., Ltd., a 100% owned subsidiary, effective January 14, 2014.

The stockholders of the Controlling Company are as follows:

Percentage of Stockholders Number of shares total shares issued Doosan Heavy Industries and Construction Co., Ltd. 46,515,554 84.29% Jeong Won Park and other 26 stockholders 1,621,476 2.94% Yonkang Foundation 98,916 0.18% Employee Stock Ownerships Association 3,960,037 7.18% Other stockholders 2,989,248 5.41% 55,185,231 100.00%

10 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

1. Reporting Entity, Continued

(2) Consolidated subsidiaries

(i) Consolidated subsidiaries as of December 31, 2014 and 2013 are as follows:

December 31, 2014 Percentage of Subsidiaries Type of business shareholding Location Fiscal year end Doosan Cuvex Co., Ltd. Leisure 100.00% Korea December 31, 2014 Manufacture and sale of Rexcon Co., Ltd.(*) - Korea December 31, 2014 concrete products Doosan Heavy Industries Manufacture 100.00% Vietnam December 31, 2014 Vietnam Haiphong Co., Ltd.

(*) The Company is excluded from consolidation due to the merger between consolidated entities in the current year.

December 31, 2013 Percentage of Subsidiaries Type of business shareholding Location Fiscal year end Doosan Cuvex Co., Ltd. Leisure 100.00% Korea December 31, 2013 Manufacture and sale of Rexcon Co., Ltd. 100.00% Korea December 31, 2013 concrete products Doosan Heavy Industries Manufacture 100.00% Vietnam December 31, 2013 Vietnam Haiphong Co., Ltd.

(ii) Financial information of subsidiaries as of and for the year ended December 31, 2014 and 2013 are as follows:

(In millions of won) December 31, 2014 Total Profit comprehensive Assets Liabilities Equity Sales (loss) income (loss) Doosan Cuvex Co., Ltd. W 234,254 96,486 137,768 30,718 (5,362) (5,055) Doosan Heavy Industries Vietnam Haiphong Co., Ltd. 58,559 32,319 26,241 62,077 1,575 1,575

(In millions of won) December 31, 2013 Total Profit comprehensive Assets Liabilities Equity Sales (loss) income (loss) Doosan Cuvex Co., Ltd. W 247,246 104,423 142,823 30,577 (1,694) 8,760 Rexcon Co., Ltd. 240,297 92,574 147,723 173,947 3,241 24,183 Doosan Heavy Industries Vietnam Haiphong Co., Ltd. 40,744 17,121 23,623 20,448 (851) (851)

11 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

1. Reporting Entity, Continued

(3) Structured entities not consolidated

The Groups engaged in debt transactions with structured entities. The Group does not have any ownership in the structured entities, but as the Group is exposed to variable returns of the structured entities’ performance and has the ability to affect those returns through its power, the Group is considered to have control over the structured entities. However, the Group has not consolidated them because of the insignificant effects it would have on the consolidated assets, liabilities, and net profit or loss of the Group. Structured entities which are not included in the scope of consolidation as of December 31, 2014 and 2013 are as follows:

(i) As of December 31, 2014

Percentage of Special purpose entities Type of business shareholding Location Doosan Cuvex 1st Securitization Specialty L.L.C Securitization specialty - Korea DS Solbat 2nd Co., Ltd. Securitization specialty - Korea Doosan ENC 1st Co., Ltd. Securitization specialty - Korea DS Haewoondae Project L.L.C Securitization specialty - Korea Pine Tree City 1st Co., Ltd. Securitization specialty - Korea SD 1st Co., Ltd. Securitization specialty - Korea DS Solbat 3rd Co., Ltd. Securitization specialty - Korea DS SOC 1st L.L.C Securitization specialty - Korea

(ii) As of December 31, 2013

Percentage of Special purpose entities Type of business shareholding Location Doosan Cuvex 1st Securitization Specialty L.L.C Securitization specialty - Korea DS Gangnam Bundang L.L.C Securitization specialty - Korea DS Solbat 1st Co., Ltd. Securitization specialty - Korea Doosan ENC 1st Co., Ltd. Securitization specialty - Korea

(4) Changes in subsidiaries

Rexcon Co., Ltd. was newly excluded from consolidation during the ended December 31, 2014 due to the merger between consolidation entities in the current year.

12 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

2. Basis of Preparation

(1) Statement of compliance

The consolidated financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”), as prescribed in the Act on External Audits of Corporations in the Republic of Korea.

(2) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis, except for the items described otherwise in the related notes.

(3) Use of estimate and judgment

The preparation of the consolidated financial statements in conformity with K-IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

(i) Judgments, assumptions and estimations of uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes:

Note11 – Categories of financial instruments Note13 – Property, plant and equipment Note14 – Intangible assets Note15 – Investment property Note17 – Employee benefits Note18 – Provisions Note26 – Construction contracts Note31 – Income tax expenses

(ii) Measurement of fair value

A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the CFO.

The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of K-IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

Significant valuation issues are reported to the Group Audit Committee.

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.

13 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

2. Basis of Preparation, Continued

(3) Use of estimate and judgment, continued

- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. - Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) - Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)

If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Further information about the assumptions made in measuring fair values is included in the following notes:

Note 9,11 – Available-for-sale financial assets Note 10,11 – Derivative financial instruments Note 13 – Property, plant and equipment

3. Significant Accounting Policies

The significant accounting policies applied by the Group in preparation of its consolidated financial statements are included below. The accounting policies set out below have been applied consistently to all periods except for the changes in accounting policies as explained in Note 3 (1).

(1) Changes in accounting policies

The Group has adopted the following amendments to standards and new interpretation with a date of initial application of January 1, 2014.

- Investment Entities (Amendments to K-IFRS 1110 ‘Consolidated Financial Statements’, 1112 ‘Disclosure of Interests in Other Entities, and 1027 ‘Separate Financial Statements’.

- Offsetting Financial Assets and Financial Liabilities (Amendments to K-IFRS 1032 ‘Financial Instruments: Presentation’.

- Recoverable Amount Disclosures for Non-Financial Assets (Amendments to K-IFRS 1036)

- K-IFRS 2121 ‘Levies’

(i) Offsetting Financial Assets and Financial Liabilities (Amendments to K-IFRS 1032)

The amendments clarify the meaning of 'currently has a legally enforceable right of set-off'. According to the amendments, the right to set off should not be contingent on a future event, and legally enforceable in the normal course of business, in the event of default, and in the event of insolvency or bankruptcy of the entity and all of the counterparties. The amendments also state that some gross settlement systems would be considered equivalent to net settlement if they eliminate or result in insignificant credit and liquidity risk and process receivables and payables in a single settlement process or cycle.

Management believes the impact of the amendments on the Group’s consolidated financial statements is not significant.

14 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

3. Significant Accounting Policies, Continued

(1) Changes in accounting policies, continued

(ii) Investment Entities (Amendments to K-IFRS No.1110, K-IFRS 1112 and K-IFRS 1027)

The amendments define an investment entity and provide an exception to the consolidation requirements in K- IFRS 1110 for investment entities by instead requiring investment entities to measure their investments in particular subsidiaries at fair value through profit or loss in accordance with K-IFRS 1039 ‘Financial Instruments: Recognition and Measurement.’ The amendments also provide related disclosure and separate financial statement requirements for investment entities.

Management believes the impact of the amendments on the Group’s consolidated financial statements is not significant.

(iii) Recoverable Amount Disclosures for Non-Financial Assets (Amendments to K-IFRS No.1036)

The amendments require the disclosure of information about the recoverable amount of impaired assets, if that amount is based on fair value less costs of disposal. They also require the disclosure of additional information about that fair value measurement. In addition, if the recoverable amount of impaired assets based on fair value less costs of disposal was measured using a present value technique, the amendments also require the disclosure of the discount rates that have been used in the current and previous measurements.

Management believes the impact of the amendments on the Group’s consolidated financial statements is not significant.

(iv) Amendments to K-IFRS No. 2121, ‘Levies’

K-IFRS No. 2121 is an Interpretation of K-IFRS No. 1037 Provisions, Contingent Liabilities and Contingent Assets, on the accounting for levies imposed by governments. K-IFRS 1037 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past event (or 'obligating event'). K-IFRS 2121 clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy.

The interpretation does not provide guidance on the accounting for the costs arising from recognizing the liability to pay a levy. Other K-IFRSs should be applied to determine whether the recognition of a liability to pay a levy gives rise to an asset or an expense.

Management believes the impact of the amendments on the Group’s consolidated financial statements is not significant.

The following new standards, interpretations and amendments to existing standards have been published and are mandatory for the Group for annual periods beginning after January 1, 2014, and the Group has not early adopted them.

Management believes the impact of the amendments on the Group’s consolidated financial statements is not significant.

(i) K-IFRS 1019 ‘Employee Benefits’ – Employee contributions

Amendments to K-IFRS 1019 introduced a practical expedient to accounting for defined benefit plan, when employees or third parties pay contributions if certain criteria are met. According to the amendments, the entity is permitted to recognize those contributions as a reduction of the service cost in the period in which the related service is rendered, instead of forecast future contributions from employees or third parties and attribute them to periods or service as negative benefits.

15 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

3. Significant Accounting Policies, Continued

(2) Consolidation

(a) Basis of consolidation

(i) Business combinations The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss.

Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in profit or loss.

If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s employees (acquiree’s awards), then all or a portion of the amount of the acquirer’s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based measure of the replacement awards compared with the market-based measure of the acquiree’s awards and the extent to which the replacement awards relate to pre-combination service.

(ii) Non-controlling interests NCI are measured at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition.

Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

(iii) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

(iv) Loss of control When the Group loses control over a subsidiary, it derecognizes the assets and liabilities of the subsidiary, and any related NCI and other components of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

(v) Interests in equity-accounted investees The Group’s interests in equity-accounted investees comprise interests in associates and a joint venture. Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. Interests in associates and the joint venture are accounted for using the equity method. They are initially recognized at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group’s share of the profit or loss and OCI of equity-accounted investees, until the date on which significant influence or joint control ceases.

16 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

3. Significant Accounting Policies, Continued

(2) Consolidation, continued

(vi) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

(vii) Acquisitions from entities under common control Acquisitions from entities under common control are accounted for under the acquisition method.

(3) Foreign currencies

(i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency using the reporting date’s exchange rate. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.

Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments, a financial liability designated as a hedge of the net investment in a foreign operation, or qualifying cash flow hedges, which are recognized in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

(ii) Foreign operations If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:

The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation are treated as assets and liabilities of the foreign operation. Thus they are expressed in the functional currency of the foreign operation and translated at the closing rate.

When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed to non-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.

Foreign exchange gains or losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future and which in substance is considered to form part of the net investment in the foreign operation, are recognized in other comprehensive income in the translation reserve.

17 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

3. Significant Accounting Policies, Continued

(4) Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.

(5) Non-derivative financial assets

The Group recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for- sale financial assets. The Group recognizes financial assets in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Upon initial recognition, non-derivative financial assets are measured at their fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the asset’s acquisition or issuance.

(a) Classification

(i) Financial assets at fair value through profit or loss

A financial asset is classified as financial assets are classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

(ii) Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method except for loans and receivables of which the effect of discounting is immaterial.

(iii) Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for- sale or are not classified as financial assets at fair value through profit or loss, held-to-maturity investments or loans and receivables. Subsequent to initial recognition, they are measured at fair value, which changes in fair value, net of any tax effect, recorded in other comprehensive income in equity. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are measured at cost.

(iv) Held-to-maturity investments A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Group has the positive intention and ability to hold to maturity, are classified as held-to-maturity investments. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method.

18 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

3. Significant Accounting Policies, Continued

(5) Non-derivative financial assets, continued

(b) Initial recognition

Upon initial recognition, non-derivative financial assets are measured at their fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the asset’s acquisition or issuance.

(c) Impairment of financial assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized.

If there is objective evidence that financial instruments are impaired, impairment losses are measured and recognized. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

(i) Financial assets measured at amortized cost An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the asset’s original effective interest rate. If it is not practicable to obtain the instrument’s estimated future cash flows, impairment losses would be measured by using prices from any observable current market transactions. The Group can recognize impairment losses directly or establish a provision to cover impairment losses.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor's credit rating), the previously recognized impairment loss shall be reversed either directly or by adjusting an allowance account.

(ii) Financial assets carried at cost If there is objective evidence that an impairment loss has occurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses shall not be reversed.

(iii) Available-for-sale financial assets When a decline in the fair value of an available for sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income shall be reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available-for-sale shall not be reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognized in profit or loss.

19 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

3. Significant Accounting Policies, Continued

(5) Non-derivative financial assets, continued

(d) De-recognition of financial assets

The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability.

If the Group retains substantially all the risks and rewards of ownership of the transferred financial assets, the Group continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

(e) Offsetting between financial assets and financial liabilities

Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Group currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.

(6) Accounts and notes receivable

Accounts and notes receivables are money owed by customers on the sale of inventory or the provision of services through normal transactions. Accounts and notes receivables are classified as current assets assuming that they are due within one year. Otherwise, they are classified as non-current assets. Accounts and notes receivables are initially recognized at fair value, and an allowance for doubtful accounts is subsequently estimated based on individual assessments and past experience of collection. With respect to accounts receivable related to our residential projects to be collected from developers of residential buildings, which represent most of the Group’s accounts receivable, the amount of the allowance for doubtful accounts is determined based on the number and current market price of unsold residential units, supply and demand for residential units in the same region, and general trends in the real estate market, as well as the credit quality of the relevant developer.

(7) Receivables from unbilled construction contracts and advances from construction contracts

Construction work in progress represents the gross unbilled amount expected to be collected from customers for contract work performed to date. It is measured at cost plus profit recognized to date less progress billings and recognized losses. Cost includes all expenditures related directly to specific projects and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on normal operating capacity.

Construction work in progress is presented as part of trade and other receivables in the consolidated statement of financial position for all contracts in which costs incurred plus recognized profits exceed progress billings. If progress billings exceed costs incurred plus recognized profits, then the difference is presented as deferred income in the consolidated statement of financial position.

(8) Inventories

The cost of inventories is determined by the FIFO method for raw materials and finished goods and includes expenditures for acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. The costs for finished housing units, unfinished construction- housing, and materials in transit are measured individually. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity.

20 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

3. Significant Accounting Policies, Continued

(8) Inventories, continued

Inventories are measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realizable value, are recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs.

(9) Property, plant and equipment

Property, plant and equipment are initially measured at cost and after initial recognition, are carried at cost less accumulated depreciation and accumulated impairment losses. The cost of property, plant and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

'Cost model adoption’ Subsequent to initial recognition, an item of property, plant and equipment shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses.

‘Revaluation model adoption for land ’ Subsequent costs are recognized in the carrying amount of property, plant and equipment at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Property, plant and equipment, except for land, are depreciated on a straight-line basis over estimated useful lives that appropriately reflect the pattern in which the asset’s future economic benefits are expected to be consumed. A component that is significant compared to the total cost of property, plant and equipment is depreciated over its separate useful life.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized in profit or loss.

The estimated useful lives of the Group’s property, plant and equipment are as follows: Useful lives (years) Buildings 10~43 Structures 5~40 Machinery 2~15 Tools 3~8 Vehicles 4~5 Office equipment 2~5 Vessel 4

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.

21 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

3. Significant Accounting Policies, Continued

(10) Intangible assets

Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.

Amortization of intangible assets, except for goodwill, is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. However, as there are no foreseeable limits to the periods over which club memberships are expected to be available for use, this intangible asset is determined as having indefinite useful lives and not amortized. Useful lives (years) Industrial property rights 5 Other intangible assets 2~11

Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes are accounted for as changes in accounting estimates.

(i) Research and development Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred.

(ii) Subsequent expenditures Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.

(11) Investment property

Property held for the purpose of earning rentals or benefiting from capital appreciation is classified as investment property. Investment property is measured initially at its cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at depreciated cost less any accumulated impairment losses.

Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Investment property, except for land, is depreciated on a straight-line basis over 20~48 years as estimated useful lives.

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. Changes are accounted for as changes in accounting estimates.

22 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

3. Significant Accounting Policies, Continued

(12) Borrowing costs

The Group capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale. Financial assets and inventories that are manufactured or otherwise produced over a short period of time are not qualifying assets. Also assets that are ready for their intended use or sale when acquired are not qualifying assets. To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that the Group borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Group shall determine the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate shall be the weighted average of the borrowing costs applicable to the borrowings of the Group that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Group capitalizes during a period shall not exceed the amount of borrowing costs incurred during that period. There were no qualifying assets to which borrowing costs were capitalized during the years ended December 31, 2014 and 2013.

(13) Impairment of non-financial assets

The carrying amounts of the Group’s non-financial assets, other than assets arising from employee benefits, inventories, deferred tax assets and non-current assets held for sale, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.

The Group estimates the recoverable amount of an individual asset. If it is impossible to measure the individual recoverable amount of an asset, then the Group estimates the recoverable amount of a cash-generating unit (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying a pre-tax discount rate that reflect current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU.

An impairment loss is recognized if the carrying amount of an asset or a CGU exceeds its recoverable amount. Impairment losses are recognized in profit or loss.

Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the goodwill acquired. Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

(14) Non-derivative financial liabilities

The Group classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities. The Group recognizes financial liabilities in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the financial liability. 23 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

3. Significant Accounting Policies, Continued

(14) Non-derivative financial liabilities, continued

(i) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the acquisition are recognized in profit or loss as incurred.

(ii) Other financial liabilities Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method.

The Group derecognizes a financial liability from the consolidated statement of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

(15) Financial guarantee liabilities

Financial guarantee contracts are initially measured at their fair values and, if not designated as at fair value through profit or loss, are subsequently measured at the higher of: - the amount of the best estimate of the expenditure required to settle the present obligation at the end of the reporting period ; and - the amount initially recognized less, cumulative amortization recognized on a straight-line basis over the guarantee period.

(16) Convertible bonds and bonds with stock warrants

A compound financial instrument issued by the Group is classified as a financial liability or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability and an equity instrument. The conversion right of convertible bonds and stock warranties embedded in compound financial instrument issued by the Group which can, at the option of the holder, be converted into a fixed number of equity instruments in the Group, is classified as equity.

The liability component of convertible bonds and bonds with stock warranties shall be recognized as the fair value of a similar liability on initial recognition and be measured at amortized cost by the effective interest method until it is extinguished. The equity component is determined by deducting the fair value of the financial liability from the fair value of the compound financial instrument as a whole on initial recognition. The tax effect shall be reflected and the instrument is not remeasured afterward. Transaction costs that relate to the issuance of a compound financial instrument are allocated to the liability and equity components of the instrument in proportion to the allocation of proceeds.

(17) Employee benefits

(i) Short-term employee benefits Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service. When an employee has rendered service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

24 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

3. Significant Accounting Policies, Continued

(17) Employee benefits, continued

(ii) Other long-term employee benefits Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the period in which the employees render the related service. The Group’s net obligation in respect of long- term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Remeasurements are recognised in profit or loss in the period in which they arise.

(iii) Retirement benefits: defined contribution plans When an employee has rendered service to the Group during a period, the Group recognizes the contribution payable to a defined contribution plan in exchange for that service as a liability (accrued expense), after deducting any contribution already paid. If the contribution already paid exceeds the contribution due for service before the end of the reporting period, the Group recognizes that excess as an asset (prepaid expense) to the extent that the prepayment will lead to a reduction in future payments or a cash refund.

(iv) Retirement benefits: defined benefit plans The Group’s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets.

The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Group, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.

Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in OCI. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognised in profit or loss.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss. The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs.

(v) Termination benefits Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the end of the reporting period, then they are discounted.

(18) Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.

25 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

3. Significant Accounting Policies, Continued

(18) Provisions, continued

Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement shall be recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

A provision for warranties is recognized when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.

A provision for restructuring is recognized when the Group has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating losses are not provided for.

A provision shall be used only for expenditures for which the provision was originally recognized.

(19) Leases

The Group classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.

(i) Finance leases At the commencement of the lease term, the Group recognizes as finance assets and finance liabilities in its consolidated statements of financial position, the lower amount of the fair value of the leased property and the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs are added to the amount recognized as an asset.

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred.

The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the lessee adopts for depreciable assets that are owned. If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life. The Group reviews to determine whether the leased asset may be impaired.

(ii) Operating leases Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are recognized in profit or loss on a straight-line basis over the period of the lease.

(iii) Determining whether an arrangement contains a lease Determining whether an arrangement is, or contains, a lease shall be based on the substance of the arrangement and requires an assessment of whether fulfillment of the arrangement is dependent on the use of a specific asset or assets (the asset) and the arrangement conveys a right to use the asset.

26 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

3. Significant Accounting Policies, Continued

(19) Leases, continued

At inception or reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a financial lease that it is impracticable to separate the payments reliably, the Group recognizes an asset and a liability at an amount equal to the fair value of the underlying asset that was identified as the subject of the lease. Subsequently, the liability shall be reduced as payments are made and an imputed finance charge on the liability recognized using the purchaser's incremental borrowing rate of interest.

(20) Derivative financial instruments, including hedge accounting

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

(i) Hedge accounting The Group holds forward exchange contracts, interest rate swaps, currency swaps and other derivative contracts to manage interest rate risk and foreign exchange risk. The Group designated derivatives as hedging instruments to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge).

On initial designation of the hedge, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship.

Fair value hedge Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss. The gain or loss from remeasuring the hedging instrument at fair value for a derivative hedging instrument and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the consolidated statement of comprehensive income.

The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, or if the hedge no longer meets the criteria for hedge accounting. Any adjustment arising from gain or loss on the hedged item attributable to the hedged risk is amortized to profit or loss from the date the hedge accounting is discontinued.

Cash flow hedge When a derivative is designated to hedge the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income, net of tax, and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.

27 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

3. Significant Accounting Policies, Continued

(20) Derivative financial instruments, including hedge accounting, continued

(ii) Separable embedded derivatives Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria have been met: (a) the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract; (b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and (c) the hybrid instrument is not measured at fair value with changes in fair value recognized in profit or loss.

Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.

(iii) Other derivative financial instruments Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.

(21) Dividends

A dividend payable is recognized as a liability when declaration of the dividend is approved in the shareholders’ meeting.

(22) Equity capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects.

Preference share capital is classified as equity if it is non-redeemable, or redeemable only at the Company’s option, and any dividends are discretionary. Dividends thereon are recognized as distributions within equity upon approval by the Group’s shareholders.

Preference share capital is classified as a liability if it is redeemable on a specific date or at the option of the shareholders, or if dividend payments are not discretionary. Dividends thereon are recognized as interest expense in profit or loss as accrued.

When the Group repurchases its share capital, the amount of the consideration paid is recognized as a deduction from equity and classified as treasury shares. The profits or losses from the purchase, disposal, reissue, or retirement of treasury shares are not recognized as current profit or loss. If the Group acquires and retains treasury shares, the consideration paid or received is directly recognized in equity.

(23) Share-based payment transactions

The Group has granted shares or share options to its employees and other parties. For equity-settled share- based payment transactions, the Group measures the goods or services received, and the corresponding increase in equity as a capital adjustment at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the Group cannot reliably estimate the fair value of the goods or services received, the Group measures their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted. If the fair value of the equity instruments cannot be estimated reliably at the measurement date, the Group measures them at their intrinsic value and recognizes the goods or services received based on the number of equity instruments that ultimately vest.

For cash-settled share-based payment transactions, the Group measures the goods or services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the Group remeasures the fair value of the liability at each reporting date and at the date of settlement, with changes in fair value recognized in profit or loss for the period.

28 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

3. Significant Accounting Policies, Continued

(24) Revenue

Revenue from the sale of goods, rendering of services or use of the Group assets is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. When two or more revenue generating activities or deliverables are sold under a single arrangement, each deliverable that is considered to be a separate unit of account is accounted for separately. The allocation of consideration from a revenue arrangement to its separate units of account is based on the relative fair values of each unit.

(i) Sale of goods Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.

The timing of the transfers of risks and rewards varies depending on the individual terms of the contract of sale. For sales of timber and paper products, usually transfer occurs when the product is received at the customer’s warehouse; however, for some international shipments transfer occurs upon loading the goods onto the relevant carrier at the port of the seller.

(ii) Construction contract Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. As soon as the outcome of a construction contract can be estimated reliably, contract revenue is recognized in profit or loss in proportion to the stage of completion of the contract. Contract expenses are recognized as incurred unless they create an asset related to future contract activity.

The stage of completion is assessed by reference to surveys of work performed. 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. An expected loss on a contract is recognized immediately in profit or loss.

(iii) Services Revenue from services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

(iv) Rental income Rental income from investment property, net of lease incentives granted, is recognized in profit or loss on a straight-line basis over the term of the lease.

(25) Government grants

Government grants are not recognized unless there is reasonable assurance that the Group will comply with the grant’s conditions and that the grant will be received.

Government grants whose primary condition is that the Group purchase, construct or otherwise acquire long- term assets are deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduced depreciation expense.

Government grants which are intended to compensate the Group for expenses incurred shall be recognized as a deduction to related expenses in profit or loss over the periods in which the Group recognizes the related costs as expenses.

29 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

3. Significant Accounting Policies, Continued

(26) Income taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

(i) Current tax Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit.

(ii) Deferred tax The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. The Group recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, except to the extent that the Group 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. The Group recognizes a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries and associates, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current tax liabilities and assets on a net basis.

(27) Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.

30 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

3. Significant Accounting Policies, Continued

(28) Operating segment

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are reviewed regularly by the Group’s Chief Executive Officer (“CEO”) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Group’s headquarters), head office expenses, and income tax assets and liabilities.

Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill.

The Group has four operating segments which consist of other machinery and equipment manufacturing, wholesaling and retail, general constructions and other manufacturing, as described in note 24.

(29) Expense before construction contracts

Expenses before construction contracts refers to the expenses directly related to construction contracts and spent before signing the contracts. Such expenses are recorded as prepaid construction costs as long as they can be recognized individually and measured reliably and there’s a very high possibility of signing the contracts. The costs are reclassified as construction costs after the construction process begins. If there’s any unpredictability of signing the contract, the expenses are recorded as prepaid construction costs and then allowances for valuation losses are estimated and recorded. When the signing is confirmed, the expenses are reclassified as construction costs and the relevant allowances for valuation losses are reversed.

(30) Stock issuing costs and bond issuing costs

The Group accounts for stock issuing costs as a deduction from additional paid-in capital and accounts for bond issuing costs as a deduction from or addition to discount on bonds payable or premium on bonds payable.

(31) Discount (premium) on bonds

Discount (premium) on bonds issued, which represents the difference between the face value and issuance price of bonds, is amortized (accreted) using the effective interest rate method over the life of the bonds. The amount amortized (accreted) is included in interest expense.

(32) Approval of Financial Statements

The consolidated financial statements were authorized for issue by the Board of Directors on February 5, 2015.

31 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

4. Financial Risk Management

The Group has exposure to the following risks from its use of financial instruments:  market risk  credit risk  liquidity risk

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

(1) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

The Group buys and sells derivatives, and also incurs financial liabilities, in order to manage market risks. All such transactions are carried out within the Group’s internal guidelines. Generally the Group seeks to apply hedge accounting in order to manage volatility in profit or loss.

(i) Currency risk The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currencies of the Group.

At any point in time the Group hedges its estimated foreign currency exposure in respect of forecast sales and purchases. The Group uses forward exchange contracts to hedge its currency risk. When necessary, forward exchange contracts are rolled over at maturity.

The following are the Group’s exposure to foreign currency risk as of December 31, 2014 and 2013.

(In millions of won) December 31, 2014 USD EUR JPY Others(*) Total I. Financial assets W 81,751 5,981 - 21,117 108,849 II. Financial liabilities 121,567 28,910 503 12,809 163,789 Net (I-II) W (39,816) (22,929) (503) 8,308 (54,940)

(In millions of won) December 31, 2013 USD EUR JPY Others(*) Total I. Financial assets W 79,710 6,305 7,625 5,601 99,241 II. Financial liabilities 61,652 26,878 6,933 5,073 100,536 Net (I-II) W 18,058 (20,573) 692 528 (1,295)

(*) Others are foreign currencies except for USD, EUR and JPY.

32 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

4. Financial Risk Management, Continued

(1) Market risk, continued

The following are exchange rates as of December 31, 2014 and 2013.

(In won) 2014 2013 USD 1,099.20 1,055.30 EUR 1,336.52 1,456.26 JPY 9.20 10.05

During the years ended December 31, 2014 and 2013 the losses on foreign currency translation were W1,679 million and W318 million, respectively.

A strengthening and a weakening of the won, as indicated below, against the USD, EUR, JPY and other foreign currencies at December 31, 2014 and 2013 would have increased (decreased) profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate changes that the Group considered to be reasonably possible at the reporting dates. The analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecasted sales and purchases.

(In millions of won) 2014 2013 10% 10% 10% 10%

weakening strengthening weakening strengthening Profit (loss) before income tax W (5,494) 5,494 (129) 129

(ii) Interest rate risk

Interest rate risk is the risk of fluctuations in interest rates in the future, which mainly occur in floating rate deposits and borrowings. The objective of interest rate risk management is to minimize the financial costs and uncertainty associated with interest rate changes.

The Group utilizes internally reserved funds to minimize external borrowings, improve the structure of short-term and long-term borrowings, maintain optimum levels of floating rate borrowings compared to fixed rate, and regularly monitor the trend of domestic and overseas interest rate movements in order to manage interest rate risks.

Floating rate financial assets and liabilities exposed to interest rate risk as of December 31, 2014 and 2013 are as follows: (In millions of won) 2014 2013

I. Financial assets W 91,561 97,445 II. Financial liabilities 455,028 543,737 Net (I-II) W (363,467) (446,292)

Assuming all other variables are constant, the effect of 100 basis point (bp) changes in interest rate on the profit before income tax for the years ended December 31, 2014 and 2013 are as follows:

(In millions of won) 2014 2013 100 bp 100 bp 100 bp 100 bp

increase decrease increase decrease Profit (loss) before income tax W (3,635) 3,635 (4,463) 4,463

33 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

4. Financial Risk Management, Continued

(1) Market risk, continued

(iii) Other market price risk

The Group is exposed to market price risk arising from changes in fair value or future cash flows of financial investments, especially equity instruments listed on stock exchanges. Management of the Group assesses the market price risk on a regular basis. Significant investments are individually managed and all purchase and sale decisions are approved by the Board of Directors.

(2) Credit risk

The Group is exposed to credit risk which results in financial losses in the event where the contractual obligation of another entity fails to be fulfilled. Credit risk arises mainly from trade and other receivables, derivatives, deposits etc. The Group maintains measures of credit enhancements by obtaining collateral and assessing the credit ratings of the customers and financial institutes on a regular basis.

(i) Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposures to credit risk as of December 31, 2014, 2013 are summarized as follows:

(In millions of won) December 31, December 31,

2014 2013 Cash and cash equivalents(*1) W 167,480 158,087 Short-term financial instruments - 304 Accounts and notes receivable 573,241 601,826 Other accounts receivable 143,152 165,941 Loans or Short-term loans 520,565 591,951 receivables Accrued revenues(*2) 97,944 97,623 Long-term financial instruments 54 57 Long-term loans(*3) 659,481 443,238 Long-term accounts receivable(*3) - 34 Guarantee deposits(*3) 26,295 25,533 2,188,212 2,084,594 Available-for-sale financial assets-bond 2,944 12,197 Held-to-maturity investment 1,700 - Derivative instrument assets 4,448 11,384 W 2,197,304 2,108,175 (*1) Cash on hand is not included. (*2) Included as part of other current assets in the statements of financial position. (*3) Included as part of other non-current assets in the statements of financial position.

In addition to the above financial assets, the Group has provided financial guarantees to certain banks in respect of borrowings of related parties and third parties ( see details in Note 34).

34 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

4. Financial Risk Management, Continued

(2) Credit risk, continued

(ii) Aging analysis

The aging of financial assets as of December 31, 2014 and 2013 follows.

December 31, 2014 Due Due Due More than (In millions of won) 0~3 months 3~6 months 6~12 months 12 months Total

Accounts and notes receivable W 92,118 49,337 37,801 1,331,795 1,511,051 Short-term loans 252,782 57,601 48,194 162,071 520,648 Other accounts receivable 46,690 8,774 9,405 124,149 189,018 Long-term loans 29,686 7,872 - 832,956 870,514 Long-term account receivables - - - 80 80 W 421,276 123,584 95,400 2,451,051 3,091,311

December 31, 2013 Due Due Due More than (In millions of won) 0~3 months 3~6 months 6~12 months 12 months Total

Accounts and notes receivable W 122,190 35,670 255,694 1,180,856 1,594,410 Short-term loans 67,900 29,675 117,324 377,055 591,954 Other accounts receivable 51,027 20,109 11,478 112,939 195,553 Long-term loans 107,772 5,118 38,642 501,595 653,127 Long-term account receivables - - - 71 71 W 348,889 90,572 423,138 2,172,516 3,035,115

The Group establishes a specific loss for individually significant receivables based on consideration of the risk of bankruptcy, insolvency and other information. For other individually significant and similar receivables, the Group establishes the allowance for impairment based on historical data and aging analysis. The Group recognized W1,194,871 million and W1,231,093 million as the allowance for impairment for individually significant receivables in December 31, 2014 and 2013, respectively.

There are no trade receivables and other receivables that are past due but not impaired as of December 31, 2014.

(3) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group's loss for the year was W68,580 million, and financial liabilities as of December 31, 2014 exeeded financial assets by W461,883 million. Also the Group has contingent liabilities of W306,534 million for certification of payment by the customers (primarilyl developers). Therefore the Group activitly monitors cash payment and receipts and prepares financing plan to manage liquidity risk in future periods as well as management improvement plan for stable operating cash flow.

35 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

4. Financial Risk Management, Continued

(3) Liquidity risk, continued

Also, as disclosed in Note 34, the Group has entered into contracts such as bank overdrafts, bill discounts, and credit facilities, with 16 financial institutions such as Shinhan Bank and the total of borrowing limits as of December 31, 2014 is W812,953 million, to assist in meeting the Group’s liquidity needs.

The following are the contractual maturities of non-derivative financial liabilities (borrowings, bonds and asset backed liabilities), including interest and derivative financial liabilities arise from stock options granted to financial investors, as of December 31, 2014 and 2013.

December 31, 2014 (In millions of won) Residual contractual maturities(*) Carrying 1 year or More than amounts Total less 1-2 years 2-5 years 5 years Financial liabilities W 1,720,961 1,781,967 1,458,085 315,921 598 7,363

(*) There is a difference between the amount of financial liabilities and contractual maturity amounts due to the effects of discounting and interest.

December 31, 2013 (In millions of won) Residual contractual maturities(*) Carrying 1 year or More than amounts Total less 1-2 years 2-5 years 5 years Financial liabilities W 1,541,211 1,607,991 1,201,039 398,792 725 7,435

(*) There is a difference between the amount of financial liabilities and contractual maturity amounts due to the effects of discounting and interest.

Additionally, the Group has provided certain financial guarantees as indicated in note 34 that are not included in the above tables.

(4) Capital management

The objective of capital risk management is to sustain the Group’s ability to provide profits to its shareholders and interested parties and sustain an optimal capital structure to reduce the costs of capital. In order to sustain an optimal capital structure, the Group manages the capital based on the debt-to-equity ratio as other companies in the same field do. The debt-to-equity ratio is calculated by dividing the total liabilities by the total capital.

The Group’s debt-to-equity ratio as of December 31, 2014 and 2013 is as follows:

(In millions of won) December 31, December 31,

2014 2013 Total liabilities W 3,170,495 2,934,973 Total equity 1,962,596 2,015,443 Debt to equity ratio 161.55% 145.62%

36 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

5. Restricted Financial Instruments

Financial instruments which are restricted in use as of December 31, 2014 and 2013 are as follows:

(In millions of won) December 31, December 31,

2014 2013 Restrictions

Cash and cash equivalents W 1,026 27,892 Collateral for project financing Long-term financial instruments 54 57 Collateral for opening checking accounts W 1,080 27,949

6. Short-term Investments in Securities

Short-term investments in securities as of December 31, 2014 and 2013 are summarized as follows:

(In millions of won) December 31, 2014 December 31, 2013 Available-for-sale financial assets Government bonds W - 1,072 New Challenge Kodit Construction the 1st Securitization Specialty Co., Ltd. - 1,250 ABCP 2,944 9,585 P-CLO Beneficiary Interest in Investment fund 7,000 - W 9,944 11,907

7. Accounts and Notes Receivable, etc.

(1) Allowance for doubtful accounts of accounts and notes receivable, etc. as of December 31, 2014 and 2013 are summarized as follows:

December 31, 2014 (In millions of won) Carrying Allowance for amounts doubtful accounts Book value Current Accounts and notes receivable(*) W 1,511,050 (937,809) 573,241 Receivable from unbilled construction contracts 791,260 (1,001) 790,259 Other accounts receivable 189,018 (45,866) 143,152 Advance payments 65,130 (2,450) 62,680 Short-term loans 520,648 (83) 520,565 Others 232,859 (20,263) 212,596 3,309,965 (1,007,472) 2,302,493 Non-current Long-term accounts receivable 80 (80) - Long-term loans 870,514 (211,033) 659,481 Others 26,589 (295) 26,294 897,183 (211,408) 685,775 Total W 4,207,148 (1,218,880) 2,988,268

37 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

7. Accounts and Notes Receivable, etc., Continued

December 31, 2013 (In millions of won) Carrying Allowance for amounts doubtful accounts Book value Current Accounts and notes receivable(*) W 1,594,410 (992,584) 601,826 Receivable from unbilled construction contracts 659,008 (3,798) 655,210 Other accounts receivable 195,553 (29,612) 165,941 Advance payments 36,699 (2,046) 34,653 Short-term loans 591,954 (3) 591,951 Others 253,106 (16,753) 236,353 3,330,730 (1,044,796) 2,285,934 Non-current Long-term accounts receivable 71 (37) 34 Long-term loans 653,127 (209,889) 443,238 Others 25,829 (295) 25,534 679,027 (210,221) 468,806 Total W 4,009,757 (1,255,017) 2,754,740

(*) The Group accounted for the assignment of receivables that do not meet the requirements for removal of financial instruments as collateralized borrowing transactions (note 16, 34).

(2) Changes in the allowances for doubtful accounts for the year ended December 31, 2014 are as follows:

(In millions of won) Reversal of allowances

December for doubtful December 31, 2013 Increase Write-offs accounts Others 31, 2014 Accounts and notes receivable(including non-current portion) W 992,621 510 (27,312) (23,916) (4,014) 937,889 Receivable from unbilled construction contracts 3,798 1,017 (3,523) (291) - 1,001 Other accounts receivable 29,612 17,373 (5,142) - 4,023 45,866 Advance payments 2,046 404 - - - 2,450 Short-term loans 3 83 - (3) - 83 Long-term loans 209,889 1,144 - - - 211,033 Others 17,048 6,062 - (2,552) - 20,558 W 1,255,017 26,593 (35,977) (26,762) 9 1,218,880

The Group establishes a specific loss for individually significant receivables based on consideration of the risk of bankruptcy, insolvency and other information. For other individually insignificant and similar receivables, the Group establishes the allowance for impairment based on historical data and aging analysis. The amount of the loss is recognized in selling and administrative expenses and other non-operating expense.

38 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

8. Inventories

(1) Inventories as of December 31, 2014 and 2013 are summarized as follows:

(In millions of won) December 31, 2014 Provision for Acquisition cost loss on valuation Book value Finished goods W 6 - 6 Raw materials 23,691 (1,951) 21,740 Goods in transit 3,897 - 3,897 Housing in process 2,871 - 2,871 W 30,465 (1,951) 28,514

(In millions of won) December 31, 2013 Provision for Acquisition cost loss on valuation Book value Finished goods W 28 - 28 Raw materials 30,843 (3,281) 27,562 Goods in transit 3,936 - 3,936 Housing in process 571 - 571 W 35,378 (3,281) 32,097

(2) Inventory reversals recorded in cost of sales was W291 million in the current year. Inventory write-downs recorded in cost of sales was W266 million in the prior year.

9. Long-term Investments in Securities

(1) Long-term investments in securities as of December 31, 2014 and 2013 are summarized as follows:

(In millions of won) December 31, December 31, 2014 2013 Available-for-sale financial assets W 133,977 135,688 Held-to-maturity investment 1,700 - W 135,677 135,688

(2) Details of the available-for-sale financial assets as of December 31, 2014 and 2013 are summarized as follows:

(In millions of won) December 31, December 31, 2014 2013 Marketable equity securities: Hana Financial Group Inc.(*4) W 127 173 Ssangyong Motor Co., Ltd. 298 243 Pumyang Construction Co., Ltd.(*3) - - Sungjee Construction Co., Ltd. 1 6 Dongyang Engineering Construct Corp.(*7) - 44 BYUCKSAN ENGINEERING & CONSTRUCTION CO., LTD.(*7) - 6 426 466

39 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

9. Long-term Investments in Securities, Continued

(In millions of won) December 31, December 31, 2014 2013 Non-marketable securities: The Korea Herald Inc.(*2)(*3) W - - Korea Housing Guarantee Corp.(*3)(*5) 11,554 9,295 Busan Logistics Terminal Complex Co., Ltd.(*3) 490 960 Chonggu Co., Ltd.(*2) - - Dream Herb Financial Investment Co., Ltd.(*2)(*3) - - Cheongna International Town Co., Ltd.(*2)(*3) - - Alpha·dom City Co., Ltd. 15,498 15,754 Alpha·dom Asset Management Co., Ltd.(*2) 20 20 Cheon-an Hermeca Development Co., Ltd.(*2)(*3) - - Seoullitetower Co., Ltd.(*2)(*4) - 574 Econhill Development Co., Ltd.(*2)(*3)(*6) - - Econhill Development Asset Management Co., Ltd.(*2)(*3) - - Korea real-estate Management Co., Ltd. 869 934 Daejeon Riverside Expressway Co., Ltd.(*1)(*2)(*3) - - Gangnam Ring Road Corp.(*6) 5,187 5,232 Pohang Young-il New Harbor Co., Ltd.(*6) 7,432 7,337 Masan Ararkmul Road(*6) 848 1,104 Cheongju Cleaner(*2)(*6) 312 312 Incheon-Gimpo Expressway 14,240 12,573 Sangju-Yeongcheon Expressway Co., Ltd.(*6) 16,215 12,941 Sudokwon Seobu Expressway Co., Ltd.(*6) 9,174 9,175 Daegu Nambu Highway Co., Ltd.(*6) 3,965 4,014 Ui Trans Co., Ltd.(*6) 6,025 5,388 Seoul-Munsan Expressway Co., Ltd.(*2) 906 834 Jangheung Cleaner Co., Ltd.(*2) - 999 Busan New Harbor Rear Road Co., Ltd.(*6). 4,533 4,533 Clean Paju Co., Ltd.(*2)(*6) 684 684 SPP Co., Ltd.(*1)(*2) 25 25 Clean Gimpo Co., Ltd.(*2)(*6) 546 546 Kookminci Co., Ltd.(*2)(*4) - 695 Infnis Inc.(*2)(*3) - - The Korea Economic Daily(*2) 71 71 Gyeonggi Nambu Road Co. Ltd.(*6) 4,181 4,229 P-CLO Beneficiary Interest in Investment fund - 7,000 Yangcheon Goyang Unificaxtion Hill(*2)(*6) 93 113 Gapyeong ganggun Yangzhou Co., Ltd.(*2)(*6) 63 - Joongang Development Co., Ltd.(*2)(*3) - - Halla Energe & Environ(*2)(*3) - - Dongyang Engineering Construct Corp.(*2)(*4)(*7) - - SHIN SUNG CONSTRUCTION CO., Ltd.(*2) 3 3 LIG E&C Co., Ltd.(*2)(*4) - 10

40 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

9. Long-term Investments in Securities, Continued

(In millions of won) December 31, December 31, 2014 2013 BYUCKSAN ENGINEERING & CONSTRUCTION CO., LTD. (*2)(*4)(*7) W - - SNU Medical Hub Co., Ltd.(*1)(*2) 19 - KAMCO PEF Investment Trust(*2) 3 - Gangwon Football Club(*2) 10 10 102,966 105,365 Debt securities: Government bonds - 148 Korea Exchange Bank Hybrid Bond - 88 LIG E&C Co., Ltd.(*4) - 53 - 289 Other equity securities: Korea Construction Financial Cooperatives 29,152 28,261 Electricity Cooperatives(*2)(*3) 20 20 Information and Telecommunication Financial Cooperatives(*2)(*3) 34 34 Firefighting Industry Mutual Benefit Association(*2) 20 20 Capital goods Mutual Benefit Association 1,359 1,233 30,585 29,568 W 133,977 135,688

(*1) These investment securities are not classified as investments in associates because the impact on the consolidated financial statements is not material.

(*2) Unlisted stocks whose fair value cannot be reliably measured are carried at cost, less impairment.

(*3) In the prior year, the Group recorded impairment losses due to events and circumstances indicating that the carrying amount may not be recoverable.

(*4) In the current year, the Group recorded impairment losses due to events and circumstances indicating that the carrying amount may not be recoverable.

(*5) Investment securities pledged as collateral for borrowings of the Group.

(*6) Investment securities pledged as collateral for project financing.

(*7) Reclassified as non-marketable equity securities due to the lack of reliable fair value information.

41 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

9. Long-term Investments in Securities, Continued

(3) Changes in unrealized gain or loss of the available-for-sale financial assets for the year ended December 31, 2014 and 2013 are as follows:

(In millions of won) December 31, Reclassified to December 31, 2013 Valuation profit or loss 2014 Marketable equity securities W 87) 55) (17) 125) Non-marketable securities 2,403 1163) - 3,566 Debt securities 69 - (69)) - Equity securities 5,386 907 - 6,293 Income tax effect (1,749)) (467)) 20) (2,196)) W 6,196 1,658) (66) 7,788

(In millions of won) December 31, Reclassified to December 31, 2012 Valuation profit or loss 2013 Marketable equity securities W (31)) 118) - 87) Non-marketable securities 28,706 (1,694)) (24,609) 2,403 Debt securities 49 32 (12)) 69 Equity securities 5,214 172 - 5,386 Income tax effect (7,468)) 302) 5,417) (1,749)) W 26,470 (1,070)) (19,204) 6,196

(4) Held-to-maturity investment as of December 31, 2014 and 2013 are summarized as follows:

(In millions of won) December 31, December 31, 2014 2013 U Best Third Asset Securitization Debt securities Specialty L.L.C W 1,700 -

10. Derivative Financial Instruments

Derivative financial instruments as of December 31, 2014 and 2013 are summarized as follows:

(1) Foreign currency forward (In millions of won and thousands of USD, EUR, JPY)

December 31, 2014 Derivative Gain (loss) on Accumulated Firm instrument valuation of other commitment Forward exchange assets derivative comprehensive assets Buying Selling (liabilities), net instrument, net income (liabilities), net KRW 341,585 USD 318,290 W (9,794) (12,147) - 3,562 KRW 26,196 EUR 18,160 1,663 1,044 - (741) USD 60,837 KRW 65,690 1,778 1,804 1,143 - JPY 65,550 KRW 768 (158) - (12) -

W (6,511) (9,299) 1,131 2,821

42 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

10. Derivative Financial Instruments, Continued

Derivative financial instruments are classified as non-current assets (liabilities), if their maturity exceeds 12 months from the end of the reporting period and as current assets (liabilities) if the period is within 12 months.

(In millions of won and thousands of USD, EUR, JPY)

December 31, 2013 Derivative Gain (loss) on Accumulated Firm instrument valuation of other commitment Forward exchange assets derivative comprehensive assets Buying Selling (liabilities), net instrument, net income (liabilities), net KRW 287,242 USD 257,910 W 11,350 2,870 - (3,592) KRW 44,626 EUR 30,510 (307) (307) - 78 USD 37,003 KRW 40,590 (666) (666) (134) - EUR 2,080 KRW 3,045 - - (1) - JPY 314,640 KRW 3,646 (435) (435) (200) -

W 9,942 1,462 (335) (3,514)

For the year ended December 31, 2013, the Group recognized W1,100 million in loss as the ineffective portion of changes in fair value of the cash flow hedging instruments.

(2) Stock options granted to financial investors

The Group, as a member of construction investors affiliated with Shin Bundang B.T.O, entered into the following option contracts with respect to shares acquired by financial investors in order to attract more investors. The Group classified the option contracts as derivative financial instruments, and changes in fair value of the option were recognized as losses on valuation of derivative instruments of W682 million for the year ended December 31, 2014. While the balance as of December 31, 2014 was W167 million, there is no balance in derivative instrument liabilities as of December 31, 2013.

Project Type of option Grantee Exercise period Exercise price

①Korea Development Bank Stock purchase Shin Bundang Put ②Nonghyup Bank Jun 28, 2014~ price plus B.T.O Jun 27, 2015 stipulated amount ③Korea Infra Second FUND

43 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

11. Categories of Financial Instruments

(1) Categories of financial instruments as of December 31, 2014 and 2013 are summarized as follows:

(In millions of won) December 31, 2014 Financial Derivative asset at fair- Available- assets value for-sale Held-to- under through Loans and financial maturity hedge Carrying Fair Financial assets profit or loss receivables assets investment accounting amounts value Cash and cash equivalents W - 167,498 - - - 167,498 167,498 Short-term investments in securities - - 9,944 - - 9,944 9,944 Accounts and notes receivable - 573,241 - - - 573,241 573,241 Other accounts receivable - 143,152 - - - 143,152 143,152 Short-term loans - 520,565 - - - 520,565 520,565 Derivative instrument assets 455 - - - 3,993 4,448 4,448 Accrued revenues(*1) - 97,944 - - - 97,944 97,944 Long-term financial instruments - 54 - - - 54 54 Long-term investments in securities - - 133,977 1,700 - 135,677 135,677 Long-term loans(*2) - 659,481 - - - 659,481 659,481 Guarantee deposits(*2) - 26,295 - - - 26,295 26,295 W 455 2,188,230 143,921 1,700 3,993 2,338,299 2,338,299

(*1) Included as part of other current assets in the consolidated statements of financial position. (*2) Included as part of other non-current assets in the consolidated statements of financial position.

(In millions of won) December 31, 2014 Financial Derivative liabilities at Amortised assets fair-value cost of under Financial through financial hedge guarantee Carrying Financial liabilities profit or loss liabilities accounting liability amounts Fair value Accounts payable W - 798,585 - - 798,585 798,585 Short-term borrowings - 608,813 - - 608,813 608,813 Asset backed liabilities current - 397,348 - - 397,348 397,348 Current portion of long-term liabilities - 403,346 - - 403,346 403,346 Other accounts payable - 106,495 - - 106,495 106,495 Accrued expenses - 38,298 - - 38,298 38,298 Guarantee deposits received(*1) - 7,348 - - 7,348 7,348 Leasehold deposits received(*1) - 30,831 - - 30,831 30,831 Bonds - 242,475 - - 242,475 242,475 Long-term borrowings - 26,136 - - 26,136 26,136 Asset backed liabilities, non- current - 42,678 - - 42,678 42,678 Long-term other accounts payable - 7,584 - - 7,584 7,584 Derivative instrument liabilities 167 - 10,959 - 11,126 11,126 Long-term guarantee deposits received - 45,518 - - 45,518 45,518 Long-term leasehold deposits received(*2) - 13,068 - - 13,068 13,068 Financial guarantee liability(*2) - - - 20,534 20,534 20,534 W 167 2,768,523 10,959 20,534 2,800,183 2,800,183

44 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

11. Categories of Financial Instruments, Continued

(*1) Included as part of other current liabilities in the consolidated statements of financial position. (*2) Included as part of other non-current liabilities in the consolidated statements of financial position.

(In millions of won) December 31, 2013 Derivative Available- assets for-sale under Loans and financial hedge Carrying Financial assets receivables assets accounting amounts Fair value Cash and cash equivalents W 158,121 - - 158,121 158,121 Short-term financial instruments 304 - - 304 304 Short-term investments in securities - 11,907 - 11,907 11,907 Accounts and notes receivable 601,826 - - 601,826 601,826 Other accounts receivable 165,941 - - 165,941 165,941 Short-term loans 591,951 - - 591,951 591,951 Derivative instrument assets - - 11,384 11,384 11,384 Accrued revenues(*1) 97,623 - - 97,623 97,623 Long-term financial instruments 57 - - 57 57 Long-term investments in securities - 135,688 - 135,688 135,688 Long-term accounts and notes receivable(*2) 34 - - 34 34 Long-term loans(*2) 443,238 - - 443,238 443,238 Guarantee deposits(*2) 25,534 - - 25,534 25,534 W 2,084,629 147,595 11,384 2,243,608 2,243,608

(*1) Included as part of other current assets in the consolidated statements of financial position. (*2) Included as part of other non-current assets in the consolidated statements of financial position.

(In millions of won) December 31, 2013 Financial Derivative liabilities at Amortised assets fair-value cost of under Financial through financial hedge guarantee Carrying Financial liabilities profit or loss liabilities accounting liability amounts Fair value Accounts payable W - 668,863 - - 668,863 668,863 Short-term borrowings - 559,276 - - 559,276 559,276 Asset backed liabilities current - 270,000 - - 270,000 270,000 Current portion of long-term liabilities - 323,097 - - 323,097 323,097 Other accounts payable - 97,538 - - 97,538 97,538 Accrued expenses - 56,693 - - 56,693 56,693 Guarantee deposits received(*1) - 4,540 - - 4,540 4,540 Leasehold deposits received(*1) - 29,332 - - 29,332 29,332 Bonds - 235,682 - - 235,682 235,682 Long-term borrowings - 153,156 - - 153,156 153,156 Long-term other accounts payable - 3,364 - - 3,364 3,364 Derivative instrument liabilities 286 - 1,156 - 1,442 1,442 Long-term guarantee deposits received - 51,316 - - 51,316 51,316 Long-term leasehold deposits received(*2) - 11,486 - - 11,486 11,486 Financial guarantee liability(*2) - - - 5,823 5,823 5,823 W 286 2,464,343 1,156 5,823 2,471,608 2,471,608

(*1) Included as part of other current liabilities in the consolidated statements of financial position. 45 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

11. Categories of Financial Instruments, Continued

(*2) Included as part of other non-current liabilities in the consolidated statements of financial position.

(2) Categories of financial income (loss) for the years ended December 31, 2014 and 2013 are summarized as follows:

(In millions of won) 2014 Net income (loss) Gains (losses) on Interest Impairment Gains (losses) foreign currency Financial Other income Dividend and on retirement transactions and guarantee comprehensive (expense) revenue reversal of bonds translations revenue loss Financial assets : Loans and receivables W 6,423 - 4,809 (2,189) 1,437 - - Available-for-sale financial assets 1,463 83 (2,664) 905 - - 1,591 W 7,886 83 2,145 (1,284) 1,437 - 1,591 Financial liabilities : Financial liabilities at cost after depreciation W (147,482) - - - (2,530) - - Financial guarantee liability - - - - - 579 - W (147,482) - - - (2,530) 579 -

(In millions of won) 2013 Net income (loss) Gains (losses) on Interest Impairment Gains (losses) foreign currency Financial Other income Dividend and on retirement transactions and guarantee comprehensive (expense) revenue reversal of bonds translations revenue loss Financial assets : Loans and receivables W 15,715 - 2,653 (1,833) (3,390) - - Available-for-sale financial assets 1,721 124 (20,281) 25,671 - - (20,274) W 17,436 124 (17,628) 23,838 (3,390) - (20,274) Financial liabilities : Financial liabilities at cost after depreciation W (172,065) - - (2,607) 2,651 - - Financial guarantee liability - - - - - 12,254 - W (172,065) - - (2,607) 2,651 12,254 -

(3) Categories of financial income (loss) from derivative instrument for the year ended December 31, 2014 and 2013 are summarized as follows:

(In millions of won) 2014 Other Gains Gains comprehensive on valuation on sale gain Derivative instruments held for trading W 455 (39) - Derivative instruments held for fair value hedging (9,754) 2,105 - Derivative instruments held for cash flow hedging - - 1,465 W (9,299) 2,066 1,465

46 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

11. Categories of Financial Instruments, Continued

(In millions of won) 2013 Other Gains Gains comprehensive on valuation on sale loss Derivative instruments held for trading W (286) 2,387 - Derivative instruments held for fair value hedging 1,748 1,120 - Derivative instruments held for cash flow hedging - - (513) W 1,462 3,507 (513)

(4) The table below analyzes financial instruments carried at fair value, by hierarchy of the inputs to fair value.

(In millions of won) December 31, 2014 Level 1 Level 2 Level 3(*2) Total Financial assets : Financial asset at fair-value through profit or loss W - 455 - 455 Available-for-sale financial assets(*1) 426 - 130,721 131,147 Derivative assets

under hedge accounting - 3,993 - 3,993 W 426 4,448 130,721 135,595 Financial liabilities : Financial liabilities at fair value through profit or loss W - 167 - 167 Derivative liabilities

under hedge accounting - 10,959 - 10,959 W - 11,126 - 11,126

(*1) The Group presents available-for-sale financial assets at fair value, except for unlisted stocks whose fair value is unable to be estimated reliably and are presented at cost.

47 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

11. Categories of Financial Instruments, Continued

(*2) The table below shows assumption and contents of available-for-sale-financial assets which are classified as Level 3.

(i) Assumption Discount

Evaluation method rate Note Korea Housing Guarantee Corp. Free cash flows to equity model 4.14% Free cash flow to equity Expected liquidating dividend Alpha·dom City Co., Ltd. Discount cash flow model 5.99% cash flow Gangnam Ring Road Corp. Dividend discount model 13.63% Expected dividend cash flow Pohang Young-il New Harbor Co., Dividend discount model 12.67% Expected dividend cash flow Ltd. Incheon-Gimpo Expressway Past transaction approach - Recent paid in capital increase Sangju-Yeongcheon Expressway Past transaction approach - Recent paid in capital increase Co., Ltd. Daegu Nambu Highway Co., Ltd. Dividend discount model 13.57% Expected dividend cash flow Ui Trans Co., Ltd. Past transaction approach - Recent paid in capital increase Gyeonggi Nambu Road Co., Ltd. Dividend discount model 12.35% Expected dividend cash flow Busan New Harbor Rear road Co., Recent paid in capital Past transaction approach - Ltd. increase Korea Construction Financial Discount cash flow model 4.11% Expected cash flow Cooperatives Others Net asset value approach etc. - Net asset fair value etc.

(ii) Contents

(In millions of won) Amounts Amounts before Valuation after Fair valuation (before tax) valuation value Korea Housing Guarantee Corp. W 9,296 2,258 11,554 11,554 Alpha·dom City Co., Ltd. 15,754 (256) 15,498 15,498 Gangnam Ring Road Corp. 5,232 (45) 5,187 5,187 Pohang Young-il New Harbor Co., Ltd. 7,337 95 7,432 7,432 Incheon-Gimpo Expressway 14,240 - 14,240 14,240 Sangju-Yeongcheon Expressway Co., Ltd. 16,215 - 16,215 16,215 Daegu Nambu Highway Co., Ltd. 4,013 (48) 3,965 3,965 Ui Trans Co., Ltd. 6,025 - 6,025 6,025 Gyeonggi Nambu Road Co., Ltd. 4,229 (48) 4,181 4,181 Busan New Harbor Rear road Co., Ltd. 4,532 - 4,532 4,532 Korea Construction Financial Cooperatives 28,262 890 29,152 29,152 Others 13,516 (776) 12,740 12,740 W 128,651 2,070 130,721 130,721

48 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

11. Categories of Financial Instruments, Continued

The different levels of inputs have been defined 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 (i.e. as prices) or indirectly (i.e. derived from prices)

Level 3 : Inputs for the asset or liability that are not based on observable market data (unobservable inputs)

The fair value of financial instruments traded in active markets is based on quoted market prices at the dates of the consolidated statements of financial position. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s-length basis. The quoted market price used for financial assets held by the group is the current bid price. These instruments are included in Level 1. Instruments included in Level 1 comprise primarily listed equity investments classified as trading securities or available-for-sale.

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.

Specific valuation techniques used to value financial instruments include:

- Quoted market prices or dealer quotes for similar instruments - The fair value of forward foreign exchange contracts is determined using forward exchange rates at the dates of the consolidated statements of financial position, with the resulting value discounted back to present value.

Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments. As for trade and other receivables, the book value is considered to be a reasonable approximation of fair value.

(In millions of won) December 31, 2013 Level 1 Level 2 Level 3 Total Financial assets : Available-for-sale financial assets W 466 1,308 122,961 124,735 Derivative assets

under hedge accounting - 11,384 - 11,384 W 466 12,692 122,961 136,119 Financial liabilities : Financial liabilities at fair value through profit or loss W - 286 - 286 Derivative liabilities

under hedge accounting - 1,156 - 1,156 W - 1,442 - 1,442 .

49 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

11. Categories of Financial Instruments, Continued

(5) Changes in level 3 financial instruments for the years ended December 31, 2014 and 2013, respectively, are as follows:

(In millions of won) 2014 2013 Beginning balance W 122,961 167,306 Reclassification(*) - 52,165 Acquisition 7,091 7,732 Disposal (1,401) (85,201) Net income - 7,089 Other comprehensive income 2,070 (26,130) Ending balance W 130,721 122,961

(*) Incheon-Gimpo Expressway and other availiable-for-sale financial assets were reclassified to Level 3 (carrying amount : W52,166 million) in 2014. Before 2014, the Group was not able to reliably estimate the fair value of these non-mareketable secutities..

12. Investments in Associates

(1) Details of investments in associates as of December 31, 2014 and 2013 are as follows:

(In millions of won) Acquisition cost Percentage of December 31, December 31,

Location Shareholding 2014 2013 Doosan Vina(*2) Vietnam 24.76% W 47,038 47,038 Doosan do BPL(*1) Brazil 100.00% 217 217 Shinbundang Railroad Co., Ltd.(*3) Korea 29.03% 62,552 62,552 Kyunggi Railroad Co., Ltd. Korea 13.06% 7,067 7,049 Neo Trans Inc. Korea 42.86% 43 43 Haman Industry Complex Co., Ltd.(*3) Korea 26.67% 1,200 1,200 New Seoul Railroad Co., Ltd. Korea 32.65% 1,373 1,123 W 119,490 119,222

(In millions of won) Carrying amounts Percentage of December 31, December 31,

Location Shareholding 2014 2013 Doosan Vina(*2) Vietnam 24.76% W 18,487 18,049 Doosan do BPL(*1) Brazil 100.00% - - Shinbundang Railroad Co., Ltd.(*3) Korea 29.03% 46,538 67,785 Kyunggi Railroad Co., Ltd. Korea 13.06% 5,737 4,946 Neo Trans Inc. Korea 42.86% 13,335 10,745 Haman Industry Complex Co., Ltd.(*3) Korea 26.67% 397 798 New Seoul Railroad Co., Ltd. Korea 32.65% 727 776 W 85,221 103,099

50 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

12. Investments in Associates, Continued

(In millions of won) Net assets Percentage of December 31, December

Location Shareholding 2014 31, 2013 Doosan Vina(*2) Vietnam 24.76% W 75,564 73,952 Doosan do BPL(*1) Brazil 100.00% (209) (209) Shinbundang Railroad Co., Ltd.(*3) Korea 29.03% 160,311 233,500 Kyunggi Railroad Co., Ltd. Korea 13.06% 43,922 15,789 Neo Trans Inc. Korea 42.86% 31,113 25,069 Haman Industry Complex Co., Ltd.(*3) Korea 26.67% 1,487 4,434 New Seoul Railroad Co., Ltd. Korea 32.65% 1,609 2,171 W 313,797 354,706

(*1) Although the Group controls this entity, it is accounted for as an investment in associate because the difference between consolidation and equity method is insignificant to the Group’s financial position, result and financial statements.

(*2) Investments pledged as collateral for borrowings of the Group.

(*3) Investments pledged as collateral for certain construction projects.

(2) Changes in investments in associates for the years ended December 31, 2014 and 2013 are as follows:

2014 (In millions of won) Change in Gains (losses) investor's share on equity of capital Beginning method adjustments on balance valuation equity method Acquisition Ending balance Doosan Vina W 18,049 (309) 747 - 18,487 Doosan do BPL - - - - - Shinbundang Railroad Co., Ltd. 67,785 (21,247) - - 46,538 Kyunggi Railroad Co., Ltd.(*) 4,946 773 - 18 5,737 Neo Trans Inc. 10,745 2,590 - - 13,335 Haman Industry Complex Co., Ltd. 798 (401) - - 397 New Seoul Railroad Co., Ltd. 776 (299) - 250 727 W 103,099 (18,893) 747 268 85,221

(*) The Group recognized gains on equity method W1,204 million by changes of equity that was due to paid in capital increase for the current year.

2013 (In millions of won) Change in Gains (losses) investor's share on equity of capital Beginning method adjustments on Ending balance valuation equity method Acquisition Other balance Doosan Vina(*) W 30,020 (11,933) (38) - - 18,049 Doosan do BPL 44 (44) - - - - Shinbundang Railroad Co., Ltd. 91,769 (23,984) - - - 67,785 Kyunggi Railroad Co., Ltd. 5,802 (856) - - - 4,946 Neo Trans Inc. 5,846 4,899 - - - 10,745 Haman Industry Complex Co., Ltd. - 798 - - - 798 New Seoul Railroad Co., Ltd. - (347) - 298 825 776 W 133,481 (31,467) (38) 298 825 103,099

51 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

12. Investments in Associates, Continued

(*) The Group recognized losses on equity method investments ofW 192 million due to changes of equity resulting from paid in capital increases for the prior year

(3) Summarized financial information of the equity method accounted investments as of and for the years ended December 31, 2014 and 2013 are summarized as follows:

(In millions of won) 2014 Assets Liabilities Sales Profit (loss) Doosan Vina W 379,805 304,241 227,864 (1,403) Doosan do BPL 50 259 - - Shinbundang Railroad Co., Ltd. 1,045,533 885,222 56,004 (73,188) Kyunggi Railroad Co., Ltd. 290,499 246,577 - (3,318) Neo Trans Inc. 35,546 4,433 47,226 6,044 Haman Industry Complex Co., Ltd. 50,280 48,793 10,525 (446) New Seoul Railroad Co., Ltd. 5,280 3,671 - (977) W 1,806,993 1,493,196 341,619 (73,288)

(In millions of won) 2013 Assets Liabilities Sales Profit (loss) Doosan Vina W 441,289 367,337 269,374 (49,091) Doosan do BPL 50 258 809 (266) Shinbundang Railroad Co., Ltd. 1,082,671 849,172 49,321 (82,617) Kyunggi Railroad Co., Ltd. 66,939 51,150 - (2,693) Neo Trans Inc. 30,069 5,000 52,557 11,430 Haman Industry Complex Co., Ltd. 58,747 54,313 26,046 3,883 New Seoul Railroad Co., Ltd. 5,338 3,167 - (1,169) W 1,685,103 1,330,397 398,107 (120,523)

52 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

12. Investments in Associates, Continued

(4) As of December 31, 2014, proportionally adjusted amounts of the Group’s investments in associates are as follows:

(In millions of won) 2014

Net asset Adjustments Proportionally as of Percentage of Intra adjusted December Shareholding company Unrecognised Carrying 31, 2014 (a) (b) amount (a*b) Goodwill transaction amount amounts Doosan Vina W 75,564 24.76% 18,709 - (222) - 18,487 Doosan do BPL (209) 100.00% (209) - - 209 - Shinbundang Railroad Co., Ltd. 160,311 29.03% 46,538 - - - 46,538 Kyunggi Railroad Co., Ltd. 43,922 13.06% 5,737 - - - 5,737 Neo Trans Inc. 31,113 42.86% 13,335 - - - 13,335 Haman Industry Complex Co., Ltd. 1,487 26.67% 397 - - - 397 New Seoul Railroad Co., Ltd. 1,609 32.65% 525 202 - - 727 W 313,797 85,032 202 (222) 209 85,221

(In millions of won) 2013

Net asset Adjustments Proportionally as of Percentage of Intra adjusted December Shareholding company Unrecognised Carrying 31, 2013 (a) (b) amount (a*b) Goodwill transaction amount amounts Doosan Vina W 73,952 24.76% 18,310 - (261) - 18,049 Doosan do BPL (209) 100.00% (209) - - 209 - Shinbundang Railroad Co., Ltd. 233,500 29.03% 67,785 - - - 67,785 Kyunggi Railroad Co., Ltd. 15,789 31.33% 4,946 - - - 4,946 Neo Trans Inc. 25,069 42.86% 10,745 - - - 10,745 Haman Industry Complex Co., Ltd. 4,434 26.67% 1,183 - (385) - 798 New Seoul Railroad Co., Ltd. 2,171 29.66% 644 132 - - 776 W 354,706 103,404 132 (646) 209 103,099

13. Property, Plant and Equipment

(1) Changes in property, plant and equipment for the years ended December 31, 2014 and 2013 are as follows:

(i) December 31, 2014

(In millions of won) Buildings & Construction- Land Structures Machinery Others in-progress Total Beginning balance W 856,306 153,571 45,531 5,747 5,066 1,066,221 Acquisition/ Capital expenditure - 15,924 9,367 1,011 184 26,486 Disposal (9,502) (87) (588) (82) - (10,259) Depreciation - (8,243) (9,929) (2,503) - (20,675) Reclassifications - 18 - - (18) - Other(*) - - - (18) - (18) Gap on foreign currency transactions - 256 115 18 8 397 Ending balance W 846,804 161,439 44,496 4,173 5,240 1,062,152 - Acquisition cost 846,804 240,366 121,542 26,025 5,240 1,239,977 - Accumulated depreciation (include accumulated impairment loss) - (78,927) (77,046) (21,852) - (177,825)

(*) Reclassification of software from property, plant and equipment to intangible asset.

Land and Buildings are provided as collateral for borrowings of the Group. The Group cannot provide these for collateral of another borrowing or sell them (note 35). 53 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

13. Property, Plant and Equipment, Continued

The Group applied the revaluation method for land and the value of the land is W469,230 million under the cost method. There is no significant difference between fair value of the land as of December 31, 2014 and the revalued amount as of December 31, 2013.

(ii) December 31, 2013

(In millions of won) Buildings & Construction- Land Structures Machinery Others in-progress Total Beginning balance W 686,964 144,606 36,565 5,452 4,972 878,559 Acquisition/ Capital expenditure 63 16,340 14,467 2,276 640 33,786 Increase by business combination(*1) 6,724 11,766 1,330 711 128 20,659 Change in scope of consolidated object(*2) - 7,159 2,703 199 190 10,251 Reclassifications - 829 - 33 (862) - Net revaluation increment 201,470 - - - - 201,470 Disposal (38,915) (18,904) (660) (63) - (58,542) Depreciation - (7,865) (8,748) (2,852) - (19,465) Gap on foreign currency transactions - (360) (126) (9) (2) (497) Ending balance W 856,306 153,571 45,531 5,747 5,066 1,066,221 - Acquisition cost 856,306 224,026 115,317 30,311 5,066 1,231,026 - Accumulated depreciation (include accumulated impairment loss) - (70,455) (69,786) (24,564) - (164,805)

(*1) The Group acquired Heat Recovery Steam Generator from Doosan Heavy Industries and Construction Co., Ltd. the Controlling Company of the Group.

(*2) The Group acquired controlling power of Doosan Heavy Industries Vietnam Haiphong Co., Ltd.

(2) Details of depreciation of property, plant and equipment recognized in profit or loss for the periods ended in December 31, 2014 and 2013 are as follows:

(In millions of won) 2014 2013 Cost of sales W 19,176 17,569 Selling, general and administrative expenses 1,499 1,896 W 20,675 19,465

54 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

14. Intangible Assets

(1) Changes in intangible assets for the years ended December 31, 2014 and 2013 are as follows:

(i) December 31, 2014

(In millions of won) Industrial Other intangible Goodwill property rights assets Total Beginning balance W 268,926 19,380 44,311 332,617 Acquisitions / Capital expenditures - 4,687 1,748 6,435 Disposals - - (518) (518) Amortization - (1,988) (9,189) (11,177) Other(*1) - - 18 18 Gap on foreign currency transaction 61 - 4 65 Ending balance W 268,987 22,079 36,374 327,440 - Acquisition cost 268,987 24,233 68,826 362,046 - Accumulated amortization (include accumulated impairment loss) - (2,154) (32,452) (34,606)

(*1) Reclassification of software from property, plant and equipment to intangible asset.

(ii) December 31, 2013

(In millions of won) Industrial Other intangible Goodwill property rights assets Total Beginning balance W 4,441 - 16,863 21,304 Acquisitions / Capital expenditures - 856 1,578 2,434 Increase by business combination(*1) 263,011 18,690 34,866 316,567 Change in scope of consolidated object(*2) 1,553 - 218 1,771 Disposals - - (1,673) (1,673) Amortization - (166) (7,366) (7,532) Impairments - - (139) (139) Gap on foreign currency transaction (79) - (36) (115) Ending balance W 268,926 19,380 44,311 332,617 - Acquisition cost 268,926 19,546 67,293 355,765 - Accumulated amortization (include accumulated impairment loss) - (166) (22,982) (23,148)

(*1) The Group acquired Heat Recovery Steam Generator from Doosan Heavy Industries and Construction Co., Ltd., the Controlling Company of the Group.

(*2) The Group acquired controlling power of Doosan Heavy Industries Vietnam Haiphong Co., Ltd.

The carrying amount of intangible assets (Membership) with indefinite useful lives as of December 31, 2014 and 2013 are W3,754 million and W4,270 million, respectively.

(2) Research and development costs incurred for the years ended December 31, 2014 and 2013 are W26,878 million and W31,853 million, respectively.

55 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

14. Intangible Assets, Continued

(3) Details of amortization recognized in profit or loss for the periods ended in December 31, 2014 and 2013 are as follows:

(In millions of won) 2014 2013 Cost of sales W 3,305 2,610 Selling, general and administrative expenses 7,872 4,922 W 11,177 7,532

(4) Impairment test of goodwill, etc.

Details of goodwill and intangible assets of indefinite useful life as of December 31, 2014 are as follows:

(In millions of won) Intangible assets of Goodwill indefinite useful life Total Goodwill CPE(*1) W 4,441 - 4,441 HRSG(*2) 263,011 - 263,011 Doosan Heavy Industries Vietnam Haiphong Co., Ltd.(*3) 1,535 - 1,535 Memberships Golf - 2,233 2,233 Condo - 1,228 1,228 Others - 293 293 W 268,987 3,754 272,741

(*1) Goodwill was acquired as a result of the merger with Doosan Mecatec.

(*2) The Group acquired Heat Recovery Steam Generator from Doosan Heavy Industries and Construction Co., Ltd., the Controlling Company of the Group and goodwill was recognised.

(*3) The Group acquired controlling power of Doosan Heavy Industries Vietnam Haiphong Co., Ltd. and goodwill was recognised.

Recoverable amount of goodwill related to each CGU is determined based on calculating value in use. Chief assumptions used to calculate value in use as of December 31, 2014 are as follows:

Rate CPE HRSG DVH Long-term average growth rate 1.50% 1.50% 1.00% Discount rate 8.85% 8.85% 14.40%

Value in use was calculated through pre-tax cash flow projections based on the Group’s five-year plan approved by the management which was developed using previous actual results and management growth projections of the respective CGU. Cash flows beyond 5 years are calculated using the estimated growth rate and the growth rate doesn’t exceed the long-term average growth rate of business segments where a CGU is operating, and is consistent with estimated growth rates included in industry reports. The discount rate used is a pre-tax discount rate which reflects unique risks of the relevant CGU.

As the value in use amounts determined in accordance with the above assumptions exceed the carrying amount of the respective CGU, no impairment loss on goodwill was recognized for the current year.

56 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

15. Investment Property

(1) Changes in investment in property for the year ended December 31, 2014 and 2013 are as follows:

(i) December 31, 2014

(In millions of won) Land Buildings Total

Beginning balance W 31,523 38,311 69,834 Acquisitions / Capital expenditures - - - Depreciation - (1,109) (1,109) Ending balance W 31,523 37,202 68,725 - Acquisition cost 32,727 43,018 75,745 - Accumulated depreciation

(include accumulated impairment loss) (1,204) (5,816) (7,020)

The Group measures investment property using cost model and recognized impairment loss based on historical incurred loss due to the lack of quoted market price. As of December 31, 2014 impairment in investment property is W1,204 million.

Land and Buildings are provided as collateral for borrowings of the Group. The Group cannot provide these for collateral of another borrowing or sell them (see details in note 35).

(ii) December 31, 2013

(In millions of won) Land Buildings Total

Beginning balance W 31,866 35,037 66,903 Acquisitions / Capital expenditures 230 146 376 Increase by business combination(*) 25,767 16,385 42,152 Disposals (26,340) (12,124) (38,464) Depreciation - (1,133) (1,133) Ending balance W 31,523 38,311 69,834 - Acquisition cost 32,727 43,018 75,745 - Accumulated depreciation

(include accumulated impairment loss) (1,204) (4,707) (5,911)

(*) The Group acquired Heat Recovery Steam Generator business from Doosan Heavy Industries and Construction Co., Ltd.

(2) Rental income from investment property for the year ended December 31, 2014 and 2013 was W4,983 million and W2,992 million, respectively. Related operating expenses from investment property for the year ended December 31, 2014 and 2013 was W3,125 million and W1,341, respectively.

(3) Details of depreciation of investment property recognized in profit or loss for the periods ended in December 31, 2014 and 2013 are as follows:

(In millions of won) 2014 2013 Cost of sales W 1,077 81 Selling, general and administrative expenses 32 1,052 W 1,109 1,133

57 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

16. Bonds and Borrowings

(1) Bonds as of December 31, 2014 and 2013 are summarized as follows:

(In millions of won) Series Interest rate December 31, 2014 December 31, 2013 61st - - 10,000 62nd - - 50,000 64th - - 15,059 65th - - 13,811 71-3rd - - 107,911 72-2nd - - 54,952 72-3rd - - 35,000 74th 7.80% 63,780 63,780 77-1st - - 1,231 77-2nd 7.70% 20,000 20,000 78th 7.80% 60,024 60,024 79th(*1) 7.08% 30,000 20,000 80th 7.80% 45,000 45,000 81st 8.50% 50,000 - 83rd 7.80% 10,000 - 84th(*2) 4.00% 200,000 - Foreign bond 7.49% 29,678 28,493 Total 508,482 525,261 Current portion reclassification (257,825) (290,087) Redemption premium 23,307 3,320 Discount on bonds (8,958) (2,056) Conversion rights adjustment (22,531) (320) Adjustment account for stock warrants - (436) Total (non-current) W 242,475 235,682

(*1) The Group provided its property, plant and equipment as collateral for these bonds.

(*2) The issued contract of convertible bonds as of December 31, 2014 is summarized as follows:

Date of Coupon Guaranteed Conversio issue Maturity rate Exercise period rate of return n price Nominal value From 1 month after date 04 Sep W10,200 04 Sep 2014 4.00% of issue to 1 month 7.50% W190,798 million 2017 /share before maturity

① Terms on early redemption The right of early redemption is exercisable in whole or in part against the par value of exchangeable bonds at the interest payment date from a year and a half after the date of issuance of bonds and interest payment date from 2 years and a half after the date of issuance of bonds.

② Method of maturity payment Coupon rate for this bond is 4% interest. For the bonds not exchanged until maturity, 111.6534% of the principal amount is paid on September 4, 2017 with a yield to maturity rate of 7.5%.

58 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

16. Bonds and Borrowings, Continued

③ Calculation of exchange price Conversion price is modified when a bond holder issues stock through paid-in capital increase, stock dividends, or capitalization of reserve before claiming to exercise conversion right with the issuance price lower than exercise price before adjustment or issues stock purchase warrants or marketable securities which grant stock purchase warrants through the issuance of corporate bonds combined with stock purchase warrants or stock conversion warrants and therefore adjustment of conversion price occurs.

Changes in convertible bonds for the year ended December 31, 2014 are as follows:

(In millions of won) Beginning Exercise/ Ending

balance Issuance Repayment Depreciation balance Convertible bonds W 15,059 200,000 (15,059) - 200,000 Redemption premium 1,754 23,307 (1,754) - 23,307 Discount on bonds (64) (9,202) 64 901 (8,301) Conversion rights adjustment (320) (24,976) 320 2,445 (22,531) Carrying amount W 16,429 189,129 (16,429) 3,346 192,475 Consideration for conversion rights (Other capital surplus) - 1,669 - - 1,669

59 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

16. Bonds and Borrowings, Continued

(2) Borrowings as of December 31, 2014 and 2013 are summarized as follows:

(i) Short-term borrowings

(In millions of won) December 31, December 31, Creditors Interest rate 2014 2013 Borrowings - local Shinhan Bank 9.47% W 4,900 12,900 Nonghyup Bank 8.39% 25,000 30,000 Korea Exchange Bank(*2) 3.74%~5.83% 83,400 80,000 Korea Development Bank(*3) 5.98%~6.58% 43,000 10,000 Korea Construction Financial 1.65% Cooperatives 24,215 24,470 Hana Bank(*4) 5.65% 20,000 5,000 Woori Bank(*5) 5.02%~7.58% 241,000 244,000 Industrial Bank of Korea 10.45% 9,000 12,000 The Export-Import Bank of Korea 5.20%~6.29% 59,768 44,649 Discounting Commercial Paper 8.00% 6,000 36,000 Discounting Notes(*1) - 5,878 1,177 KABUL Construction Co., Ltd. 6.90% 100 - 522,261 500,196 Bank overdrafts Korea Exchange Bank(*2) 5.20%~6.59% 5,111 5,300 Woori Bank(*5) - 1,219 2,377 Nonghyup Bank 9.47% 4,000 5,000 Industrial Bank of Korea 10.45% 10,000 10,000 Kookmin Bank - - 10,000 Shinhan Bank 9.20% 5,000 203 25,330 32,880 Borrowings - foreign Korea Exchange Bank(*2) Libor+0.80%~4.25% 4,884 2,470 Hana Bank(*4) Libor+2.00% 6,552 6,755 Korea Development Bank(*3) Libor+1.50% 18,661 7,184 Woori Bank(*5) Libor+1.00%~4.50% 23,683 5,434 Shinhan Bank Libor+3.50% 328 2,245 The Export-Import Bank of Korea Libor+3.30% 2,198 2,112 Asia Commercial Bank 6.80% 4,916 - 61,222 26,200 Total W 608,813 559,276

(*1) The Group is unable to meet the requirements for “derecognition of financial assets” when there exists recourse rights in relation to discount paper for commercial bonds and therefore the paper is recognized in the consolidated statement of financial position and the relevant money to be received is appropriated as short-term borrowings.

(*2) The Group provides its property, plant and equipment as collateral for these borrowings.

(*3) The Group provides its investment in associates and subsidiaries and property, plant and equipment as collateral for these borrowings.

60 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

16. Bonds and Borrowings, Continued

(*4) The Group provides its property, plant and equipment and investment property as collateral for these borrowings.

(*5) The Group provides its investment in associates and subsidiaries and investment property as collateral for these borrowings.

(ii) Long-term borrowings

(In millions of won) Interest December 31, December 31, Creditors rate 2014 2013 Borrowings - local Shinhan Bank 6.89% W 419 3,369 Launion L.L.C(*1) 8.20% 35,000 35,000 Doosan E&C 1st Co., Ltd.(*2) 6.60%, CD+2.92% 110,000 110,000 Korea Housing Guarantee Corp.(*3) 1.00% 7,267 7,267 Kookmin Bank(*2) 2.70% 470 529 Kwangju Bank 8.90% - 30,000 Korea Exchange Bank(*2) 6.71% 18,500 - 171,656 186,165 Current portion of long-term borrowings (145,520) (33,009) Total W 26,136 153,156

(*1) Scheduled to be redeemed on their maturity dates and the Group’s investment property is provided as collateral.

(*2) Scheduled to be in installments and the Group’s property, plant and equipment is provided as collateral.

(*3) Scheduled to be paid in installments and the Group’s long-term investment securities and a blank check are provided as collateral.

(3) The Group sold its future receivables from several ongoing construction projects to special purpose companies (SPC) established by the Group under the SPC law. The transactions constituted an absolute sale with no obligation on the part of the Group to buy back the receivables sold. The transactions of asset backed liabilities during 2014 and 2013 are summarized as follows:

(In millions of won) 2014 2013 Beginning balance W 270,000 306,800 Increase 1,028,000 620,000 Reclassification (24,600) - Decrease (829,350) (656,800) Ending balance 444,050 270,000 Discount on asset backed liabilities (4,024) - Total W 440,026 270,000

61 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

16. Bonds and Borrowings, Continued

(4) The contract of asset backed liabilities as of December 31, 2014 is summarized as follows:

(In millions of won)

Total nominal Discount value Term rate Doosan Cuvex 1st Securitization

Specialty L.L.C 65,400 April 28, 2014~April 26, 2016 7.50% DS Solbat 2nd Co., Ltd.(*) 64,000 October 07, 2014~January 06, 2015 9.66% DS Haewoondae Project L.L.C 110,000 January 27, 2014~January 27, 2016 8.21% Pine Tree City 1st Co., Ltd.(*) 50,000 October 08, 2014~January 8, 2015 8.80% SD 1st Co., Ltd. 100,000 September 30, 2014~September 30, 2015 9.76% DS Solbat 3rd Co., Ltd. 40,000 November 14, 2014~January 6, 2015 8.80% DS SOC 1st L.L.C 50,000 December 30, 2014~March 30, 2015 8.50%

The nominal value of asset backed liabilities presented above are the amount recognized initially when asset backed securities were issued. Accordingly, the amount is different from the carrying value recognized in the consolidated financial statements (Note 34.(8)).

(*) The Group provides its property, plant and equipment as collateral for asset backed liabilities.

17. Employee Benefits

The Group sponsors defined benefit pension plans and is required to pay the average of the last three months' salaries for each service period multiplied by payment and progressive rates. An actuarial valuation for employee benefit obligations was obtained from an accredited actuary using the projected unit credit method.

(1) Defined benefit liabilities

December 31, December 31, (In millions of won) 2014 2013 Present value of defined benefit W 89,535 86,575 Fair value of plan assets(*) (47,253) (29,556) Defined benefit liabilities W 42,282 57,019

(*) Fair value of plan assets include contribution to national pension plan of W309 million and W326 million for the periods ended December 31, 2014 and 2013, respectively.

(2) Expense recognized in profit or loss

(In millions of won) 2014 2013 Current service costs W 13,041 12,693 Interest on obligation 2,333 2,179 Cost by the settlement of the plan 29 5 Increase by business combination - 1,178 W 15,403 16,055

62 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

17. Employee Benefits, Continued

(3) Expenses classified in post-employment benefits

(In millions of won) 2014 2013 Selling, general and administrative expenses W 5,588 6,177 Cost of sales 9,815 9,878 W 15,403 16,055

(4) Movements in defined benefit obligations for the years ended December 31, 2014 and 2013 are as follows:

(In millions of won) 2014 2013 Beginning balance W 86,575 89,309 Current service costs 13,041 13,648 Transfer in 280 623 Transfer out (666) (837) Interest on obligation 3,538 3,460 Remeasurements (7,193) (5,819) - Effect of demographic assumptions change 433 281 - Effect of financial assumptions change (5,989) (4,390) - Others (1,637) (1,710) Increase by business combination - 12,496 Benefits paid (6,040) (26,305) Ending balance W 89,535 86,575

(5) Movements in plan assets for the years ended December 31, 2014 and 2013 are as follows:

(In millions of won) 2014 2013 Beginning balance W 29,556 28,658 Expected return on plan assets 1,176 1,053 Remeasurements (591) 19 Contributions 19,082 5,004 Increase by business combination - 3,187 Transfer in 104 132 Transfer out (76) (222) Benefits paid by the plan (1,998) (8,275) Ending balance W 47,253 29,556

Reasonable estimate for the Group’s payment regarding defined benefit program during subsequent period is W23,951 million.

(6) Principal actuarial assumptions at the reporting date (expressed as weighted averages):

2014 2013 Discount rate 3.4% 4.4% Future salary increases - Executives 3.4% 5.3% - Staff members 3.0% 3.0~5.0%

The discount rate is calculated based on the weighted average yield (AA0 ~ AA +) high rate corporate bonds.

63 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

17. Employee Benefits, Continued

(7) Plan assets comprise:

(In millions of won) 2014 2013 Ordinary deposit, etc. W 47,253 29,556 Actual return on plan assets W 586 1,072

The expected return of plan assets is based on expected returns of reserve assets in accordance with the Group’s current investment policy. The expected return of debt securities is based on the total redemption yield at the last day of reporting period. The expected return of investment on equity securities and other assets is reflecting experience of actual rates of return over the most recent five years for similar assets on similar markets.

(8) Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below.

(In millions of won) Amount Proportion Discount rate 1% up W 85,118 (4.93%) 1% down 94,383 5.41% Salary increases 1% up 94,353 5.38% 1% down 85,061 (5.00%)

(9) Details of maturities information for the Group’s defined benefit obligation as of December 31, 2014 are as follows:

(In millions of won)

1 year or less 1~2 Years 2~5Years More than 5 Years Total Payment 11,190 17,059 36,217 56,196 120,662

18. Provisions

Changes in provisions for the year ended December 31, 2014 are as follows:

(In millions of won) Provision for warranties Beginning balance W 74,561 Increase 6,737 Use of provision (16,710) Exchange difference 26 Ending balance W 64,614

The Group estimates and calculates warranties, resulting from any repairs or after-repair services, based on warranty period, repair term, and prior warranty rates and accounts it for as long-term provisions.

64 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

19. Capital Stock

(1) Changes in stockholders’ equity for the year ended December 31, 2014 are as follows:

(In millions of won except share data) Shares of Shares of preference common stock stock Capital stock January 1, 2014 Beginning balance 551,852,310 22,727,272 W 2,882,898 January 14, 2014 Reduction of capital stock

without any refund(*) (496,667,079) - (2,483,335) December 31, Ending balance 2014 55,185,231 22,727,272 399,563

The numbers of authorized shares are 900,000,000 shares, issued shares are 656,495,713 shares preferred stock 22,727,272 shares and par value is 5,000 won, as of December 31, 2014. Number of shares and capital are decreased due to the capital reduction without consideration during current and prior period. Before December 31, 2012, 2,000,000 shares were deducted by voluntary reduction of stock without any refund; as a result, capital is not same as total face value of issued share. The issued shares are 55,185,231, preferred stock 22,727,272 shares as of December 31, 2014.

(*) The Controlling Company decided to undertake a capital reduction without consideration based on the resolution made at the extraordinary shareholders meeting on December 13, 2013 which resulted in improvement in retained earnings amount by reducing the number of shares and restructuring the capital structure in order to pay dividends.

65 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

19. Capital Stock, Continued

(2) In accordance with the resolution of Board of Directors meeting on December 6, 2013, the Controlling Company issued redeemable convertible preferred stock on December 16, 2013.

Classification Details Purpose of issuance To secure liquidity and to improve finance structure Type of stock Cumulative participating preferred stock Total number of shares issued 22,727,272 shares Issue price per share W17,600 Voting right Holders of convertible preferred stock does not have a voting right. If the resolution that there will be no dividend to preferred stock is made,

holders will have 1 voting right per share until the general shareholders’ meeting which decided to pay dividend to preferred stock, preferentially. Dividend rate 6.5% per year based on the issue price Right of redemption - Redemption: the Controlling Company issuing convertible preferred stock can repay all or proportion of preferred stock on December 16, 2016 based on the assumption that there are profits available to pay dividend - Early redemption: the Controlling Company issuing convertible preferred stock can repay all or proportion of preferred stock on December 16, 2015 based on the assumption that there are profits available to pay dividend (limit: 30% of total purchase price for preferred stock) Conversion right - Conversion right: holders of preferred stock or the Controlling Company owns conversion right. However, only shareholders owns conversion right when early conversion is executed - Conversion periods: March 16, 2017 ~ March 15, 2018 - Early conversion: holders of preferred stock can exercise conversion right on December 16, 2015 and 2 business days prior to this date - Conversion ratio: 1 preferred stock to 1 common stock

Doosan Heavy Industries & Construction Co., Ltd., the Controlling Company of the Group, entered into a contract for exercising a call option and the settlement of convertible preferred stock with investors in the redeemable convertible preferred stock.

The Group owns the redemption right for redeemable convertible preferred stock presented above and classified it as equity as it does not have any obligation to transfer cash and other financial assets.

20. Capital Surplus

Details of capital surplus, as of December 31, 2014 and 2013 are as follows:

(In millions of won) December 31, 2014 December 31, 2013 Gains on capital reduction W 599,344 - Canceled share-based payments 202 614 Consideration for conversion rights of convertible bonds 1,669 - W 601,215 614

The Controlling Company reclassified from gain on capital reduction W1,883,992 million in the current period to retained earnings through the resolution made at the general shareholders’ meeting held on March 28, 2014.

66 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

21. Other Capital Adjustments

(1) Other capital adjustments as of December 31, 2014 and 2013 are summarized as follows:

(In millions of won) December 31, 2014 December 31, 2013 Share-based payment W 1,055 1,178 Treasury stock (35) (11,768) Discounts on stock issuance(*1) - (665,805) Loss on disposal of treasury stock (7,804) - W (6,784) (676,395)

(*1) The Controlling Company reclassified to accumulated deficit through the resolution made as the general shareholders’ meeting held on March 28, 2014.

(2) Stock options

(i) The Controlling Company has granted share options to executives several times, and the granting method depends on the Board of Directors’ decision at the time of exercise. Exercise period of the stock options is within seven years after three-years from grant date. More than a two-year term in office after grant date is required for executives to exercise the options. When executives who are granted stock options retire, the exercise period of the stock option is within three months after three-years from grant date. However, if executives retire after three years from grant date, stock options are exercisable within three months from retirement.

(ii) The share options of the Group as of December 31, 2014 are as follows:

(In won except number of shares) Number of Estimated fair granted value at Grant date Series stocks Exercise period Exercise price grant date February 28, 2009 ~ February 27, 2006 7th 1,030 February 27, 2016 W 90,000 44,360 March 17, 2010 ~ March 16, 2007 8th 2,690 March 16, 2017 120,500 52,960 March 22, 2011 ~ March 21, 2008 9th 2,930 March 21, 2018 120,800 48,610 March 28, 2012 ~ March 27, 2009 10th 3,080 March 27, 2019 60,200 26,670 March 27, 2013 ~ March 26, 2010 11th 7,020 March 26, 2020 60,400 23,310 March 26, 2014 ~ March 25, 2011 12-1st 6,370 March 25, 2021 50,500 17,490 March 31, 2015 ~ March 30, 2012 13rd 71,170 March 30, 2022 50,000 4,610 March 28, 2017 ~ March 28, 2014 14th 20,200 March 27, 2024 17,000 5,051 114,490

67 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

21. Other Capital Adjustments, Continued

(iii) Changes in share options for the year ended December 31, 2014 are as follows:

(Number of shares) Number of stocks will be issued Beginning of Newly Ending of the Grant date the year granted Exercised Canceled year February 27, 2006 1,510 - - (480) 1,030 March 16, 2007 3,080 - - (390) 2,690 March 21, 2008 3,670 - - (740) 2,930 March 27, 2009 3,360 - - (280) 3,080 March 26, 2010 7,760 - - (740) 7,020 March 25, 2011 11,360 - - (4,990) 6,370 March 25, 2011 710 - - (710) - March 30, 2012 71,170 - - - 71,170 March 28, 2014 - 24,700 - (4,500) 20,200 102,620 24,700 - (12,830) 114,490

(In millions of won) Valuation amount Beginning of Ending of the Grant date the year Exercised Canceled Increase year February 27, 2006 W 67 - (21) - 46 March 16, 2007 163 - (21) - 142 March 21, 2008 178 - (36) - 142 March 27, 2009 90 - (8) - 82 March 26, 2010 181 - (17) - 164 March 25, 2011 199 - (87) - 112 March 25, 2011 12 - (12) - - March 30, 2012 288 - - 40 328 March 28, 2014 - - - 39 39 W 1,178 - (202) 79 1,055

(iv) The Controlling Company calculated the compensation expense for stock options through a fair-value approach. For the current and prior year, stock compensation expense of W79 million and W89 million were recognized, respectively, and these expenses are included in selling, general and administrative expense in the consolidated statements of loss. The amount of compensation expense that will be recognized in future periods is W63 million.

(v) The following were the key estimates used by the Group in calculating compensation expense under the fair- value approach.

Expected exercise Expected variability Expected dividend Grant date Risk free rate (*) period (year) in stock price yield ratio February 27, 2006 3.94% 3 0.6% - March 16, 2007 4.95% 3 0.7% - March 21, 2008 5.20% 3 0.6% - March 27, 2009 3.71% 3 0.7% 3.3% March 26, 2010 3.82% 3 0.6% 4.3% March 25, 2011 3.66% 3 0.6% 2.7% March 30, 2012 3.59% 3 0.4% 1.7% March 28, 2014 2.89% 3 0.4% -

(*) Risk free rate is based on three-year government bonds.

68 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

21. Other Capital Adjustments, Continued

(3) Treasury Stock

The Controlling Company granted stock warrants to 3rd party. Due to the exercised shares, the Controlling Company recognized loss on disposal of treasury stock. Due to the potential exercise of 3rd party stock warrants, number of treasury stock shares could change.

22. Accumulated Other Comprehensive Income

(1) Accumulated other comprehensive income as of December 31, 2014 and 2013 are summarized as follows:

(In millions of won) December 31, December 31, 2014 2013 Unrealized gain in available-for-sale financial assets W 7,788 6,197 Unrealized gain (loss) in derivatives under cash flow hedges 1,130 (335) Change in investor's share of capital adjustments on equity method (435) (1,182) Foreign currency translation differences for foreign operations (282) (1,385) Revaluation surplus 156,452 157,505 W 164,653 160,800

(2) The income tax consequences which were recorded directly in equity associated with the components of accumulated other comprehensive income as of December 31, 2014 and 2013 are as follows:

(In millions of won) December 31, 2014 Amounts before Deferred tax Amounts after

income taxes assets (liabilities) income taxes Unrealized gain in available-for-sale financial assets W 11,512 (3,724) 7,788 Unrealized gain (loss) in derivatives under cash flow hedges 1,449 (319) 1,130 Change in investor's share of capital adjustments on equity method (438) 3 (435) Foreign currency translation differences for foreign operations (282) - (282) Revaluation surplus 200,580 (44,128) 156,452 W 212,821 (48,168) 164,653

(In millions of won) December 31, 2013 Amounts before Deferred tax Amounts after

income taxes assets (liabilities) income taxes Unrealized gain in available-for-sale financial assets W 9,472 (3,275) 6,197 Unrealized gain (loss) in derivatives under cash flow hedges (430) 95 (335) Change in investor's share of capital adjustments on equity method (1,185) 3 (1,182) Foreign currency translation differences for foreign operations (1,385) - (1,385) Revaluation surplus 201,929 (44,424) 157,505 W 208,401 (47,601) 160,800

69 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

23. Retained Earnings (Deficit)

(1) Composition of retained earnings (deficit)

(In millions of won) December 31, December 31, 2014 2013 Unappropriated retained earnings (accumulated deficit) W 803,949 (352,474)

The Controlling Company reclassified from discounts on stock issuance W665,805 million to accumulated deficit and also reclassified from gain on capital reduction W1,883,992 million to retained earnings as approved at the shareholders’ meeting held on March 28, 2014.

(2) Changes in retained earnings (accumulated deficit) for the years ended December 31, 2014 and 2013 are as follows:

(In millions of won) 2014 2013 Beginning balance W (352,474) (442,045) Disposal of deficit 1,218,800 145,288 Loss for the year (68,580) (60,325) Defined benefit plan actuarial gains 5,150 4,608 Revaluation surplus 1,053 - Ending balance W 803,949 (352,474)

24. Operating Segments

The operating segments are architecture, infrastructure, HRSG, Mecatec and others. Others also include units that deals with management, sales, and research and development activities. Primary products for each operating segment are as follows:

Business segment Main products Apartments, Mixed-use buildings combining residences with offices or shops, Office Architecture(*) buildings, Hospitals, Sports complexes, Educational and cultural facilities and ready mixed concrete Infrastructure Railways, Subways, Roads, Bridges, and Water and waste treatment facilities Chemical processing equipment that's installed in refinery, gas processing and Mecatec petrochemical plants, Offshore structures HRSG Heat Recovery Steam Generator Others Leasing service, Golf course, Condo rental and Corporate Head Office

(*) The Group amended profit(loss), asset and liability of operating segment for prior period because the Group reclassified ready mixed concrete from Others to Architecture.

70 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

24. Operating Segments, Continued

(1) The following table provides information for each reportable segment as of and for the year ended December 31, 2014 and 2013.

(In millions of won) 2014 Architecture Infrastructure Mecatec HRSG Others Total Gross sales W 998,352 624,983 453,969 222,294 102,034 2,401,632 Inter- Group sales (14,331) - (3,343) - (20,065) (37,739) External sales 984,021 624,983 450,626 222,294 81,969 2,363,893 Bad debt expense (reversal) (23,636) (113) 1,076 (7) - (22,680) Inventory write-downs - - 536 (270) 25 291 Depreciation 2,190 2,971 9,893 702 6,028 21,784 Amortization 1,475 755 1,504 6,907 536 11,177 Operating income (loss) 60,718 59,921 10,419 22,082 (10,172) 142,968 Financial income - - - - - 34,912 Financial costs - - - - - (178,832) Non-operating income - - - - - 21,384 Non-operating expenses - - - - - (61,669) Losses on equity method investments - - - - - (18,893) Loss before income taxes - - - - - (60,130) Acquisitions of non-current assets 2,943 291 18,578 5,403 5,706 32,921

(In millions of won) 2013 Architecture Infrastructure Mecatec HRSG Others Total Gross sales W 1,028,765 545,960 489,807 125,321 227,928 2,417,781 Inter- Group sales - - (7,723) - (54,843) (62,566) External sales 1,028,765 545,960 482,084 125,321 173,085 2,355,215 Bad debt expense (reversal) (19,374) - 6,488 (3) 480 (12,409) Inventory write-downs - - 199 - 67 266 Depreciation 1,493 3,046 8,582 481 6,996 20,598 Amortization 1,370 806 1,285 3,658 412 7,531 Operating income (loss) 23,856 23,370 7,798 15,423 (13,077) 57,370 Financial income - - - - - 49,752 Financial costs - - - - - (190,924) Non-operating income - - - - - 98,976 Non-operating expenses - - - - - (55,642) Losses on equity method investments - - - - - (31,467) Loss before income taxes - - - - - (71,935) Acquisitions of non-current assets 856 3,637 26,561 327,147 27,268 385,469

71 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

24. Operating Segments, Continued

(2) Assets and liabilities of each reportable segment as of December 31, 2014 and 2013 are as follows:

(In millions of won) December 31, 2014 December 31, 2013 Assets Liabilities Assets Liabilities Architecture W 2,476,275 565,669 2,192,213 571,191 Infrastructure 418,225 317,758 421,120 198,318 Mecatec 859,439 224,182 861,311 237,004 HRSG 437,907 171,069 437,736 132,374 Others 1,026,872 1,852,038 1,242,471 1,811,642 5,218,718 3,130,716 5,154,851 2,950,529 Investments in associates 85,221 - 103,099 - Consolidation adjustments (170,848) 39,779 (307,534) (15,556) Total W 5,133,091 3,170,495 4,950,416 2,934,973

(3) Geographic sales revenue of the group for year-end December 31, 2014 and 2013 are as follows:

(In millions of won) 2014 Gross sales Inter-Group sales External sales Domestic W 2,339,555 (18,118) 2,321,437 Asia 62,077 (19,621) 42,456 2,401,632 (37,379) 2,363,893

(In millions of won) 2013 Gross sales Inter-Group sales External sales Domestic W 2,397,333 (50,084) 2,347,249 Asia 20,448 (12,482) 7,966 2,417,781 (62,566) 2,355,215

72 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

25. Sales

Categories of sales for the years ended December 31, 2014 and 2013 are as follows:

2014 2013 Architecture: Public Sector W 151,547 140,144 Private Sector-Residential 488,272 666,370 Private Sector-Non-residential 212,827 221,951 Ready-Mix Concrete and others 131,375 131,162 Sub-total 984,021 1,159,627 Infrastructure: Civil works 599,216 517,218 Environmental works 25,073 28,742 Others 694 1,092 Sub-total 624,983 547,052 Mecatec: Chemical Processing Equipment 383,227 438,974 Offshore & Subsea Structure 31,238 22,315 Chemical Engineering Plant and others 36,161 20,795 Sub-total 450,626 482,084 Heat Recovery Steam Generator: HRSG Products and others 222,294 125,321 Others: Leisure, property leasing and others 81,969 41,131 Total W 2,363,893 2,355,215

26. Construction Contracts

(1) Accumulated profit and loss of construction contracts in progress as of December 31, 2014 are as follows:

(In millions of won) Billed Unbilled Due to Accumulated receivables receivables customers Accumulated Accumulated profit and on on for cost of revenue of loss of construction construction contract construction construction construction contracts contracts work Construction/Housing W 4,345,057 4,986,510 641,453 1,339,299 352,122 40,291 Public works/Plant 2,361,218 2,723,900 362,682 31,853 185,318 29,521 CPE/Steel Bridge 1,530,948 1,682,953 152,005 73,889 191,267 4,387 HRSG 327,358 386,638 59,280 22,206 62,553 68,283 Total W 8,564,581 9,780,001 1,215,420 1,467,247 791,260 142,482

73 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

26. Construction Contracts, Continued

(2) Changes in unrecognized revenue by construction contracts for the years ended December 31, 2014 are as follows:

(In millions of won) Beginning Increase Construction Ending Ordering organization Project Term balance (Decrease) revenue balance

Shinyoung D&D co.,ltd Cheongju gwellcity 12.03~15.06 W 285,325 - 218,026 67,299 Ansan Choji Jugong APT 4th complex Choji APT 12.12~15.12 81,718 - 57,313 24,405 reconstructuring cooperative Korea Land & Housing Corporation Special operations command 10.09~15.05 39,538 11,552 40,843 10,247 Korea Land & Housing Corporation Hanam Misa A 14 13.11~16.05 80,209 - 32,925 47,284 Chung-ang University Chung-ang University 12.10~15.06 33,295 - 28,587 4,708 dormitory 2nd Chung-ang University Chung-ang University 310 13.09~16.07 97,746 (44) 27,246 70,456 Haewoondae APT housing Haewoon Construction 10.01~15.02 25,590 - 24,601 989 reconstruction cooperatives Others 3,900,255 670,479 423,108 4,147,626 4,543,676 681,987 852,649 4,373,014 Shinbundang 1st section of Kyoung gi Rail road 11.02~16.02 62,714 - 47,698 15,016 works Shinbundang 5th section of Kyoung gi Rail road 11.02~16.02 93,504 - 47,430 46,074 works Kangnam Beltway Kangnam-ring road 5th section 07.05~16.05 123,500 8,691 45,181 87,010 Korea Westernpower Co., Ltd. ASU Taean 07.05~15.11 37,380 1,559 33,697 5,242 Wonju-Gangneung Rail road Korea Rail Network Authority 13.04~17.01 72,980 (56) 32,768 40,156 5th section Korea Rail Network Authority Suseo Pyeongtaek A2 12.01~15.06 41,385 17,634 32,605 26,414 Metropolitan Western Expressway Suwon Guangmyeong Road 11.01~16.04 56,994 721 24,600 33,115 Others 1,332,899 371,125 396,199 1,307,825 1,821,356 399,674 660,178 1,560,852 RELIANCE INDUSTRIES LTD J3MEG UNIT LARGE H/E 13.06~15.02 9,144 2,775 11,752 167 JAZAN REFINERY & JGC CORPORATION 13.07~15.06 11,111 1,644 9,659 3,096 TERMINAL PR Samsung Engineering Co., Ltd. KNPC Clean fuels PJT (V-RA) 14.08~16.04 - 18,126 35 18,091 Others 368,744 320,875 393,019 296,600 388,999 343,420 414,465 317,954 Samsung C&T (KL) Sdn. Bhd. Prai HRSG 13.02~16.01 23,588 23,673 45,861 1,400 DAEWOO INTERNATIONAL Talimarjan HRSG 13.10~15.02 36,811 1,160 31,982 5,989 CORPORATION GE Energy Products France SNC Kirikkale HRSG 13.12~16.08 46,030 2,262 43,916 4,376 Others 334,543 281,139 142,941 472,741 440,972 308,234 264,700 484,506

W 7,195,003 1,733,315 2,191,992 6,736,326

Expected loss of construction is deducted from receivables from unbilled construction projects or added to advances related to construction project. W7, 357 million and W762 million were deducted and added respectively at the end of 2014 and W7, 8 1 3 million and W3,019 million at the end of 2013.

74 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

27. Nature of Expenses

Details of nature of primary expenses for the years ended December 31, 2014 and 2013 are as follows:

(In millions of won) 2014 2013 Change in inventories W (289) 5,852 Purchases of raw materials and goods 698,989 744,749 Outsourcing expenses 1,026,205 1,016,179 Salaries & employee Benefits 224,961 264,995 Depreciation and amortization expenses – intangible assets 32,961 28,130 Other expenses 238,098 237,940 The sum of cost of sales and selling, general and administrative expenses W 2,220,925 2,297,845

28. Selling, General and Administrative Expenses

Details of selling, general and administrative expenses for the years ended December 31, 2014 and 2013 are as follows:

(In millions of won) 2014 2013 Salaries and compensations W 50,915 65,253 Post-employment benefits 5,588 22,476 Commission and service charge 16,392 30,666 Depreciation expenses 1,531 2,948 Amortization expenses – intangible assets 7,872 4,922 Advertising expense 3,336 3,801 Employee benefits 9,775 10,777 Travel expenses 4,359 4,786 Rental expenses 12,422 10,518 Bad debt expense (reversals) (22,680) (12,409) Sales promotion expenses 14,246 10,759 Development expense 9,897 12,716 Taxes and dues 3,641 3,997 Maintenance expenses on real-estate held for sale 2,410 3,769 Office expenses 1,945 2,077 Entertainment expenses 1,177 1,454 Insurance 838 1,493 Others 2,683 10,431 W 126,347 190,434

75 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

29. Financial Instruments Income and Costs

Details of Financial Income (costs) as of December 31, 2014 and 2013 are as follows:

(In millions of won) 2014 2013 I. Financial income: - Interest income W 7,887 17,436 - Dividend revenue 83 124 - Gains on foreign currency transaction and translation 14,852 7,873 - Gains on valuation of derivative instrument financing 2,041 5,932 - Gains on transaction of derivative instrument assets 3,002 3,852 - Gains on valuation of firm commitment 6,468 2,281 - Financial guarantee revenue 579 12,254 W 34,912 49,752

II. Financial costs: - Interest expenses W 147,482 172,065 - Losses on foreign currency transaction and translation 15,945 8,613 - Losses on valuation of derivative instrument financing 12,022 2,273 - Losses on transaction of derivative instrument assets 936 344 - Losses on valuation of firm commitment 133 2,725 - Losses on retirement of bonds - 2,607 - Guarantee expense 2,314 2,297 W 178,832 190,924

Financial losses, net (I-II) W (143,920) (141,172)

76 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

30. Other Non-Operating Income and Expenses

Details of other non-operating income and expenses for the years ended December 31, 2014 and 2013 are as follows:

(In millions of won) 2014 2013 Other non-operation income: - Gains on disposal of intangible assets W - 177 - Gains on disposal of property, plant and equipment 194 41,362 - Gains on disposal of investment property - 18,038 - Gains on default charge revenues 9 17 - Gains on delinquent charge revenues 2 36 - Gains on disposal of long-term investment securities 1,463 25,671 - Miscellaneous revenues 19,716 13,675 W 21,384 98,976

Other non-operation expenses: - Losses on sale of accounts receivable W 2,189 1,833 - Losses on disposal of intangible assets 18 193 - Losses on disposal of property, plant&equipment 1,101 704 - Other bad debt expenses 22,511 7,728 - Losses on disposal of investment property - 26 - Donations 248 196 - Impairment losses - short-term investments 1,250 - - Losses on disposal of long-term financial instruments 558 - - Impairment losses - long-term investments 1,414 20,281 - Impairment losses on intangible assets - 139 - Losses on revaluation of land - 459 - Miscellaneous losses 32,380 24,083 W 61,669 55,642

77 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

31. Income Taxes

(1) The components of income tax expenses(benefits) for the years ended December 31, 2014 and 2013 are as follows:

(In millions of won) 2014 2013 Current income tax expense W 149 1,407 Recognized adjustment on prior period income taxes (305) 1,486 Deferred income tax benefit 10,540 25,303 Charged directly to capital adjustments (1,934) (39,806) Income tax expenses(benefits) W 8,450 (11,610)

(2) Currents tax and deferred tax in relation to the items recognized outside of net income or loss for the year are as follows:

(In millions of won) 2014 Income tax expense - Defined benefit plan actuarial losses W (1,369) (1,369) Deferred income tax - Gains and losses on valuation of available-for-sale financial assets (449) - Gains and losses on derivative instrument (413) - Gains and losses on revaluation of land 297 (565) Income tax expense directly to capital adjustments W (1,934)

(3) Deferred tax assets (liabilities) are estimated by using income tax rate (22%) applied to the fiscal year temporary differences. The Group offsets deferred tax assets and deferred tax liabilities if it has a legally enforceable right to set off current tax assets against current tax liabilities; and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority. Changes in deferred tax assets (liabilities) for the years ended December 31, 2014 and 2013 are as follows:

(i) December 31, 2014

(In millions of won) Beginning Increase Ending

balance (Decrease) balance Allowance for doubtful accounts W 262,852 (9,133) 253,719 Defined benefit obligations 17,335 819 18,154 Provision for anticipated construction losses 2,385 (901) 1,484 Provision for construction warranties 16,269 (3,260) 13,009 Financial guarantee contract 1,323 3,127 4,450 Accrued revenues (21,044) (72) (21,116) Plan assets (6,338) (249) (6,587) Gains on valuation of available-for-sale financial assets (3,275) (449) (3,724) Asset revaluation surplus (122,484) 548 (121,936) Prepaid cost of construction (8,392) 3,030 (5,362) Accumulated deficit 45,223 (13,721) 31,502 Others 21,906 9,721 31,627 W 205,760 (10,540) 195,220

Deferred tax assets are recognized as tax income is expected to be sufficient during the period when temporary differences to be deducted expire. 78 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

31. Income Taxes, Continued

(ii) December 31, 2013

(In millions of won) Beginning Increase Ending

balance (Decrease) balance Allowance for doubtful accounts W 288,245 (25,393) 262,852 Defined benefit obligations 16,637 698 17,335 Provision for anticipated construction losses 5,838 (3,453) 2,385 Provision for construction warranties 16,627 (358) 16,269 Financial guarantee contract 2,891 (1,568) 1,323 Accrued revenues (21,408) 364 (21,044) Plan assets (5,997) (341) (6,338) Gains on valuation of available-for-sale financial assets (8,994) 5,719 (3,275) Asset revaluation surplus (63,423) (35,053) (98,476) Prepaid cost of construction (9,605) 1,213 (8,392) Accumulated deficit 22,580 22,643 45,223 Others (12,327) 10,225 (2,102) W 231,064 (25,304) 205,760

(4) The amount of deductible temporary differences for which no deferred tax asset is recognized in the statements of financial position as of December 31, 2014 and 2013 are as follows:

(In millions of won) December 31, December 31,

2014 2013 Impairment losses on long-term investment securities W 32,243 32,243 Allowance for doubtful accounts 3,324 3,324 Uncollectible accounts 1,144 - Loss from revaluation 422 - W 37,133 35,567

Deferred tax assets have been recognized as the Group has determined it is probable that future profits will be available against which the Group can utilize the related benefit.

(5) The amount of temporary differences related to investment in subsidiaries, associates and joint ventures for which no deferred tax asset (liability) is recognized as of December 31, 2014 and 2013 are as follows:

(In millions of won) December 31, December 31,

2014 2013 Investment in associates W 21,983 22,420

79 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

31. Income Taxes, Continued

(6) Reconciliation of expected to effective tax rate:

(In millions of won) 2014 2013 Loss before taxes W (60,130) (71,935) Benefit for taxes at normal tax rates (13,229) (15,826) Adjustments Non-temporary difference 8,146 243 Recognized adjustment on the past period income tax for the years ended December 31, 2012 (305) 1,486 Others 13,838 2,487 Income tax expense W 8,450 (11,610)

32. Loss per Share

(1) Basic loss per share

Basic loss per share for the years ended December 31, 2014 and 2013 are as follows:

(In millions of won) 2014 2013

Net loss W (68,580) (60,325) Weighted average number of shares outstanding(*1) 54,887,688 44,044,747 Loss per share (in won) W (1,249) (1,370)

(*1) Weighted average number of common shares outstanding:

(In number of shares) 2014 2013

Beginning balance 547,894,018 173,467,019 Adjustment - Capital increase on April 17, 2013 - 119,246,671 - Capital increase in kind on April 17, 2013 - 150,226,119 - Acquired treasury share on May 16, 2013 - (2,494,266) - Convert into common stock at October 23, 2013 - 1,918 - Reduction of capital stock without any refund January 14,2014 (493,104,616) (396,402,714) - Acquired treasury share January 06, 2014 (2,198) - - Disposal of treasury stock February 19, 2014 36,188 - - Disposal of treasury stock March 14, 2014 28,417 - - Disposal of treasury stock June 13, 2014 23,797 - - Disposal of treasury stock December 16, 2014 12,082 - Weighted average number of shares(*) 54,887,688 44,044,747

(*) Weighted average number of common shares outstanding for the prior period is adjusted to reflect the capital reduction without consideration on january 14, 2014.(see note 19)

80 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

32. Loss per Share, Continued

(2) Diluted loss per share for the years ended December 31, 2014 and 2013 are as follows:

(In millions of won) 2014 2013

Net loss W (68,580) (60,325) Diluted weighted average number of shares outstanding (*2) 54,887,688 44,044,747 Diluted loss per share (in won) W (1,249) (1,370)

(*2) Diluted weighted average number of shares outstanding

(In number of shares) 2014 2013

Weighted average number of shares 54,887,688 44,044,747 Diluted weighted average number of shares 54,887,688 44,044,747

Stock-option and convertible bonds were excluded from the diluted weighted average number of common shares calculation as their effect would have been anti-dilutive in 2014 and 2013.

(3) As of December 31, 2014 and 2013, the following instruments are outstanding and could potentially become dilutive in the future.

(In number of shares) 2014 2013 Share-based payment 114,490 102,620 Bonds with stock warrants - 1,999,986 Convertible bonds(Related expense: W458 million) 19,607,843 301,176 Redeemable convertible preferred stocks 22,727,272 22,727,272 42,449,605 25,131,054

33. Dividends

There were no dividend payments during prior and current period.

34. Commitments and Contingencies

(1) As of December 31, 2014, the Group is defending pending court cases with a total claim of W84,106 million comprised of claims for damages due to housing payments (W28,903 million), defective construction projects (W3 , 74 6 million), warranty of latent defects (W41,741 million) and the remaining amount comprised of a large number of individually insignificant claims. The Group has recognized a loss associated with these cases of W7,584 million, which is included in long-term other accounts payable as of December 31, 2014. It is reasonably possible the Group will incur additional losses up to the claim amount.

(2) As of December 31, 2014, 28 promissory notes, 28 blank checks related to the Group's debt and guarantees are provided as collateral in the Shinbundang Railroad Co., Ltd. and Korea Housing Guarantee Corp, respectively.

(3) Financial liabilities recognized upon the Group's transfer of financial asset because the derecognition criteria were not met were W5,878 million as of December 31, 2014.

81 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

34. Commitments and Contingencies, Continued

(4) The Group entered into an operating lease contract after selling its building in 2013. The Lease term is fifteen years and payment is compounded every 60 months during lease term according to the Seoul consumer price index increase rate released by the national statistics office. Lease payment for the year ended December 31, 2014 was W9,605 million.

The total minimum lease payments of the operating lease as of December 31, 2014 is as follows:

(In millions of won) 2014 2013 1 year or less W 9,605 9,605 1-5 years 40,733 39,471 More than 5 years 95,887 106,754 W 146,225 155,830

The Group has the right to be (or to appoint another party to be) the preferred purchaser of the above lease assets during the one-month period from the end of the lease term (84 months from the commencement of the lease), and in case the lessor decides to sell all or part of the lease assets, the Group can exercise its prior claim on these lease assets.

The Group entered into operating lease agreement for vehicles and transportation equipment and the term of such lease agreements are 3 to 5 years. Most of the lease agreement can be renewed in accordance with the market price when the initial term expires. (5) Guarantees provided on behalf of third parties as of December 31, 2014 are summarized as follows:

(In millions of won) December 31, 2014 Number of Guaranteed Third parties Description guarantees amounts Mortgagee Kookmin Bank and PF- guarantee(*2) 4 W 295,100 other Developers and others Kookmin Bank and Collateral loan 1 10,000 other Kookmin Bankand Contractor Middle payment-guarantee, Etc.(*1) 11 971,176 other Kookmin Bank and Redevelopment cooperatives Loan guarantee, Etc.(*1) 5 141,476 other Kookmin Bank and PF- guarantee(*2) 2 14,614 other SOC project Kookmin Bank and Replenishment of funds obligation(*1) 12 230,371 other. Korea Construction Dongbu Corporation and Financial Construction performance guarantee 5 751,463 others Cooperatives and other Korea Construction Gangnam Ring Road Corp, Financial Project performace guarantee 17 337,257 Etc. Cooperatives and other

82 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

34. Commitments and Contingencies, Continued

December 31, 2013 Number of Guaranteed Third parties Description guarantees amounts Mortgagee Kookmin Bank and PF- guarantee(*2) 5 W 408,590 other Developers and others Kookmin Bank and Collateral loan 1 9,500 other Kookmin Bank and Contractor Middle payment-guarantee, Etc.(*1) 16 896,020 other Kookmin Bank and Redevelopment cooperatives Loan guarantee, Etc.(*1) 6 137,560 other Kookmin Bank and PF- guarantee(*2) 2 15,614 other SOC project Kookmin Bank and Replenishment of funds obligation(*1) 12 233,494 other Korea Construction Dongbu Corporation and Financial Construction performance guarantee 6 752,142 others Cooperatives and other Korea Construction Gangnam Ring Road Corp, Financial Project performance guarantee 8 415,965 Etc. Cooperatives and other

(*1) The entire guarantee amount is W2,275 billion, and guarantee amount disclosed above represents the Group’s portion in the join-construction project pursuant to the related guarantee agreement.

(*2) Payment guarantees for project financing as of December 31, 2014 is as follows:

(In millions of won) Creditor Loan Loan Area types amount balance Description Period Types Note 2014.10.08~ Ulsan Brokerage W 32,000 41,600 Joint surety ABCP Ulsan Daehyun-dong 2015.01.08 2014.12.19~ Cheonan Chungcheongnam-do Brokerage 50,000 65,000 Joint surety ABCP 2015.03.19 Chungdang-dong 2008.03.31~ Other Gyeonggi Bank 95,000 123,500 Joint surety Hwasung Banwol 2015.06.30 Loan 2014.12.31~ Chungcheongbuk-do Bank 50,000 65,000 Joint surety ABCP Osong Complex 2015.03.31 2010.03.26~ Other Pohang Bank 7,447 7,447 Joint surety Pohang New Harbor 2025.12.31 Loan 2004.05.06~ Other Daejeon Bank 3,987 7,167 Joint surety Daejeon Riverside 2024.05.06 Loan W 238,434 309,714

In addition, the Group provides joint surety for construction performance to Korea House Guarantee Corporation related to guarantee for housing sales which was provided by Korea House Guarantee Corporation to the developers.

In addition, construction investor, which are shareholders of the structured entity related to Incheon-Gimpo Expressway SOC project including the Group, entered into an obiligation to provide any shortage between principal amount of borrowings and the fixed amount based on contract with the owner of SOC project. Such obligation arises when the contract is terminated or the construction investor requests a repurchase of the project.

83 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

34. Commitments and Contingencies, Continued

(6) Guarantees provided by third parties (excluding related parties) on behalf of the Group as of December 31, 2014 are summarized as follows:

(In millions of won and thousands of USD, EUR, JPY , GBP, AUD, VND, NTD) Monetary Guaranteed Company Description unit amounts Korea Construction Financial Cooperatives Construction performance guarantee, Etc. KRW 1,824,513 Korea Housing Guarantee Co., Ltd. Housing payment guarantee, Etc. KRW 691,393 Seoul Guarantee Insurance Company Construction warranty guarantee, Etc. KRW 119,610 Construction performance guarantee(joint liability on Dongbu Corporation, Etc. guarantee) KRW 474,608 Acceptances and guarantees outstanding in foreign Korea Exchange Bank currency USD 59,597 Acceptances and guarantees outstanding in foreign currency EUR 1,905 Acceptances and guarantees outstanding in foreign currency USD 972 Guarantees for L/C USD 3,510 Guarantees for L/C EUR 305 Guarantees for L/C JPY 302 Acceptances and guarantees outstanding in foreign Woori Bank currency USD 55,575 Acceptances and guarantees outstanding in foreign currency EUR 659 Acceptances and guarantees outstanding in foreign currency USD 1,126 Acceptances and guarantees outstanding in foreign currency VND 27,032,367 Acceptances and guarantees outstanding in local currency KRW 2,418 Guarantees for L/C USD 6,457 Guarantees for L/C EUR 6,131 Guarantees for L/C JPY 4,370 Guarantees for L/C AUD 23 Acceptances and guarantees outstanding in foreign Hana Bank currency USD 43,926 Guarantees for L/C USD 13,854 Guarantees for L/C EUR 2,097 Guarantees for L/C JPY 2,082 Guarantees for L/C AUD 500 Guarantees for L/C GBP 186 Acceptances and guarantees outstanding in foreign Korea Development Bank currency USD 24,399 Acceptances and guarantees outstanding in foreign currency EUR 666 Guarantees for L/C USD 10,508 Guarantees for L/C EUR 12,818 Guarantees for L/C JPY 5,406 Acceptances and guarantees outstanding in foreign The Export-Import Bank of Korea currency USD 66,881 Acceptances and guarantees outstanding in foreign currency EUR 2,802 Acceptances and guarantees outstanding in foreign currency NTD 81,700 Acceptances and guarantees outstanding in local Machinery Financial Cooperative currency KRW 128,222 Shinhan Bank Guarantees for L/C USD 1,290 Asia Commercial Bank Guarantees for L/C VND 209,518,560

84 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

34. Commitments and Contingencies, Continued

(7) Significant agreements with financial institution as of December 31, 2014 are as follows:

(In millions of won) Creditor Description Limit Spending Balance Kookmin Bank Limit contract of loans W 470 470 - Shinhan Bank Limit contract of overdraft 5,000 5,000 - Limit contract of loans 5,633 5,319 314 Limit contract of loans (foreign) 6,595 328 6,267 Industrial Bank of Korea Limit contract of overdraft 10,000 10,000 - Limit contract of loans 9,000 9,000 - Korea Exchange Bank Limit contract of overdraft 10,300 5,111 5,189 Limit contract of loans 101,900 101,900 - Limit contract of loans (foreign) 6,198 4,884 1,314 Woori Bank Limit contract of overdraft - 1,219 (1,219) Limit contract of loans 241,000 241,000 - Limit contract of loans (foreign) 27,378 23,683 3,695 Hana Bank Limit contract of loans 20,000 20,000 - Discount of note receivable 2,604 2,604 - Limit contract of loans (foreign) 6,552 6,552 - Korea Development Bank Limit contract of loans 43,000 43,000 - Limit contract of loans (foreign) 18,661 18,661 - Nonghyup Bank Limit contract of overdraft 4,000 4,000 - Limit contract of loans 25,000 25,000 - Korea Construction Financial Cooperatives Limit contract of loans 24,215 24,215 - Woori Investment Bank Limit contract of loans 6,000 6,000 - The Export-Import Bank of Korea Limit contract of loans 59,768 59,768 - Limit contract of loans (foreign) 2,198 2,198 - IBK Capital Corporation Discount of note receivable 3,274 3,274 - Korea Housing Guarantee Co., Ltd. Limit contract of loans 7,267 7,267 - Launion L.L.C Limit contract of loans 35,000 35,000 - Doosan E&C 1st Co., Ltd. Limit contract of loans 110,000 110,000 - Asia Commercial Bank Limit contract of loans (foreign) 21,940 4,916 17,024 W 812,953 780,369 32,584

85 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

34. Commitments and Contingencies, Continued

(8) Agreement of unconsolidated structured entities

Information of unconsolidated structured entities is as follows:

(In millions of won) The Group’s maximum Contents of Carrying amount of Carrying amount of exposure to loss financial support assets related to liabilities related to arising from Unconsolidated Structured provided by the unconsolidated unconsolidated unconsolidated entities Group structured Entities structured entities structured entities Doosan Cuvex 1st Securitization Replenishment of

Specialty L.L.C(*1) funds obligation - 55,400 55,400 Replenishment of DS Solbat 2nd Co., Ltd.(*2) funds obligation - 64,000 64,000 Replenishment of Doosan E&C 1st Co., Ltd.(*3) funds obligation - 110,000 110,000 DS Haewoondae Project Replenishment of

L.L.C(*4) funds obligation - 109,600 109,600 Replenishment of Pine Tree City 1st Co., Ltd.(*5) funds obligation - 50,000 50,000 Replenishment of SD 1st Co., Ltd.(*6) funds obligation - 75,050 75,050 Replenishment of DS Solbat 3rd Co., Ltd.(*7) funds obligation - 40,000 40,000 Replenishment of DS SOC 1st L.L.C(*8) funds obligation - 50,000 50,000

(*1) Doosan Cuvex 1st Securitization Specialty L.L.C is a special purpose entity that was founded for Cuvex equity securitization which was held by the Controlling Company. It has raised funds by issuing ABS bonds to financial institutions mainly and beginning balance of assets are W55,400 miliion based on carrying amount of special purpose entity's financial statements as of December 31, 2014.

(*2) DS Solbat 2nd Co., Ltd. Is a special purpose entity that was founded for securitization of future construction receivable (Cheongju gwellcity 2nd business) which was held by the Group. It has raised funds by issuing ABS bonds to financial institutions mainly and beginning balance of assets are W64,000 miliion based on carrying amount of special purpose entity's financial statements as of December 31, 2014. The Group provided property, plant and equipment to DS Solbat 2nd Co., Ltd. to secure its obligation to support the debts of the entity.

(*3) Doosan E&C 1st Co., Ltd. Is a special purpose entity that was founded for raising funds through loans with the collateralization of property, plant and equipment which was held by the Group. It has raised funds by issuing ABS bonds to financial institutions mainly and the underlying assets are W110,000 million based on carrying amount of special purpose entity's financial statements as of December 31, 2014. The Group provided property, plant and equipment to Doosan E&C 1st Co., Ltd. to secure its obligation to support the debts of the entity.

(*4) DS Haewoondae Project L.L.C is a special purpose entity that was founded for securitization of future construction receivable (Haewoondae AID reconstruction business) which was held by the Group. It has raised funds by issuing ABS bonds to financial institutions mainly and the underlying assets are W109,600 million based on carrying amount of special purpose entity's financial statements as of December 31, 2014.

86 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

34. Commitments and Contingencies, Continued

(*5) Pine Tree City 1st Co., Ltd. is a special purpose entity that was founded for executing borrowings with subordinate beneficiary right of the Group's 2nd factory in Changwon which was provided as collateral. It has raised funds by issuing ABS bonds to financial institutions mainly and the underlying assets are W50,000 million based on carrying amount of special purpose entity's financial statements as of December 31, 2014. The Group provided property, plant and equipment to Pine Tree City 1st Co., Ltd. to secure its obligation to support the debts of the entity.

(*6) SD 1st Co., Ltd. Is a special purpose entity that was founded for securitization of future construction receivable (Incheon, Gimpo & 9 other road construction) which will be held by the Group. It has raised funds by issuing ABS bonds to financial institutions mainly and the underlying assets are W75,050 million based on carrying amount of special purpose entity's financial statements as of December 31, 2014.

(*7) DS Solbat 3rd Co., Ltd. Is a special purpose entity that was founded for securitization of future construction receivable (Hanam Misa A 14 & 3 other building construction) which will be held by the Group. It has raised funds by issuing ABS bonds to financial institutions mainly and the underlying assets are W40,000 million based on carrying amount of special purpose entity's financial statements as of December 31, 2014.

(*8) DS SOC 1st L.L.C is a special purpose entity that was founded for securitization of future construction receivable (SOC project) which will be held by the Group. It has raised funds by issuing ABS bonds to financial institutions mainly and the underlying assets are W50,000 million based on carrying amount of special purpose entity's financial statements as of December 31, 2014.

(9) Important agreement

The Group as constructor signed a contract to construct the Ilsan zenith and Haewoondae zenith apartment complexes with the developers, I&TDC and Daewon Plus Construction Corp., respectively. To recover the Group's receivables from the developers, the Group subsequently entered into a commitment to guarantee the price of new apartment sales for periods ranging from 2~3 years from the date of acquisition. As of December 31, 2014, the Group did not recognize any losses in the accompanying consolidated financial statements because the Group is unable to estimate any future losses that may be incurred as a result of this commitment.

(10) Payment guarantee to related party

(i) Payment guarantees to related parties of the Group as of December 31, 2014 are as follows:

(In millions of won) December 31, 2014 Number of Guaranteed Related Description guarantees amounts Mortgagee Korea Securities Employee stock ownership Employee stock loans Finance 3 105,916 fund guarantee Corporation and others

87 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

34. Commitments and Contingencies, Continued

(In millions of won) December 31, 2013 Number of Guaranteed Related Description guarantees amounts Mortgagee Korea Securities Employee stock ownership Employee stock loans Finance 3 132,182 fund guarantee Corporation and others

(ii) Payment guarantees from related parties of the Group as of December 31, 2014 are as follows:

(In thousand s of USD and EUR) Monetary Guaranteed Company(*) Description unit amounts Standard Chartered Bank Construction performance guarantee USD 3,374 Construction performance guarantee EUR 1,442 Nonghyup Bank Construction performance guarantee EUR 6,488 Seoul Guarantee Insurance Company Construction performance guarantee USD 17,905 Korea Exchange Bank Construction performance guarantee USD 26,383 Construction performance guarantee EUR 2,099 The Export-Import Bank of Korea Construction performance guarantee EUR 13,705

(*) Guarantees are provided to the Group using the same guarantee limit provided to Doosan Heavy Industries & Construction Co., Ltd., the controlling entity of the Group.

(11) Court judgment for ordinary wages

According to the Korean Supreme court judgment made on December 18, 2013 for ordinary wages, regular bonuses and other allowances which are paid regularly, uniformly, and steadily should be included in ordinary wages. However, as of December 31, 2014, the Group did not recognize any provisions related to this issue in its financial statements because the Group believes it has followed the principle of good faith in prior periods related to ordinary wage and, pursuant to the Supreme Court ruling on “good faith principle”, determined that the possibility of additional loss is neither estimable nor probable.

88 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

35. Assets Pledged as Collateral

(1) As of December 31, 2014, the assets that are pledged as collateral for the Group's debts are summarized as follows:

(In millions of won) Borrowing/ Guaranteed Collateralized Mortgagee Asset amounts amounts Woori Bank Investment in subsidiaries and associate 31,776 W 265,902 Investment property 30,912 Korea Exchange Bank Property, plant and equipment 111,895 90,500 Korea Development Bank Property, plant and equipment 119,500 Investment in subsidiaries and associate 61,661 47,039 Kookmin Bank Property, plant and equipment 470 2,772 Hana Bank Property, plant and equipment and investment property 26,552 153,000 Shinhan Bank Property, plant and equipment 328 3,276 Korea Housing Guarantee Co., Ltd. Long-term financial securities 7,267 9,295 Launion L.L.C Investment property 35,000 45,500 Grand 8th Co., Ltd. Property, plant and equipment, Investment 20,000 26,000 Doosan E&C 1st Co., Ltd. Property, plant and equipment, Investment 110,000 140,300 DS Changwon 1st L.L.C Property, plant and equipment, Investment 10,000 13,000 Pine Tree City 1st Co., Ltd. Property, plant and equipment, Investment 50,000 65,000 DS Solbat 2nd Co., Ltd. Property, plant and equipment, Investment 64,000 195,200 Korea Infrastructure Investments Asset Management Company, Ltd. Account receivable 5,400 6,974

(2) As of December 31, 2014 the Group pledged property, plant and equipment to NH Investment & Securities Co., Ltd. and borrowed W20,000 million from Grand 8th Co., Ltd. and W10,000 million from DS Changwon 1st L.L.C. The carrying amount of pledged assets is W245,826 million.

(3) The securities of Sudokwon Seobu Expressway Co., Ltd ,etc (Carrying amount: W59,258 million) in long- term financial investments in securities were provided as collateral to Korea Development Bank as project financing syndicate for these companies' project financing as of December 31, 2014.

(4) The securities of Shinbundang Railroad Co., Ltd. (Carrying amount: W46,538 million), Haman Industry Complex (Carrying amount: W397 million) in investment in associates were provided as collateral to Korea Development Bank as project financing syndicate for these companies’ project financing as of December 31, 2014.

89 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

36. Transaction with Related Parties

(1) As of December 31, 2014, the status of the Group's related parties are as follows:

(i) The Controlling Company of the Group is Doosan Heavy Industries & Construction Co., Ltd. and the ultimate Controlling Company is Doosan Co., Ltd. as of December 31, 2014 and 2013.

(ii) The details about the Group’s subsidiaries as of December 31, 2014 and 2013 (including unconsolidated structured entities) are described in note 1. (2) and note 1. (3).

(iii) The lists of related parties of the Group as of December 31, 2014 and 2013 are as follow:

2014 Related type Related parties Doosan Co., Ltd. Ultimate Controlling Company Doosan Heavy Industries and Construction Co., Ltd. Associates Doosan Vina Doosan do BPL Kyunggi Railroad Co., Ltd. Shinbundang Railroad Co., Ltd. Neo Trans Inc. Haman Industry Complex Co., Ltd. New Seoul Rail road Others(*) Subsidiaries of Doosan Bears Controlling Doosan Engine Co., Ltd. Company Doosan Infracore Co., Ltd. Doosantower Oricom Doosan Power System, etc Unconsolidated Doosan Cuvex 1st Securitization Specialty Co. Ltd. structured DS Gangnam Bundang L.L.C entities(*1) DS Solbat 1st Co., Ltd. DS Solbat 2nd Co., Ltd. DS Solbat 3rd Co., Ltd. DS Haewoondae Project L.L.C Doosan E&C 1st Co., Ltd. Pine Tree City 1st Co., Ltd. MDS Project L.L.C SD 1st Co., Ltd. DS SOC 1st L.L.C

(*1) All structured entities that had transactions with the Group were disclosed.

90 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

36. Transaction with Related Parties, Continued

2013 Related type Related parties Doosan Co., Ltd. Ultimate Controlling Company Doosan Heavy Industries and Construction Co., Ltd. Associates Doosan Vina Doosan do BPL Kyunggi Railroad Co., Ltd. Shinbundang Railroad Co., Ltd. Neo Trans Inc. Haman Industry Complex Co., Ltd. New Seoul Rail road Others(*) Subsidiaries of Doosan Dong-A Controlling Doosan Bears Company Doosan Engine Co., Ltd. Doosan Infracore Co., Ltd. Doosantower Oricom Doosan Power System, etc Unconsolidated RC 1st Securitization Specialty L.L.C structured Doosan Cuvex 1st Securitization Specialty L.L.C entities(*1) DUY 1st L.L.C DS Cheongju 1st L.L.C Poseidon we've 1st L.L.C DS Gangnam Bundang L.L.C DS Solbat 1st Co., Ltd. Izenith 2nd Co., Ltd. Doosan E&C 1st Co., Ltd.

(*1) All structured entities that had transactions with the Group were disclosed

91 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

36. Transaction with Related Parties, Continued

(2) Significant transactions with related parties Significant transactions which occurred in the normal course of business with related parties for the years ended December 31, 2014 and 2013 are as follows:

(i) December 31, 2014

(In millions of won) Property, plant Revenues Purchases and equipment Related type Related parties Sales Others Purchases Others Disposals Ultimate Doosan Co., Ltd. W 4,337 - 3,809 22,351 1,640 Controlling Company Doosan Heavy Industries and

Construction Co., Ltd. 37,647 1,834 3,025 5,011 5,043 Associates Doosan Vina 131 - 25,037 - - Kyunggi Railroad Co., Ltd. 94,004 - 19 - - Neo Trans Inc. - 3 444 - - New Seoul Rail road - - 111 - - Subsidiaries of Doosan Power System - - 539 - - Controlling Company Doosan Dong-A.(*1) 7 - 434 233 - Yonkang Foundation - - - 53 - Chung-ang University 32,280 - 3 - - Chung-ang University Hospital 1 - 6 405 - Doosan Bears 23,161 - - - - Doosan Engine Co., Ltd. 178 - 3,030 - - Doosan Infracore Co., Ltd. 22,615 - 7 - 2,787 Doosantower 40,101 1 - 358 - Oricom 1,090 19 347 917 123 Doosan Heavy Industries &

Construction America - - - 52 - Doosan Infracore Bobcat

Holdings 4 - - - - SRS Korea Co., Ltd. 2 - - - - Neoplux Co., Ltd. 85 1 - - - Doosan Credit Union 1 - 55 - - Chung-ang University 4 - - - - Doosan Feed & Livestock 2 - - - - Doosan Capital Co., Ltd. 4 - - - - Doosan Dst Co., Ltd 1 - - - - Unconsolidated Doosan Cuvex 1st Securitization

structured entities Specialty L.L.C - - - 6,001 - DS Gangnam Bundang L.L.C - - - 4,863 - DS Solbat 1st Co., Ltd. - - - 3,836 - DS Solbat 2nd Co., Ltd. - - - 4,243 - DS Solbat 3rd Co., Ltd. - - - 640 - DS Haewoondae Project L.L.C - - - 6,435 - Doosan E&C 1st Co., Ltd. - - - 8,915 - Pine Tree City 1st Co., Ltd. - - - 3,944 - MDS Project L.L.C - - - 3,792 - SD 1st Co., Ltd. - - - 3,690 - DS SOC 1st L.L.C - - - 7 - Total W 255,655 1,858 36,866 75,746 9,593

92 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

36. Transaction with Related Parties, Continued

(ii) December 31, 2013

(In millions of won) Revenues Purchases Related type Related parties Sales Others Purchases Others Ultimate Doosan Co., Ltd. W 2,620 9 8,190 28,464 Controlling Company Doosan Heavy Industries and

Construction Co., Ltd. 51,493 3,031 7,812 370 Associates Doosan Vina 385 - 15,045 - Kyunggi Railroad Co., Ltd. 97,221 - 231 - Neo Trans Inc. 1 - 1 - Subsidiaries of Doosan Power System - - 22 - Controlling Company Doosan Dong-A. 30 - 689 745 Doosan Bears 18,841 - - - Doosan Industrial Vehicle Co., Ltd. 65 - - 32 Doosan Engine Co., Ltd. 186 - 2,915 - Doosan Infracore Co., Ltd. 57,443 - - - Doosantower 1,894 - - 357 N.shaper 25 - 32 909 Oricom 855 18 325 1,312 SRS Korea Co., Ltd. - - - - Neovalue Co., Ltd. 3 - - 600 Doosan Feed & Livestock 4 - - - Doosan Capital Co., Ltd. 3 - - - Doosan Dst Co., Ltd - - - - Unconsolidated RC 1st Securitization Specialty

structured entities L.L.C - - - 1,412 Doosan Cuvex 1st Securitization

Specialty L.L.C - - - 7,206 DS Gangnam Bundang L.L.C - - - 2,543 DUY 1st L.L.C - - - 2,978 DS Cheongju 1st L.L.C - - - 2,852 Poseidon we've 1st L.L.C - - - 1,530 DS Gangnam Bundang L.L.C - - - 7,891 DS Solbat 1st Co., Ltd. - - - 6,081 Izenith 2nd Co., Ltd. - - - 3,017 Doosan E&C 1st Co., Ltd. - - - 198 Total W 231,069 3,058 35,262 68,497

93 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

36. Transaction with Related Parties, Continued

(3) Receivables and payables(excluding dividends and interests) as of December 31, 2014 and 2013 are as follows:

(i) December 31, 2014

(In millions of won) Receivables Payables Accounts Accounts Related type Related parties receivables Others Loans payable Others Borrowings Ultimate Controlling Doosan Co., Ltd.(*1) W 800 2 - 8,062 17,311 - Company Doosan Heavy Industries and Construction Co., Ltd(*1) 11,555 735 - 974 48,595 - Associates Doosan Vina 72 - - 35,013 - - Kyunggi Railroad Co., Ltd. 1,550 9 12,300 5 - - Shinbundang Railroad Co., Ltd. 11,023 - 9,858 - - - Haman Industry Complex Co., Ltd. 5,598 - - - - - Neo Trans Inc. - - - 104 79 - New Seoul Rail road - - 354 - - - Subsidiaries of Doosan Power System - - - 29 - - Controlling Yonkang Foundation - 32 - - 6 - Company Chungang University - - - - 152 - Chungang University Hospital - - - - 207 - Doosan Engine Co., Ltd. 13 50 - - 9,797 - Doosan Infracore Co., Ltd.(*1) 9,481 118 - - 34,523 - Doosantower(*2) - 244 - - 202 - Oricom 925 10 - 1,370 1,641 - Doosan Heavy Industries & Construction America - - - - 13 - Doosan Feed & Livestock - - - - 283 - Doosan Bears - - - - 157 - Doosan Capital Co., Ltd. - - - - 146 - Doosan Dst Co., Ltd. - - - - 194 - Doosan Infracore Bobcat Holdings - - - - 199 - Neoplux Co., Ltd. - - - - 266 - Doosan Credit Union - - - - 143 - Unconsolidated Doosan Cuvex 1st structured entities Securitization Specialty L.L.C - - - - - 55,400 DS Solbat 2nd Co., Ltd. - - - - - 64,000 DS Solbat 3rd Co., Ltd. - - - - - 40,000 DS Haewoondae Project L.L.C - - - - - 109,600 Doosan E&C 1st Co., Ltd. - - - - - 110,000 Pine Tree City 1st Co., Ltd. - - - - - 50,000 SD 1st Co., Ltd. - - - - - 75,050 DS SOC 1st L.L.C - - - - - 50,000 Total W 41,017 1,200 22,512 45,557 113,914 554,050

94 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

36. Transaction with Related Parties, Continued

(ii) December 31, 2013

(In millions of won) Receivables Payables Accounts Accounts Related type Related parties receivables Others Loans payable Others Borrowings Ultimate Controlling Doosan Co., Ltd. W 140 63 - 13,769 14,420 - Company Doosan Heavy Industries and Construction Co., Ltd. 19,860 267 - 2,555 39,418 - Associates Doosan do BPL - - 261 - 104 - Doosan Vina 45 - - 15,297 - - Kyunggi Railroad Co., Ltd. 15,905 9 - - - - Shinbundang Railroad Co., Ltd. 11,023 - - - - - Haman Industry Complex Co., Ltd.. 6,448 - - - - - Neo Trans Inc. - - - 1 - - New Seoul Rail road - 2,669 - - - - Subsidiaries of Doosan Power System - - - 21 - - Controlling Doosan Dong-A - - - 180 571 - Company Doosan Bears - - - - 157 - Doosan Engine Co., Ltd. 16 50 - - 7,159 - Doosan Infracore Co., Ltd. 24,839 114 - - 34,728 - Doosantower - 240 - - 357 - Oricom 839 10 - 1,934 1,666 - SRS Korea Co., Ltd. - - - - 152 - Doosan Feed & Livestock - - - - 283 - Doosan Capital Co., Ltd. - - - - 73 - Doosan Dst Co., Ltd - - - - 194 - BNG Securities Co, Ltd - - - - 91 - Unconsolidated Doosan Cuvex 1st structured entities Securitization Specialty L.L.C - - - - - 95,000 DS Gangnam Bundang L.L.C - - - - - 45,000 DS Solbat 1st Co., Ltd. - - - - - 130,000 Doosan E&C 1st Co., Ltd. - - - - - 110,000 Total W 79,115 3,422 261 33,757 99,373 380,000

(*1) The lists of trade receivables satisfied derecognition conditions in statement of financial position within maturity are as follows:

(In millions of won) December 31, December 31, Related parties 2014 2013 Doosan Co., Ltd. W 705 - Doosan Heavy Industries and Construction Co., Ltd. 8,211 16,630 Doosan Infracore Co., Ltd. 9,459 24,600 W 18,375 41,230

There are no allowances for doubtful accounts for related party receivables as of December 31, 2014 and 2013.

(*2) Net of disposed amount W10,863 million account receivable.

95 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

36. Transaction with Related Parties, Continued

(4) The lists of fund transactions (including equity transactions) as of December 31, 2014 and 2013 are as follows:

(i) December 31, 2014

(In millions of won)

Lend Loans Investment in capital

Related type Related parties Lendings Collections Borrowings Redemptions Investments Acceptance Associates Doosan do BPL W - 261 - - - - Kyunggi Railroad Co., Ltd. 12,300 - - - 18 - Shinbundang Railroad Co., Ltd. 9,858 - - - - - New Seoul Rail road 354 - - - 250 - Unseparate Doosan Cuvex 1st structured Securitization entities Specialty L.L.C - - 90,000 129,600 - - DS Gangnam Bundang L.L.C - - 70,000 115,000 - - DS Solbat 1st Co., Ltd. - - 143,000 273,000 - - DS Solbat 2nd Co., Ltd. - - 160,000 96,000 - - DS Solbat 3rd Co., Ltd. - - 40,000 - - - DS Haewoondae Project L.L.C - - 110,000 400 - - Pine Tree City 1st Co., Ltd. - - 150,000 100,000 - - MDS Projcet L.L.C - - 80,000 80,000 - - SD 1st Co., Ltd. - - 135,000 59,950 - - DS SOC 1st L.L.C - - 50,000 - - - Total W 22,512 261 1,028,000 853,950 268 -

(ii) December 31, 2013

(In millions of won)

Investment in Loans Investment in capital kind Related type Related parties Borrowings Redemptions Investments Acceptance Acceptance Ultimate Controlling Doosan Heavy Industries and Company Construction Co., Ltd. W - - - 297,788 571,613 Associates New Seoul Rail road - - 1,123 - - Unconsolidated RC 1st Securitization Specialty structured entities L.L.C - 30,800 - - - Doosan Cuvex 1st Securitization Specialty L.L.C - 20,000 - - - DUY 1st L.L.C - 45,000 - - - DS Cheongju 1st L.L.C - 50,000 - - - Poseidon we've 1st L.L.C 50,000 50,000 - - - DS Gangnam Bundang L.L.C 150,000 171,000 - - - DS Solbat 1st Co., Ltd. 280,000 150,000 - - - Izenith 2nd Co., Ltd. 140,000 140,000 - - - Doosan E&C 1st Co., Ltd. 110,000 - - - - Others Jeong Won Park and other 26 stockholders - - - 16,116 - Doosan Yonkang Foundation - - - 1,006 - Employee stock ownership fund - - - 65,245 - CEO - - - 170 - Total W 730,000 656,800 1,123 380,325 571,613

96 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

36. Transaction with Related Parties, Continued

(5) The lists of payment guarantees and pledged assets for related parties and from related parties are in notes 34 and 35.

(6) Key management personnel compensation Key management personnel compensation in total and for each of the following categories for the years ended December 31, 2014 and 2013 are as follows:

(In millions of won)

Compensation details 2014 2013 Short-term employee benefits W 13,889 14,013 Post-employment benefits 1,190 1,386 Share-based payment 78 89 W 15,157 15,488

97 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

37. Statements of Cash Flows

(1) Details of cash generated from operations of the Group during 2014 and 2013 are as follows: (In millions of won) 2014 2013

Loss for the year W (68,580) (60,325)

Adjustments for: Interest expenses 147,482 172,065 Losses on foreign currency translation 6,592 2,624 Share compensation expenses 79 89 Losses on valuation of derivative instrument and firm commitment 12,155 4,998 Bad debt expense (reversals) (22,680) (12,409) Other bad debt expense 22,511 7,728 Depreciation expenses 21,784 20,599 Amortization expenses - intangible assets 11,177 7,531 Losses on disposal of property, plant and equipment 1,101 704 Losses on disposal of Intangible asset 18 193 Losses on disposal of investment property - 26 Losses on revaluation of land - 459 Impairment losses on intangible assets - 139 Post-employment benefits 15,403 16,055 Transfer to provision 6,737 7,873 Losses on retirement of bonds - 2,607 Losses on equity method valuation 18,893 31,467 Losses on long-term investment in securities 558 - Impairment losses on short-term investment in securities 1,250 - Impairment losses on long-term investment in securities 1,414 20,281 Income tax expense(benefits) 8,450 - Interest income (7,887) (17,436) Gains on foreign currency translation (4,913) (2,306) Gains on valuation of derivative instrument and firm commitment (8,508) (8,213) Gains on disposal of property, plant and equipment (194) (41,362) Gains on disposal of intangible assets - (177) Gains on disposal of investment property - (18,038) Dividends income (83) (124) Gains on long-term investment in securities (1,463) (25,671) Financial guarantee revenue (579) (12,254) Income tax benefits - (11,610) Others - 261 Changes in assets and liabilities: Accounts and notes receivable 61,299 24,110 Other accounts receivable (130,266) (296,162) Inventories 3,843 10,858 Other assets 10,065 20,394 Accounts payable 126,517 (57,186) Other payment obligations (5,360) (10,541) Provision (16,710) (14,112) Severance payments (6,040) (26,305) Affiliated severance payments, net (414) (125) Plan assets - employees benefit plan (17,084) 3,272 Other liabilities (52,937) (85,875) Cash generated from operation activities W 133,630 (345,898) 98 DOOSAN ENGINEERING & CONSTRUCTION CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2014 and 2013

37. Statements of Cash Flows, Continued

(2) Significant non-cash investing and financing activities in the years ended December 31, 2014 and 2013 are as follows:

(In millions of won) 2014 2013 Reclassification from long-term investment securities to investment in associates W - 825 Reclassification from long-term investment securities to short-term investment

securities 7,000 2,301

(3) The Group disclosed net amount of cash outflow and inflow from short term investment.

38. Approval of Financial Statements

The consolidated financial statements were authorized for issue by the Board of Directors on February 5, 2015, which will be submitted for approval as the shareholders' meeting to be held on March 27, 2015.

99