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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the Month of May 2005
KOREA ELECTRIC POWER CORPORATION
(Translation of registrant’s name into English)
167, Samseong-dong, Gangnam-gu, Seoul 135-791, Korea
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will
file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F þ Form 40-F o
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1):
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7):
Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.
Yes o No þ
If “Yes” is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- .
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This Report of Foreign Private Issuer on Form 6-K is deemed filed for all purposes under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, including by reference in the Registration Statement on Form F-3 (Registration No. 33-99550) and the Registration Statement on Form F-3 (Registration No. 333-9180).
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KOREA ELECTRIC POWER CORPORATION
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2003 and 2004
(With Independent Auditors’ Report Thereon)
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Independent Auditors’ Report
Based on a report originally issued in Korean
The Board of Directors and Stockholders
Korea Electric Power Corporation:
We have audited the accompanying consolidated balance sheet of Korea Electric Power Corporation and subsidiaries (the “Company”) as of December 31, 2004 and the related consolidated statements of income, change in stockholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The accompanying consolidated financial statements of the Company as of December 31, 2003, were audited by other auditors whose report thereon dated March 26, 2004, expressed an unqualified opinion on those statements. We did not audit the financial statements of Korea Southern Power Co., Ltd., Korea Midland Power Co., Ltd. and Korea South-East Power Co., Ltd. whose total assets constituted 13.1% of the total consolidated assets as of December 31, 2004, and whose total income constituted 9.82% of consolidated income before income tax for the year then ended. These financial statements were audited by other auditors whose reports have been furnished to us, and our report, insofar as it relates to the amounts included for Korea Southern Power Co., Ltd., Korea Midland Power Co., Ltd. and Korea South-East Power Co., Ltd., is based solely on the reports of the other auditors.
We conducted our audit in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles and significant estimates used by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Korea Electric Power Corporation and subsidiaries as of December 31, 2004, and the consolidated results of their operations, the changes in their stockholders’ equity, and their cash flows for the year then ended in conformity with the Korea Electric Power Corporation Act, the Accounting Regulations for Government Invested Enterprises and accounting principles generally accepted in the Republic of Korea.
The accompanying consolidated financial statements have been translated into United States dollars solely for the convenience of the reader and have been translated on the basis set forth in note 2 to the consolidated financial statements.
Without qualifying our opinion, we draw attention to the following:
As discussed in note 1(a) to the consolidated financial statements, in accordance with the restructuring plan by the Ministry of Commerce, Industry and Energy on January 21, 1999, the Company spun off its power generation division on April 2, 2001, resulting in the establishment of six new power generation subsidiaries. The Company has been contemplating the gradual privatization of the Company’s power generation subsidiaries and distribution business. The privatization of power generation subsidiaries may result in change in pricing of electric power, operation organization, related regulations and general policies for supply and demand of energy. In addition, the Company was also planning to privatize its distribution business. However, the privatization of the Company’s distribution business was discontinued according to the recommendation of the Korea Tripartite Commission on June 30, 2004.
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As discussed in note 1(b) to the consolidated financial statements, accounting principles and auditing standards and their application in practice vary among countries. The accompanying consolidated financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying consolidated financial statements are for use by those knowledgeable about Korean accounting principles, Korea Electric Power Corporation Act, the Accounting Regulations for Government Invested Enterprises, and Korean accounting procedures and auditing standards and their application in practice.
As discussed in note 29 to the consolidated financial statements, sales and purchases with related parties, including the six power generation subsidiaries, amounted to W367,148 million and W15,921,399 million, respectively, for the year ended December 31, 2004. Related receivables and payables amounted to W41,060 million and W1,340,110 million, respectively, as of December 31, 2004. In addition, the Company is providing debt guarantees to its foreign subsidiaries in amounts not exceeding US$254 million including KEPCO Ilijan Co.
The Company and its six power generation companies including Korea Hydro & Nuclear Power Co., Ltd. are jointly and severally liable for outstanding debts as of December 31, 2004 assumed by each company at the time of spin-off on April 2, 2001 under the Commercial Code of the Republic of Korea. The Company is providing joint and several liability guarantee for debts of its six power generation companies amounting to W1,101,550 million and the six power generation companies are providing such a guarantee for debts of the Company amounting to W328,103 million. In addition, the Korea Development Bank, one of the Company’s major shareholders, is providing guarantees for some of the Company’s foreign currency debt.
As discussed in notes 1(f), 1(w), 20 and 28 to the consolidated financial statements, in October 2004, Korea Accounting Standard Board issued Statement of Korea Accounting Standards (“SKAS”) No. 17 “Provision and Contingent Liability & Asset”. In January 2005, the Company decided to early adopt SKAS No. 17. Under this standard, the Company retrospectively adjusted the liability for decommissioning costs at the estimated fair value using discounted cash flows to settle the asset retirement obligations of dismantlement of the nuclear power plants, spent fuel and radioactive waste and the same amount was recognized as a utility asset. Due to the adoption of this standard, the Company re-measured the liability for decommissioning costs and reflected the cumulative effect of an accounting change up to prior year into the beginning balance of retained earnings. This accounting change, which was recorded as of January 1, 2004, resulted in an increase in its utility plant, net of W1,504,173 million, liability for decommissioning costs of W556,088 million, deferred income tax liabilities of W260,723 million and retained earnings of W687,362 million, respectively. As allowed by this standard, the 2003 financial statements were not restated. For the year ended December 31, 2004, net income increased by W107,969 million applying this new standard.
As discussed in note 1(d) to the consolidated financial statements, KEPCO China International Ltd. and Jiaozuo KEPCO Power Company Ltd. were newly included in consolidated subsidiaries during 2004.
Seoul, Korea
April 16, 2005
This report is effective as of April 16, 2005, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.
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Korea Electric Power Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 2003 and 2004
(In millions of Korean Won and in thousands of U.S. dollars)
| U.S. dollars | ||||||||||||
| Won | (note 2) | |||||||||||
| Assets | 2003 | 2004 | 2004 | |||||||||
Property,
plant and equipment (notes 1, 3, 5, 17 and 31): |
W71,454,684 | 83,000,316 | $ | 80,185,795 | ||||||||
Less: accumulated depreciation |
(16,875,523 | ) | (24,008,733 | ) | (23,194,602 | ) | ||||||
Less: construction grants |
(2,758,789 | ) | (3,182,366 | ) | (3,074,454 | ) | ||||||
| 51,820,372 | 55,809,217 | 53,916,739 | ||||||||||
Construction in-progress |
9,550,651 | 7,516,932 | 7,262,035 | |||||||||
| 61,371,023 | 63,326,149 | 61,178,774 | ||||||||||
Investments and others: |
||||||||||||
Long-term investment
securities (note 6) |
1,529,120 | 1,545,512 | 1,493,104 | |||||||||
Long-term loans (note 7) |
287,139 | 322,889 | 311,940 | |||||||||
Long-term other accounts
receivable, less discount
on present value of
W35,576 in 2003 and nil in
2004 and allowance for
doubtful accounts of W16,013
in 2003 and nil in
2004 (note 21) |
214,044 | 88 | 85 | |||||||||
Deferred income tax assets |
1,352,449 | 1,307,650 | 1,263,308 | |||||||||
Currency and interest
rate swaps (note 23) |
131,429 | 314,755 | 304,082 | |||||||||
Intangible assets (note 4) |
515,993 | 611,958 | 591,207 | |||||||||
Other non-current
assets (notes 8 and 18) |
242,094 | 256,571 | 247,870 | |||||||||
| 4,272,268 | 4,359,423 | 4,211,596 | ||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents
(notes 9 and 18) |
2,050,636 | 1,669,497 | 1,612,885 | |||||||||
Trade receivables,
less allowance for doubtful
accounts of W33,732 in 2003
and W38,660 in 2004
(notes 18 and 29) |
1,605,355 | 1,705,741 | 1,647,900 | |||||||||
Other accounts receivable,
less allowance for doubtful
accounts of W14,521 in 2003
and W22,721 in 2004
and discount on present
value of nil in 2003 and
W14,125 in 2004 (notes 18,
21 and 29) |
458,360 | 494,347 | 477,584 | |||||||||
Short-term investment
securities (note 6) |
161,596 | 52,168 | 50,399 | |||||||||
Short-term financial
instruments (note 18) |
119,000 | 158,968 | 153,577 | |||||||||
Inventories (notes 5 and 10) |
1,447,998 | 1,708,031 | 1,650,112 | |||||||||
Other current assets (notes 7,
11 and 18) |
241,036 | 179,361 | 173,279 | |||||||||
| 6,083,981 | 5,968,113 | 5,765,736 | ||||||||||
Total assets |
W71,727,272 | 73,653,685 | $ | 71,156,106 | ||||||||
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Korea Electric Power Corporation and Subsidiaries
Consolidated Balance Sheets, Continued
December 31, 2003 and 2004
(In millions of Korean Won and in thousands of U.S. dollars, except share data)
| U.S. dollars | ||||||||||||
| Won | (note 2) | |||||||||||
| Liabilities and Shareholders' Equity | 2003 | 2004 | 2004 | |||||||||
Stockholders’ equity: |
||||||||||||
Common stock of W 5,000 par value
Authorized - 1,200,000,000 shares
Issued and outstanding
- 640,748,573 shares in 2003
and 2004 (note 12) |
W 3,203,743 | 3,203,743 | $ | 3,095,105 | ||||||||
Capital surplus (notes 3 and 12) |
14,544,520 | 14,543,916 | 14,050,735 | |||||||||
Retained earnings: |
||||||||||||
Appropriated (note 13) |
17,899,939 | 19,554,340 | 18,891,257 | |||||||||
Unappropriated |
2,331,549 | 3,585,495 | 3,463,912 | |||||||||
Capital adjustments (note 14) |
(325,384 | ) | (408,311 | ) | (394,465 | ) | ||||||
Minority interest in consolidated subsidiaries |
127,569 | 123,099 | 118,924 | |||||||||
Total shareholders’ equity |
37,781,936 | 40,602,282 | 39,225,468 | |||||||||
Long-term liabilities: |
||||||||||||
Long-term borrowings (notes 17 and 29) |
15,813,509 | 15,072,766 | 14,561,652 | |||||||||
Accrual for retirement and severance
benefits, net (note 19) |
635,049 | 886,367 | 856,311 | |||||||||
Liability for decommissioning costs (note 20) |
5,091,070 | 6,259,369 | 6,047,115 | |||||||||
Reserve for self-insurance |
87,926 | 93,352 | 90,186 | |||||||||
Currency and interest rate swaps (note 23) |
215,100 | 366,508 | 354,080 | |||||||||
Deferred income tax liabilities |
1,446,570 | 1,667,842 | 1,611,286 | |||||||||
Other long-term liabilities |
515,839 | 445,731 | 430,616 | |||||||||
| 23,805,063 | 24,791,935 | 23,951,246 | ||||||||||
Current liabilities: |
||||||||||||
Trade payables (notes 18 and 29) |
755,248 | 759,411 | 733,660 | |||||||||
Other accounts payable (notes 18 and 29) |
870,919 | 848,199 | 819,437 | |||||||||
Short-term borrowings (notes 16 and 17) |
210,169 | 413,609 | 399,584 | |||||||||
Current portion of long-term debt (note 17) |
6,625,916 | 4,227,710 | 4,084,349 | |||||||||
Income tax payable |
809,479 | 1,105,515 | 1,068,027 | |||||||||
Accrued expenses (note 18) |
317,868 | 256,218 | 247,530 | |||||||||
Dividends payable (note 15) |
2,324 | 2,501 | 2,416 | |||||||||
Other current liabilities (notes 18 and 22) |
548,350 | 646,305 | 624,389 | |||||||||
| 10,140,273 | 8,259,468 | 7,979,392 | ||||||||||
Total liabilities |
33,945,336 | 33,051,403 | 31,930,638 | |||||||||
Commitments and contingencies (note 30) |
||||||||||||
Total shareholders’ equity and liabilities |
W71,727,272 | 73,653,685 | $ | 71,156,106 | ||||||||
See accompanying notes to consolidated financial statements.
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Korea Electric Power Corporation and Subsidiaries
Consolidated Statements of Income
For the years ended December 31, 2002, 2003 and 2004
(In millions of Korean Won and in thousands of U.S. dollars, except earnings per share)
| U.S. dollars | ||||||||||||||||
| Won | (note 2) | |||||||||||||||
| 2002 | 2003 | 2004 | 2004 | |||||||||||||
Operating revenues: |
||||||||||||||||
Sale of electricity (note 29) |
W20,406,404 | 21,834,288 | 23,346,910 | $ | 22,555,222 | |||||||||||
Other operating revenues |
959,271 | 940,306 | 608,752 | 588,109 | ||||||||||||
| 21,365,675 | 22,774,594 | 23,955,662 | 23,143,331 | |||||||||||||
Operating expenses (notes 24, 25 and 29): |
||||||||||||||||
Power generation, transmission
and distribution costs |
13,405,043 | 14,391,644 | 16,533,729 | 15,973,074 | ||||||||||||
Purchased power |
1,207,381 | 1,383,818 | 1,411,131 | 1,363,280 | ||||||||||||
Other operating costs |
545,867 | 539,104 | 249,206 | 240,755 | ||||||||||||
Selling and administrative expenses |
1,160,601 | 1,236,230 | 1,294,122 | 1,250,239 | ||||||||||||
| 16,318,892 | 17,550,796 | 19,488,188 | 18,827,348 | |||||||||||||
Operating income |
5,046,783 | 5,223,798 | 4,467,474 | 4,315,983 | ||||||||||||
Other income (expense): |
||||||||||||||||
Interest income (note 31) |
90,929 | 99,897 | 89,221 | 86,196 | ||||||||||||
Interest expense (note 31) |
(1,016,422 | ) | (829,743 | ) | (737,839 | ) | (712,819 | ) | ||||||||
Gain (loss) on foreign currency transactions
and translation, net |
511,950 | (206,572 | ) | 866,191 | 836,819 | |||||||||||
Donations |
(121,379 | ) | (185,805 | ) | (151,982 | ) | (146,828 | ) | ||||||||
Equity income of affiliates (notes 6 and 31) |
94,853 | 96,866 | 130,595 | 126,167 | ||||||||||||
Gain on disposal of investments, net |
433,151 | 45,244 | 16,585 | 16,023 | ||||||||||||
Loss on disposal of property, plant
and equipment, net |
(10,991 | ) | (14,918 | ) | (11,186 | ) | (10,807 | ) | ||||||||
Valuation gain (loss) on currency and
interest rate swaps, net (note 23) |
64,008 | (93,490 | ) | (169,241 | ) | (163,502 | ) | |||||||||
Other, net |
77,976 | (25,388 | ) | 199,971 | 193,188 | |||||||||||
| 124,075 | (1,113,909 | ) | 232,315 | 224,437 | ||||||||||||
Ordinary income |
5,170,858 | 4,109,889 | 4,699,789 | 4,540,420 | ||||||||||||
Income taxes (note 26) |
(2,103,792 | ) | (1,763,271 | ) | (1,795,170 | ) | (1,734,296 | ) | ||||||||
Income before minority interest |
3,067,066 | 2,346,618 | 2,904,619 | 2,806,124 | ||||||||||||
Minority interest in net income
of consolidated subsidiaries |
(18,961 | ) | (23,193 | ) | (22,097 | ) | (21,348 | ) | ||||||||
Net income |
3,048,105 | 2,323,425 | 2,882,522 | 2,784,776 | ||||||||||||
Ordinary and basic earnings per share
(note 27) |
4,770 | 3,686 | 4,576 | 4,421 | ||||||||||||
Diluted earnings per share (note 27) |
W 4,770 | 3,677 | 4,510 | $ | 4,357 | |||||||||||
See accompanying notes to consolidated financial statements.
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Korea Electric Power Corporation and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the years ended December 31, 2002, 2003 and 2004
(In millions of Korean Won and in thousands of U.S. dollars)
| Won | ||||||||||||||||||||||||
| Common | Capital | Retained | Capital | Minority | ||||||||||||||||||||
| stock | surplus | earnings | adjustments | interests | Total | |||||||||||||||||||
Balances at January 1, 2002 |
W3,200,504 | 14,905,237 | 15,298,791 | (43,465 | ) | 172,059 | 33,533,126 | |||||||||||||||||
Net income |
— | — | 3,048,105 | — | — | 3,048,105 | ||||||||||||||||||
Dividends declared |
— | — | (351,432 | ) | — | — | (351,432 | ) | ||||||||||||||||
Gain on disposal of treasury
stock |
— | (310 | ) | — | — | — | (310 | ) | ||||||||||||||||
Gain on disposal of subsidiary’s
common stock |
— | (423,949 | ) | 423,949 | — | — | — | |||||||||||||||||
Changes in minority interests |
— | — | — | — | 19,620 | 19,620 | ||||||||||||||||||
Changes in equity interests |
— | 2,143 | — | (2,143 | ) | — | — | |||||||||||||||||
Changes in treasury stock |
— | — | — | 7,940 | — | 7,940 | ||||||||||||||||||
Changes in unrealized losses on
available-for-sale securities |
— | — | — | (19,050 | ) | — | (19,050 | ) | ||||||||||||||||
Changes in unrealized losses on
investments in affiliates |
— | — | — | (51,607 | ) | — | (51,607 | ) | ||||||||||||||||
Changes in translation adjustments
of foreign subsidiaries |
— | — | — | (30,854 | ) | — | (30,854 | ) | ||||||||||||||||
Disposal of subsidiary’s
common stock |
— | — | — | 982 | (83,606 | ) | (82,624 | ) | ||||||||||||||||
Other |
— | — | — | 224 | — | 224 | ||||||||||||||||||
Balances at December 31, 2002 |
3,200,504 | 14,483,121 | 18,419,413 | (137,973 | ) | 108,073 | 36,073,138 | |||||||||||||||||
Net income |
— | — | 2,323,425 | — | — | 2,323,425 | ||||||||||||||||||
Dividends declared |
— | — | (511,350 | ) | — | — | (511,350 | ) | ||||||||||||||||
Issuance of common stock
for non-cash assets |
3,239 | 11,425 | — | — | — | 14,664 | ||||||||||||||||||
Gain on disposal
of treasury stock |
— | 5,604 | — | — | — | 5,604 | ||||||||||||||||||
Issuance of convertible bond |
— | 45,171 | — | — | — | 45,171 | ||||||||||||||||||
Changes in minority interests |
— | — | — | — | 19,496 | 19,496 | ||||||||||||||||||
Changes in treasury stock |
— | — | — | (178,710 | ) | — | (178,710 | ) | ||||||||||||||||
Changes in unrealized losses on
available-for-sale securities |
— | — | — | 4,820 | — | 4,820 | ||||||||||||||||||
Changes in unrealized losses on
investments in affiliates |
— | — | — | 4,519 | — | 4,519 | ||||||||||||||||||
Changes in translation adjustments
of foreign subsidiaries |
— | — | — | (14,968 | ) | — | (14,968 | ) | ||||||||||||||||
Changes in losses on valuation
of derivatives |
— | — | — | (3,072 | ) | — | (3,072 | ) | ||||||||||||||||
Other |
— | (801 | ) | — | — | — | (801 | ) | ||||||||||||||||
Balances at December 31, 2003 |
W3,203,743 | 14,544,520 | 20,231,488 | (325,384 | ) | 127,569 | 37,781,936 | |||||||||||||||||
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Korea Electric Power Corporation and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the years ended December 31, 2002, 2003 and 2004
(In millions of Korean Won and in thousands of U.S. dollars)
| Won | ||||||||||||||||||||||||
| Common | Capital | Retained | Capital | Minority | ||||||||||||||||||||
| stock | surplus | earnings | adjustments | interests | Total | |||||||||||||||||||
Balances at January 1, 2004 |
W3,203,743 | 14,544,520 | 20,231,488 | (325,384 | ) | 127,569 | 37,781,936 | |||||||||||||||||
Net income |
— | — | 2,882,522 | — | — | 2,882,522 | ||||||||||||||||||
Dividends declared |
— | — | (661,537 | ) | — | — | (661,537 | ) | ||||||||||||||||
Cumulative effect of accounting
change (note 28) |
— | — | 687,362 | — | — | 687,362 | ||||||||||||||||||
Change in capital surplus |
— | (5 | ) | — | — | — | (5 | ) | ||||||||||||||||
Gain on disposal of
treasury stock |
— | (599 | ) | — | — | — | (599 | ) | ||||||||||||||||
Changes in treasury stock |
— | — | — | (12,881 | ) | — | (12,881 | ) | ||||||||||||||||
Changes in unrealized losses on
available-for-sale securities |
— | — | — | 1,140 | — | 1,140 | ||||||||||||||||||
Changes in unrealized losses on
investments in affiliates |
— | — | — | 3,111 | — | 3,111 | ||||||||||||||||||
Changes in translation adjustments
of foreign subsidiaries |
— | — | — | (49,592 | ) | — | (49,592 | ) | ||||||||||||||||
Changes in losses on valuation
of derivatives |
— | — | — | (24,705 | ) | — | (24,705 | ) | ||||||||||||||||
Changes in minority interests |
— | — | — | — | (4,470 | ) | (4,470 | ) | ||||||||||||||||
Balances at December 31, 2004 |
W3,203,743 | 14,543,916 | 23,139,835 | (408,311 | ) | 123,099 | 40,602,282 | |||||||||||||||||
U.S. dollars (note 2) |
$3,095,105 | 14,050,735 | 22,355,169 | (394,465 | ) | 118,924 | 39,225,468 | |||||||||||||||||
See accompanying notes to consolidated financial statements.
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Korea Electric Power Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2002, 2003 and 2004
(In millions of Korean Won and in thousands of U.S. dollars)
| U.S. dollars | ||||||||||||||||
| Won | (note 2) | |||||||||||||||
| 2002 | 2003 | 2004 | 2004 | |||||||||||||
Cash flows from operating activities: |
||||||||||||||||
Net income |
W3,048,105 | 2,323,425 | 2,882,522 | $ | 2,784,776 | |||||||||||
Adjustments to reconcile net income
to net cash provided by operating
activities: |
||||||||||||||||
Depreciation and amortization |
4,906,138 | 5,088,736 | 5,448,647 | 5,263,885 | ||||||||||||
Property, plant and equipment
removal cost |
256,010 | 245,974 | 199,137 | 192,384 | ||||||||||||
Provision for severance
and retirement benefits |
202,763 | 219,762 | 296,978 | 286,908 | ||||||||||||
Provision for decommissioning costs |
583,372 | 698,400 | 257,295 | 248,570 | ||||||||||||
Bad debt expense |
8,602 | 23,178 | 19,982 | 19,304 | ||||||||||||
Interest expense, net |
17,192 | 21,273 | 2,931 | 2,832 | ||||||||||||
Loss (gain) on foreign currency
translation, net |
(424,791 | ) | 221,104 | (749,387 | ) | (723,975 | ) | |||||||||
Equity income of affiliates |
(94,853 | ) | (96,866 | ) | (130,595 | ) | (126,167 | ) | ||||||||
Gain on disposal of investments, net |
(433,151 | ) | (45,244 | ) | (16,585 | ) | (16,023 | ) | ||||||||
Loss on disposal of property, plant
and equipment, net |
10,991 | 14,918 | 11,186 | 10,807 | ||||||||||||
Deferred income tax expense
(benefit), net |
220,937 | 8,232 | (26,666 | ) | (25,762 | ) | ||||||||||
Valuation loss (gain) on currency
and interest rate swaps |
(64,008 | ) | 93,490 | 169,241 | 163,502 | |||||||||||
Changes in assets and liabilities: |
||||||||||||||||
Trade receivables |
(68,932 | ) | (88,735 | ) | (133,346 | ) | (128,824 | ) | ||||||||
Other accounts receivable |
(42,383 | ) | 85,007 | 221,697 | 214,179 | |||||||||||
Inventories |
(7,128 | ) | (43,715 | ) | (561,951 | ) | (542,895 | ) | ||||||||
Other current assets |
(22,222 | ) | (155,248 | ) | (3,934 | ) | (3,801 | ) | ||||||||
Trade payables |
44,799 | (3,611 | ) | 8,909 | 8,607 | |||||||||||
Other accounts payable |
90,129 | (65,492 | ) | 58,014 | 56,047 | |||||||||||
Income tax payable |
700,762 | (459,232 | ) | 293,374 | 283,426 | |||||||||||
Accrued expenses |
(47,472 | ) | 59,882 | (50,244 | ) | (48,540 | ) | |||||||||
Other current liabilities |
(171,855 | ) | (1,258 | ) | 195,550 | 188,919 | ||||||||||
Other long-term liabilities |
62,990 | 137,370 | (153,229 | ) | (148,033 | ) | ||||||||||
Payment of severance and
retirement benefits |
(15,826 | ) | (15,084 | ) | (18,974 | ) | (18,331 | ) | ||||||||
Payment of decommissioning costs |
(13,841 | ) | (25,264 | ) | (67,012 | ) | (64,740 | ) | ||||||||
Payment of self-insurance |
(1,171 | ) | (1,011 | ) | (848 | ) | (819 | ) | ||||||||
Other, net |
55,330 | 78,052 | (2,665 | ) | (2,575 | ) | ||||||||||
Net cash provided
by operating activities |
W8,800,487 | 8,318,043 | 8,150,027 | $ | 7,873,661 | |||||||||||
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Consolidated Statements of Cash Flows, Continued
For the years ended December 31, 2002, 2003 and 2004
(In millions of Korean Won and in thousands of U.S. dollars)
| Won | U.S. dollars | |||||||||||||||
| 2002 | 2003 | 2004 | 2004 | |||||||||||||
Cash flows from investing activities: |
||||||||||||||||
Proceeds from disposal of property,
plant and equipment |
W | 106,821 | 42,515 | 21,475 | $ | 20,747 | ||||||||||
Additions to property, plant and
equipment |
(6,653,066 | ) | (6,781,993 | ) | (6,286,531 | ) | (6,073,356 | ) | ||||||||
Receipt of construction grants |
626,566 | 618,092 | 624,213 | 603,046 | ||||||||||||
Proceeds from disposal of investment
securities |
430,455 | 116,229 | 350,210 | 338,334 | ||||||||||||
Acquisition of investment securities |
(26,171 | ) | (102,368 | ) | (118,454 | ) | (114,845 | ) | ||||||||
Decrease (increase) in long-term loans |
30,524 | (132,198 | ) | (78,153 | ) | (75,503 | ) | |||||||||
Acquisition of intangible assets |
(45,783 | ) | (26,039 | ) | (43,426 | ) | (41,953 | ) | ||||||||
Increase in other non-current assets |
(98,531 | ) | (14,265 | ) | (21,706 | ) | (20,970 | ) | ||||||||
Decrease (increase) in short-term
financial instruments, net |
246,462 | 18,852 | (39,968 | ) | (38,613 | ) | ||||||||||
Decrease in short-term loans, net |
10,517 | 22,363 | 20,291 | 19,603 | ||||||||||||
Acquisition of short-term investment
securities |
(20,003 | ) | (134,204 | ) | (422 | ) | — | |||||||||
Net cash used in investing activities |
(5,392,209 | ) | (6,373,016 | ) | (5,572,471 | ) | (5,383,510 | ) | ||||||||
Cash flows from financing activities: |
||||||||||||||||
Proceeds from long-term debt |
3,382,873 | 5,378,021 | 5,173,324 | 4,997,898 | ||||||||||||
Repayment of long-term debt |
(6,543,327 | ) | (6,421,240 | ) | (7,443,946 | ) | (7,191,524 | ) | ||||||||
Proceeds from (repayment of)
short-term borrowings, net |
(149,147 | ) | 50,229 | 215,998 | 208,674 | |||||||||||
Acquisition of treasury stock |
— | (180,120 | ) | — | — | |||||||||||
Dividends paid |
(329,659 | ) | (511,577 | ) | (673,626 | ) | (650,783 | ) | ||||||||
Other, net |
(30,389 | ) | (180,427 | ) | (199,644 | ) | (192,874 | ) | ||||||||
Net cash used in financing activities |
(3,669,649 | ) | (1,865,114 | ) | (2,927,894 | ) | (2,828,609 | ) | ||||||||
Increase(decrease) in cash and cash equivalents
from changes in consolidated subsidiaries |
(1,731 | ) | (19,806 | ) | 857 | 828 | ||||||||||
Change in cash and cash equivalents from
the translation of foreign financial statements |
(43,372 | ) | (6,951 | ) | (31,658 | ) | (30,584 | ) | ||||||||
Decrease (increase) in cash and cash equivalents |
(306,474 | ) | 53,156 | (381,139 | ) | (368,214 | ) | |||||||||
Cash and cash equivalents,
at beginning of the period |
2,303,954 | 1,997,480 | 2,050,636 | 1,981,099 | ||||||||||||
Cash and cash equivalents,
at end of the period |
W | 1,997,480 | 2,050,636 | 1,669,497 | $ | 1,612,885 | ||||||||||
See accompanying notes to consolidated financial statements.
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2003 and 2004
| (1) | Summary of Significant Accounting Policies and Basis of Presenting Consolidated Financial Statements |
| (a) | Organization and Description of Business | |||
| Korea Electric Power Corporation (the “Company”) was incorporated on January 1, 1982 in accordance with the Korea Electric Power Corporation Act (the “KEPCO Act”) to engage in the generation, transmission and distribution of electricity and development of electric power resources in the Republic of Korea. The Company was given a status of government-invested enterprise on December 31, 1983 following the enactment of the Government-Invested Enterprise Management Basic Act. The Company’s stock was listed on the Korea Stock Exchange on August 10, 1989 and the Company listed its Depository Receipts (DR) on the New York Stock Exchange on October 27, 1994. | ||||
| As of December 31, 2004, the Government of the Republic of Korea, Korea Development Bank, which is wholly owned by the Korean Government, and foreign investors hold 23.97%, 29.99% and 30.10%, respectively, of the Company’s shares. | ||||
| In accordance with the restructuring plan by the Ministry of Commerce, Industry and Energy on January 21, 1999, the Company spun off its power generation division on April 2, 2001, resulting in the establishment of six new power generation subsidiaries. The Company has been contemplating the gradual privatization of the Company’s power generation subsidiaries and distribution business. The privatization of power generation subsidiaries may result in change in pricing of electric power, operation organization, related regulations and general policies for supply and demand of energy. | ||||
| In addition, the Company was also planning to privatize its distribution business. However, the privatization of the Company’s distribution business was discontinued according to the recommendation of the Korea Tripartite Commission on June 30, 2004. | ||||
| (b) | Basis of Presenting Consolidated Financial Statements | |||
| KEPCO maintains its accounting records in Korean Won and prepares the consolidated financial statements in the Korean language (Hangul) in conformity with the Korea Electric Power Corporation Act (“KEPCO Act”), the Accounting Regulations for Government Invested Enterprises, which have been approved by the Korean Ministry of Finance and Economy and, in the absence of specialized accounting regulations for utility companies, the accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use only by those who are informed about Korean accounting principles and practices, KEPCO Act and Accounting Regulations for Government Invested Enterprises. The accompanying financial statements have been condensed, restructured and translated into English (with certain expanded descriptions) from the Korean language consolidated financial statements. | ||||
| Certain information included in the Korean language consolidated financial statements, but not required for a fair presentation of the Company’s financial position, results of operations or cash flows, is not presented in the accompanying consolidated financial statements. | ||||
| Effective January 1, 2004, the Company adopted Statements of Korea Accounting Standards No. 10, 12 and 13. The adoption of these standards did not have a significant impact on the accompanying consolidated financial statements. In addition, the Company early adopted Statement of Korea Accounting Standards No. 17 as described in notes 1(f), 1(w), 20 and 28. | ||||
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (1) | Summary of Significant Accounting Policies and Basis of Presenting Consolidated Financial Statements, Continued |
| (c) | Principles of Consolidation | |||
| The consolidated financial statements include the accounts of KEPCO and its controlled subsidiaries (collectively referred to as the “Company”) as of December 31, 2003 and 2004. Controlled subsidiaries include majority-owned entities by either the Company or controlled subsidiaries and other entities where the Company or its controlled subsidiary owns more than 30% of total outstanding common stock and is the largest shareholder. | ||||
| For investments in companies, whether or not publicly held, that are not controlled, but under the Company’s significant influence, the Company utilizes the equity method of accounting. Significant influence is generally deemed to exist if the Company can exercise influence over the operating and financial policies of an investee. The ability to exercise that influence may be indicated in several ways, such as the Company’s representation on its board of directors, the Company’s participation in its policy making processes, material transactions with the investee, interchange of managerial personnel, or technological dependency. Also, if the Company owns directly or indirectly 20% or more of the voting stock of an investee and the investee is not required to be consolidated, the Company generally presumes that the investee is under significant influence. | ||||
| Investments of KEPCO and equity accounts of subsidiaries subject to consolidation were eliminated at the dates KEPCO obtained control of the subsidiaries. Any difference between the cost of acquisition and the book value of the subsidiary is recorded as either goodwill or negative goodwill. Goodwill is amortized using the straight-line method within twenty years from the year the acquisition occurred. Negative goodwill is recovered, within the limit of the aggregate fair values of identifiable non-monetary assets, using the straight-line method over weighted-average years of depreciable assets and the amounts in excess of the limit are charged to current operations and presented as extraordinary gain at the acquisition date. | ||||
| Intercompany receivables and payables including trade receivables and trade payables are eliminated in consolidation. Profits and losses on intercompany sales of products, property or other assets are eliminated in the consolidated financial statements based on the gross profit or loss recognized. For sales from KEPCO to subsidiaries (downstream sales), the full amount of intercompany gain or loss is eliminated in the consolidated income. For upstream sales, the elimination is allocated proportionately to consolidated income and minority interests. Details of unrealized income eliminated are summarized as follows: | ||||
| Won (millions) | ||||||||||||
| Account | Consolidated income | Minority income | Total | |||||||||
Property, plant and equipment |
W | 180,804 | 6,028 | 186,832 | ||||||||
Intangible assets |
6,693 | — | 6,693 | |||||||||
| W | 187,497 | 6,028 | 193,525 | |||||||||
2
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (1) | Summary of Significant Accounting Policies and Basis of Presenting Consolidated Financial Statements, Continued |
| (d) | Consolidated Subsidiaries |
| Year of | Ownership percentage(%) | |||||||||||||
| Subsidiaries | establishment | 2003 | 2004 | Primary business | ||||||||||
Korea Hydro & Nuclear
Power Co., Ltd. (*1)
|
2001 | 100.0 | 100.0 | Power generation | ||||||||||
Korea South-East
Power Co., Ltd. (*1)
|
2001 | 100.0 | 100.0 | Power generation | ||||||||||
Korea Midland Power
Co., Ltd. (*1)
|
2001 | 100.0 | 100.0 | Power generation | ||||||||||
Korea Western
Power Co., Ltd. (*1)
|
2001 | 100.0 | 100.0 | Power generation | ||||||||||
Korea Southern
Power Co., Ltd. (*1)
|
2001 | 100.0 | 100.0 | Power generation | ||||||||||
Korea East-West
Power Co., Ltd. (*1)
|
2001 | 100.0 | 100.0 | Power generation | ||||||||||
Korea Power
Engineering
Co., Ltd.
|
1977 | 97.9 | 97.9 | Engineering for utility plant | ||||||||||
Korea Plant Services
& Engineering
Co., Ltd.
|
1984 | 100.0 | 100.0 | Utility plant maintenance | ||||||||||
KEPCO Nuclear Fuel
Co., Ltd.
|
1982 | 96.4 | 96.4 | Nuclear fuel | ||||||||||
Korea Electric Power
Data Network Co., Ltd.
|
1992 | 100.0 | 100.0 | Information services | ||||||||||
KEPCO International
Hong Kong Ltd.
|
1995 | 100.0 | 100.0 | Holding Company | ||||||||||
KEPCO International
Philippines Inc.
|
2000 | 100.0 | 100.0 | Holding Company | ||||||||||
KEPCO Philippines
Corporation (*2)
|
1995 | 100.0 | 100.0 | Utility plant rehabilitation and operation (Subsidiary of KEPCO International Hong Kong Ltd.) | ||||||||||
KEPCO Ilijan
Corporation (*2)
|
1997 | 51.0 | 51.0 | Construction and operation of utility plant (Subsidiary of KEPCO International Philippines Inc.) | ||||||||||
KEPCO China
International
Ltd. (*3)
|
2004 | — | 100.0 | Holding Company | ||||||||||
Jiaozuo KEPCO
Power Company
Ltd. (*3)
|
2004 | — | 80.2 | Construction and operation of utility plant (Subsidiary of KEPCO China International Ltd.) | ||||||||||
| (*1) Six new power generation subsidiaries were established on April 2, 2001 by the spin-off of KEPCO’s power generation division in accordance with the Restructuring Plan. |
| (*2) Under the project agreement between the National Power Corporation of Philippines and KEPCO, the cooperation period of KEPCO Philippines Co. and KEPCO Ilijan Co. is for 15 years commencing September 15, 1995 and 20 years commencing June 5, 2002, respectively. At the end of the cooperation period, the power plant complex will be transferred to National Power Corporation of Philippines free of any liens or encumbrances and without payment of compensation. |
| (*3) KEPCO China International Ltd. and Jiaozuo KEPCO Power Company Ltd. were newly included in subsidiaries in 2004. |
3
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (1) | Summary of Significant Accounting Policies and Basis of Presenting Consolidated Financial Statements, Continued |
| (d) | Consolidated Subsidiaries, Continued |
| (i) | The newly established power generation subsidiaries are primarily engaged in the sale of electricity to KEPCO through the Korea Power Exchange. Details of those subsidiaries are as follows: |
| Name of the subsidiaries | Major power plant | |
Korea Hydro & Nuclear Power Co., Ltd. (KHNP)
|
Hydroelectric power plant and nuclear power plant in Gori | |
Korea South-East Power Co., Ltd.
(KOSEPCO)
|
Thermoelectric power plant in Samchonpo | |
Korea Midland Power Co., Ltd.
(KOMIPO)
|
Thermoelectric power plant in Boryung | |
Korea Western Power Co., Ltd.
(KOWEPCO)
|
Thermoelectric power plant in Tae-an | |
Korea Southern Power Co., Ltd.
(KOSPO)
|
Thermoelectric power plant in Hadong | |
Korea East-West Power Co., Ltd.
(KEWESPO)
|
Thermoelectric power plant in Dangjin |
| (ii) | Details of the spin-off |
| – | KEPCO spun off its power generation business as stipulated by the Commercial Code of the Republic of Korea. | |||
| – | Registration date of the spin off: April 2, 2001 | |||
| – | Date of resolution of stockholders: March 16, 2001 | |||
| – | Date of resolution of Board of Directors: February 24, 2001 | |||
| (iii) | Assets and liabilities of the spun off divisions |
| – | Assets and liabilities of the spun off divisions as of the date of the spin-off |
| Won (millions) | ||||||||||||||||||||||||||||
| KHNP | KOSEPCO | KOMIPO | KOWEPCO | KOSPO | KEWESPO | Total | ||||||||||||||||||||||
Assets |
W | 18,791,413 | 2,490,720 | 2,662,209 | 2,904,046 | 3,627,985 | 4,655,400 | 35,131,773 | ||||||||||||||||||||
Liabilities |
9,426,614 | 1,258,716 | 1,336,317 | 1,461,408 | 1,830,607 | 2,332,495 | 17,646,157 | |||||||||||||||||||||
Net assets |
W | 9,364,799 | 1,232,004 | 1,325,892 | 1,442,638 | 1,797,378 | 2,322,905 | 17,485,616 | ||||||||||||||||||||
4
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (1) | Summary of Significant Accounting Policies and Basis of Presenting Consolidated Financial Statements, Continued |
| (d) | Consolidated Subsidiaries, Continued |
| – | Assets and liabilities of the spun off divisions as of December 31, 2000 |
| Won (millions) | ||||||||||||||||||||||||||||
| KHNP | KOSEPCO | KOMIPO | KOWEPCO | KOSPO | KEWESPO | Total | ||||||||||||||||||||||
Assets |
W | 17,433,479 | 2,688,953 | 2,209,503 | 2,943,194 | 3,507,340 | 4,696,226 | 33,478,695 | ||||||||||||||||||||
Liabilities |
9,231,779 | 1,469,853 | 1,234,789 | 1,542,594 | 1,819,240 | 2,463,526 | 17,761,781 | |||||||||||||||||||||
Net assets |
W | 8,201,700 | 1,219,100 | 974,714 | 1,400,600 | 1,688,100 | 2,232,700 | 15,716,914 | ||||||||||||||||||||
| – | Result of operations of the spun off divisions (From January 1, 2001 to April 1, 2001) |
| Won (millions) | ||||||||||||||||||||||||||||
| KHNP | KOSEPCO | KOMIPO | KOWEPCO | KOSPO | KEWESPO | Total | ||||||||||||||||||||||
Net sales |
W | 1,097,586 | 410,195 | 345,771 | 406,931 | 413,058 | 481,710 | 3,155,251 | ||||||||||||||||||||
Cost of goods sold |
875,074 | 360,346 | 280,101 | 380,139 | 401,384 | 460,825 | 2,757,869 | |||||||||||||||||||||
Gross profit |
W | 222,512 | 49,849 | 65,670 | 26,792 | 11,674 | 20,885 | 397,382 | ||||||||||||||||||||
| (e) | Affiliates accounted for using the equity method |
| Year of | Ownership percentage(%) | |||||||||||||
| Affiliate | establishment | 2003 | 2004 | Primary business | ||||||||||
Korea Gas
Corporation |
1983 | 24.5 | 24.5 | Sales of liquefied natural gas | ||||||||||
Korea District
Heating Co., Ltd. |
1985 | 26.1 | 26.1 | Providing of heating | ||||||||||
Powercomm
Corporation |
2000 | 43.1 | 43.1 | Communication line leasing | ||||||||||
Korea
Electric Power Industrial Development Co., Ltd. |
1990 | 49.0 | 49.0 | Disposal of power-plant ash | ||||||||||
| and electric meter reading | ||||||||||||||
YTN |
1993 | 21.4 | 21.4 | Broadcasting | ||||||||||
5
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (1) | Summary of Significant Accounting Policies and Basis of Presenting Consolidated Financial Statements, Continued |
| (f) | Property, Plant and Equipment | |||
| Property, plant and equipment are stated at cost, except in the case of revaluation made in accordance with the KEPCO Act and the Assets Revaluation Law of Korea. Plant and equipment under capital leases are stated at an amount equal to the lower of their fair value or the present value of minimum lease payments at inception of lease. Significant additions or improvements extending useful lives of assets are capitalized. However, normal maintenance and repairs are charged to expense as incurred. | ||||
| The Company capitalizes interest cost and other financial charges on borrowing associated with the manufacture, purchase, or construction of property, plant and equipment, incurred prior to completing the acquisition, as part of the cost of such assets. The calculation of capitalized interest includes exchange differences arising from foreign borrowings to the extent that they are regarded as an adjustment to interest costs, which is limited to the extent of interest cost calculated by the weighted average interest rate of local currency borrowings. For the period ended December 31, 2003 and 2004, the amounts of capitalized interest were W524,101 million and W313,548 million, respectively. The foreign currency transactions and translation gains excluded from the calculation of capitalized interest rate amounted to W5,102 million and W240,389 million, respectively, for the years ended December 31, 2003 and 2004. In addition, the foreign currency losses added to the calculation of capitalized interest rate amounted to W25,691 million and nil for years ended December 31, 2003 and 2004. | ||||
| The impact on the Company’s financial position as of and for the year ended December 31, 2004, if the interest and other borrowing costs were expensed instead of being capitalized, is as follows. | ||||
| Won (millions) | ||||||||||||||||
| Construction | Total | Interest | Income before | |||||||||||||
| in-progress | assets | expense | income taxes | |||||||||||||
Capitalized |
W | 7,516,932 | 73,653,685 | 737,839 | 4,699,789 | |||||||||||
Expensed |
7,203,384 | 73,340,137 | 1,051,387 | 4,386,241 | ||||||||||||
| W | 313,548 | 313,548 | (313,548 | ) | 313,548 | |||||||||||
| Depreciation is computed by the declining-balance method (straight-line method for buildings and structures, unit-of-production method and straight-line method for nuclear fuel) using rates based on the estimated useful lives described in the Korean Corporate Income Tax Law and as permitted under the Accounting Regulations for Government Invested Enterprises as follows: |
| Estimated useful life | ||||
Buildings |
8 ~ 40 | |||
Structures |
8 ~ 30 | |||
Machinery |
5 ~ 16 | |||
Vehicles |
4 ~ 5 | |||
Loaded heavy water |
30 | |||
Capitalized asset retirement cost of
nuclear power plant |
30 ~ 40 | |||
Others |
4 ~ 9 | |||
6
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (1) | Summary of Significant Accounting Policies and Basis of Presenting Consolidated Financial Statements, Continued |
| (f) | Property, Plant and Equipment, Continued | |||
| Effective January 1, 2003, the Company adopted SKAS No. 5 “Tangible Assets.” Under this standard, the Company recorded the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. This standard was applicable to any new plants from January 1, 2003. However, this standard did not have any impact on the 2003 financial statements because there were no new utility plants in 2003. | ||||
| As it relates to decommissioning costs, all existing plants as of December 31, 2003 were accounted for under the previous method (note 2 (w)). However, as described in note 2 (w), in 2004, the Company early adopted SKAS No. 17 and retrospectively adjusted the liability for decommissioning costs at the estimated fair value using discounted cash flows to settle the asset retirement obligations of dismantlement of the nuclear power plants, spent fuel and radioactive waste. In addition, the corresponding asset (calculated at the net book value amount as of January 1, 2004) related to all existing plants was recognized as a utility asset. The Company subsequently depreciates the capitalized asset retirement costs using the straight-line and units-of-production depreciation method. | ||||
| KEPCO records the following funds and materials, which relate to the construction of transmission and distribution facilities as construction grants: | ||||
| • Grants from the government or public institutions | ||||
| • Funds, construction materials or other items contributed by customers | ||||
| Construction grants are initially recorded and presented in the accompanying consolidated financial statements as deductions from the assets acquired under such grants and are offset against depreciation expense during the estimated useful lives of the related assets. The Company received W611,862 million and W617,366 million of construction grants, and offset W123,862 million and W145,310 million against depreciation expense, and W50,349 million and W48,479 million against removal cost of property, plant and equipment for the years ended December 31, 2003 and 2004, respectively. | ||||
| (g) | Asset Impairment | |||
| When the book value of asset exceeds the recoverable value of the asset due to obsolescence, physical damage or sharp decline in market value, and the amount is material, the impaired assets is recorded at the recoverable value and the resulting impairment loss is charged to current operations. When the recoverable value exceeds the adjusted book value of the assets in the following year, the recoveries of previously recognized losses is recognized as gain in subsequent periods until the net realizable value equals the book value of the assets before the loss is recognized. | ||||
| The Company evaluates the long-lived assets for impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying value of such assets may not be recoverable. These computations utilize judgments and assumptions inherent in management’s estimate of undiscounted future cash flows to determine recoverability of an asset. If management’s assumptions about these assets change as a result of events or circumstances, and management believes the assets may have declined in value, then the Company may record impairment charges, resulting in lower profits. Management uses its best estimate in making these evaluations and considers various factors, including the future prices of energy, fuel costs and operating costs. However, actual market prices and operating costs could vary from those used in the impairment evaluations, and the impact of such variations could be material. | ||||
7
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (1) | Summary of Significant Accounting Policies and Basis of Presenting Consolidated Financial Statements, Continued |
| (h) | Leases | |||
| Lease agreements that include a bargain purchase option, result in the transfer of ownership by the end of the lease term, have a term equal to at least 75 percent of the estimated economic life of the leased property or where the present value of the minimum lease payments at the beginning of the lease term equals or exceeds 90 percent of the fair value of the leased property are accounted for as financial or capital lease. All other leases are accounted for as operating leases. Assets and liabilities related to financial leases are recorded as property and equipment and long-term debt, respectively, and the related interest is calculated using the effective interest rate method. In respect to operating leases, the future minimum lease payments are expensed ratably over the lease term while contingent rentals are expensed as incurred. | ||||
| (i) | Investment Securities | |||
| Securities are recognized initially at cost determined using the weighted average method. The cost includes the market value of the consideration given and incidental expenses. If the market price of the consideration given is not available, the market prices of the securities purchased are used as the basis for measurement. If neither the market prices of the consideration given nor those of the acquired securities are available, the acquisition cost is measured at the best estimates of its fair value. | ||||
| After initial recognition, held-to-maturity securities are valued at amortized cost. The difference between face value and acquisition cost is amortized over the remaining term of the security using the effective interest method. Trading securities are valued at fair value, with unrealized gains and losses reflected in current operations. Available-for-sale securities are also valued at fair value, with unrealized gains and losses reflected in capital adjustments, until the securities are sold or if the securities are determined to be impaired and the lump-sum cumulative amount of capital adjustments are reflected in current operations. However, available-for-sale equity securities that are not traded in an active market and whose fair values cannot be reliably estimated are accounted for at their acquisition cost. For those securities that are traded in an active market, fair values refers to those quoted market prices, which are measured as the closing price at the balance sheet date. The fair value of non-marketable debt securities are measured at the discounted future cash flows by using the discount rate that appropriately reflects the credit rating of issuing entity assessed by a publicly reliable independent credit rating agency. If application of such measurement method is not feasible, estimates of the fair values may be made using a reasonable valuation model or quoted market prices of similar debt securities issued by entities conducting similar business in similar industries. | ||||
| Securities are evaluated at each balance sheet date to determine whether there is any objective evidence of impairment loss. When any such evidence exists, unless there is a clear counter-evidence that recognition of impairment is unnecessary, the Company estimates the recoverable amount of the impaired security and recognizes any impairment loss in current operations. The amount of impairment loss of the held-to-maturity security or non-marketable equity security is measured as the difference between the recoverable amount and the carrying amount. The recoverable amount of held-to maturity security is the present value of expected future cash flows discounted at the securities’ original effective interest rate. For available-for-sale debt or equity security stated at fair value, the amount of impairment loss to be recognized in the current period is determined by subtracting the amount of impairment loss of debt or equity security already recognized in prior period from the amount of amortized cost in excess of the recoverable amount for debt security or the amount of the acquisition cost in excess of the fair value for equity security. | ||||
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Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (1) | Summary of Significant Accounting Policies and Basis of Presenting Consolidated Financial Statements, Continued |
| (i) | Investment Securities, Continued | |||
| For non-marketable equity security accounted for at acquisition cost, the impairment loss is equal to the difference between the recoverable amount and the carrying amount. | ||||
| If the realizable value subsequently recovers, in case of a security stated at fair value, the increase in value is recorded in current operation, up to the amount of the previously recognized impairment loss, while for the security stated at amortized cost or acquisition cost, the increase in value is recorded in current operation, so that its recovered value does not exceed what its amortized cost would be as of the recovery date if there had been no impairment loss. | ||||
| If the intent and ability to hold the securities change, transferred securities are accounted for at fair value. In case held-to-maturity securities are reclassified into available-for-sale securities, unrealized gain or loss between the book value and fair value is reported in shareholders’ equity as a capital adjustment. In case the available for sale securities are reclassified into held-to maturity securities, the unrealized gain or loss at the date of the transfer continues to be reported in shareholder’s equity as a capital adjustment, but it is amortized over the remaining term of the security using the effective interest rate method. | ||||
| (j) | Investment Securities under the Equity Method of Accounting | |||
| For investments in companies, whether or not publicly held, that are not controlled, but under the Company’s significant influence, the Company utilizes the equity method of accounting. Significant influence is generally deemed to exist if the Company can exercise influence over the operating and financial policies of an investee. The ability to exercise that influence may be indicated in several ways, such as the Company’s representation on its board of directors, the Company’s participation in its policy making processes, material transactions with the investee, interchange of managerial personnel, or technological dependency. Also, if the Company owns directly or indirectly 20% or more of the voting stock of an investee and the investee is not required to be consolidated, the Company generally presumes that the investee is under significant influence. The change in the Company’s share of an investee’s net equity resulting from a change in an investee’s net equity is reflected in current operations, retained earnings, and capital adjustment in accordance with the causes of the change which consist of the investee’s net income (loss), changes in retained earnings and changes in capital surplus and capital adjustments. | ||||
| Under the equity method of accounting, the Company’s initial investment is recorded at cost and is subsequently increased to reflect the Company’s share of the investee income and reduced to reflect the Company’s share of the investee losses or dividends received. Any excess in the Company’s acquisition cost over the Company’s share of the investee’s identifiable net assets is generally recorded as investor-level goodwill or other intangibles and amortized by the straight-line method over the estimated useful life. The amortization of investor-level goodwill is recorded against the equity income (losses) of affiliates. When events or circumstances indicate that carrying amount may not be recoverable, the Company reviews investor-level goodwill for impairment. | ||||
| Assets and liabilities of foreign-based companies accounted for using the equity method are translated at current rate of exchange at the balance sheet date while profit and loss items in the statement of earnings are translated at average rate and capital account at historical rate. The translation gains and losses arising from collective translation of the foreign currency financial statements of foreign-based companies are offset and the balance is accumulated as capital adjustment. | ||||
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Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (1) | Summary of Significant Accounting Policies and Basis of Presenting Consolidated Financial Statements, Continued |
| (j) | Investment Securities under the Equity Method of Accounting, Continued | |||
| Under the equity method of accounting, the Company does not record its share of losses of an affiliate when such losses would make the Company’s investment in such entity less than zero unless the Company has guaranteed obligations of the investee or is otherwise committed to provide additional financial support. | ||||
| (k) | Intangible Assets | |||
| Intangible assets are stated at cost less accumulated amortization, as described below. | ||||
| (i) | Research and Development Costs | |||
| Expenditure on research activities, undertaken with the prospects of gaining new scientific or technical knowledge and understanding, is recognized in the statement of income as an expense as incurred. | ||||
| Expenditure on development incurred in conjunction with new products or technologies, in which the elements of costs can be identified and future economic benefits are clearly expected, is capitalized and amortized on a straight-line basis over 5 years. The capitalized expenditure includes the cost of materials, direct labor and an appropriate proportion of overheads. | ||||
| (ii) | Other Intangible Assets | |||
| Other intangible assets, which consist of industrial rights, land rights and others, are stated at cost less accumulated amortization and impairment losses. Such intangible assets are amortized using the straight-line method over a reasonable period, from 4 years to 50 years, based on the nature of the asset. | ||||
| The Company reviews for the impairment of intangible assets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. | ||||
| (l) | Cash Equivalents | |||
| The Company considers short-term financial instruments with maturities of three months or less at the acquisition date to be cash equivalents. | ||||
| (m) | Financial Instruments | |||
| Short-term financial instruments are financial instruments handled by financial institutions which are held for short-term cash management purposes or will mature within one year, including time deposits, installment savings deposits and restricted bank deposits. | ||||
| (n) | Allowance for Doubtful Accounts | |||
| Allowance for doubtful accounts is estimated based on an analysis of individual accounts and past experience of collection. Smaller-balance homogeneous receivables are evaluated considering current economic conditions and trends, prior charge-off experience and delinquencies. | ||||
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Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (1) | Summary of Significant Accounting Policies and Basis of Presenting Consolidated Financial Statements, Continued |
| (o) | Inventories | |||
| Inventories are stated at the lower of cost or net realizable value, cost being determined using the weighted-average method for raw materials, moving-average method for supplies and specific-identification method for other inventories. The Company maintains perpetual inventory records, which are adjusted through physical counts at the end of each year. | ||||
| (p) | Valuation of Receivables and Payables at Present Value | |||
| Receivables and payables arising from long-term installment transactions, long-term cash loans/borrowings and other similar loan/borrowing transactions are stated at present value. The difference between nominal value and present value is deducted directly from the nominal value of related receivables or payables and is amortized using the effective interest method. The amount amortized is included in interest expense or interest income. | ||||
| (q) | Convertible Bonds | |||
| When issuing convertible bonds or bonds with stock purchase warrants, the values of the conversion rights or stock warrants are recognized separately. Considerations for conversion rights or stock warrants shall be measured by deducting the present value of ordinary or straight debt securities from the gross proceeds of the convertible bonds or bonds with stock purchase warrants received at the date of issuance. | ||||
| The value of the common shares issued pursuant to the exercise of the conversion rights shall be measured as the sum of the carrying amount, at the time of conversion, and the amount of consideration received for such rights, at the time of issuance, of those convertible bonds that are actually related to the exercise. Convertible bonds are not subject to foreign currency translation because convertible bonds are regarded as non-monetary foreign currency liabilities in accordance with Korean GAAP. When the conversion rights are exercised during an accounting period, the value of common shares issued pursuant to the exercise shall be measured based on the carrying amount of the convertible bonds determined on the actual date such rights have been exercised. | ||||
| (r) | Discount (Premium) on Debentures | |||
| Discount (premium) on debenture issued, which represents the difference between the face value and issuance price of debentures, is amortized using the effective interest rate method over the life of the debentures. The amount amortized is included in interest expense. | ||||
| (s) | Retirement and Severance Benefits | |||
| Employees and directors who have been with the Company for more than one year are entitled to lump-sum payments based on current rates of pay and length of service when they leave the Company. The Company’s estimated liability under the plan which would be payable if all employees left on the balance sheet date is accrued in the accompanying balance sheets. | ||||
| Funding of the retirement and severance benefits are not required, however, tax deductions are limited if the liability is not funded. The Company has purchased severance insurance deposits, which meet the funding requirement for tax deduction purposes. These consist of individual severance insurance deposits, in which the beneficiary is the respective employee, with a balance of W82,771 million and W113,336 million as of December 31, 2003 and 2004, respectively, which are presented as deduction from accrual of retirement and severance benefits. | ||||
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Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (1) | Summary of Significant Accounting Policies and Basis of Presenting Consolidated Financial Statements, Continued |
| (s) | Retirement and Severance Benefits, Continued | |||
| The Company and its employees each pay 4.5 percent of monthly salary to the National Pension Fund under the revised National Pension Law of Korea. Before April 1999, the Company and its employees paid 3 percent and 6 percent, respectively, of monthly pay to the Fund. The Company paid half of the employees’ 6 percent portion and is paid back at the termination of service by offsetting the receivable against the severance payments. Such receivables are presented as a deduction from accrual of retirement and severance benefits. | ||||
| (t) | Reserve for Self-Insurance | |||
| In accordance with the Accounting Regulations for Government Invested Enterprises, the Company provides a self-insurance reserve for loss from accident and liability to third parties that may arise in connection with the Company’s non-insured facilities. The self-insurance reserve is recorded until the amount meets a certain percentage of non-insured buildings and machinery. Payments made to settle applicable claims are charged to this reserve. | ||||
| (u) | Foreign Currency Translation | |||
| KEPCO and its domestic subsidiaries maintain their accounts in Korean Won. Transactions in foreign currencies are recorded in Korean Won based on the prevailing rates of exchange on the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at the balance sheet date, with the resulting gains and losses recognized in current results of operations. Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at W1,197.8 and W1,043.8 to US$1, the rate of exchange on December 31, 2003 and 2004 that is permitted by the Financial Accounting Standards. Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historical cost, are translated into Korean Won at the foreign exchange rate ruling at the date of the transaction. | ||||
| Foreign currency assets and liabilities of foreign-based operations and the Company’s overseas subsidiaries are translated at current rate of exchange at the balance sheet date while profit and loss items in the statement of income are translated at average rate and capital account at historical rate. The translation gains and losses arising from collective translation of the foreign currency financial statements of foreign-based operations and the Company’s overseas subsidiaries are offset and the balance is accumulated as a capital adjustment. | ||||
| (v) | Derivatives | |||
| All derivative instruments are accounted for at fair value with the valuation gain or loss recorded as an asset or liability. If the derivative instrument is not part of a transaction qualifying as a hedge, the adjustment to fair value is reflected in current operations. The accounting for derivative transactions that are part of a qualified hedge based both on the purpose of the transaction and on meeting the specified criteria for hedge accounting differs depending on whether the transaction is a fair value hedge or a cash flow hedge. Fair value hedge accounting is applied to a derivative instrument designated as hedging the exposure to changes in the fair value of an asset or a liability or a firm commitment (hedged item) that is attributable to a particular risk. The gain or loss both on the hedging derivative instruments and on the hedged item attributable to the hedged risk is reflected in current operations. Cash flow hedge accounting is applied to a derivative instrument designated as hedging the exposure to variability in expected future cash flows of an asset or a liability or a forecasted transaction that is attributable to a particular risk. | ||||
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Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (1) | Summary of Significant Accounting Policies and Basis of Presenting Consolidated Financial Statements, Continued |
| (v) | Derivatives, Continued | |||
| The effective portion of gain or loss on a derivative instrument designated as a cash flow hedge is recorded as a capital adjustment and the ineffective portion is recorded in current operations. | ||||
| The effective portion of gain or loss recorded as a capital adjustment is reclassified to current earnings in the same period during which the hedged forecasted transaction affects earnings. If the hedged transaction results in the acquisition of an asset or the incurrence of a liability, the gain or loss in capital adjustment is added to or deducted from the asset or the liability. | ||||
| (w) | Liability for Decommissioning Costs | |||
| Prior to 2004, the Company recorded a liability for the estimated decommissioning costs of nuclear facilities based on engineering studies and the expected decommissioning dates of the nuclear power plant. Additions to the liability were in amounts such that the current costs would be fully accrued for at estimated dates of decommissioning on a straight-line basis. | ||||
| In October 2004, Korea Accounting Standard Board issued Statement of Korea Accounting Standards (“SKAS”) No. 17 “Provision and Contingent Liability & Asset”. In January 2005, the Company decided to early adopt SKAS No. 17. Under this standard, the Company retrospectively adjusted the liability for decommissioning costs at the estimated fair value using discounted cash flows (also based on engineering studies and the expected decommissioning dates) to settle the asset retirement obligations of dismantlement of the nuclear power plants, spent fuel and radioactive waste and the same amount was recognized as an utility asset. The liability for decommissioning costs should be adjusted based on the best estimates on each balance sheet dates. Under SKAS No. 17, the discount rate was set at the date of adoption (January 1, 2004) and should be applied in all future periods. In addition, any new plants would use the discount rate in effect at the time of its commencement. Accretion expense consists of period-to-period changes in the liability for decommissioning costs resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. The Company subsequently depreciates the asset retirement costs using the straight-line and units-of-production depreciation method. | ||||
| (x) | Revenue Recognition | |||
| The Company recognizes revenue from the sale of electric power based on meter readings made on a monthly basis. The Company does not accrue revenue for power sold after the meter readings but prior to the end of the accounting period. The Company recognizes revenue on long-term contracts, which are related to the construction of power plants in the Democratic People’s Republic of Korea (North Korea), based on the percentage-of-completion method. Revenue other than sale of electric power and revenue on long-term contracts is recognized when the Company’s revenue-earning activities have been substantially completed, the amount of revenue can be measured reliably, and it is probable that the economic benefits associated with the transaction will flow to the Company. | ||||
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Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (1) | Summary of Significant Accounting Policies and Basis of Presenting Consolidated Financial Statements, Continued |
| (y) | Income Taxes | |||
| The Company recognizes deferred income taxes arising from temporary differences between pretax accounting income and taxable income. Accordingly, provision for income tax expense consists of the corporate income tax and resident tax surcharges currently payable, and the changes in deferred income assets and liabilities during the period. However, deferred income tax assets are recognized only if the future tax benefits on accumulated temporary differences are realizable. The deferred income tax assets and liabilities will be charged or credited to income tax expense in the period each temporary difference reverses in the future. Deferred income taxes will be recalculated based on the enacted future tax rate in effect at each balance sheet date. | ||||
| The Company assesses the likelihood that deferred tax assets will be recovered from future taxable income, and, to the extent the Company believes that recovery is not likely, such deferred tax assets are reduced by direct write-down. Estimates of future taxable income involve judgments with respect to future economic factors that are difficult to predict and are beyond management’s control. As a result, actual amounts could differ from these estimates and the amount of the deferred tax assets recognized would need to be increased or decreased accordingly. | ||||
| (z) | Dividends payable | |||
| Dividends are recorded when approved by the board of director and shareholders. | ||||
| (aa) | Prior Period Adjustments | |||
| Prior period adjustments resulting from other than fundamental errors are charged or credited to result of operations for the current period. The fundamental errors are defined as errors with such a significant effect on the financial statements for one or more prior periods that those financial statements can no longer be considered to have been reliable at the date of their issue. The prior period adjustments resulting from the fundamental errors are charged or credited to the beginning balance of retained earnings, and the financial statements of the prior year are restated. | ||||
| (ab) | Ordinary Income Per Share and Earnings Per Share | |||
| Ordinary income per share and earnings per share are computed by dividing ordinary income and net income by the weighted average number of common shares outstanding during the period. | ||||
| Diluted earnings per share is computed by dividing net income, after addition for the effect of expenses related to diluted securities on net income, by the weighted average number of common shares plus the dilutive potential common shares. | ||||
| (ac) | Minority Interest in Consolidated Subsidiaries | |||
| Minority interest in consolidated subsidiaries is presented as a separate component of stockholders’ equity in the consolidated balance sheets. | ||||
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Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (1) | Summary of Significant Accounting Policies and Basis of Presenting Consolidated Financial Statements, Continued |
| (ad) | Use of Estimates | |||
| The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the Republic of Korea requires management to make estimates and assumptions that affect the amounts reported in the financial statements and related notes to financial statements. Actual results could differ from those estimates. | ||||
| (ae) | Reclassification | |||
| During 2004, the Company changed its policy of recording fuel-in-process. Previously, fuel-in-process was recorded as a component of utility plant. During 2004, the Company concluded that fuel-in-process should be recorded as a component of inventory based on its usage within operations. As a result, the Company reclassified the prior year nuclear fuel-in-process such that utility plant was decreased and inventory was increased by W543,065 million as of December 31, 2003. This reclassification did not result in any change to reported total assets, net income or stockholder’s equity. | ||||
| (af) | Accounting Principles | |||
| The subsidiaries apply different accounting methods for cost of inventory and the depreciation method of fixed assets and intangible assets than those of KEPCO, as the effect of different accounting is not considered material. | ||||
| (i) | Cost of Inventory |
| Company | Raw material | Supplies | Others | |||||||||
KEPCO |
Weighted-average | Moving-average | Specific identification | |||||||||
Korea Hydro &
Nuclear Power Co., Ltd. |
Moving-average | — | Moving average | |||||||||
Korea Western Power Co., Ltd. |
— | Weighted-average | Weighted-average | |||||||||
Korea Power Engineering Co., Ltd. |
— | FIFO | FIFO | |||||||||
Korea Plant Service &
Engineering Co., Ltd. |
— | FIFO | — | |||||||||
KEPCO Nuclear Fuel Co., Ltd. |
— | Weighted-average | — | |||||||||
Korea Electric Power
Data Network Co., Ltd. |
Moving-average | — | Moving-average | |||||||||
| (ii) | Depreciation Methods |
| Computer | ||||||||||||||||
| Company | Machinery | Vehicles | Others | software | ||||||||||||
KEPCO |
Declining- | Declining- | Declining- | Straight- | ||||||||||||
| balance | balance | balance | line | |||||||||||||
Korea Hydro & Nuclear Power Co., Ltd. |
— | — | — | Declining- | ||||||||||||
| balance | ||||||||||||||||
Korea Plant Service & Engineering Co., Ltd. |
— | — | — | Declining- | ||||||||||||
| balance | ||||||||||||||||
KEPCO Nuclear Fuel Co., Ltd. |
Straight-line | Straight-line | Straight-line | — | ||||||||||||
Korea Electric Power
Data Network Co., Ltd. |
Straight-line | Straight-line | Straight-line | — | ||||||||||||
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Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (1) | Summary of Significant Accounting Policies and Basis of Presenting Consolidated Financial Statements, Continued |
| (ag) | Elimination of Investments and Shareholders’ Equity | |||
| For consolidated subsidiaries and investments accounted for under the equity method, if the acquisition date is not as of the fiscal year end of the investee, the nearest fiscal year end of such investee is considered as the acquisition date in determining the amount of goodwill or negative goodwill. | ||||
| The elimination entries of the Parent Company’s investments against the related investees’ shareholders’ equity are summarized as follows: | ||||
| Won (millions) | Won (millions) | |||||||||||
| Accounts | Amount | Accounts | Amount | |||||||||
Common stock |
W | 2,603,812 | Investments in affiliates | W | 22,510,633 | |||||||
Capital surplus |
15,487,284 | Consolidated capital surplus | 2,192 | |||||||||
Retained earnings |
5,066,898 | Consolidated retained earnings | 465,780 | |||||||||
Capital adjustment |
195,191 | Consolidated capital adjustment | 256,464 | |||||||||
| Minority interests | 114,511 | |||||||||||
| Other | 3,605 | |||||||||||
| W | 23,353,185 | W | 23,353,185 | |||||||||
| (ah) | Application of the Statements of Korea Financial Accounting Standards | |||
| The Korean Accounting Standards Board (“KASB”) has published a series of Statements of Korea Accounting Standards (“SKAS”), which will gradually replace the existing financial accounting standards, established by the Korea Financial Supervisory Board. SKAS No. 10, No. 12 and No. 13 were adopted by the Company as of January 1, 2004 and SKAS No. 17 “Provision and Contingent Liability & Asset” was early adopted during 2004. SKAS No. 15 “Equity Method Accounting”, and No. 16 “Income Taxes” become effective for the Company on January 1, 2005 according to the effective date set forth by each SKAS. The Company does not expect the adoption of these standards to have a material impact on its consolidated financial statements. | ||||
| (2) | Basis of Translating Consolidated Financial Statements | |||
| The consolidated financial statements are expressed in Korean Won and, solely for the convenience of the reader, the consolidated financial statements as of and for the year ended December 31, 2004, have been translated into United States dollars at the rate of W1,035.1 to US$1, the noon buying rate in the City of New York for cable transfers in won as certified for customs purposes by the Federal Reserve Bank of New York as of December 31, 2004. The translation should not be construed as a representation that any or all of the amounts shown could be converted into U.S. dollars at this or any other rate. | ||||
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Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (3) | Property, Plant and Equipment |
| (a) | Asset revaluation | |||
| KEPCO revalued its property, plant and equipment in accordance with the KEPCO Act and the Asset Revaluation Law (the latest revaluation date was January 1, 1999), and recorded a revaluation gain of W12,552,973 million as a reserve for asset revaluation, a component of capital surplus. | ||||
| (b) | Officially Declared Value of Land | |||
| The officially declared value of land at December 31, 2004, as announced by the Minister of Construction and Transportation, is as follows: | ||||
| Won (millions) | ||||||||
| Purpose | Book value | Declared value | ||||||
Land — utility plant, transmission and
distribution sites and other |
W | 5,678,090 | 5,862,469 | |||||
| The officially declared value, which is used for government purposes, is not intended to represent fair value. |
| (c) | Changes in Property, Plant and Equipment | |||
| Changes in property, plant and equipment and construction grants for the years ended December 31, 2003 and 2004 are as follows: | ||||
| Won (millions) | ||||||||||||||||||||||||
| 2003 | ||||||||||||||||||||||||
| Book value | Book value | |||||||||||||||||||||||
| as of January 1, | Disposal | as of December 31, | ||||||||||||||||||||||
| 2003 | Acquisition | and other (*1) | Depreciation | Others (*2) | 2003 | |||||||||||||||||||
Land |
W | 5,557,943 | 3,970 | 36,832 | — | 68,439 | 5,593,520 | |||||||||||||||||
Buildings |
7,514,099 | 7,408 | 100,929 | 494,856 | 292,800 | 7,218,522 | ||||||||||||||||||
Structures |
22,720,502 | 1,055 | 357,526 | 876,301 | 2,203,388 | 23,691,118 | ||||||||||||||||||
Machinery |
17,470,324 | 26,110 | 177,971 | 3,110,784 | 1,803,353 | 16,011,032 | ||||||||||||||||||
Vehicles |
15,601 | 11,540 | 197 | 9,888 | 870 | 17,926 | ||||||||||||||||||
Nuclear fuel |
1,578,172 | 427,417 | 12,927 | 388,949 | (543,065 | ) | 1,060,648 | |||||||||||||||||
Others |
991,826 | 116,001 | 1,125 | 134,581 | 14,274 | 986,395 | ||||||||||||||||||
Construction in-
progress |
7,776,506 | 6,188,492 | — | — | (4,414,347 | ) | 9,550,651 | |||||||||||||||||
Construction grants |
(2,321,219 | ) | (618,092 | ) | — | — | 180,522 | (2,758,789 | ) | |||||||||||||||
| W | 61,303,754 | 6,163,901 | 687,507 | 5,015,359 | (393,766 | ) | 61,371,023 | |||||||||||||||||
| (*1) Other includes the property, plant and equipment of Korea Electric Power Development Co., Ltd. as a result of excluding it from consolidation. | ||||
| (*2) As described in note 1(ae) to the consolidated financial statements, during 2004, the Company changed its policy of recording fuel-in-process. Previously, fuel-in-process was recorded as a component of utility plant. During 2004, the Company concluded that fuel-in-process should be recorded as a component of inventory based on its usage within operations. As a result, the Company reclassified the prior year nuclear fuel-in-process such that utility plant was decreased and inventory was increased by W543,065 million as of December 31, 2003. | ||||
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Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (3) | Property, Plant and Equipment, Continued |
| (d) | Changes in Property, Plant and Equipment, Continued |
| Won (millions) | ||||||||||||||||||||||||
| 2004 | ||||||||||||||||||||||||
| Book value | Book value | |||||||||||||||||||||||
| as of January 1, | as of December 31, | |||||||||||||||||||||||
| 2004 | Acquisition | Disposal | Depreciation | Others | 2004 | |||||||||||||||||||
Land |
W 5,593,520 | 37,425 | 9,802 | — | 56,947 | 5,678,090 | ||||||||||||||||||
Buildings |
7,218,522 | 8,087 | 3,419 | 535,762 | 691,972 | 7,379,400 | ||||||||||||||||||
Structures |
23,691,118 | 63,236 | 795 | 991,858 | 2,410,183 | 25,171,884 | ||||||||||||||||||
Machinery |
16,011,032 | 125,349 | 16,900 | 3,108,707 | 4,218,601 | 17,229,375 | ||||||||||||||||||
Vehicles |
17,926 | 17,729 | 21 | 12,704 | 643 | 23,573 | ||||||||||||||||||
Nuclear fuel |
1,060,648 | — | — | 383,528 | 382,135 | 1,059,255 | ||||||||||||||||||
Asset retirement cost |
— | — | — | 318,705 | 1,935,041 | 1,616,336 | ||||||||||||||||||
Others |
986,395 | 103,890 | 433 | 141,722 | (114,460 | ) | 833,670 | |||||||||||||||||
Construction in-progress |
9,550,651 | 5,930,815 | — | — | (7,964,534 | ) | 7,516,932 | |||||||||||||||||
Construction grants |
(2,758,789 | ) | (617,366 | ) | — | — | 193,789 | (3,182,366 | ) | |||||||||||||||
| W61,371,023 | 5,669,165 | 31,370 | 5,492,986 | 1,810,317 | 63,326,149 | |||||||||||||||||||
| (4) | Intangible Assets |
| Changes in intangible assets for the years ended December 31, 2003 are as follows: |
| Won (millions) | ||||||||||||||||||||||
| 2003 | ||||||||||||||||||||||
| Book value | Book value | |||||||||||||||||||||
| as of | as of December 31, | |||||||||||||||||||||
| January 1, 2003 | Acquisition | Amortization | Others (*2) | 2003 | ||||||||||||||||||
Development costs (*1) |
W 83,553 | 86,751 | 29,658 | (98,732 | ) | 41,914 | ||||||||||||||||
Port facility usage right |
184,235 | 28,744 | 32,844 | (20,138 | ) | 159,997 | ||||||||||||||||
Water usage right |
138,607 | — | 16,799 | (14 | ) | 121,794 | ||||||||||||||||
Dam usage right |
6,976 | — | 144 | — | 6,832 | |||||||||||||||||
Electricity usage right |
11,866 | 22,135 | 5,303 | — | 28,698 | |||||||||||||||||
Computer software |
— | — | — | 99,433 | 99,433 | |||||||||||||||||
Others |
33,965 | 38,549 | 14,196 | (993 | ) | 57,325 | ||||||||||||||||
| W459,202 | 176,179 | 98,944 | (20,444 | ) | 515,993 | |||||||||||||||||
| (*1) | The amount of development costs is net amount after offsetting construction grants. |
| (*2) During 2004, development costs amounting to W98,440 million and others amounting to W993 million were reclassified to computer software. |
18
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (4) | Intangible Assets, Continued |
| Changes in intangible assets for the years ended December 31, 2004 are as follows: |
| Won (millions) | ||||||||||||||||||||
| 2004 | ||||||||||||||||||||
| Book value | Book value | |||||||||||||||||||
| as of | as of December 31, | |||||||||||||||||||
| January 1, 2004 | Acquisition | Amortization | Others | 2004 | ||||||||||||||||
Development costs |
W 55,698 | 14,497 | 9,547 | 21,359 | 82,007 | |||||||||||||||
Port facility usage right |
159,997 | 12 | 9,192 | 983 | 151,800 | |||||||||||||||
Water usage right |
121,794 | — | 16,669 | (945 | ) | 104,180 | ||||||||||||||
Dam usage right |
6,832 | — | 144 | (1 | ) | 6,687 | ||||||||||||||
Electricity usage right |
28,698 | — | 6,562 | 26,159 | 48,295 | |||||||||||||||
Computer software |
99,433 | 1,269 | 40,844 | 114,023 | 173,881 | |||||||||||||||
Others |
57,325 | 27,648 | 19,588 | 204 | 65,589 | |||||||||||||||
Construction grants |
(13,784 | ) | (6,847 | ) | — | 150 | (20,481 | ) | ||||||||||||
| W515,993 | 36,579 | 102,546 | 161,932 | 611,958 | ||||||||||||||||
| In addition, the Company expensed ordinary development expenses amounting to W332,017 million and W433,142 million for the years ended December 31, 2003 and 2004, respectively. |
| (5) | Insured Assets |
| Insured assets as of December 31, 2004 are as follows: |
| Insured assets | Insurance type | Won
(millions) Insured value |
||||||
Buildings and machinery |
Fire insurance | W4,524,610 | ||||||
Buildings and machinery |
Nuclear property insurance | 1,576,138 | ||||||
Buildings,
machinery and construction in progress |
Construction and shipping insurance | 6,624,491 | ||||||
Buildings |
General insurance | 145,200 | ||||||
Construction in progress |
Construction insurance | 50,210 | ||||||
Inventories and machinery |
Shipping insurance | 1,551,453 | ||||||
| In addition, the Company carries compensation and responsibility insurance in relation to the operation of the nuclear power plants and gas accident, construction and other general insurance for its utility plants and inventories, damage insurance for its light water nuclear reactor construction in North Korea, general insurance for vehicles, casualty insurance for its employees and responsibility insurance for its directors. |
19
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (6) | Investment Securities |
| (a) | Investment securities as of December 31, 2003 and 2004 are summarized as follows: |
| Won (millions) | ||||||||
| 2003 | 2004 | |||||||
Short-term investment securities |
||||||||
Available-for-sale securities |
W | 141,585 | 19,086 | |||||
Held-to-maturity securities |
20,011 | 33,082 | ||||||
| 161,596 | 52,168 | |||||||
Long-term investment securities |
||||||||
Available-for-sale securities |
230,744 | 156,759 | ||||||
Held-to-maturity securities |
2,197 | 2,656 | ||||||
Investments in affiliates |
1,296,179 | 1,386,097 | ||||||
| 1,529,120 | 1,545,512 | |||||||
| W | 1,690,716 | 1,597,680 | ||||||
| Available-for-sale securities are funds for debt securities and held-to-maturity securities are debt securities including government and municipal bonds. | ||||
| (b) | Long-term investments other than those under the equity method as of December 31, 2003 and 2004 are summarized as follows: | |||
| 2003 | 2004 | |||||||||||||||||||
| Ownership | Book | Ownership | Acquisition | Book | ||||||||||||||||
| % | value | % | cost | value | ||||||||||||||||
Available-for-sale: |
||||||||||||||||||||
Equity securities: |
||||||||||||||||||||
Securities Market |
||||||||||||||||||||
Stabilization Fund |
7.57 | W | 7,763 | — | — | — | ||||||||||||||
Energy Savings |
||||||||||||||||||||
Investment Cooperatives (*3) |
25.0~48.0 | 5,000 | 25.0~48.0 | 5,000 | 5,000 | |||||||||||||||
Korea Power Exchange (*3) |
100.0 | 125,213 | 100.0 | 128,711 | 128,711 | |||||||||||||||
Hwan Young Steel Co., Ltd. (*1,*3) |
0.14 | 120 | 0.14 | 1,364 | 120 | |||||||||||||||
Investment securities
in treasury stock fund (*2,*3) |
— | 17,581 | — | 12,535 | 9,642 | |||||||||||||||
Other equity securities (*3) |
— | 1,051 | — | 7,835 | 7,835 | |||||||||||||||
Debt securities |
74,016 | 5,149 | 5,451 | |||||||||||||||||
| 230,744 | 160,594 | 156,759 | ||||||||||||||||||
Held-to-maturity: |
||||||||||||||||||||
Government and municipal bonds |
2,197 | 2,656 | 2,656 | |||||||||||||||||
Total |
W | 232,941 | 163,250 | 159,415 | ||||||||||||||||
20
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (6) | Investment Securities, Continued |
| (*1) During 2002, the Company recognized an impairment loss of W1,244 million that was deemed as an other-than-temporary decline. | ||||
| (*2) The Company entered into a treasury stock fund, composed of treasury stock and other investment securities, and recorded other investment securities in available-for-sale securities. Losses on the valuation of these available-for-sale securities in the treasury stock fund, which are recorded in capital adjustments, amount to W8,714 million and W2,893 million as of December 31, 2003 and 2004, respectively. | ||||
| (*3) Available-for-sales securities other than investment securities in treasury stock fund are non-marketable equity securities and stated at cost due to the lack of information to determine the fair value. | ||||
| (c) | Investments in affiliated companies accounted for using the equity method as of December 31, 2003 and 2004 are as follows: |
| 2003 | 2004 | |||||||||||||||||||||||
| Ownership | Book | Ownership | Acquisition | Net asset | Book | |||||||||||||||||||
| % | value | % | cost | value | value | |||||||||||||||||||
Korea Gas Corporation |
24.5 | W | 740,280 | 24.5 | 94,500 | 787,842 | 787,842 | |||||||||||||||||
Korea District Heating
Co., Ltd. |
26.1 | 159,165 | 26.1 | 5,660 | 169,527 | 169,527 | ||||||||||||||||||
Powercomm Corporation (*) |
43.1 | 350,518 | 43.1 | 323,470 | 388,422 | 381,221 | ||||||||||||||||||
Korea Electric Power Industrial
Development Co., Ltd. |
49.0 | 22,072 | 49.0 | 7,987 | 22,853 | 22,853 | ||||||||||||||||||
YTN |
21.4 | 24,144 | 21.4 | 59,000 | 24,654 | 24,654 | ||||||||||||||||||
| W | 1,296,179 | 490,617 | 1,393,298 | 1,386,097 | ||||||||||||||||||||
| (*) As of December 31, 2004, unrealized profits of W7,201 million arisen from the transaction with Powercomm Corporation were eliminated. | ||||
| In 2003, the Company has disposed some of its investments in Korea Electric Power Industrial Development Co., Ltd. and Powercomm Corporation, with the gain on disposal of investments of W45,214 million and in 2002, the Company has disposed some of its investments in Powercomm Corporation, with the gain on disposal of investments of W433,335 million recorded in 2002. | ||||
21
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (6) | Investment Securities, Continued |
| (d) | Changes in investments in affiliated companies under the equity method for the year ended December 31, 2003 are as follows: |
| 2003 | ||||||||||||||||
| Gain (loss) on | Book | |||||||||||||||
| Book value | valuation using the | value as of | ||||||||||||||
| as of | equity method on | December 31, | ||||||||||||||
| January 1, 2003 | accounting | Others (*) | 2003 | |||||||||||||
Korea Gas Corporation |
W | 690,705 | 73,329 | (23,754 | ) | 740,280 | ||||||||||
Korea District Heating Co. |
147,716 | 13,486 | (2,037 | ) | 159,165 | |||||||||||
Powercomm Corporation |
352,235 | 6,508 | (8,225 | ) | 350,518 | |||||||||||
Korea Electric Power Industrial
Development Co., Ltd. |
— | 3,107 | 18,965 | 22,072 | ||||||||||||
YTN |
23,615 | 436 | 93 | 24,144 | ||||||||||||
| W | 1,214,271 | 96,866 | (14,958 | ) | 1,296,179 | |||||||||||
| (*) Others are composed of acquisition (disposal), dividends and the changes in values in equity due to the capital surplus and gain (loss) on investment securities in capital adjustments. Others for Korea Electric Power Industrial Development Co., Ltd. include the book value at the time of reclassification to equity method. |
| Changes in investments in affiliated companies under the equity method for the year ended December 31, 2004 are as follows: |
| 2004 | ||||||||||||||||
| Gain (loss) on | Book | |||||||||||||||
| Book value | valuation using the | value as of | ||||||||||||||
| as of | equity method on | December 31, | ||||||||||||||
| January 1, 2004 | accounting | Others (*) | 2004 | |||||||||||||
Korea Gas Corporation |
W | 740,280 | 82,366 | (34,804 | ) | 787,842 | ||||||||||
Korea District Heating Co. |
159,165 | 11,813 | (1,451 | ) | 169,527 | |||||||||||
Powercomm Corporation |
350,518 | 31,398 | (695 | ) | 381,221 | |||||||||||
Korea Electric Power Industrial
Development Co., Ltd. |
22,072 | 4,701 | (3,920 | ) | 22,853 | |||||||||||
YTN |
24,144 | 317 | 193 | 24,654 | ||||||||||||
| W | 1,296,179 | 130,595 | (40,677 | ) | 1,386,097 | |||||||||||
| (*) Others are composed of acquisition (disposal) of investment, dividends and the changes in values in equity due to the capital surplus and gain (loss) on investment securities in capital adjustments. |
| The Company has recorded unrealized losses of W25,560 million and W22,449 million relating to the above affiliates as of December 31, 2003 and 2004, respectively, which have been accounted for a capital adjustment. These capital adjustments have been recorded as unrealized losses on equity securities of affiliates within stockholders’ equity. |
22
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (6) | Investment Securities, Continued |
| (e) | Summarized financial information regarding affiliated companies accounted for using the equity method as of and for the years ended December 31, 2003 and 2004 is shown in the following table : |
| Korea Gas Corporation | Korea District Heating Co. | |||||||||||||||
| Won (millions) | Won (millions) | |||||||||||||||
| 2003 | 2004 | 2003 | 2004 | |||||||||||||
Current assets |
W | 2,873,293 | 3,264,084 | 349,702 | 411,238 | |||||||||||
Other assets |
6,784,825 | 6,826,366 | 775,744 | 847,922 | ||||||||||||
| 9,658,118 | 10,090,450 | 1,125,446 | 1,259,160 | |||||||||||||
Current liabilities |
2,295,394 | 2,720,667 | 98,918 | 86,304 | ||||||||||||
Other liabilities |
4,335,624 | 4,148,193 | 416,055 | 522,641 | ||||||||||||
| 6,631,018 | 6,868,860 | 514,973 | 608,945 | |||||||||||||
Net assets |
3,027,100 | 3,221,590 | 610,473 | 650,215 | ||||||||||||
Net sales |
8,195,272 | 9,151,327 | 441,234 | 467,765 | ||||||||||||
Gross profit |
777,094 | 797,758 | 95,741 | 85,982 | ||||||||||||
Net earnings |
288,318 | 323,057 | 51,725 | 45,389 | ||||||||||||
| YTN | Powercomm Corporation | |||||||||||||||
| Won (millions) | Won (millions) | |||||||||||||||
| 2003 | 2004 | 2003 | 2004 | |||||||||||||
Current assets |
W | 53,296 | 32,683 | 177,392 | 172,075 | |||||||||||
Other assets |
79,953 | 126,022 | 1,231,144 | 1,199,488 | ||||||||||||
| 133,249 | 158,705 | 1,408,536 | 1,371,563 | |||||||||||||
Current liabilities |
10,118 | 11,879 | 366,706 | 226,217 | ||||||||||||
Other liabilities |
10,421 | 31,779 | 213,350 | 244,748 | ||||||||||||
| 20,539 | 43,658 | 580,056 | 470,965 | |||||||||||||
Net assets |
112,710 | 115,047 | 828,480 | 900,598 | ||||||||||||
Net sales |
59,605 | 68,282 | 526,824 | 571,229 | ||||||||||||
Gross profit |
7,123 | 5,797 | 131,614 | 130,028 | ||||||||||||
Net earnings |
2,073 | 1,440 | 30,640 | 73,728 | ||||||||||||
| Korea Electric power | ||||||||
| Industrial Development Co., Ltd. | ||||||||
| Won (millions) | ||||||||
| 2003 | 2004 | |||||||
Current assets |
W | 37,424 | 43,099 | |||||
Other assets |
68,284 | 66,989 | ||||||
| 105,708 | 110,088 | |||||||
Current liabilities |
13,033 | 16,164 | ||||||
Other liabilities |
47,630 | 47,286 | ||||||
| 60,663 | 63,450 | |||||||
Net assets |
45,045 | 46,638 | ||||||
Net sales |
163,676 | 174,324 | ||||||
Gross profit |
22,505 | 19,250 | ||||||
Net earnings |
6,340 | 9,593 | ||||||
23
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (7) | Loans to employees | |||
| The Company has provided housing and tuition loans to employees as follows as of December 31, 2003 and 2004: | ||||
| Won (millions) | ||||||||
| 2003 | 2004 | |||||||
Short-term loans (note 11) |
W | 16,284 | 18,590 | |||||
Long-term loans |
251,788 | 290,808 | ||||||
| W | 268,072 | 309,398 | ||||||
| (8) | Other Non-current Assets | |||
| Other non-current assets as of December 31, 2003 and 2004 are as follows: | ||||
| Won (millions) | ||||||||
| 2003 | 2004 | |||||||
Long-term trade receivable, net |
W | 9,588 | 5,249 | |||||
Deposit received |
141,221 | 156,216 | ||||||
Others |
91,285 | 95,106 | ||||||
| W | 242,094 | 256,571 | ||||||
| (9) | Restricted Cash and Cash Equivalents and Financial Instruments | |||
| There are certain amounts included in cash and cash equivalents and financial instruments, which are restricted in use for expenditures for certain business purpose as of December 31, 2004 as follows: | ||||
| Won (millions) | ||||
Cash and cash equivalents |
W | 94,651 | ||
Long-term financial instruments |
10 | |||
| W | 94,661 | |||
| (10) | Inventories | |||
| Inventories as of December 31, 2003 and 2004 are summarized as follows: | ||||
| Won (millions) | ||||||||
| 2003 | 2004 | |||||||
Raw materials |
W | 804,562 | 937,763 | |||||
Supplies |
519,727 | 607,352 | ||||||
Other |
123,709 | 162,916 | ||||||
| W | 1,447,998 | 1,708,031 | ||||||
24
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (11) | Other Current Assets | |||
| Other current assets as of December 31, 2003 and 2004 are summarized as follows: | ||||
| Won (millions) | ||||||||
| 2003 | 2004 | |||||||
Short-term loans to employees (note 7) |
W | 16,284 | 18,590 | |||||
Accrued interest income |
5,738 | 7,144 | ||||||
Advance payments |
3,876 | 20,844 | ||||||
Prepaid expenses |
39,143 | 8,505 | ||||||
Others |
175,995 | 124,278 | ||||||
| W | 241,036 | 179,361 | ||||||
| (12) | Common Stock and Capital Surplus |
| (a) | Common Stock | |||
| The Company has 1,200,000,000 authorized shares of W5,000 par value common stock, of which 640,748,573 shares are issued as of December 31, 2004. In 2003, the Company issued 647,697 shares with par value W5,000 to the government of the Republic of Korea in return for certain fixed assets related to power distribution. The value of these shares were recorded as common stock of W3,238 million and paid-in capital in excess of par value of W11,425 million. | ||||
| (b) | Capital Surplus | |||
| Capital surplus as of December 31, 2003 and 2004 are as follows: | ||||
| Won (millions) | ||||||||
| 2003 | 2004 | |||||||
Paid-in capital in excess of par value |
W | 811,301 | 812,730 | |||||
Reserves for asset revaluation |
12,552,973 | 12,552,973 | ||||||
Other capital surplus |
1,180,246 | 1,178,213 | ||||||
| W | 14,544,520 | 14,543,916 | ||||||
| The Company revalued its property, plant and equipment in accordance with the KEPCO Act and the Asset Revaluation Law, and recorded a revaluation gain of W12,552,973 million as a reserve for asset revaluation. The reserve for asset revaluation may be credited to paid-in capital or offset against any accumulated deficit by resolution of the shareholders. |
25
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (13) | Appropriated Retained Earnings | |||
| Appropriated retained earnings as of December 31, 2003 and 2004 are summarized as follows: | ||||
| Won (millions) | ||||||||
| 2003 | 2004 | |||||||
Involuntary: |
||||||||
Legal reserve |
W | 1,600,252 | 1,601,871 | |||||
Voluntary: |
||||||||
Reserve for investment on social overhead capital |
5,012,449 | 5,092,449 | ||||||
Reserve for research and human development |
120,000 | 180,000 | ||||||
Reserve for business rationalization |
31,900 | 31,900 | ||||||
Reserve for business expansion |
10,925,338 | 12,438,120 | ||||||
Reserve for dividend equalization |
210,000 | 210,000 | ||||||
| 16,299,687 | 17,952,469 | |||||||
| W | 17,899,939 | 19,554,340 | ||||||
| The KEPCO Act requires the Company to appropriate a legal reserve equal to at least 20 percent of net income for each accounting period until the reserve equals 50 percent of the common stock. The legal reserve is not available for cash dividends; however, this reserve may be credited to paid-in capital or offset against accumulated deficit by the resolution of the shareholders. | ||||
| Prior to 1990, according to the KEPCO Act, at least 20 percent of net income in each fiscal year was required to be established as a reserve for business expansion until such reserve equals the common stock. Beginning in 1990, no percentage was specified. | ||||
| The reserve for the investment on social overhead capital and the reserve for research and human development are appropriated by the Company to avail itself of qualified tax credits to reduce corporate tax liabilities. These reserves are not available for cash dividends for a certain period defined in the Tax Incentive Control Law. As of December 31, 2004, the amounts allowed for reserve for investment on social overhead and reserve for research and human development under the Korean tax law for tax benefits are W485,233 million and W178,791 million, respectively. | ||||
26
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (14) | Capital Adjustments | |||
| Capital adjustments as of December 31, 2003 and 2004 are as follows: | ||||
| Won (millions) | ||||||||
| 2003 | 2004 | |||||||
Treasury stock |
W | (195,379 | ) | (208,260 | ) | |||
Gain on valuation of available-for-sale securities |
5,025 | 344 | ||||||
Loss on valuation of available-for-sale securities |
(8,714 | ) | (2,893 | ) | ||||
Equity loss of affiliates |
(25,560 | ) | (22,449 | ) | ||||
Overseas operations translation credit |
(97,939 | ) | (147,531 | ) | ||||
Loss on valuation of currency swaps |
— | (26,188 | ) | |||||
Loss on valuation of interest rate swaps |
(2,817 | ) | (1,334 | ) | ||||
| W | (325,384 | ) | (408,311 | ) | ||||
| The Company has shares held as treasury stock amounting to W195,379 million (10,713,050 shares) and W208,260 million (11,048,050 shares) as of December 31, 2003 and 2004, respectively, for the purpose of stock price stabilization. |
| (15) | Dividends | |||
| Details of dividends for the years ended December 31, 2003 and 2004 are as follows: | ||||
| Won (millions) | ||||||||||||||||
| Outstanding | Dividend | Dividend | Total | |||||||||||||
| stocks | rate | per share | dividend | |||||||||||||
2003: |
||||||||||||||||
Outstanding shares other
than treasury shares |
630,035,523 | 21 | % | W | 1,050 | W | 661,537 | |||||||||
Treasury shares |
10,713,050 | — | — | — | ||||||||||||
| 640,748,573 | W | 661,537 | ||||||||||||||
2004: |
||||||||||||||||
Outstanding shares other
than treasury shares |
629,700,523 | 23 | % | W | 1,150 | W | 724,156 | |||||||||
Treasury shares |
11,048,050 | — | — | — | ||||||||||||
| 640,748,573 | W | 724,156 | ||||||||||||||
27
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (16) | Short-term borrowings | |||
| Short-term borrowings as of December 31, 2003 and 2004 are as follows: | ||||
| (a) | Local currency short-term borrowings |
| Annual | Won (millions) | |||||||||||
| Lender | Type | interest rate % | 2003 | 2004 | ||||||||
National Agricultural
Cooperative Federation |
Overdraft | CD+1% (4.43% at Dec.31, 2004) | W | 16,245 | 172 | |||||||
Woori Bank |
Commercial paper | CD-0.01% (3.42% at Dec. 31, 2004) | — | 150,000 | ||||||||
Chohung Bank |
Commercial paper | CD-0.01% (3.42% at Dec. 31, 2004) | — | 50,000 | ||||||||
Hana Bank |
Overdraft | 4.1% | 30,000 | — | ||||||||
Korea Resources
Corporation |
General | 3.0% | 7,000 | 7,000 | ||||||||
| W | 53,245 | 207,172 | ||||||||||
| (b) | Foreign currency short-term borrowings |
| Annual | Won (millions) | |||||||||||||||
| Lender | Type | interest rate % | 2003 | 2004 | ||||||||||||
Korea Development Bank |
General | 2.32~2.80 | W | 22,681 | 59,735 | |||||||||||
ANZ |
General | 2.27~2.63 | 33,648 | 34,148 | ||||||||||||
National Australia Bank |
General | 2.28~2.80 | 69,181 | 99,828 | ||||||||||||
Other |
General | 1.51~2.57 | 31,414 | 12,726 | ||||||||||||
| W | 156,924 | 206,437 | ||||||||||||||
| (17) | Long-term borrowings Long-term borrowings as of December 31, 2003 and 2004 are as follows: |
| (a) | Local currency long-term borrowings |
| Annual | Won (millions) | |||||||||||
| Lender | Type | interest rate % | 2003 | 2004 | ||||||||
Korea Development Bank |
Industrial facility | 4.50~9.00 | W | 4,951,239 | 4,816,066 | |||||||
Industrial Bank of Korea |
Rural area development | 4.00 | — | 70,000 | ||||||||
Ministry of
Commerce, Industry and Energy |
Rural area development | 4.00 | 50,000 | 50,000 | ||||||||
National Agricultural Cooperative Federation |
Rural area development | 4.00 | 50,000 | 50,000 | ||||||||
Korea Exchange Bank |
Energy rationalization | 3.00 | 6,000 | 8,000 | ||||||||
Other |
General | 1.25~6.00 | 29,935 | 72,903 | ||||||||
| 5,087,174 | 5,066,969 | |||||||||||
Less: Current portion |
(1,254,049 | ) | (1,099,830 | ) | ||||||||
| W | 3,833,125 | 3,967,139 | ||||||||||
28
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Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (17) | Long-term borrowings, Continued |
| (b) | Foreign currency long-term borrowings |
| Annual | Won (millions) | |||||||||||
| Lender | Type | interest rate % | 2003 | 2004 | ||||||||
Japan Bank of International
Cooperation |
Facility | 8.28 | W | 260,712 | 205,781 | |||||||
Barclays International Financial
Services (Ireland) Ltd. |
Commercial | 6M Libor-1.00 | 187,851 | — | ||||||||
National Agricultural
Cooperative Federation |
Facility | Libor+1.05 | 12,833 | 6,710 | ||||||||
Korea Development Bank |
General | Libor+0.30~1.50 | 283,823 | 46,838 | ||||||||
Korea Development Bank |
Facility | 1.40 | — | 101,207 | ||||||||
The
Export-Import Bank of Korea |
Purchase of nuclear fuel | Libor+0.70~1.03 | 202,454 | 170,622 | ||||||||
Korea Exchange Bank |
Facility | Libor+0.15 | 17,090 | — | ||||||||
Kookmin Bank |
Libor+1.40 | 15,970 | 8,349 | |||||||||
Norinchukin Bank |
" | Libor+0.19 | 41,923 | 36,533 | ||||||||
Nippon Life Insurance |
" | Libor+0.19 | 98,226 | 85,597 | ||||||||
US-EXIM |
" | Govco+0.25~4.48 | 141,219 | 111,466 | ||||||||
Others |
" | 0.00~5.76 | 1,199 | 8,052 | ||||||||
| 1,263,300 | 781,155 | |||||||||||
Less: Current portion |
(379,792 | ) | (236,568 | ) | ||||||||
| W | 883,508 | 544,587 | ||||||||||
| (c) | Debentures |
| Annual | Won (millions) | |||||||||
| interest rate % | 2003 | 2004 | ||||||||
Local currency debentures |
||||||||||
Electricity bonds |
4.79~12.43 | W | 6,334,359 | 4,216,759 | ||||||
Corporate bonds |
4.32~7.75 | 3,039,030 | 3,292,237 | |||||||
| 9,373,389 | 7,508,996 | |||||||||
Foreign currency debentures |
||||||||||
FY-93 |
7.75 | 419,230 | 365,330 | |||||||
FY-95 |
3.4~4.15 | 464,634 | 420,009 | |||||||
FY-96 |
3.8~8.278 | 660,547 | 585,511 | |||||||
FY-97 |
6M Libor+0.31~1.65 | 1,176,117 | 582,448 | |||||||
FY-99 |
5.75 | 37,839 | — | |||||||
FY-00 |
2.10~8.25 | 695,220 | 616,761 | |||||||
FY-01 |
1.18~1.27 | 671,760 | — | |||||||
FY-02 |
6M Libor+0.75, 4.625 | 1,257,690 | 1,095,990 | |||||||
FY-03(*) |
1.33~4.75 | 1,149,610 | 1,002,435 | |||||||
FY-04 |
4.875~5.125 | — | 1,084,688 | |||||||
| 6,532,647 | 5,753,172 | |||||||||
| 15,906,036 | 13,262,168 | |||||||||
Less: Current portion |
(4,987,425 | ) | (2,891,764 | ) | ||||||
Discount |
(76,533 | ) | (68,350 | ) | ||||||
| W | 10,842,078 | 10,302,054 | ||||||||
29
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (17) | Long-term borrowings, Continued |
| (*) In 2003, the Company sold debentures of US$250,000 thousand to KEPCO Cayman Company Limited. These debentures have the right to be exchanged with the shares of Powercomm Corporation held by the Company. Based on these assets, KEPCO Cayman Company Limited issued foreign debentures of US$250,000 thousand, the details of which are as follows: |
| – | Maturity date: November 26, 2008 | |||
| – | Qualifying Public Offering (QPO): QPO means the first listing on the Korea Stock Exchange, New York Stock Exchange or National Association of Securities Dealers Automated Quotations (NASDAQ) meeting certain requirements. It is not required that Powercomm Corporation must perform QPO prior to the maturity of the debentures, neither does the Company guarantee the QPO of Powercomm Corporation. | |||
| – | Shares to be exchanged: Powercomm Corporation’s shares or Deposit Receipt (DR). | |||
| – | Exchangeable period: From 10th day after the listing of Powercomm Corporation to 10th day before its maturity. | |||
| – | Exchange price: 120% of lower amount of market price on the listing day or weighted average price for 10 days after its listing. | |||
| – | Early redemption: When certain conditions are met or after 3 years from the listing, outstanding debentures are redeemable at the guaranteed return of 2.88% (102.74% of issuance amount). | |||
| – | Repayment at the maturity: Repayment will be made with the guaranteed return of 3.68% (109.13% of issuance amounts). | |||
| The Company has provided payment guarantees to KEPCO Cayman Company Limited for the principal and interest of the above foreign debentures. |
| (d) | Exchangeable bonds |
| Annual | Won (millions) | |||||||||||
| Description | interest rate % | 2003 | 2004 | |||||||||
Overseas exchangeable bonds |
0.00 | W | 277,256 | 277,256 | ||||||||
Plus: Premium on debentures issued |
20,98 | 716,794 | ||||||||||
Less: Conversion right adjustment |
(43,817 | ) | (35,064 | ) | ||||||||
| W | 254,426 | 258,986 | ||||||||||
| On November 4, 2003, the Company has issued overseas exchangeable bonds of JPY 28,245,468,400 with the premium value. The details of the bonds are as follows: |
| – | Maturity date: November 4, 2008. | |||
| – | Amount to be paid at maturity: JPY 25,935,061,000. | |||
| – | Exchange period: From December 15, 2003 to 10th day prior to its maturity. | |||
| – | Shares to be exchanged: Common stock held by the Company or its equivalent Deposit Receipt (DR). | |||
| – | Exchange price: £30,000 per share. | |||
| – | Put option: Bond holders have the put option that they can request redemption at JPY 26,834,000,000 on November 6, 2006. | |||
30
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Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (17) | Long-term borrowings, Continued |
| (e) | Leases | |||
| The Company entered into a capital lease agreement with Korea Development Leasing Corporation and others for certain computer systems, of which book value is W1,020 million as of December 31, 2004. Depreciation of the leased assets amounted to W2,806 million for the year ended December 31, 2004. Annual remaining payments under capital and operating lease agreements as of December 31, 2004 are immaterial. | ||||
| (f) | Foreign currency debts, by currency, as of December 31, 2003 and 2004 are as follows: |
| Won (millions), US$, JPY, EUR, GBP and CNY (thousands) | ||||||||||||||||
| 2003 | 2004 | |||||||||||||||
| Foreign | Won | Foreign | Won | |||||||||||||
| currency | equivalent | currency | equivalent | |||||||||||||
Short-term
borrowings |
US$ | 131,012 | W | 156,924 | US$ | 197,774 | W | 206,437 | ||||||||
| US$ | 953,129 | 1,151,340 | US$ | 643,701 | 671,895 | |||||||||||
Long-term |
JPY | 10,000,000 | 111,960 | JPY | 10,000,000 | 101,207 | ||||||||||
borrowings |
CNY | — | — | CNY | 63,850 | 8,053 | ||||||||||
| 1,263,300 | 781,155 | |||||||||||||||
Debentures |
US$ | 3,552,030 | 4,258,819 | US$ | 4,094,107 | 4,261,819 | ||||||||||
| JPY | 195,060,000 | 2,183,892 | JPY | 142,500,000 | 1,442,200 | |||||||||||
| EUR | 25,183 | 37,839 | EUR | — | — | |||||||||||
| GBP | 24,467 | 52,097 | GBP | 24,467 | 49,153 | |||||||||||
| 6,532,647 | 5,753,172 | |||||||||||||||
Exchangeable
bond |
JPY | 25,935,061 | 277,256 | JPY | 25,935,061 | 277,256 | ||||||||||
| W | 8,230,127 | W | 7,018,020 | |||||||||||||
31
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (17) | Long-term borrowings, Continued |
| (g) | Aggregate maturities of the Company’s long-term debt as of December 31, 2004 are as follows: |
| Won (millions) | ||||||||||||||||||||||||||||
| Local | Foreign | Capital | ||||||||||||||||||||||||||
| Year ended | currency | currency | Domestic | Foreign | Exchangeable | lease | ||||||||||||||||||||||
| December 31 | borrowings | borrowings | debentures | debentures | bonds | obligations | Total | |||||||||||||||||||||
2005 |
W | 1,099,830 | 236,568 | 1,752,872 | 1,138,892 | — | 118 | 4,228,280 | ||||||||||||||||||||
2006 |
1,333,614 | 193,317 | 1,391,114 | 315,119 | — | — | 3,233,164 | |||||||||||||||||||||
2007 |
1,165,165 | 85,598 | 1,625,010 | 1,291,499 | — | — | 4,167,272 | |||||||||||||||||||||
2008 |
953,916 | 49,710 | 1,300,000 | 1,003,739 | 277,256 | — | 3,584,621 | |||||||||||||||||||||
2009 |
438,155 | 39,27 | 21,320,000 | 192,608 | — | — | 1,990,035 | |||||||||||||||||||||
Thereafter |
76,289 | 176,690 | 120,000 | 1,811,315 | — | — | 2,184,294 | |||||||||||||||||||||
| W | 5,066,969 | 781,155 | 7,508,996 | 5,753,172 | 277,256 | 118 | 19,387,666 | |||||||||||||||||||||
| (18) | Assets and Liabilities Denominated in Foreign Currencies | |||
| Significant assets and liabilities of the Company (excluding foreign subsidiaries) denominated in foreign currencies other than those mentioned in note 17(f) as of December 31, 2003 and 2004 are as follows: | ||||
| Won (millions), US$, JPY and EUR (thousands) | ||||||||||||||||
| 2003 | 2004 | |||||||||||||||
| Foreign currency | Won equivalent | Foreign currency | Won equivalent | |||||||||||||
| (thousands) (*) | (millions) | (thousands) (*) | (millions) | |||||||||||||
Assets: |
||||||||||||||||
Cash and cash
equivalents |
US$ | 5,617 | W | 6,728 | US$ | 921 | W | 960 | ||||||||
| JPY | 653 | 7 | JPY | — | — | |||||||||||
Short-term financial
instruments |
US$ | — | — | US$ | 688 | 718 | ||||||||||
Trade receivables |
US$ | 7,549 | 9,041 | US$ | 8,676 | 9,057 | ||||||||||
Other accounts
receivable |
US$ | 1,290 | 1,545 | US$ | 1,841 | 1,922 | ||||||||||
Other current
assets |
US$ | — | — | US$ | 5,718 | 5,968 | ||||||||||
Other
non-current assets |
US$ | 43 | 52 | US$ | 123 | 128 | ||||||||||
| JPY | 5,860 | 66 | JPY | 9,706 | 98 | |||||||||||
| EUR | — | — | EUR | 5 | 7 | |||||||||||
| W | 17,439 | W | 18,858 | |||||||||||||
Liabilities: |
||||||||||||||||
Trade payables |
US$ | 122,963 | 147,285 | US$ | 157,675 | W | 164,619 | |||||||||
| EUR | — | — | EUR | 28 | 40 | |||||||||||
Other
accounts payable |
US$ | 1,510 | 1,809 | US$ | 16,404 | 17,122 | ||||||||||
| EUR | 321 | 483 | EUR | 3,792 | 5,396 | |||||||||||
| JPY | — | — | JPY | 43,400 | 438 | |||||||||||
Accrued expense |
US$ | 696 | 833 | US$ | 1,923 | 2,007 | ||||||||||
Other current |
US$ | 145 | 173 | US$ | 647 | 676 | ||||||||||
liabilities |
EUR | — | — | EUR | 3 | 4 | ||||||||||
| W | 150,583 | W | 190,302 | |||||||||||||
| (*) Foreign currencies other than US$, JPY and EUR are converted into US$. |
32
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Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (19) | Retirement and Severance Benefits | |||
| Changes in retirement and severance benefits for the years ended December 31, 2003 and 2004 are summarized as follows: | ||||
| Won (millions) | ||||||||
| 2003 | 2004 | |||||||
Estimated severance accrual at beginning of year |
W | 520,891 | 717,917 | |||||
Provision for retirement and severance benefits |
219,762 | 300,853 | ||||||
Decrease arising from change in
consolidated subsidiaries |
(7,652 | ) | — | |||||
Payments |
(15,084 | ) | (18,974 | ) | ||||
Estimated severance accrual at end of year |
717,917 | 999,796 | ||||||
Transfer to National Pension Fund |
(97 | ) | (93 | ) | ||||
Deposit for severance benefit insurance |
(82,771 | ) | (113,336 | ) | ||||
Net balance at end of year |
W | 635,049 | 886,367 | |||||
| (20) | Liability for Decommissioning Costs | |||
| Under the Korean Electricity Business Act (EBA) Article 94, the Company is required to record a liability for the decommissioning of nuclear facilities and disposal of radioactive waste. In addition, under the Korean Atomic Energy Act (AEA), an entity which constructs and operates a nuclear power reactor and related facilities must obtain permission from the Korean Minister of Science and Technology (MOST). | ||||
| The Company records a liability for the estimated decommissioning costs of nuclear facilities based on engineering studies and the expected decommissioning dates of the nuclear power plants. During 2003, the Company obtained a new engineering study (the “2003 study”) and updated its estimate of the expected decommissioning dates of its nuclear power plants. The Company estimates its liability for decommissioning costs based on engineering studies provided by third parties and applies the amount prospectively. As a result of changes of estimates, for the year ended December 31, 2003, the liability for decommissioning costs increased by W72,888 million and operating income and net income decreased by W72,888 million and W52,844 million, respectively. | ||||
| As described in note 2(w), the Company early adopted SKAS No. 17 and retrospectively adjusted the liability for decommissioning costs at the estimated fair value using discounted cash flows to settle the asset retirement obligations of dismantlement of the nuclear power plants, spent fuel and radioactive wastes. In addition, during 2004, the Company updated the 2003 study and estimates its liability for decommissioning costs based on new engineering studies (the “2004 study”) provided by other third parties. | ||||
| As a result, the 2004 study revised certain essential factors such as timing of cash outflows. As required by SKAS No. 17, the change in accounting included the revised factors from the 2004 study since these factors were the Company’s best estimates at the time the Company elected to early adopt SKAS No. 17. With the adoption of SKAS No. 17, the Company re-measured the liability for decommissioning costs and reflected the cumulative effect of a change in accounting including the effect of the change in estimate into the beginning balance of retained earnings. | ||||
33
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Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (20) | Liability for Decommissioning Costs, Continued | |||
| Due to the adoption of this standard, the Company re-measured the liability for decommissioning costs as of January 1, 2004 and reflected the cumulative effect of a change in accounting up to prior year into the beginning balance of 2004 retained earnings as follows: | ||||
| Won (millions) | ||||||||||||
| As previously | ||||||||||||
| reported | Difference | After Adoption | ||||||||||
Retained earnings |
W | 2,925,808 | 687,362 | 3,613,170 | ||||||||
Asset retirement
costs, net |
— | 1,504,173 | 1,504,173 | |||||||||
Liability for
decommissioning costs |
5,091,070 | 556,088 | 5,647,158 | |||||||||
Deferred income
tax liabilities |
82,621 | 260,723 | 343,344 | |||||||||
| For the year ended December 31, 2004, net income increased by W107,969 million applying this new standard. With the adoption of SKAS No. 17, the Company should disclose the proforma impact on prior year financial statements. However, the Company was not able to disclose this information due to difficulty of calculation. | ||||
| As of December 31, 2004, the expected decommissioning dates of Pressurized Water Reactor (PWR) and Pressurized Heavy Water Reactor (PHWR) are in the range of 2021 to 2057 and 2026 to 2042, respectively. However, the service period of the nuclear power plant is dependent upon the economy and safety of plant operation and supervision of MOST with periodic safety inspection and safety reviews. | ||||
| As of December 31, 2004, the Company has recorded a liability of W 6,259,369 million as the cost of dismantling and decontaminating existing nuclear power plants, consisting of dismantling costs of nuclear plant of W3,474,816 million and dismantling costs of spent fuel and radioactive waste of W2,784,553 million. Accretion expense consists of period-to-period changes in the liability for decommissioning costs resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. This cost is included in cost of electric power in the accompanying statements of income. | ||||
| Changes in liability for decommissioning costs for the years ended December 31, 2003 and 2004 are summarized as follows: | ||||
| Won (millions) | ||||||||
| 2003 | 2004 | |||||||
Balance at beginning of the year |
W | 4,417,934 | 5,091,070 | |||||
Cumulative effect of a change in accounting
principle (*1) |
— | 556,088 | ||||||
Liabilities incurred: |
||||||||
Expenses (*2) |
— | 69,688 | ||||||
Assets (*3) |
— | 352,239 | ||||||
Accretion expense for the year |
— | 257,296 | ||||||
Provision for decommissioning costs |
698,400 | — | ||||||
Payments for the year |
(25,264 | ) | (67,012 | ) | ||||
Balance at end of the year |
W | 5,091,070 | 6,259,369 | |||||
34
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (20) | Liability for Decommissioning Costs, Continued |
| (*1) As described in note 2(w) and previously in note 20, the Company recognized the cumulative effect of a change in accounting of W556,088 million related to the adoption of SKAS No. 17. | ||||
| (*2) Expenses related to spent fuel from PHWR and radioactive wastes. | ||||
| (*3) Assets related to dismantling costs of nuclear plant and spent fuel from PWR. | ||||
| The Company has utilized the liability for decommissioning costs in relation to seeking disposal sites and carrying out research and development on waste disposal. For the years ended December 31, 2003 and 2004, the Company spent W25,264 million and W67,012 million, respectively. |
| (21) | Receivables at Present Value | |||
| Present value discounts on receivables as of December 31, 2003 and 2004 are as follows: | ||||
| Won (millions) | ||||||||||||||||||||
| 2003 | ||||||||||||||||||||
| Present | ||||||||||||||||||||
| Interest rate (%) | Period | Nominal value | Discount | value | ||||||||||||||||
Long-term other |
2002.12~ | |||||||||||||||||||
accounts receivable |
5.24, 6.00 | 2005.12 | W | 445,958 | 35,5764 | 10,382 | ||||||||||||||
| Won (millions) | ||||||||||||||||||||
| 2004 | ||||||||||||||||||||
| Present | ||||||||||||||||||||
| Interest rate (%) | Period | Nominal value | Discount | value | ||||||||||||||||
Other accounts receivable |
6.00 | 2002.12~2005.12 | W | 265,000 | 14,125 | 250,875 | ||||||||||||||
| (22) | Other Current Liabilities | |||
| Other current liabilities as of December 31, 2003 and 2004 are as follows: | ||||
| Won (millions) | ||||||||
| 2003 | 2004 | |||||||
Advance received |
W | 12,784 | 117,977 | |||||
Withholdings |
177,806 | 266,759 | ||||||
Unearned revenue |
3,664 | 3,464 | ||||||
Others |
354,096 | 258,105 | ||||||
| W | 548,350 | 646,305 | ||||||
35
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Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (23) | Derivative Instruments Transactions | |||
| The Company has entered into the various swap contracts to hedge risks involving exchange rate and interest rate of foreign currency debts. | ||||
| (a) | Currency swap contracts as of December 31, 2004 are as follows: |
| Contract | Settlement | Contract amounts in millions | Contract interest rate per annum | |||||||||||||
| Year | Year | Pay | Receive | Pay (%) | Receive (%) | |||||||||||
The Sumitomo Bank Ltd. |
1995 | 2005 | US$ | 286 | JPY | 27,000 | 7.68 | 4.15 | ||||||||
Mizuho Co., Ltd.
(formerly The Fuji Bank, Ltd.) |
1995 | 2005 | US$ | 149 | JPY | 14,425 | 6M Libor+0.155 | 3.40 | ||||||||
Canadian Imperial Bank of
Commerce |
1996 | 2006 | US$ | 97 | JPY | 10,000 | 6M Libor+0.13 | 3.80 | ||||||||
JPMorgan Chase Bank |
1996 | 2006 | US$ | 200 | JPY | 21,000 | 6M Libor+0.14 | 4.00 | ||||||||
JPMorgan Chase Bank &
Deutsche Bank (*1, *3) |
2002 | 2007 | JPY | 76,700 | US$ | 650 | 1.18 | 4.25 | ||||||||
Barclays Bank PLC, London |
2002 | 2007 | JPY | 30,400 | US$ | 250 | 1.04 | 3M Libor+0.75 | ||||||||
ABN AMRO (*4) |
2002 | 2008 | KRW | 181,500 | US$ | 150 | 5.95 | 4.625 | ||||||||
Deutsche Bank(*2) |
2003 | 2013 | KRW | 178,350 | US$ | 150 | CD+3.3 | 7.75 | ||||||||
UBS(*2) |
2003 | 2013 | KRW | 148,625 | US$ | 125 | CD+3.3 | 7.75 | ||||||||
Credit Suisse First Boston(*2) |
2003 | 2013 | KRW | 89,175 | US$ | 75 | CD+3.3 | 7.75 | ||||||||
ABN AMRO & Deutsche Bank(*5) |
2003 | 2008 | KRW | 185,550 | US$ | 150 | 5.30 | 4.25 | ||||||||
JPMorgan Chase Bank &
Deutsche Bank |
2003 | 2008 | JPY | 23,770 | US$ | 200 | 1.28 | 4.25 | ||||||||
Credit Suisse First Boston |
2003 | 2013 | KRW | 177,720 | US$ | 150 | 5.12 | 4.75 | ||||||||
JPMorgan Chase Bank & Credit Suisse First Boston |
2004 | 2011 | KRW | 172,800 | US$ | 150 | Within 3 years: 4.875 After 3 years: [4.875-(10.9-JPY/KRW Spot rate)] |
4.95 | ||||||||
Barclays Bank PLC,
London(*6) |
2004 | 2014 | KRW | 106,200 | US$ | 100 | [4.5+(JPY/KRW -11.020)] |
5.125 | ||||||||
Credit Suisse First Boston(*6) |
2004 | 2014 | KRW | 106,200 | US$ | 100 | [4.5+(JPY/KRW -11.020)] |
5.125 | ||||||||
UBS(*6) |
2004 | 2014 | KRW | 106,200 | US$ | 100 | [4.5+(JPY/KRW -11.020)] |
5.125 | ||||||||
Barclays Bank PLC, London |
2004 | 2014 | KRW | 172,875 | US$ | 150 | 5.10 | 5.75 | ||||||||
Barclays Bank PLC, London |
2004 | 2011 | US$ | 120 | KRW | 138,252 | 4.85 | 4.875 | ||||||||
BNP PARIBAS |
2004 | 2011 | US$ | 15 | KRW | 17,282 | 4.85 | 4.875 | ||||||||
Hana Bank |
2004 | 2011 | US$ | 15 | KRW | 17,282 | 4.85 | 4.875 | ||||||||
Credit Suisse First Boston |
2004 | 2011 | US$ | 100 | KRW | 115,210 | 4.85 | 4.875 | ||||||||
36
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (23) | Derivative Instruments Transactions, Continued |
| (*1) If the Republic of Korea declares default on its debts, KEPCO is entitled to receive Korean government bonds instead of cash. Valuation for these embedded derivatives is reflected in the valuation of the currency swap. |
| (*2) The Company exercised a call option in addition to these swaps with FX rate of W1,056.7 in December 2004, which the Company could exchange each W5,945 million with the amounts of US$ 5,000,000 multiplied by Spot FX rate (KRW/US$). |
| (*3) The Company pays JPY 7,670 million which is 10% of the contract amount every March and September and will receive US$ 650 million in September 2007. |
| (*4) The swaption has an interest pay rate of CD+0.5% and an interest receive rate of 5.95%, of which an exercise date is January 2006. |
| (*5) The swaption has an interest pay rate of CD+0.15% and an interest receive rate of 5.30%, of which an exercise date is January 2006. |
| (*6) The Company has purchased a reset option in addition to these swaps under which the Company can reset each W10,620 million to the amounts of US$ 10,000,000 multiplied by spot FX rate (KRW/US$) until December 10, 2005 and the valuation for this reset option is considered in the valuation of the swaps. |
| (a) | Interest rate swap contracts as of December 31, 2004 are as follows: |
| Notional amount | Contract interest rate per annum | |||||||||||||||
| in millions | Pay (%) | Receive (%) | Term | |||||||||||||
JPMorgan Chase Bank |
US$ | 149 | 6.91 | Libor+0.155 | 1995-2005 | |||||||||||
Deutsche Bank |
US$ | 100 | Max (6.074-Libor, 0) | Max (Libor-6.074, 0) | 1998-2007 | |||||||||||
Deutsche Bank |
US$ | 100 | Max (Libor-6.074,0) | Max (6.074-Libor, 0) | 1998-2007 | |||||||||||
Deutsche Bank |
KRW | 178,350 | 5+2 x (JPY/W-11.03) | CD+3.3 | 2003-2013 | |||||||||||
UBS |
KRW | 148,625 | 5+2 x (JPY/W-11.03) | CD+3.3 | 2003-2013 | |||||||||||
Credit Suisse First Boston |
KRW | 89,175 | 5+2 x (JPY/W-11.03) | CD+3.3 | 2003-2013 | |||||||||||
Credit Suisse First Boston |
KRW | 50,000 | 6.89 | (5Y CMT-CD) x 2+4.3 | 2002-2007 | |||||||||||
Credit Suisse First Boston |
KRW | 50,000 | 6.89 | 7.30 | 2002-2007 | |||||||||||
JPMorgan Chase Bank |
KRW | 50,000 | CD-0.3 | 3 years : 7.75 | 2003-2008 | |||||||||||
| 3 years : 14.65-CD | ||||||||||||||||
Deutsche Bank |
KRW | 50,000 | 4.98 | CD-0.3 | 2003-2005 | |||||||||||
Credit Suisse First Boston |
KRW | 30,000 | 6.09 | 1 year : 7.25 | 2003-2005 | |||||||||||
| 2 years : (5Y CMT-CD) | ||||||||||||||||
| x 5+1.5 | ||||||||||||||||
Citibank |
KRW | 60,000 | CD-0.3 | 7.65/2.50(*) | 2002-2005 | |||||||||||
Deutsche Bank |
KRW | 20,000 | CD-0.31 | 7.65/2.50(*) | 2002-2005 | |||||||||||
Deutsche Bank |
KRW | 40,000 | CD-0.37 | 7.65/2.50(*) | 2002-2005 | |||||||||||
Kookmin Bank |
KRW | 20,000 | 5.995 | CD-0.325 | 2002-2005 | |||||||||||
Deutsche Bank |
KRW | 100,000 | 5.995 | CD-0.325 | 2002-2005 | |||||||||||
| (*) | If CD rate is equal or lower than 6.75%, then 7.65% will be applied, otherwise, 2.50% will be applied. |
37
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (23) | Derivative Instruments Transactions, Continued |
| (c) | Valuation gains and losses on swap contracts recorded as other income or expense for the years ended December 31, 2002, 2003 and 2004 are as follows: |
| Won (millions) | ||||||||||||
| 2002 | 2003 | 2004 | ||||||||||
Currency swaps |
||||||||||||
Gains |
W118,247 | 78,302 | 31,043 | |||||||||
Losses |
(35,890 | ) | (158,995 | ) | (321,615 | ) | ||||||
Interest rate swaps |
||||||||||||
Gains |
9,216 | 13,975 | 121,107 | |||||||||
Losses |
(25,345 | ) | (27,374 | ) | (1,387 | ) | ||||||
Swaptions |
||||||||||||
Gains |
— | 602 | 1,611 | |||||||||
Losses |
(2,220 | ) | — | — | ||||||||
| W64,008 | (93,490 | ) | (169,241 | ) | ||||||||
| (d) | The gains on interest swap contract of W255 million, the losses on currency and interest rate swap contract of W2,817 million and the losses on currency and interest rate swap contract of W27,522 million, classified as cash flow hedge derivatives, are reflected in a capital adjustment for the years ended December 31, 2002, 2003 and 2004, respectively. |
| (24) | Power Generation, Transmission and Distribution Expenses |
| Power generation, transmission and distribution expenses for the years ended December 31, 2002, 2003 and 2004 are as follows: |
| Won (millions) | ||||||||||||
| 2002 | 2003 | 2004 | ||||||||||
Fuel |
W4,405,750 | 4,849,387 | 6,598,642 | |||||||||
Labor |
1,098,389 | 1,241,052 | 1,388,117 | |||||||||
Depreciation and amortization |
4,777,277 | 4,921,585 | 5,240,211 | |||||||||
Maintenance |
1,522,221 | 1,587,488 | 1,751,060 | |||||||||
Provision for decommissioning costs/
accretion expense and related
expenses |
583,372 | 698,400 | 326,984 | |||||||||
Ordinary development expenses |
278,691 | 296,348 | 360,762 | |||||||||
Others |
739,343 | 797,384 | 867,953 | |||||||||
| W13,405,043 | 14,391,644 | 16,533,729 | ||||||||||
38
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (25) | Selling and Administrative Expenses |
| Details of selling and administrative expenses for the years ended December 31, 2002, 2003 and 2004 are as follows: |
| Won (millions) | ||||||||||||
| 2002 | 2003 | 2004 | ||||||||||
Labor |
W409,744 | 437,907 | 493,478 | |||||||||
Employee benefits |
49,343 | 56,116 | 82,637 | |||||||||
Sales commission |
253,040 | 280,051 | 298,292 | |||||||||
Compensation for damages |
2,107 | 716 | 1,021 | |||||||||
Depreciation and amortization |
57,644 | 53,914 | 41,416 | |||||||||
Promotion |
18,971 | 19,301 | 21,245 | |||||||||
Commission-others |
127,068 | 109,023 | 105,046 | |||||||||
Bad debts |
8,379 | 23,178 | 19,982 | |||||||||
Maintenance |
15,904 | 26,644 | 18,875 | |||||||||
Others |
218,401 | 229,380 | 212,130 | |||||||||
| W1,160,601 | 1,236,230 | 1,294,122 | ||||||||||
| (26) | Income Taxes |
| The Company is subject to a number of income taxes based on taxable at the following normal tax rates: |
| Taxable earnings | Prior to 2005 | Thereafter | |||||||
Up to W100 million |
16.5 | % | 14.3 | % | |||||
Over W100 million |
29.7 | % | 27.5 | % | |||||
| In December 2003, the Korean government reduced the corporate income tax rate beginning in 2005. Specifically, effective from January 1, 2005, the income tax rate was reduced from 29.7% to 27.5%. |
| The components of income tax expense for the years ended December 31, 2002, 2003 and 2004 are summarized as follows: |
| Won (millions) | ||||||||||||
| 2002 | 2003 | 2004 | ||||||||||
Current income tax expense |
W928,844 | 577,750 | 943,116 | |||||||||
Deferred income tax expense |
339,634 | 205,870 | 164,877 | |||||||||
| 1,268,478 | 783,620 | 1,107,993 | ||||||||||
Income taxes of subsidiaries |
835,314 | 979,651 | 687,177 | |||||||||
Income taxes |
W2,103,792 | 1,763,271 | 1,795,170 | |||||||||
Effective tax rate |
40.7 | % | 42.9 | % | 38.2 | % | ||||||
39
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (26) | Income Taxes, Continued |
| The breakdown between current and deferred income tax expense for the years ended December 31, 2003 and 2004 are summarized as follows: |
| Won (millions) | ||||||||
| 2003 | 2004 | |||||||
Current income tax expense |
W1,648,156 | 1,791,332 | ||||||
Deferred income tax expense |
115,115 | 3,838 | ||||||
| W1,763,271 | 1,795,170 | |||||||
| (b) | The provision for income taxes calculated using the normal tax rates differs from the actual provision for the year ended December 31, 2004 for the following reasons: |
| Won (millions) | ||||
Provision for income taxes at normal tax rates |
W1,395,824 | |||
Tax effects of permanent differences,
primarily dividend income (*) |
(79,507 | ) | ||
Tax effects of increase in equity income of affiliates |
457,384 | |||
Other, net |
21,469 | |||
Actual provision for income taxes |
W1,795,170 | |||
(*) Under the Corporate Income Tax Act Article 18 paragraph 2, a certain portion of the
dividend income is not taxable. In this connection, certain portions of equity in net
income of affiliates are considered permanent differences in the calculation of
deferred tax assets (liabilities).
| (c) | The tax effects of temporary differences that result in significant portions of the deferred income tax assets and liabilities as of December 31, 2003 and 2004 are presented below: |
| Won (millions) | ||||||||
| 2003 | 2004 | |||||||
Loss on valuation of derivatives |
W 126,014 | 200,364 | ||||||
Retirement and severance benefits |
98,619 | 137,918 | ||||||
Deferred foreign exchange translation loss |
14,538 | 11,139 | ||||||
Liability for decommissioning costs |
1,400,318 | 1,721,326 | ||||||
Accounts payable — purchase of electricity |
188,913 | 167,132 | ||||||
Gain on valuation of derivatives |
(86,291 | ) | (127,534 | ) | ||||
Deferred foreign exchange translation gain |
(36,526 | ) | (27,243 | ) | ||||
Reserve for research and human development |
(44,859 | ) | (54,366 | ) | ||||
Reserve for social overhead capital investment |
(222,093 | ) | (228,296 | ) | ||||
Equity income of affiliates |
(1,517,157 | ) | (1,979,942 | ) | ||||
Other |
(15,597 | ) | (180,690 | ) | ||||
Net deferred tax liabilities |
W (94,121 | ) | (360,192 | ) | ||||
40
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (27) | Earnings Per Share |
| Earnings per common share are calculated by dividing net earnings by the weighted-average number of shares of common stock outstanding for the years ended December 31, 2002, 2003 and 2004 as follows: |
| Won (millions) | ||||||||||||
| 2002 | 2003 | 2004 | ||||||||||
Net income in million Won |
W | 3,048,105 | 2,323,425 | 2,882,522 | ||||||||
Weighted-average number of common
shares outstanding |
639,046,001 | 630,372,064 | 629,868,023 | |||||||||
Earnings per common share in Won |
W | W4,770 | 3,686 | 4,576 | ||||||||
| Diluted earnings per share are calculated by dividing diluted net income by the weighted-average number of shares of common equivalent stock outstanding for the years ended December 31, 2002, 2003 and 2004 as follows: |
| Won (millions) | ||||||||||||
| 2002 | 2003 | 2004 | ||||||||||
Net income in million Won |
W | 3,048,105 | 2,323,425 | 2,882,522 | ||||||||
Exchangeable bond interest in million Won |
— | 496 | 3,204 | |||||||||
| 3,048,105 | 2,323,921 | 2,885,726 | ||||||||||
Weighted-average number of common
shares and diluted securities outstanding |
639,046,001 | 631,933,684 | 639,867,870 | |||||||||
Diluted earnings per share in Won |
W | 4,770 | 3,677 | 4,510 | ||||||||
| (28) | Accounting Change |
| In October 2004, Korea Accounting Standard Board issued Statement of Korea Accounting Standards (“SKAS”) No. 17 “Provision and Contingent Liability & Asset”. In January 2005, the Company decided to early adopt SKAS No. 17. Under this standard, the Company retrospectively adjusted the liability for decommissioning costs at the estimated fair value using discounted cash flows to settle the asset retirement obligations of dismantlement of the nuclear power plants, spent fuel and radioactive waste and the same amount was recognized as a utility asset. Due to the adoption of this standard, the Company re-measured the liability for decommissioning costs and reflected the cumulative effect of an accounting change up to prior year into the beginning balance of retained earnings. This accounting change, which was recorded as of January 1, 2004, resulted in an increase in its utility plant, net of W1,504,173 million, liability for decommissioning costs of W556,088 million, deferred income tax liabilities of W260,723 million and retained earnings of W687,362 million, respectively. As allowed by this standard, the 2003 financial statements were not restated. For the year ended December 31, 2004, net income increased by W107,969 million applying this new standard. |
41
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (29) | Transactions and Balances with Related Companies |
(a) Significant transactions between KEPCO and related parties for the years ended December 31, 2003 and 2004 are as follows. These were eliminated in the consolidation:
| Won (millions) | ||||||||||||
| Related party | Transaction | 2003 | 2004 | |||||||||
Sales and other income: |
||||||||||||
Korea Hydro
& Nuclear Power Co., Ltd. |
Sales of electricity | W | 92,380 | 129,617 | ||||||||
| and others | ||||||||||||
Korea South-East Power Co., Ltd. |
” | 49,124 | 39,630 | |||||||||
Korea Midland Power Co., Ltd. |
” | 26,749 | 17,844 | |||||||||
Korea Western Power Co., Ltd. |
” | 34,025 | 37,456 | |||||||||
Korea Southern Power Co., Ltd. |
” | 18,604 | 16,100 | |||||||||
Korea East-West Power Co., Ltd. |
” | 35,817 | 28,486 | |||||||||
Others |
” | 86,327 | 98,015 | |||||||||
| W | 343,026 | 367,148 | ||||||||||
Purchases and other expenses: |
||||||||||||
Korea Hydro
& Nuclear Power Co., Ltd. (*) |
Purchase of electricity | W | 5,065,317 | 5,077,306 | ||||||||
| and others | ||||||||||||
Korea South-East Power Co., Ltd. (*) |
” | 1,454,157 | 1,654,792 | |||||||||
Korea Midland Power Co., Ltd. (*) |
” | 1,781,897 | 1,897,358 | |||||||||
Korea Western Power Co., Ltd. (*) |
” | 2,122,901 | 2,049,316 | |||||||||
Korea Southern Power Co., Ltd. (*) |
” | 2,048,591 | 2,738,995 | |||||||||
Korea East-West Power Co., Ltd. (*) |
” | 1,867,833 | 2,058,906 | |||||||||
Korea Power Engineering Co., Inc. |
Designing of | 40,396 | 12,220 | |||||||||
| the power plant and others | ||||||||||||
Korea Plant Service
& Engineering Co., Ltd. |
Utility plant maintenance | 40,251 | 39,615 | |||||||||
Korea
Electric Power Data Network, Co., Ltd. |
Maintenance of | 203,074 | 212,053 | |||||||||
| computer system | ||||||||||||
Others |
Commissions for service | 168,552 | 180,838 | |||||||||
| and others | ||||||||||||
| W | 14,792,969 | 15,921,399 | ||||||||||
(*) The Company has purchased electricity from its power generation subsidiaries through Korea Power Exchange. In addition, as described in note 12(a), in 2003, the Company issued 647,697 shares with par value W5,000 to the government of the Republic of Korea in return for certain fixed assets related to power distribution. The value of these shares were recorded as common stock of W3,238 million and paid-in capital in excess of par value of W11,425 million.
42
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (29) | Transactions and Balances with Related Companies, Continued |
| (b) | Receivables arising from related parties transactions as of December 31, 2003 and 2004 are as follows: |
| Won (millions) | ||||||||||||
| 2003 | ||||||||||||
| Trade | Other | |||||||||||
| Related party | receivables | receivables | Total | |||||||||
Korea Hydro & Nuclear Power Co., Ltd. |
W | — | 319 | 319 | ||||||||
Korea South-East Power Co., Ltd. |
1,778 | 367 | 2,145 | |||||||||
Korea Midland Power Co., Ltd. |
1,107 | 2,232 | 3,339 | |||||||||
Korea Western Power Co., Ltd. |
1,940 | 248 | 2,188 | |||||||||
Korea Southern Power Co., Ltd. |
1,157 | 360 | 1,517 | |||||||||
Korea East-West Power Co., Ltd. |
1,978 | 213 | 2,191 | |||||||||
Others |
1,990 | 9,607 | 11,597 | |||||||||
| W | 9,950 | 13,346 | 23,296 | |||||||||
| Won (millions) | ||||||||||||
| 2004 | ||||||||||||
| Trade | Other | |||||||||||
| Related party | receivables | receivables | Total | |||||||||
Korea Hydro & Nuclear Power Co., Ltd. |
W | — | 7,185 | 7,185 | ||||||||
Korea South-East Power Co., Ltd. |
1,984 | 1,130 | 3,114 | |||||||||
Korea Midland Power Co., Ltd. |
183 | 9,808 | 9,991 | |||||||||
Korea Western Power Co., Ltd. |
2,115 | 114 | 2,229 | |||||||||
Korea Southern Power Co., Ltd. |
1,242 | 199 | 1,441 | |||||||||
Korea East-West Power Co., Ltd. |
2,306 | 101 | 2,407 | |||||||||
Others |
4,790 | 9,903 | 14,693 | |||||||||
| W | 12,620 | 28,440 | 41,060 | |||||||||
43
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (29) | Transactions and Balances with Related Companies, Continued |
| (c) | Payables arising from related parties transactions as of December 31, 2003 and 2004 are as follows: |
| Won (millions) | ||||||||||||
| 2003 | ||||||||||||
| Trade | Other | |||||||||||
| Related party | payables | payables | Total | |||||||||
Korea Hydro & Nuclear Power Co., Ltd. |
W | 379,121 | 1,954 | 381,075 | ||||||||
Korea South-East Power Co., Ltd. |
117,954 | 4,411 | 122,365 | |||||||||
Korea Midland Power Co., Ltd. |
145,548 | 9,387 | 154,935 | |||||||||
Korea Western Power Co., Ltd. |
167,876 | 140 | 168,016 | |||||||||
Korea Southern Power Co., Ltd. |
179,803 | 93 | 179,896 | |||||||||
Korea East-West Power Co., Ltd. |
142,776 | 223 | 142,999 | |||||||||
Korea Power Engineering Co., Inc. |
— | 5,909 | 5,909 | |||||||||
Korea Plant Service & Engineering
Co., Ltd. |
— | 5,509 | 5,509 | |||||||||
Korea Electric Power Data Network
Co., Ltd. |
— | 56,334 | 56,334 | |||||||||
Others |
4,363 | 19,619 | 23,982 | |||||||||
| W | 1,137,441 | 103,579 | 1,241,020 | |||||||||
| Won (millions) | ||||||||||||
| 2004 | ||||||||||||
| Trade | Other | |||||||||||
| Related party | payables | payables | Total | |||||||||
Korea Hydro & Nuclear Power Co., Ltd. (*) |
W | 403,299 | 48 | 403,347 | ||||||||
Korea South-East Power Co., Ltd. (*) |
153,429 | 111 | 153,540 | |||||||||
Korea Midland Power Co., Ltd. (*) |
146,735 | 8,458 | 155,193 | |||||||||
Korea Western Power Co., Ltd. (*) |
169,362 | 117 | 169,479 | |||||||||
Korea Southern Power Co., Ltd. (*) |
227,978 | 84 | 228,062 | |||||||||
Korea East-West Power Co., Ltd. (*) |
160,231 | 126 | 160,357 | |||||||||
Korea Power Engineering Co., Inc. |
— | 1,515 | 1,515 | |||||||||
Korea Plant Service & Engineering
Co., Ltd. |
— | 6,275 | 6,275 | |||||||||
Korea Electric Power Data Network
Co., Ltd. |
— | 43,845 | 43,845 | |||||||||
Others |
1,044 | 17,453 | 18,497 | |||||||||
| W | 1,262,078 | 78,032 | 1,340,110 | |||||||||
| (*) | The Company has purchased electricity from its power generation subsidiaries through Korea Power Exchange. The above trade payables represent the substantial amount payable to the power generation subsidiaries. |
44
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (29) | Transactions and Balances with Related Companies, Continued |
| (d) | The guarantees the Company has provided for related companies as of December 31, 2004 are as follows: |
| Won (millions), | ||||||||||
| Type | Loan type | Guaranteed company | Financial institutions | US$ (thousands) | ||||||
Payment
guarantee
|
Foreign currency loan | KEPCO International Hong Kong Ltd. |
Nippon Life Insurance | US$ | 82,006 | |||||
| ” | Norinchukin Bank | 35,000 | ||||||||
| ” | Korea Development Bank | 4,636 | ||||||||
| KEPCO International Philippines Inc. | Korea Development Bank | 27,261 | ||||||||
Other(*1)
|
KEPCO Ilijan Co. | 105,000 | ||||||||
| US$ | 253,903 | |||||||||
Joint liability on
guarantee(*2)
|
Spin-off of
power generation subsidiaries |
Six power generation subsidiaries |
Korea Development Bank and others | W | 1,101,550 | |||||
| (*1) | KEPCO Ilijan Corporation, which is the subsidiary of KEPCO International Philippines Inc., is engaged in the power generation business in the Philippines and borrowed US$355,983 thousand in 2000 as project financing from Japan Bank of International Cooperation and others for that business. The Company has provided Japan Bank of International Cooperation and others with the guarantees to the extent not exceeding US$72,000 thousand for performance of the power generation business of KEPCO Ilijan Corporation as well as with the partial guarantees to the extent not exceeding US$33,000 thousand for the repayment of that borrowing. | |||
| (*2) | The Company has joint and several responsibilities with the generation subsidiaries to repay those debts, which were transferred and outstanding at the time of spin-off on April 2, 2001, under the Commercial Code of the Republic of Korea. The balance of the power generation subsidiaries’ debts for which the Company has those joint and several responsibilities as of December 31, 2004 is W1,101,550 million. | |||
45
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (29) | Transactions and Balances with Related Companies, Continued |
| (e) | The guarantees provided by related companies for the Company as of December 31, 2004 are as follows: |
| Won (millions), USD, JPY and GBP (thousands) | ||||||||||||
| Balance of | ||||||||||||
| borrowing as of | ||||||||||||
| Guaranteed | Type of | December, 31 | ||||||||||
| Type | Related party | Currency | amounts | borrowings | 2004 | |||||||
Payment guarantee (*1) |
Korea Development Bank | USD JPY GBP |
1,739,449 104,212,253 30,706 |
Foreign currency bond ” ” |
USD JPY GBP |
1,401,865 102,500,000 24,467 |
||||||
Joint liability on guarantee (*2) |
Six power generation subsidiaries | KRW KRW |
88,103 240,000 |
Long-term debts Domestic debentures |
KRW KRW |
88,103 240,000 |
||||||
| (*1) Korea Development Bank has provided the repayment guarantee for some of foreign currency debentures of the Company, which existed at the time of spin-off, but not redeemed as of December 31, 2004, instead of the collective responsibilities of the power generation subsidiaries to facilitate the Restructuring Plan described in note 1(a). | ||||
| (*2) As described note 29(d), the balance of the Company’s borrowings for which six power generation subsidiaries have the joint and several responsibilities is W328,103 million as of December 31, 2004. | ||||
| (30) | Commitments and Contingencies |
| (a) | The Company is engaged in 294 lawsuits as a defendant and 46 lawsuits as a plaintiff. The total amount claimed against the Company is W746,133 million and the total amount claimed by the Company is W16,416 million as of December 31, 2004. The outcome of these lawsuits cannot presently be determined. In the opinion of management, the ultimate results of these lawsuits will not have a material adverse effect on the Company’s financial position, results of operation, or liquidity. | |||
| (b) | Short-term credit facilities | |||
| Payment guarantee and short-term credit facilities from financial instruments as of December 31, 2004 are as follows: | ||||
| (i) | Payment guarantee |
| Won (millions), US$ (thousands) | ||||||||
| Description | Financial Instrument | Credit lines | ||||||
Payment of import letter
of credit
|
Various banks | US$ | 1,690,000 | |||||
Payment of customs duties
|
Korea Development Bank | W | 4,000 | |||||
Payment of overdraft
|
National Agricultural Cooperative Federation and others | W | 580,000 | |||||
46
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (30) | Commitments and Contingencies, Continued |
| (ii) | Overdraft and Others |
| Won (millions), US$ (thousands) | ||||||||
| Description | Financial Instrument | Credit lines | ||||||
Overdraft
|
BNP PARIBAS and others National Agricultural Cooperative Federation and others |
US$ W |
60,000 2,134,000 |
|||||
Discount on promissory note
|
Hana Bank and others | W | 14,000 | |||||
Other
|
Hana Bank and others | W | 7,000 | |||||
| The Company has provided a promissory note of W 1,771 million to Hyundai Heavy Industry, Co., Ltd. as a guarantee for performance of contract. | ||||
| The Company entered into a turnkey contract with the Korea Peninsula Energy Development Organization (KEDO) on December 15, 1999, to construct two 1,000,000 KW-class pressurized light-water reactor units in North Korea. The contract amount is US$ 4,182 million and subject to adjustment to cover any changes in the price level. The construction projects have been temporarily suspended from December 1, 2003 due to the political environments surrounding the Korean peninsula. | ||||
| The Company entered into a Power Purchase Agreement with LG Energy Co., Ltd. and other independent power producers for power purchases in accordance with the Electricity Business Act and power purchased from these companies amounted to W1,140,810 million, W1,055,081 million and W1,019,528 million for the years ended December 31, 2002, 2003 and 2004, respectively. | ||||
| (31) | Segment Information |
| (a) | The following table provides information for each operating segment for the years ended December 31, 2002, 2003 and 2004. |
| Won (millions) | |||||||||||||||||||||||
| 2002 | |||||||||||||||||||||||
| Electric business | |||||||||||||||||||||||
| Transmission | Power | Consolidation | |||||||||||||||||||||
| & distribution | generation | All other | adjustment | Consolidated | |||||||||||||||||||
Unaffiliated revenues |
W | 20,406,404 | — | 959,271 | — | 21,365,675 | |||||||||||||||||
Intersegment revenues |
309,893 | 13,404,975 | 841,006 | (14,555,874 | ) | — | |||||||||||||||||
Total operating revenues |
20,716,297 | 13,404,975 | 1,800,277 | (14,555,874 | ) | 21,365,675 | |||||||||||||||||
Cost of goods sold |
(17,897,871 | ) | (10,348,054 | ) | (1,481,333 | ) | 14,568,967 | (15,158,291 | ) | ||||||||||||||
Selling and administrative expenses |
(940,016 | ) | (153,324 | ) | (81,905 | ) | 14,644 | (1,160,601 | ) | ||||||||||||||
Operating income |
1,878,410 | 2,903,597 | 237,039 | 27,737 | 5,046,783 | ||||||||||||||||||
Interest income |
23,710 | 46,982 | 22,233 | (1,996 | ) | 90,929 | |||||||||||||||||
Interest expense |
(627,954 | ) | (360,606 | ) | (29,858 | ) | 1,996 | (1,016,422 | ) | ||||||||||||||
Equity income of affiliates |
2,178,492 | — | 18,566 | (2,102,205 | ) | 94,853 | |||||||||||||||||
Other income (expense), net |
871,284 | 101,946 | (1,622 | ) | (16,893 | ) | 954,715 | ||||||||||||||||
Earnings before income tax |
4,323,942 | 2,691,919 | 246,358 | (2,091,361 | ) | 5,170,858 | |||||||||||||||||
Income tax expense |
(1,268,478 | ) | (792,863 | ) | (39,685 | ) | (2,766 | ) | (2,103,792 | ) | |||||||||||||
Segment earnings
before minority interests |
W | 3,055,464 | 1,899,056 | 206,673 | (2,094,127 | ) | 3,067,066 | ||||||||||||||||
47
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (31) | Segment Information, Continued |
| Won (millions) | ||||||||||||||||||||
| 2003 | ||||||||||||||||||||
| Electric business | ||||||||||||||||||||
| Transmission | Power | Consolidation | ||||||||||||||||||
| & distribution | generation | All other | adjustment | Consolidated | ||||||||||||||||
Unaffiliated revenues |
W | 21,834,288 | — | 940,306 | — | 22,774,594 | ||||||||||||||
Intersegment revenues |
253,167 | 14,348,938 | 956,299 | (15,558,404 | ) | — | ||||||||||||||
Total operating revenues |
22,087,455 | 14,348,938 | 1,896,605 | (15,558,404 | ) | 22,774,594 | ||||||||||||||
Cost of goods sold |
(19,285,025 | ) | (11,138,278 | ) | (1,429,265 | ) | 15,538,002 | (16,314,566 | ) | |||||||||||
Selling and administrative
expenses |
(992,116 | ) | (167,479 | ) | (90,120 | ) | 13,485 | (1,236,230 | ) | |||||||||||
Operating income |
1,810,314 | 3,043,181 | 377,220 | (6,917 | ) | 5,223,798 | ||||||||||||||
Interest income |
38,780 | 34,585 | 27,663 | (1,131 | ) | 99,897 | ||||||||||||||
Interest expense |
(583,557 | ) | (207,374 | ) | (39,488 | ) | 676 | (829,743 | ) | |||||||||||
Equity income of affiliates |
2,123,518 | — | 23,616 | (2,050,268 | ) | 96,866 | ||||||||||||||
Other expense, net |
(291,991 | ) | (145,207 | ) | (588 | ) | (43,143 | ) | (480,929 | ) | ||||||||||
Earnings before income tax |
3,097,064 | 2,725,185 | 388,423 | (2,100,783 | ) | 4,109,889 | ||||||||||||||
Income tax expense |
(783,620 | ) | (948,458 | ) | (35,865 | ) | 4,672 | (1,763,271 | ) | |||||||||||
Segment earnings
before minority interests |
W | 2,313,444 | 1,776,727 | 352,558 | (2,096,111 | ) | 2,346,618 | |||||||||||||
| Won (millions) | ||||||||||||||||||||
| 2004 | ||||||||||||||||||||
| Electric business | ||||||||||||||||||||
| Transmission | Power | Consolidation | ||||||||||||||||||
| & distribution | generation | All other | adjustment | Consolidated | ||||||||||||||||
Unaffiliated revenues |
W | 23,122,854 | — | 832,808 | — | 23,955,662 | ||||||||||||||
Intersegment revenues |
367,147 | 15,280,344 | 1,027,415 | (16,674,906 | ) | — | ||||||||||||||
Total operating revenues |
23,490,001 | 15,280,344 | 1,860,223 | (16,674,906 | ) | 23,955,662 | ||||||||||||||
Cost of goods sold |
(20,453,337 | ) | (13,050,735 | ) | (1,308,051 | ) | 16,618,057 | (18,194,066 | ) | |||||||||||
Selling and administrative expenses |
(1,061,048 | ) | (199,202 | ) | (89,237 | ) | 55,365 | (1,294,122 | ) | |||||||||||
Operating income |
1,975,616 | 2,030,407 | 462,935 | (1,484 | ) | 4,467,474 | ||||||||||||||
Interest income |
36,079 | 34,867 | 29,985 | (11,710 | ) | 89,221 | ||||||||||||||
Interest expense |
(562,971 | ) | (143,879 | ) | (42,699 | ) | 11,710 | (737,839 | ) | |||||||||||
Equity income of affiliates |
1,793,808 | — | 21,725 | (1,684,938 | ) | 130,595 | ||||||||||||||
Other income (expense), net |
748,688 | (1,334 | ) | 6,411 | (3,427 | ) | 750,338 | |||||||||||||
Earnings before income tax |
3,991,220 | 1,920,061 | 478,357 | (1,689,849 | ) | 4,699,789 | ||||||||||||||
Income tax expense |
(1,107,993 | ) | (656,862 | ) | (34,442 | ) | 4,127 | (1,795,170 | ) | |||||||||||
Segment earnings
before minority interests |
W | 2,883,227 | 1,263,199 | 443,915 | (1,685,722 | ) | 2,904,619 | |||||||||||||
48
Table of Contents
Korea Electric Power Corporation and Subsidiaries
Notes to Consolidated Financial Statements, Continued
| (31) | Segment Information, Continued |
| (b) | The following table provides asset information for each operating segment as of December 31, 2002, 2003 and 2004. |
| Won (millions) | ||||||||||||||||||||
| Electric business | ||||||||||||||||||||
| Transmission | Power | Consolidation | ||||||||||||||||||
| & distribution | generation | All other | adjustment | Consolidated | ||||||||||||||||
December 31, 2002 |
||||||||||||||||||||
Utility and non-utility plant |
W28,157,412 | 32,145,415 | 1,200,843 | (199,916 | ) | 61,303,754 | ||||||||||||||
Total assets |
31,792,880 | 36,933,338 | 2,604,890 | (818,989 | ) | 70,512,119 | ||||||||||||||
December 31, 2003 |
||||||||||||||||||||
Utility and non-utility plant |
W29,271,047 | 31,735,423 | 568,617 | (204,064 | ) | 61,371,023 | ||||||||||||||
Total assets |
33,723,731 | 37,249,382 | 2,664,538 | (1,910,379 | ) | 71,727,272 | ||||||||||||||
December 31, 2004 |
||||||||||||||||||||
Utility and non-utility plant |
W29,945,572 | 32,607,650 | 964,454 | (191,527 | ) | 63,326,149 | ||||||||||||||
Total assets |
34,684,148 | 38,285,422 | 2,439,468 | (1,755,353 | ) | 73,653,685 | ||||||||||||||
49
Table of Contents