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 October 2004
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 [X] Form 40-F
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 [ ] No [X]
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- .
-------
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).
KOREA ELECTRIC POWER CORPORATION
AND SUBSIDIARIES
Consolidated Financial Statements
(Unaudited)
As of June 30, 2003 and 2004
Korea Electric Power Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 2003 and June 30, 2004
(Unaudited)
(In millions of Won and in thousands of U.S. dollars)
Won U.S. dollars (note 2)
------------------------- ---------------------------
2003 2004 2003 2004
----------- ----------- ------------ ------------
Assets
Property, Plant and Equipment (notes 1, 3 and 5):
Utility plant KRW 71,997,749 73,342,425 $ 62,281,790 $ 63,445,004
Less: accumulated depreciation (16,875,523) (19,227,726) (14,598,203) (16,632,981)
Less: construction grants (2,758,789) (2,951,648) (2,386,496) (2,553,329)
----------- ----------- ------------ ------------
52,363,437 51,163,051 45,297,091 44,258,694
Construction in-progress 9,550,651 11,006,765 8,261,809 9,521,423
----------- ----------- ------------ ------------
61,914,088 62,169,816 53,558,900 53,780,117
----------- ----------- ------------ ------------
Investments and others:
Long-term investment securities (note 6) 1,529,120 1,519,956 1,322,768 1,314,841
Long-term loans (note 7) 287,139 305,353 248,390 264,146
Long-term other accounts receivable,
less allowance for doubtful accounts of KRW
16,013 in 2003 and KRW 15,500 in 2004 and
present value discount of KRW 35,576 in
2003 and KRW 6,625 in 2004 (note 18) 214,044 235,375 185,159 203,612
Deferred income tax assets 1,352,449 1,439,358 1,169,939 1,245,119
Currency and interest rate swaps (note 20) 131,429 207,530 113,693 179,524
Intangibles, net (note 4) 515,993 493,419 446,361 426,833
Other non-current assets (notes 8 and 16) 242,094 260,854 209,424 225,652
----------- ----------- ------------ ------------
4,272,268 4,461,845 3,695,734 3,859,727
----------- ----------- ------------ ------------
Current assets:
Cash and cash equivalents (note 16) 2,050,636 1,415,678 1,773,907 1,224,635
Trade receivables,
less allowance for doubtful accounts of
KRW 33,732 in 2003 and KRW 31,604 in 2004
(notes 16 and 25) 1,605,355 1,551,948 1,388,715 1,342,516
Other account receivables,
less allowance for doubtful accounts of KRW
14,521 in 2003 and KRW 14,586 in 2004 and
present value discount of KRW 18,229 in
2004 (notes 16, 18 and 25) 458,360 378,381 396,505 327,319
Short-term investment securities (note 6) 161,596 51,471 139,789 44,525
Short-term financial instruments 119,000 117,574 102,941 101,708
Inventories (note 9) 904,933 1,154,735 782,814 998,906
Other current assets (notes 7 and 10) 241,036 310,018 208,509 268,182
----------- ----------- ------------ ------------
5,540,916 4,979,805 4,793,180 4,307,791
----------- ----------- ------------ ------------
Total assets KRW 71,727,272 71,611,466 $ 62,047,814 61,947,635
=========== =========== ============ ============
Korea Electric Power Corporation and Subsidiaries
Consolidated Balance Sheets, Continued
December 31, 2003 and June 30, 2004
(Unaudited)
(In millions of Won and in thousands of U.S. dollars, except share data)
Won U.S. dollars (note 2)
----------------------- ------------------------
2003 2004 2003 2004
---------- ---------- ----------- ----------
Liabilities and Shareholders' Equity
Stockholders' equity:
Common stock of KRW 5,000 par value
Authorized - 1,200,000,000 shares Issued
and outstanding - 640,748,573 shares KRW 3,203,743 3,203,743 $ 2,771,404 2,771,404
Capital surplus (note 11) 14,544,520 14,541,496 12,581,765 12,579,149
Retained earnings (note 12) 20,231,488 21,031,869 17,501,287 18,193,658
Capital adjustments (note 13) (325,384) (339,833) (281,474) (293,973)
Minority interest in consolidated
subsidiaries 127,569 123,428 110,354 106,772
---------- ---------- ----------- ----------
Total shareholders' equity 37,781,936 38,560,703 32,683,336 33,357,010
---------- ---------- ----------- ----------
Long-term liabilities:
Long-term borrowings (notes 15 and 25) 15,813,509 15,467,709 13,679,506 13,380,371
Reserve for retirement and severance
benefits, net (note 17) 635,049 707,317 549,350 611,866
Reserve for decommissioning cost 5,091,070 5,399,206 4,404,040 4,670,593
Reserve for self-insurance 87,926 87,603 76,061 75,781
Currency and interest rate swaps (note 20) 215,100 163,220 186,073 141,194
Deferred income tax liabilities 1,446,570 1,476,055 1,251,358 1,276,864
Other long-term liabilities 515,839 546,570 446,228 472,811
---------- ---------- ----------- ----------
23,805,063 23,847,680 20,592,616 20,629,480
---------- ---------- ----------- ----------
Current liabilities:
Trade payables (notes 16 and 25) 755,248 654,452 653,329 566,135
Other accounts payable (notes 16 and 25) 870,919 747,668 753,390 646,772
Short-term borrowings (notes 14 and 15) 210,169 428,186 181,807 370,403
Current portion of long-term debt (note 15) 6,625,916 5,605,948 5,731,761 4,849,436
Income tax payable 809,479 892,063 700,241 771,681
Accrued expenses (note 16) 317,868 294,738 274,972 254,964
Dividends payable 2,324 1,780 2,010 1,540
Other current liabilities (notes 16 and 19) 548,350 578,248 474,352 500,214
---------- ---------- ----------- ----------
10,140,273 9,203,083 8,771,862 7,961,145
---------- ---------- ----------- ----------
Total liabilities 33,945,336 33,050,763 29,364,478 28,590,625
---------- ---------- ----------- ----------
Commitments and contingencies (note 26)
Total shareholders' equity and
liabilities KRW 71,727,272 71,611,466 $62,047,814 61,947,635
========== ========== =========== ==========
See accompanying notes to consolidated financial statements.
Korea Electric Power Corporation and Subsidiaries
Consolidated Statements of Income
For the six-month periods ended June 30, 2003 and 2004
(Unaudited)
(In millions of Won and in thousands of U.S. dollars,
except earnings per share)
Won U.S. dollars (note 2)
----------------------- ----------------------
2003 2004 2003 2004
---------- ---------- ---------- ---------
Operating revenues:
Sale of electricity (note 25) KRW 10,425,992 11,005,352 $9,019,024 9,520,201
Other operating revenues 469,331 369,411 405,996 319,560
---------- ---------- ---------- ---------
10,895,323 11,374,763 9,425,020 9,839,761
---------- ---------- ---------- ---------
Operating expenses (notes 21, 22 and 25):
Power generation, transmission
and distribution 6,987,408 7,653,505 6,044,471 6,620,679
Purchased power 743,397 680,722 643,077 588,860
Other operating costs 189,745 166,819 164,139 144,307
Selling and administrative expenses 588,659 583,744 509,221 504,969
---------- ---------- ---------- ---------
8,509,209 9,084,790 7,360,908 7,858,815
---------- ---------- ---------- ---------
Operating income 2,386,114 2,289,973 2,064,112 1,980,946
Other income (expense):
Interest income 49,599 53,518 42,906 46,296
Interest expense (434,665) (393,222) (376,008) (340,157)
Gain (loss) on foreign currency transactions
and translation, net 59,884 303,774 51,803 262,780
Donations (41,490) (87,958) (35,891) (76,088)
Equity income of affiliates (note 6) 75,318 95,912 65,154 82,969
Gain on disposal of investments, net 45,243 7,472 39,138 6,464
Gain (loss) on disposal of utility plant, net (13,627) 340 (11,788) 294
Valuation gain on currency and interest
rate swaps, net (note 20) 1,571 (14,798) 1,359 (12,801)
Other, net 117,274 70,433 101,447 60,928
---------- ---------- ---------- ---------
(140,893) 35,471 (121,880) 30,685
---------- ---------- ---------- ---------
Income before income taxes 2,245,221 2,325,444 1,942,232 2,011,631
Income taxes (note 23) (947,881) (850,792) (819,966) (735,979)
---------- ---------- ---------- ---------
Income before minority interest 1,297,340 1,474,652 1,122,266 1,275,652
Minority interest in earnings
of consolidated subsidiaries (11,811) (12,734) (10,217) (11,016)
---------- ---------- ---------- ---------
Net income 1,285,529 1,461,918 1,112,049 1,264,636
========== ========== ========== =========
Basic earnings per share (note 24) 2,036 2,321 1.76 2.01
========== ========== ========== =========
Diluted earnings per share (note 24) KRW 2,036 2,287 $ 1.76 1.98
========== ========== ========== =========
See accompanying notes to consolidated financial statements.
Korea Electric Power Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the six-month periods ended June 30, 2003 and 2004
(Unaudited)
(In millions of Won and in thousands of U.S. dollars)
Won
---------------------------------------------------------------------------
Common Capital Retained Capital Minority
stock surplus earnings adjustments interests Total
---------- ---------- ---------- ----------- --------- ----------
Balances at January 1, 2003 KRW 3,200,504 14,483,121 18,419,413 (137,973) 108,073 36,073,138
Net income -- -- 1,285,529 -- -- 1,285,529
Dividends declared -- -- (511,350) -- -- (511,350)
Gain on disposal of treasury
stock -- 2,972 -- -- -- 2,972
Changes in capital adjustments -- -- -- (189,324) -- (189,324)
Changes in minority interests -- -- -- -- 10,271 10,271
---------- ---------- ---------- -------- ------- ----------
Balances at June 30, 2003 3,200,504 14,486,093 19,193,592 (327,297) 118,344 36,671,236
========== ========== ========== ======== ======= ==========
Balances at January 1, 2004 3,203,743 14,544,520 20,231,488 (325,384) 127,569 37,781,936
Net income -- -- 1,461,918 -- -- 1,461,918
Dividends declared -- -- (661,537) -- -- (661,537)
Gain on disposal
of treasury stock -- (3,024) -- -- -- (3,024)
Changes in capital adjustments -- -- -- (14,449) -- (14,449)
Changes in minority interests -- -- -- -- (4,141) (4,141)
---------- ---------- ---------- -------- ------- ----------
Balances at June 30, 2004 KRW 3,203,743 14,541,496 21,031,869 (339,833) 123,428 38,560,703
========== ========== ========== ======== ======= ==========
U.S. dollars (note 2) $2,771,404 12,579,149 18,193,658 (293,973) 106,772 33,357,010
========== ========== ========== ======== ======= ==========
See accompanying notes to consolidated financial statements.
Korea Electric Power Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the six-month periods ended June 30, 2003 and 2004
(Unaudited)
(In millions of Won and in thousands of U.S. dollars)
Won U.S. dollars (note 2)
--------------------- ----------------------
2003 2004 2003 2004
--------- --------- ---------- ---------
Cash flows from operating activities:
Net income KRW 1,285,529 1,461,918 $1,112,049 1,264,636
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 2,281,237 2,203,247 1,973,388 1,905,923
Amortization of nuclear fuel
and heavy water 210,054 181,342 181,708 156,870
Utility plant removal cost 90,891 78,249 78,625 67,689
Provision for severance
and retirement benefits 79,038 79,141 68,372 68,461
Provision for decommissioning costs 312,756 313,585 270,550 271,267
Bad debt expense 9,158 8,672 7,922 7,502
Interest income, net (949) 2,865 (821) 2,479
Gain on foreign currency
translation, net (64,541) (263,763) (55,831) (228,169)
Equity income of affiliates (75,318) (95,912) (65,154) (82,969)
Gain on disposal of investments, net (45,243) (7,472) (39,138) (6,464)
Gain on disposal of utility plant, net (117,274) (340) (101,448) (294)
Deferred income tax expense
(benefit), net 61,801 (57,424) 53,461 (49,675)
Valuation loss (gain) on currency
and interest rate swaps (1,571) 14,798 (1,359) 12,801
Changes in assets and liabilities:
Decrease in trade receivables 62,251 32,044 53,850 27,720
Decrease in other accounts
receivable 78,884 60,440 68,239 52,284
Increase in inventories (113,274) (174,724) (97,988) (151,145)
Increase in other current assets (115,343) (68,366) (99,778) (59,140)
Decrease in trade payables (95,138) (100,207) (82,299) (86,684)
Decrease in other accounts payable (180,408) (141,345) (156,062) (122,271)
Increase (decrease) in income tax payable (410,935) 82,584 (355,480) 71,439
Increase (decrease) in accrued expenses 71,415 (28,921) 61,778 (25,018)
Increase (decrease) in other
current liabilities 66,121 29,897 57,198 25,861
Decrease in other long-term liabilities (3,533) (29,430) (3,056) (25,458)
Payment of severance and
retirement benefits (7,744) (7,190) (6,699) (6,220)
Payment of decommissioning costs (10,557) (5,449) (9,132) (4,714)
Payment of self-insurance (526) (323) (455) (279)
Other, net 147,462 (7,098) 127,562 (6,141)
--------- --------- ---------- ---------
Net cash provided by operating activities KRW 3,514,243 3,560,818 $3,040,002 3,080,291
--------- --------- ---------- ---------
Korea Electric Power Corporation and Subsidiaries
Consolidated Statements of Cash Flows, Continued
For the six-month periods ended June 30, 2003 and 2004
(Unaudited)
(In millions of Won and in thousands of U.S. dollars)
Won U.S. dollars (note 2)
----------------------- ------------------------
2003 2004 2003 2004
---------- ---------- ----------- ----------
Cash flows from investing activities:
Proceeds from disposal of utility plant KRW 32,375 65,033 $ 28,006 56,257
Additions to utility plant (3,496,445) (3,083,330) (3,024,606) (2,667,240)
Receipt of construction grants 280,086 282,919 242,289 244,740
Proceeds from disposal of investment
securities, 103,193 54,570 89,267 47,206
Acquisition of investment securities (26,025) (12,368) (22,513) (10,699)
Decrease (increase) in long-term loans (25,751) 45,769 (22,276) 39,593
Acquisition of intangibles (9,228) (9,725) (7,983) (8,413)
Decrease (increase) in other
non-current assets 12,903 (22,011) 11,162 (19,041)
Withdrawal (acquisition) of short-term
financial instruments, net (18,853) 1,425 (16,309) 1,233
Decrease in short-term loans, net 8,364 26,375 7,235 22,816
Proceeds from sale (acquisition) of
short-term investment securities (110,816) 174,439 (95,862) 150,899
---------- ---------- ----------- ----------
Net cash used in investing activities (3,250,197) (2,476,904) (2,811,590) (2,142,649)
---------- ---------- ----------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 3,070,357 3,044,085 2,656,018 2,633,292
Repayment of long-term debt (3,564,181) (4,223,211) (3,083,202) (3,653,297)
Proceeds from (repayment of) in
short-term borrowings, net 292,805 220,558 253,292 190,794
Acquisition of treasury stock (180,120) -- (155,813) --
Dividends paid (512,073) (672,162) (442,970) (581,455)
Other, net (90,300) (88,142) (78,114) (76,248)
---------- ---------- ----------- ----------
Net cash used in financing activities (983,512) (1,718,872) (850,789) (1,486,914)
---------- ---------- ----------- ----------
Net increase in cash and cash equivalents
from change in consolidated subsidiaries (19,806) -- (17,133) --
Net decrease in cash and cash equivalents (739,272) (634,958) (639,510) (549,272)
Cash and cash equivalents,
at beginning of the period 1,997,480 2,050,636 1,727,924 1,773,907
---------- ---------- ----------- ----------
Cash and cash equivalents,
at end of the period KRW 1,258,208 1,415,678 $ 1,088,414 1,224,635
========== ========== =========== ==========
See accompanying notes to consolidated financial statements.
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
June 30, 2004 and 2003
(Unaudited)
(1) Summary of Significant Accounting Policies and Basis of Presenting
Consolidated Financial Statements
(a) Description of Business
Korea Electric Power Corporation (KEPCO or 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. KEPCO was given a
status of government-invested enterprise on December 31, 1983
following the enactment of the Government-Invested Enterprise
Management Basic Act. KEPCO'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 June 30, 2004, the Government of the Republic of Korea, Korea
Development Bank and foreign investors hold 27.03%, 26.93% and 29.61%,
respectively, of KEPCO's shares.
KEPCO spun off its power generation division on April 2, 2001,
resulting in the establishment of six new power generation
subsidiaries. The Company has been considering the gradual
privatization of the Company's power generation subsidiaries and
distribution business, which is in accordance with the restructuring
plan, dated January 21, 1999, of the electricity industry in the
Republic of Korea announced by the Ministry of Commerce, Industry and
Energy ("Restructuring Plan"). This Restructuring Plan, which is
intended to introduce a competitive system in the electricity
industry, is expected to affect the determination of utility rates,
result in changes in management structure, related laws and
regulations, and affect electricity supply and demand policy.
(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 financial statements.
Certain information included in the Korean language 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 financial statements.
2
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies and Basis of Presenting
Consolidated Financial Statements, Continued
(b) Basis of Presenting Consolidated Financial Statements, Continued
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 any impact on the accompanying financial
statements.
The consolidated financial statements include the accounts of KEPCO
and controlled subsidiaries (collectively referred to as the
"Company") as of December 31, 2003 and June 30, 2004. Controlled
subsidiaries include majority-owned entities be 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. Investments in affiliates in
which KEPCO is able to exercise significant influence over the
operating and financial policies of the investee are accounted for
using the equity method. Significant influence is deemed to exist when
the investor owns more than 20 % of the investee's voting shares
unless there is evidence to the contrary.
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. 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.
3
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies and Basis of Presenting
Consolidated Financial Statements, Continued
(b) Basis of Presenting Consolidated Financial Statements, Continued
i) The Company's ownership percentages of the companies which were
consolidated at December 31, 2003 and June 30, 2004 are
summarized as follows:
Ownership
Year of percentage(%)
Subsidiaries establishment 2003 2004 Primary business
------------------------------------ ------------- ----- ----- ----------------------------------
Korea Hydro & Nuclear
Power Co., Ltd. (*) 2001 100.0 100.0 Power generation
Korea South-East Power Co., Ltd. (*) 2001 100.0 100.0 Power generation
Korea Midland Power Co., Ltd. (*) 2001 100.0 100.0 Power generation
Korea Western Power Co., Ltd. (*) 2001 100.0 100.0 Power generation
Korea Southern Power Co., Ltd. (*) 2001 100.0 100.0 Power generation
Korea East-West Power Co., Ltd. (*) 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 1995 100.0 100.0 Utility plant rehabilitation
and operation (Subsidiary
of KEPCO International
Hong Kong Ltd.)
KEPCO Ilijan Corporation 1997 51.0 51.0 Construction and
operation of utility plant
(Subsidiary of KEPCO
International Philippines Inc.)
(*) 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.
4
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies and Basis of Presenting
Consolidated Financial Statements, Continued
(b) Basis of Presenting Consolidated Financial Statements, Continued
(1) 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. Hydroelectric power plant and nuclear power
(KHNP) 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
(2) 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
(3) 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 KRW 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 KRW 9,364,799 1,232,004 1,325,892 1,442,638 1,797,378 2,322,905 17,485,616
========== ========= ========= ========= ========= ========= ==========
. Assets and liabilities of the spun off divisions as of
December 31, 2000
Won (millions)
-----------------------------------------------------------------------------------
KHNP KOSEPCO KOMIPO KOWEPCO KOSPO KEWESPO Total
---------- --------- --------- --------- --------- --------- ----------
Assets KRW 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 KRW 8,201,700 1,219,100 974,714 1,400,600 1,688,100 2,232,700 15,716,914
========== ========= ========= ========= ========= ========= ==========
5
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies and Basis of Presenting
Consolidated Financial Statements, Continued
(b) Basis of Presenting Consolidated Financial Statements, Continued
. 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 KRW 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 KRW 222,512 49,849 65,670 26,792 11,674 20,885 397,382
========= ======= ======= ======= ======= ======= =========
ii) The Company's ownership percentages of affiliated companies which
were accounted for by the equity method at December 31, 2003 and
June 30, 2004 are summarized as follows:
Ownership
percentage(%)
Year of -------------
Subsidiaries 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
(c) 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 six-month periods ended June 30,
2003 and 2004, the amounts of capitalized interest were KRW
252,639 million and KRW 160,619 million, respectively. The foreign
currency transactions and translation gains excluded from the
calculation of capitalized interest rate amounted to KRW
124,520 million and foreign currency transaction and translation loss
added to the calculation of capitalized interest rate amounted to KRW
24,323 million for the six-month period ended June 30, 2004.
6
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies and Basis of Presenting
Consolidated Financial Statements, Continued
(c) Property, Plant and Equipment, Continued
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~ 30
Structures 8~ 30
Machinery 16
Vehicles 4
Others 4, 9
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 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 KRW 280,086 million and KRW 282,616 million of construction
grants, and offset KRW 61,993 million and KRW 71,424 million against
depreciation expense, and KRW 18,274 million and KRW 18,333 million
against utility plant removal cost for the six-month periods ended
June 30, 2003 and 2004, respectively.
(d) Leases
The Company accounts for and classifies its lease transactions as
either operating or capital leases, depending on the terms of the
lease under Korea Lease Accounting Standards. If a lease is
substantially noncancellable and meets any of the criteria listed
below, the present value of future minimum lease payments is reflected
as an obligation under capital lease.
. Ownership of the leased property shall be transferred to the
lessee at the end of the lease term without additional payment or
for a contract price.
. The lease has a bargain purchase option.
. The lease term is equal to 75% or more of the estimated economic
useful life of the leased property.
. The present value at the beginning of the lease term of the
minimum lease payments equals or exceeds 90% of the fair value of
the leased property.
If the above criteria are not met, the lease is classified as an
operating lease and lease payments are expensed on a straight-line
basis over the lease term.
7
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies and Basis of Presenting
Consolidated Financial Statements, Continued
(e) Investments in Securities
Debt and equity securities are classified into one of the three
categories of held-to-maturity, available-for-sale, or trading
securities at the time of acquisition and such determination is
reassessed at each balance sheet date. Investments in debt securities
that the Company has the positive intent and ability to hold to
maturity are classified as held-to-maturity. Securities that are
bought and held principally for the purpose of selling them in the
near term (thus held for only a short period of time) are classified
as trading securities. Trading generally reflects active and frequent
buying and selling, and trading securities are generally used to
generate profit on short-term differences in price. Investments not
classified as either held-to-maturity or trading securities are
classified as available-for-sale securities.
Trading securities are carried at fair value, with unrealized holding
gains and losses included in earnings. Available-for-sale securities
are carried at fair value, with unrealized holding gains and losses
reported as a capital adjustment. Investments in equity securities
that do not have readily determinable fair values are stated at cost.
Declines in value judged to be other-than-temporary on
available-for-sale securities are charged to current results of
operations. Investments in debt securities that are classified into
held-to-maturity are reported at amortized cost at the balance sheet
date and such amortization is included in interest income.
Marketable securities are at the quoted market prices as of the period
end. Non-marketable debt securities are recorded at the fair values
derived from the discounted cash flows by using an interest rate
deemed to approximate the market interest rate. The market interest
rate is determined by the issuers' credit rate announced by the
accredited credit rating agencies in Korea. Money market funds are
recorded at the fair value determined by the investment management
companies.
Trading securities are classified as current assets, whereas
available-for-sale securities and held-to-maturity securities are
classified as long-term investments. However, available-for-sale
securities whose maturity dates are due within one year from the
balance sheet date or whose likelihood of being disposed of within one
year from the balance sheet date is probable are classified as current
assets. Likewise, held-to-maturity securities whose maturity dates are
due within one year from the balance sheet date are classified as
current assets.
(f) Investment Securities under the Equity Method of Accounting
Investments in affiliated companies owned 20% or more or of which the
Company is able to exercise significant influence over the operating
and financial policies are stated at an amount as determined using the
equity method. 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 goodwill or other intangibles and amortized by the
straight-line method over the estimated useful life. The amortization
of goodwill is recorded against the equity income of affiliates. When
events or circumstances indicate that carrying amount may not be
recoverable, the Company reviews goodwill for any impairment.
Under the equity method of accounting, the Company does not record its
share of losses of affiliate companies when such losses would make the
Company's investment in such entity less than zero.
8
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies and Basis of Presenting
Consolidated Financial Statements, Continued
(g) 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.
(h) Cash Equivalents
The Company considers short-term financial instruments with maturities
of three months or less at the acquisition date to be cash
equivalents.
(i) 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.
(j) Allowance for Doubtful Accounts
Allowance for doubtful accounts is estimated based on an analysis of
individual accounts and past experience of collection.
9
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies and Basis of Presenting
Consolidated Financial Statements, Continued
(k) 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 year.
Effective January 1, 2004, the Company adopted Statement of Korea
Accounting Standards No. 10, "Inventories". Through 2003, a valuation
loss incurred when the market value of inventory falls below its
carrying amount was reported as non-operating expense. In 2004, in
accordance with SKAS No. 10, the Company included inventory valuation
loss in operating expenses.
(l) Long-Lived Assets
The Company reviews for the impairment of long-lived assets, whenever
events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. An impairment loss would be
recognized when estimated undiscounted future net cash flows expected
to result from the use of the asset and its eventual disposition are
less than its carrying amount. If such assets are considered to be
impaired, the impairment to be recognized is measured at the amount by
which the carrying amount of the assets exceeds the fair value of the
assets.
In 2001, the Company recognized an impairment loss on property, plant
and equipment in the Youngwol an Busan thermal plant amounting to
KRW 11,206 million, which is the difference between the carrying
amount and recoverable value considering future cash flows.
(m) 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.
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.
10
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies and Basis of Presenting
Consolidated Financial Statements, Continued
(n) Convertible Bonds
When issuing convertible bonds or bonds with stock purchase warrants,
the values of the conversion rights or stock warrants shall be
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
issue.
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.
(o) 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.
(p) 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. A portion of the liability is covered by
an employees' severance benefit insurance where the employees have a
vested interest in the deposit with the insurance company. Therefore,
such deposit for severance benefit insurance amounting to KRW 82,771
million and KRW 82,456 million as of December 31, 2003 and June 30,
2004 are reflected in the accompanying consolidated balance sheets as
a deduction of the liability for retirement and severance benefits.
Through March 1999, under the National Pension Scheme of Korea, the
Company transferred a certain portion of retirement allowances of
employees to the National Pension Fund. The amount transferred will
reduce the retirement and severance benefit amount to be payable to
the employees when they leave the Company and is accordingly reflected
in the accompanying financial statements as a reduction from the
retirement and severance benefit liability. Since April 1999, however,
a new regulation applies and such transfers to the National Pension
Fund are no longer required.
11
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies and Basis of Presenting
Consolidated Financial Statements, Continued
(q) Reserve for Decommissioning Costs and Self-Insurance
Under the Korean Electricity Business Act (EBA) Article 94, the
Company is required to accrue for the decommissioning of nuclear
facilities and dismantling of radioactive waste. In addition, under
the Korean Atomic Energy Act (AEAC), 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 accrues for estimated decommissioning costs of nuclear
facilities based on engineering studies and the expected
decommissioning dates of the nuclear power plant. The expected
decommissioning date is approximately 25 years from initial operation.
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 inspections and safety review.
As of December 31, 2003 and June 30, 2004, the Company has accrued KRW
5,091,070 million and KRW 5,399,206 million for the costs of
dismantling and decontaminating existing nuclear power plants,
consisting of dismantling costs of nuclear plant and dismantling costs
of spent fuel and radioactive waste. Annual additions to the reserve
are in amounts such that the current costs would be fully accrued for
at estimated dates of decommissioning on a straight-line basis,
reflecting the inflation rate. The Company accrued KRW 312,756 million
and KRW 313,585 million as the reserve for decommissioning costs for
the six-month period ended June 30, 2003 and 2004, respectively.
The Company estimates its reserve for decommissioning costs based on
engineering studies provided by a third party and applies it
prospectively. As a result of changes of estimates, for the year ended
December 31, 2003, the provision for decommissioning costs increased
by KRW 72,888 million and operating income and net income decreased by
KRW 72,888 million and KRW 52,844 million, respectively.
In accordance with SKAS No. 5 - "Tangible Assets", the Company is
required to recognize the fair value of a liability for an asset
retirement obligation (e.g., dismantlement or restoration costs) in
the period in which it is incurred. The fair value could be estimated
based on the present value of the estimated future cash outflows
required to satisfy the liabilities and would be discounted using a
current credit risk-adjusted interest rate. The accretion of the
liability due to the passage of time is recognized each period as
expense until the settlement of the liability. Upon initial
recognition of a liability for an asset retirement obligation, an
asset retirement cost shall be capitalized by increasing the carrying
amount of the related tangible asset by the same amount as the
liability. That asset retirement cost is allocated to expense using a
systematic and rational method over its useful life. As permitted
under SKAS No. 5, the Company applies the accounting for asset
retirement obligation only to assets acquired after December 31, 2002.
In accordance with the Accounting Regulations for Government Invested
Enterprises, KEPCO provides a self-insurance reserve for loss from
accident and liability to third parties that may arise in connection
with KEPCO's non-insured facilities. Payments made to settle
applicable claims and damages are charged to this reserve.
12
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies and Basis of Presenting
Consolidated Financial Statements, Continued
(r) 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 KRW1,152.5 to US$1, the
rate of exchange on June 30, 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.
(s) 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 designed 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 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. 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.
(t) Contingent Liabilities
Contingent losses are generally recognized as a liability when
probable and reasonably estimable.
13
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies and Basis of Presenting
Consolidated Financial Statements, Continued
(u) 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
contacts, 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.
(v) Income Taxes
Income tax on the earnings or loss for the period comprises current
and deferred tax. Income tax is recognized in the statement of income
except to the extent that it relates to items recognized directly to
equity, in which case it is recognized in equity.
Deferred tax is provided using the asset and liability method,
providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. The amount of deferred tax
provided is based on the expected manner of realization or settlement
of the carrying amount of assets and liabilities, using tax rates
enacted or substantially enacted at the balance sheet date.
Deferred tax assets are recognized only to the extent that it is
probable that future taxable earnings will be available against which
the unused tax losses and credits can be utilized. Deferred tax assets
are reduced to the extent that it is no longer probable that the
related tax benefit will be realized.
(w) Dividends payable
Dividends are recorded when approved by the board of director and
shareholders.
(x) 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.
14
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies and Basis of Presenting
Consolidated Financial Statements, Continued
(y) Earnings Per Share
Earnings per common share are calculated by dividing net earnings by
the weighted-average number of shares of common stock outstanding
during each period.
(z) Minority Interest in Consolidated Subsidiaries
Minority interest in consolidated subsidiaries is presented as a
separate component of stockholders' equity in the consolidated balance
sheets.
(aa) 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.
(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 six-month ended period June 30, 2004, have
been translated into United States dollars at the rate of KRW1,156.0 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 June 30, 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.
(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
KRW12,552,973 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 June 30, 2004, as announced
by the Minister of Construction and Transportation, is as follows:
Won (millions)
----------------------------
Purpose Book value Declared value
--------------------- ----------- --------------
Site of utility plant KRW 5,600,947 5,470,791
The officially declared value, which is used for government purposes,
is not intended to represent fair value.
15
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(3) Property, Plant and Equipment, Continued
(c) Utility plant
Utility plants and accumulated depreciation as of December 31, 2003
and June 30, 2004 are as follows:
(i) Cost
Won (millions)
-----------------------
2003 2004
---------- ----------
Land KRW 5,593,520 5,600,947
Buildings 8,695,733 8,784,243
Structures 27,768,348 28,351,248
Machinery 25,687,747 26,188,262
Nuclear fuel 2,620,230 2,820,124
Vehicles 76,213 76,713
Others 1,555,958 1,520,888
---------- ----------
71,997,749 73,342,425
Construction in-progress 9,550,651 11,006,765
---------- ----------
81,548,400 84,349,190
========== ==========
(ii) Accumulated depreciation
Won (millions)
-----------------------
2003 2004
---------- ----------
Buildings KRW 1,477,211 1,736,698
Structures 4,077,230 4,535,505
Machinery 9,676,715 11,075,014
Nuclear fuel 1,016,517 1,196,363
Vehicles 58,287 59,228
Others 569,563 624,918
---------- ----------
KRW 16,875,523 19,227,726
========== ==========
16
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(4) Intangibles
Changes in intangibles for the six-month period ended June 30, 2004 are as
follows:
Won (millions)
-----------------------------------------------------
December 31 Acquisition June 30,
2003 and transfers Amortization 2004
----------- ------------- ------------ --------
Development costs KRW 140,354 32,200 21,838 150,716
Port facility usage right 159,997 547 8,081 152,463
Water usage right 121,794 -- 8,400 113,394
Dam usage right 6,832 -- 72 6,760
Electricity usage right 28,698 -- 2,623 26,075
Others 58,318 10,133 24,440 44,011
------- ------ ------ -------
KRW 515,993 42,880 65,454 493,419
======= ====== ====== =======
In addition, the Company expensed ordinary development expenses amounting
to KRW 125,212 million and KRW 157,346 million for the six-month periods
ended June 30, 2003 and 2004, respectively.
(5) Insured Assets
Insured assets as of June 30, 2004 are as follows:
Won(millions)
-------------------
Insured assets Insurance type Insured value
------------------------- -------------------------- -------------------
Buildings and machinery Fire insurance KRW 2,948,861
Buildings and machinery Construction insurance 1,225,801
Buildings and machinery Nuclear property insurance 587,775
Buildings General insurance 167,554
Construction in progress Construction insurance 455,729
Inventories and machinery Shipping insurance 3,026,882
In addition, the Company carries damage insurance for construction of its
light-water nuclear reactor in North Korea, general insurance for vehicles
and movables, marine cargo insurance for inventories, group casualty
insurance for its employees and compensation liability insurance for its
directors.
17
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(6) Investment securities
(a) Investments in securities as of December 31, 2003 and June 30, 2004
are summarized as follows:
Won (millions)
---------------------
2003 2004
--------- ---------
Short-term investment securities
Available-for-sale securities KRW 141,585 51,453
Held-to-maturity securities 20,011 18
--------- ---------
161,596 51,471
--------- ---------
Long-term investment securities
Available-for-sale securities 230,744 158,004
Held-to-maturity securities 2,197 2,398
Investments in affiliates 1,296,179 1,359,554
--------- ---------
1,529,120 1,519,956
--------- ---------
KRW 1,690,716 1,571,427
========= =========
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 June 30, 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 KRW 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) 100.0 125,213 100.0 128,952 128,952
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 -- 18,271 11,767
Other equity securities -- 1,051 -- 6,845 6,845
Debt securities 74,016 5,149 5,320
------- ------- -------
230,744 165,581 158,004
------- ------- -------
Held-to-maturity:
Government and municipal
bonds 2,197 2,398 2,398
------- ------- -------
Total KRW 232,941 167,979 160,402
======= ======= =======
18
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(6) Investments, Continued
(*1) The Company recognized an impairment loss of KRW1,244 million
that was deemed as an other-than-temporary decline.
(*2) The Company has an investment in a treasury stock fund composed
of treasury stock and other investment securities. The other
investment securities are recorded as available-for-sale
securities and are non-marketable equity securities and stated at
cost due to the lack of information to determine the fair value.
The treasury stock is recorded as a capital adjustment (note 13).
Losses on valuation of these available-for-sale securities
recorded as a capital adjustment, amount to KRW6,504 million and
KRW8,714 million as of June 30, 2004 and December 31, 2003,
respectively.
(*3) Fair values are not available.
(c) Investments in affiliated companies accounted for using the equity
method as of December 31, 2003 and June 30, 2004 are as follows:
2003 2004
------------------------- -----------------------------------------------
Ownership Book Ownership Acquisition Net asset Book
(%) value (%) cost value value
--------- --------- --------- ----------- --------- ---------
Korea Gas Corporation (*1) 24.5 KRW 740,280 24.5 94,500 778,824 778,824
Korea District Heating
Co., Ltd. (*1) 26.1 159,165 26.1 5,660 168,996 168,996
Powercomm Corporation (*1) 43.1 350,518 43.1 323,470 374,389 366,918
Korea Electric Power Industrial
Development Co., Ltd. (*1) 49.0 22,072 49.0 7,987 20,591 20,591
YTN (*1) 21.4 24,144 21.4 59,000 24,225 24,225
--------- ------- --------- ---------
KRW 1,296,179 490,617 1,367,025 1,359,554
========= ======= ========= =========
(*1) The Company used unaudited financial statements of the above
affiliated companies when applying the equity method of accounting.
(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
valuation using the value as of
Book value as equity method on December 31,
January 1, 2003 accounting Others 2003
--------------- ------------------- ------- ------------
Korea Gas Corporation KRW 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
--------- ------ ------- ---------
KRW 1,214,271 96,866 (14,958) 1,296,179
========= ====== ======= =========
19
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(6) Investments, Continued
Changes in investments in affiliated companies under the equity method for
the six-month period ended June 30, 2004 are as follows:
2004
-----------------------------------------------------------------
Gain (loss) on Book
valuation using the value as of
Book value as equity method on June 30,
January 1, 2004 accounting Others (*1) 2004
--------------- ------------------- ----------- -----------
Korea Gas Corporation KRW 740,280 65,287 (26,743) 778,824
Korea District Heating Co. 159,165 10,887 (1,056) 168,996
Powercomm Corporation (*2) 350,518 17,116 (716) 366,918
Korea Electric Power Industrial
Development Co., Ltd. 22,072 2,439 (3,920) 20,591
YTN 24,144 183 (102) 24,225
--------- ------ ------- ---------
KRW 1,296,179 95,912 (32,537) 1,359,554
========= ====== ======= =========
(*1) 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.
(*2) As of June 30, 2004, unrealized profits of KRW 7,471 million arisen
from the transaction with Powercomm Corporation were eliminated.
The Company has recorded unrealized losses of KRW 25,560 million and KRW
21,042 million relating to the above affiliates as of December 31, 2003 and
June 30, 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.
20
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(7) Loans to employees
The Company has provided housing and tuition loans to employees as follows
as of December 31, 2003 and June 30, 2004:
Won (millions)
-----------------
2003 2004
------- -------
Short-term loans KRW 16,284 15,626
Long-term loans 251,788 272,988
------- -------
KRW 268,072 288,614
======= =======
(8) Other Non-current Assets
Other non-current assets as of December 31, 2003 and June 30, 2004 are as
follows:
Won (millions)
-----------------
2003 2004
------- -------
Long-term trade receivable, net KRW 9,588 5,419
Deposit received 141,221 156,885
Others 91,285 98,550
------- -------
KRW 242,094 260,854
======= =======
(9) Inventories
Inventories as of December 31, 2003 and June 30, 2004 are summarized as
follows:
Won (millions)
-------------------
2003 2004
------- ---------
Raw materials KRW 261,497 410,835
Supplies 519,727 581,691
Other 123,709 162,209
------- ---------
KRW 904,933 1,154,735
======= =========
21
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(10) Other Current Assets
Other current assets at December 31, 2003 and June 30, 2004 are summarized
as follows:
Won (millions)
-----------------
2003 2004
------- -------
Short-term loans to employees (note 7) KRW 16,284 15,626
Accrued interest income 5,738 6,848
Advance payments 3,875 18,293
Prepaid expenses 39,143 82,132
Other current assets 175,996 187,119
------- -------
KRW 241,036 310,018
======= =======
(11) Capital Surplus
Capital surplus as of December 31, 2003 and June 30, 2004 are as follows:
Won (millions)
-----------------------
2003 2004
---------- ----------
Paid-in capital in excess of par value KRW 811,301 811,296
Reserves for asset revaluation 12,552,973 12,552,973
Other capital surplus 1,180,246 1,177,227
---------- ----------
KRW 14,544,520 14,541,496
========== ==========
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 KRW 12,552,973 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.
(12) Appropriated Retained Earnings
Appropriated retained earnings as of December 31, 2003 and June 30, 2004
are summarized as follows:
Won (millions)
-----------------------
2003 2004
---------- ----------
Legal reserve KRW 1,600,252 1,601,871
Reserve for business rationalization 31,900 31,900
Reserve for business expansion 10,925,338 12,438,120
Reserve for investment on social
overhead capital 5,012,449 5,092,449
Reserve for research and human
development 120,000 180,000
---------- ----------
KRW 17,689,939 19,344,340
========== ==========
22
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(12) Appropriated Retained Earnings, Continued
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.
Under the Special Tax Treatment Control Law, investment tax credit was
allowed for certain investments. The Company was, however, required to
appropriate from retained earnings the amount of tax benefits obtained and
transfer such amount into a reserve for business rationalization. Effective
December 11, 2002, the Company is no longer required to establish a reserve
for business rationalization despite tax benefits received for certain
investments and, consequently, the existing balance is now regarded as a
voluntary reserve.
The reserves for the investment on social overhead capital and research and
human development are appropriated by the Company to avail itself of
qualified tax credits to reduce corporate tax liabilities. This reserve is
not available for cash dividends for a certain period as defined in the Tax
Incentive Control Law.
(13) Capital Adjustments
Capital adjustments as of December 31, 2003 and June 30, 2004 are as
follows:
Won (millions)
-------------------
2003 2004
-------- --------
Treasury stock KRW (195,379) (199,985)
Loss on valuation of available-
for-sale securities (3,689) (4,833)
Equity income of affiliates (25,560) (21,042)
Overseas operations translation (97,939) (113,090)
Gain on valuation of currency and
Interest rate swaps (2,817) (883)
-------- --------
KRW (325,384) (339,833)
======== ========
The Company has shares held as treasury stock amounting to KRW 195,379
million (10,713,050 shares) and KRW 199,985 million (11,068,050 shares) as
of December 31, 2003 and June 30, 2004, respectively, for the purpose of
stock price stabilization.
23
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(14) Short-term borrowings
Short-term borrowings as of December 31, 2003 and June 30, 2004 are as
follows:
Won (millions)
Annual -----------------
Lender Type interest rate (%) 2003 2004
------------------------------------ ---------- ----------------- ------- -------
Local currency borrowings
National Agricultural Cooperative
Federation and others General 3.00~4.10 KRW 53,245 165,000
Foreign currency borrowings
Korea Exchange Bank and others Usance and
Others Libor+0.25~0.35 156,924 263,186
------- -------
KRW 210,169 428,186
======= =======
(15) Long-term borrowings
Long-term borrowings as of December 31, 2003 and June 30, 2004 are as
follows:
(a) Local currency long-term borrowings
Won (millions)
Annual -----------------------
Lender Type interest rate (%) 2003 2004
------------------------- ------------------- ----------------- ---------- ----------
Korea Development Bank Industrial facility 4.50~9.00 KRW 4,951,239 4,962,228
Koram Bank Rural area
development 4.00 50,000 50,000
National Agricultural Rural area
Cooperative Federation development 4.00 50,000 85,000
Korea Exchange Bank Energy
rationalization 3.00 6,000 8,000
Other General 5.50~6.00 29,935 64,935
---------- ----------
5,087,174 5,170,163
Less: Current portion (1,254,049) (1,187,995)
---------- ----------
KRW 3,833,125 3,982,168
========== ==========
24
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(15) Long-term borrowings, Continued
(b) Foreign currency long-term borrowings
Won (millions)
Annual ---------------------
Lender Type interest rate (%) 2003 2004
-------------------------------- --------------- ----------------- --------- ---------
Japan Bank of International
Cooperation Facility 6.2~8.2 KRW 260,712 238,226
Barclays International Financial
Services (Ireland) Ltd. Commercial 6M Libor-1.00 187,851 90,528
National Agricultural
Cooperative Federation " Libor+1.30 12,833 9,878
Korea Development Bank General Libor+0.30~1.50 283,823 200,132
The Export-Import Bank Purchase
of Korea of nuclear fuel Libor+0.70~1.03 202,454 190,961
Korea Exchange Bank Facility Libor+0.15 17,090 8,222
Kookmin Bank " Libor+1.40 15,970 12,292
Norinchukin Bank " Libor+0.19 41,923 40,338
Nippon Life Insurance " Libor+0.19 98,226 94,511
US-EXIM " Govco+0.25~0.30 141,219 129,040
Others " 10.00 1,199 --
--------- ---------
1,263,300 1,014,128
Less: Current portion (379,792) (204,208)
--------- ---------
KRW 883,508 809,920
========= =========
(c) Debentures
Won (millions)
Annual -----------------------
interest rate (%) 2003 2004
-------------------- ---------- ----------
Local currency debentures
Electricity bonds 4.79~10.37 KRW 6,334,359 4,626,759
Corporate bonds 4.32~7.75 3,039,030 3,442,793
---------- ----------
9,373,389 8,069,552
---------- ----------
Foreign currency debentures(*)
FY-93 7.75 419,230 403,375
FY-95 3.4~4.15 464,634 441,572
FY-96 3.8~8.278 660,547 630,692
FY-97 6M libor+0.31~1.65 1,176,117 1,079,552
FY-99 5.75 37,839 35,097
FY-00 2.10~8.25 695,220 664,960
FY-01 1.18~1.27 671,760 266,008
FY-02 6M libor+0.75, 4.625 1,257,690 1,210,125
FY-03(*) 1.33~4.75 1,149,610 1,103,487
FY-04 4.875~5.125 -- 806,750
---------- ----------
6,532,647 6,641,618
---------- ----------
15,906,036 14,711,170
Less: Current portion (4,987,425) (4,214,727)
Discount (76,533) (77,550)
---------- ----------
KRW 10,842,078 10,418,893
========== ==========
25
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(15) 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 the Company guarantees the QPO of Powercomm
Corporation.
. Shares to be exchanged: Powercomm Corporations 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 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
Won (millions)
Annual -----------------
Description interest rate (%) 2003 2004
------------------------------------- ----------------- ------- -------
Overseas exchangeable bonds 0.00 KRW 277,256 277,256
Plus: Premium on debentures issued 20,987 18,870
Less: Conversion right adjustment (43,817) (39,398)
------- -------
254,426 256,728
======= =======
On November 4, 2003, the Company issued overseas exchangeable bonds of
Japanese Yen 28,245,468 thousand at a 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 thousand
. 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: (Won) 30,000 per share
. Put option: Bond holders have the put option that they can
request redemption at JPY 26,834,000 thousand on November 6,
2006.
26
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(15) Long-term borrowings, Continued
(e) Leases
(i) The Company entered into a capital lease agreement with Korea
Development Leasing Corporation for certain computer systems, of
which book value is KRW 1,904 million as of June 30, 2004.
Depreciation of the leased assets amounted to KRW 2,162 million
for the six-month period ended June 30, 2004.
(ii) Annual payments under capital and operating lease agreements as
of June 30, 2004 are as follows:
Won (millions)
-------------------------------
Year ended June 30 Capital lease Operating lease
---------------------- ------------- ---------------
2005 KRW 1,577 816
2006 -- 222
2007 -- 111
------ -----
1,577 1,149
====== =====
Less : Interest (30)
Current portion (1,547)
------
--
======
(f) Foreign currency debts, by currency, as of December 31, 2003 and June
30, 2004 are as follows:
Won (millions), US$ JPY, EUR and GBP (thousands)
---------------------------------------------------------------
2003 2004
---------------------------- ----------------------------
Foreign Won Foreign Won
currency equivalent currency equivalent
----------- ---------- ----------- ----------
Short-term borrowings US$ 131,012 KRW 156,924 US$ 228,361 KRW 263,186
--------- ---------
Long-term borrowings US$ 953,129 1,151,340 US$ 786,110 907,725
JPY 10,000,000 111,960 JPY 10,000,000 106,403
--------- ---------
1,263,300 1,014,128
Debentures US$ 3,552,030 4,258,819 US$ 4,230,360 4,879,687
JPY 195,060,000 2,183,892 JPY 157,500,000 1,675,847
EUR 25,183 37,839 EUR 25,183 35,098
GBP 24,467 52,097 GBP 24,467 50,986
--------- ---------
6,532,647 6,641,618
Exchangeable bond JPY 25,935,061 277,256 JPY 25,935,061 277,256
--------- ---------
KRW 8,230,127 KRW 8,196,188
========= =========
27
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(15) Long-term borrowings, Continued
(g) Aggregate maturities of the Company's long-term debt as of June 30,
2004 are as follows:
Won (millions)
-----------------------------------------------------------------------------------------------------------
Local Foreign Capital
Year ended currency currency Domestic Foreign Exchangeable lease
June 30 borrowings borrowings debentures debentures bonds obligations Total
---------- ---------- ---------- ---------- ---------- ------------ ----------- ----------
2005 KRW 1,187,995 204,208 3,052,872 1,161,855 -- 1,547 5,608,477
2006 1,252,916 231,177 871,113 916,091 -- -- 3,271,297
2007 971,344 179,360 1,740,557 52,495 -- -- 2,943,756
2008 725,033 48,465 1,210,010 1,935,150 -- -- 3,918,658
Thereafter 1,032,875 350,918 1,195,000 2,576,027 277,256 -- 5,432,076
--------- --------- --------- --------- ------- ----- ----------
KRW 5,170,163 1,014,128 8,069,552 6,641,618 277,256 1,547 21,174,264
========= ========= ========= ========= ======= ===== ==========
(16) 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 15(f) as of December 31, 2003 and June 30, 2004 are as follows:
Won (millions), US$ JPY and EUR (thousands)
-----------------------------------------------------------------
2003 2004
------------------------------ ------------------------------
Foreign Won Foreign Won
currency equivalent currency equivalent
(thousands) (*) (millions) (thousands) (*) (millions)
--------------- ---------- --------------- ----------
Assets:
Cash and cash
equivalents
US$ 5,617 KRW 6,728 US$ 247 KRW 284
JPY 653 7 JPY 788,826 8,394
Trade receivables US$ 7,549 9,041 US$ 398 459
Other account
receivables US$ 1,290 1,545 US$ 275 317
Other non-current US$ 43 52 US$ 98 112
assets JPY 5,860 66 JPY 9,706 103
EUR -- -- EUR 8 11
------- ------
KRW 17,439 KRW 9,680
======= ======
Liabilities:
Trade payables US$ 122,963 147,285 US$ 69,050 KRW 79,422
Other accounts US$ 1,510 1,809 US$ 479 551
payable EUR 321 483 EUR 227 317
JPY 85 1
Accrued expense US$ 696 833 US$ 3,763 4,337
JPY 14,039 149
Other current
liabilities US$ 145 173 US$ -- --
------- ------
KRW 150,583 KRW 84,777
======= ======
(*) Foreign currencies other than US$, JPY and EUR are converted into US$.
28
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(17) Retirement and Severance Benefits
Changes in retirement and severance benefits for the year ended December
31, 2003 and for six-month period ended June 30, 2004 are summarized as
follows:
Won (millions)
-----------------
2003 2004
------- -------
Estimated severance liability at beginning of year KRW 520,891 717,917
Provision for retirement and severance benefits 219,762 79,141
Decrease arising from change in consolidated subsidiaries (7,652) --
Payments (15,084) (7,190)
------- -------
Estimated severance liability at end of year 717,917 789,868
Transfer to National Pension Fund (97) (95)
Deposit for severance benefit insurance (82,771) (82,456)
------- -------
Net balance at end of year KRW 635,049 707,317
======= =======
(18) Receivables at Prevent Value
Present value discounts on receivables as of June 30, 2004 are as follows:
Won (millions)
----------------------------------
Present
Interest rate (%) Period Nominal value Discount value
----------------- --------------- ------------- -------- -------
Other accounts
receivable 5.24, 6.00 2002.12~2005.12 KRW 177,729 18,229 159,500
Long-term other
accounts receivable 5.24, 6.00 2002.12~2005.12 257,500 6,625 250,875
------- ------ -------
KRW 435,229 24,854 410,375
======= ====== =======
(19) Other Current Liabilities
Other current liabilities as of December 31, 2003 and June 30, 2004 are as
follows:
Won (millions)
-----------------
2003 2004
------- -------
Advance received KRW 12,784 54,690
Withholdings 177,806 158,945
Unearned revenue 3,664 12,576
Others 354,096 352,037
------- -------
KRW 548,350 578,248
======= =======
29
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(20) 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 June 30, 2004 are as follows:
Contract amounts in millions Contract interest rate per annum
Contract Settlement ---------------------------- --------------------------------
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 Libor+0.155 3.40
Union Bank of Switzerland 1995 2005 US$ 82 JPY 7,000 Libor+0.19 3.102
Canadian Imperial Bank of
Commerce 1996 2006 US$ 97 JPY 10,000 Libor+0.13 3.80
J.P. Morgan Chase Bank 1996 2006 US$ 200 JPY 21,000 Libor+0.14 4.00
Deutsche Bank 1998 2004 JPY 1,705 US$ 55 6.41 7.11
EUR 13
CHF 20
CAD 20
Deutsche Bank 1998 2004 JPY 2,945 US$ 95 6.36 7.05
EUR 22
CHF 35
CAD 34
J.P. Morgan Chase Bank &
Deutsche Bank (*1, *3) 2002 2007 JPY 76,700 US$ 650 1.18 4.25
3M
Barclays Bank PLC, London 2002 2007 JPY 30,400 US$ 250 1.04 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
Union Bank of Switzerland(*2) 2003 2013 KRW 148,625 US$ 125 CD+3.3 7.75
Credit Swiss 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
J.P. Morgan Chase Bank &
Deutsche Bank 2003 2008 JPY 23,770 US$ 200 1.28 4.25
Credit Swiss First Boston 2003 2013 KRW 177,720 US$ 150 5.12 4.75
J.P. Morgan Chase Bank & 2004 2011 KRW 172,800 US$ 150 Within 3 years: 4.95
Credit Swiss First Boston 4.875
After 3 years:
4.875-(10.9-
JPY/KRW
Spot rate)
(*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 has purchased call option in addition to these swaps, under
which the Company can exchange each KRW 5,945 million with the amounts of KRW
5,000,000 multiplied by Spot FX rate (US$/KRW) until December 22, 2004, and the
valuation for this call option is considered in the valuation of the swaps.
(*3) The Company pays JPY 7,670 million which is 10% of the contract amount
every March and September and will receive US$ 650 million in September 2007.
30
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(20) Derivative Instruments Transactions, Continued
(*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.
(b) Interest rate swap contracts as of June 30, 2004 are as follows:
Contract interest rate per annum
Notional amount ---------------------------------------------
in millions Pay (%) Receive (%) Term
--------------- -------------------- ---------------------- ---------
J.P. Morgan Securities Ltd. US$ 149 6.91 Libor+0.155 1995-2005
Barclays Bank PLC, London US$ 150 6M Libor-1 Libor+0.45 1997-2004
Shinhan Bank US$ 100 6.50 6.75 1997-2004
Deutsche Bank US$ 55 6.93 1998-2004
JPY 1,705 6.41
EUR 13 6.41
CHF 20 6.41
CAD 20 6.41
Deutsche Bank US$ 95 6.87 1998-2004
JPY 2,945 6.36
EUR 22 6.36
CHF 35 6.36
CAD 34 6.36
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
Union Bank of Switzerland KRW 148,625 5+2 x (JPY/W-11.03) CD+3.3 2003-2013
Credit Swiss First Boston KRW 89,175 5+2 x (JPY/W-11.03) CD+3.3 2003-2013
Union Bank of Switzerland US$ 35 Libor+0.19 Libor+0.155 2000-2005
Credit Swiss First Boston KRW 100,000 3M CD+0.35 3Y CMT+0.06 2002-2004
Deutsche Bank KRW 100,000 6.09 3M CD+0.35 2002-2004
Credit Swiss First Boston KRW 50,000 6.89 (5Y CMT-CD) x 2+4.3 2002-2007
Credit Swiss First Boston KRW 50,000 6.89 7.30 2002-2007
J.P. Morgan Chase Bank KRW 50,000 D-0.3 3 year : 7.75 2002-2008
3 year : 14.65-CD
Deutsche Bank KRW 50,000 4.98 CD-0.3 2002-2005
Credit Swiss First Boston KRW 30,000 6.09 1 year : 7.25 2002-2005
2 year : (5Y CMT-CD) x
5+1.5
Citibank KRW 50,000 CD-0.3 7.65/2.50(*) 2002-2005
Koram Bank KRW 10,000 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.
31
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(20) Derivative Instruments Transactions, Continued
(c) Valuation gains and losses on swap contracts recorded as other income
or expense for the six-month periods ended June 30, 2003 and 2004 are
as follows:
Won (millions)
-----------------
2003 2004
------- -------
Currency swap
Gains KRW 41,635 16,239
Losses (43,646) (86,538)
Interest rate swap
Gains 11,375 56,517
Losses (9,070) (2,203)
Swaptions
Gains 1,277 1,187
======= =======
KRW 1,571 (14,798)
======= =======
(d) The losses on interest swap contract of KRW 2,817 million and the
losses on interest swap contract of KRW 883 million, classified as
cash flow hedge derivatives, are reflected in a capital adjustment for
the year ended December 31, 2003 and for the six-month period ended
June 30, 2004, respectively.
(21) Power Generation, Transmission and Distribution Expenses
Power generation, transmission and distribution expenses for the six-month
periods ended June 30, 2003 and 2004 are as follows:
Won (millions)
---------------------
2003 2004
--------- ---------
Fuel KRW 2,552,044 3,179,720
Labor 553,568 596,157
Depreciation and amortization 2,416,060 2,319,709
Maintenance 685,227 732,636
Provision for decommissioning costs 312,756 313,585
Ordinary development expenses 113,176 129,661
Others 354,577 382,037
--------- ---------
KRW 6,987,408 7,653,505
========= =========
32
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(22) Selling, General and Administrative Expenses
Details of selling, general and administrative expenses for the six-month
periods ended June 30, 2003 and 2004 are as follows:
Won (millions)
-----------------
2003 2004
------- -------
Salaries KRW 195,935 214,926
Employee benefits 31,725 40,739
Taxes and dues 3,199 3,659
Rent 14,320 4,395
Depreciation and amortization 52,832 28,277
Maintenance 6,042 6,748
Commission and consultation fees 61,504 52,945
Ordinary development expenses 12,036 16,852
Collection expense 120,501 138,026
Promotion 8,636 9,694
Bad debts 9,158 8,672
Communication 13,668 15,281
Insurance 6,682 2,594
Rewards 1,416 1,800
Others 51,005 39,136
------- -------
KRW 588,659 583,744
======= =======
(23) 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 KRW100 million 16.5% 14.3%
Over KRW100 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 will be reduced from 29.7% to 27.5%.
The components of income tax expense for the six-month periods ended June
30, 2003 and 2004 are summarized as follows:
Won (millions)
-----------------
2003 2004
------- -------
Current income tax expense KRW 309,167 443,436
Deferred income tax expense 162,152 28,022
------- -------
471,319 471,458
Income taxes of subsidiaries 476,562 379,334
------- -------
Income taxes KRW 947,881 850,792
======= =======
Effective tax rate KRW 42.2% 36.6%
======= =======
33
Korea Electric Power Corporation
Notes to Consolidated Financial Statements.
(Unaudited)
(24) 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
six-month periods ended June 30, 2003 and 2004 as follows:
Won (millions)
-------------------------
2003 2004
----------- -----------
Net income in million Won KRW 1,285,529 1,461,918
Weighted-average number of common
shares outstanding 631,387,812 629,858,023
----------- -----------
Earnings per common share in Won KRW 2,036 2,321
=========== ===========
Diluted earnings per share for the six-month periods ended June 30, 2003
and 2004 are calculated as follows:
Won (millions)
-------------------------
2003 2004
----------- -----------
Net income in million Won KRW 1,285,529 1,461,918
Exchangeable bond interest in million Won -- 1,617
----------- -----------
1,285,529 1,463,535
----------- -----------
Weighted-average number of common
shares and diluted securities outstanding 631,387,812 639,857,870
----------- -----------
Diluted earnings per share in Won KRW 2,036 2,287
=========== ===========
(25) Transactions and Balances with Related Companies
(a) Transactions with related parties for the six-month periods ended June
30, 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 and others KRW 50,845 65,380
Korea South-East Power Co., Ltd. " 17,148 13,814
Korea Midland Power Co., Ltd. " 12,244 9,902
Korea Western Power Co., Ltd. " 17,268 12,995
Korea Southern Power Co., Ltd. " 8,588 8,241
Korea East-West Power Co., Ltd. " 19,290 2,012
Others " 39,483 48,568
------- -------
KRW 164,866 160,912
======= =======
34
Korea Electric Power Corporation
Notes to Consolidated Financial Statements.
(Unaudited)
(25) Transactions and Balances with Related Companies, Continued
Won (millions)
---------------------
Related party Transaction 2003 2004
------------------------------------- --------------------------------------- --------- ---------
Purchases and others:
Korea Hydro & Nuclear Power
Co., Ltd. Purchase of electricity and others KRW 2,417,162 2,348,664
Korea South-East Power Co., Ltd. " 735,508 753,578
Korea Midland Power Co., Ltd. " 968,803 969,316
Korea Western Power Co., Ltd. " 1,052,707 992,947
Korea Southern Power Co., Ltd. " 1,000,022 1,387,712
Korea East-West Power Co., Ltd. " 1,010,237 986,583
Korea Power Engineering Co., Inc. Designing of the power plant and others 19,994 6,803
Korea Plant Service & Engineering
Co., Ltd. Utility plant maintenance 20,595 20,320
Korea Electric Power Data Network,
Co., Ltd. Maintenance of computer system 98,094 10,255
Others Commissions for service and others 86,487 68,938
--------- ---------
KRW 7,409,609 7,545,116
========= =========
(b) Receivables arising from related parties transactions as of December
31, 2003 and June 30, 2004 are as follows. These were eliminated in
the consolidation:
Won (millions)
----------------------------------
2003
----------------------------------
Trade Other
Related party receivables receivables Total
------------------------------------- ----------- ----------- ------
Korea Hydro & Nuclear Power Co., Ltd. KRW -- 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
----- ------ ------
KRW 9,950 13,346 23,296
===== ====== ======
Won (millions)
----------------------------------
2004
----------------------------------
Trade Other
Related party receivables receivables Total
------------------------------------- ----------- ----------- ------
Korea Hydro & Nuclear Power Co., Ltd. KRW -- 369 369
Korea South-East Power Co., Ltd. 1,731 672 2,403
Korea Midland Power Co., Ltd. 1,288 10,146 11,434
Korea Western Power Co., Ltd. 1,992 375 2,367
Korea Southern Power Co., Ltd. 1,278 422 1,700
Korea East-West Power Co., Ltd. 2,638 147 2,785
Others 473 10,040 10,513
----- ------ ------
KRW 9,400 22,171 31,571
===== ====== ======
35
Korea Electric Power Corporation
Notes to Consolidated Financial Statements.
(Unaudited)
(25) Transactions and Balances with Related Companies, Continued
(c) Payables arising from related parties transactions as of December 31,
2003 and June 30, 2004 are as follows. These were eliminated in the
consolidation:
Won (millions)
-------------------------------
2003
-------------------------------
Trade Other
Related party payables payables Total
------------------------------------- --------- -------- ---------
Korea Hydro & Nuclear Power Co., Ltd. KRW 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
--------- ------- ---------
KRW 1,137,441 103,579 1,241,020
========= ======= =========
Won (millions)
-------------------------------
2004
-------------------------------
Trade Other
Related party payables payables Total
------------------------------------- --------- -------- ---------
Korea Hydro & Nuclear Power Co., Ltd. KRW 351,023 8,210 359,233
Korea South-East Power Co., Ltd. 91,968 122 92,090
Korea Midland Power Co., Ltd. 117,440 5,713 123,153
Korea Western Power Co., Ltd. 150,635 4,154 154,789
Korea Southern Power Co., Ltd. 171,479 3,797 175,276
Korea East-West Power Co., Ltd. 131,104 621 131,725
Korea Power Engineering Co., Inc. -- 7,129 7,129
Korea Plant Service & Engineering
Co., Ltd. -- 6,630 6,630
Korea Electric Power Data Network
Co., Ltd. -- 31,158 31,158
Others -- 17,410 17,410
--------- ------ ---------
KRW 1,013,649 84,944 1,098,593
========= ====== =========
36
Korea Electric Power Corporation
Notes to Consolidated Financial Statement
(Unaudited)
(25) Transactions and Balances with Related Companies, Continued
(d) The guarantees KEPCO has provided for related companies as of June 30,
2004 are as follows:
Won (millions),
Type Loan type Guaranteed company Financial institutions US$ (thousands)
------------------ ------------ -------------------- ---------------------- ---------------
Payment Foreign KEPCO International Nippon Life Insurance US$ 82,006
guarantee currency Hong Kong Ltd.
loan
" Norinchukin Bank 35,000
" Korea Development Bank 6,954
KEPCO International Korea Development Bank 36,348
---------
Philippines Inc. US$ 160,308
---------
Joint liability on Spin-off of six power generation Korea Development Bank
guarantee(*) power subsidiaries and others KRW 1,584,466
generation
subsidiaries
(*) The Company has the joint and several responsibilities with the
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 June 30, 2004 is KRW 1,584,466
million.
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$ 374,721 thousand 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.
37
Korea Electric Power Corporation
Notes to Consolidated Financial Statement
(Unaudited)
(25) Transactions and Balances with Related Companies, Continued
(e) The guarantees provided by related companies for KEOCO as of June 30,
2004 are as follows:
Won (millions), USD, JPY, EUR and GBP (thousands)
---------------------------------------------------------------
Balance of
borrowing as of
Guaranteed Type of June, 30
Type Related party Currency amounts borrowings 2004
----------------- ------------- -------- ----------- ---------------- ---------------
Payment guarantee Korea USD 75,634 Commercial USD 75,000
(*1) Development borrowings
Bank
USD 2,155,966 Foreign USD 1,707,535
currency bond
JPY 115,605,003 " JPY 112,500,000
EUR 26,627 EUR 25,183
GBP 30,706 " GBP 24,467
Joint liability six power KRW 114,702 Long-term debts KRW 114,702
on guarantee (*2) generation KRW 240,000 Domestic KRW 240,000
subsidiaries debentures
(*1) Korea Development Bank has also 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 June 30, 2004, instead
of the collective responsibilities of the power generation
subsidiaries to facilitate the Restructuring Plan.
(*2) As described note 25(d), the balance of KEPCO's borrowings for
which six power generation subsidiaries have the joint and several
responsibilities is KRW 354,702 million as of June 30, 2004.
(26) Commitments and Contingencies
The Company is engaged 315 in lawsuits as a defendant and 46 lawsuits as a
plaintiff. The total amount claimed against the Company is KRW
219,211million and the total amount claimed by the Company is KRW
18,429million as of June 30, 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.
The Company has been provided a credit (overdraft) line amounting to KRW
1,494,000million by banks including the National Agricultural Cooperative
Federation as of June 30, 2004.
The Company has provided 1 promissory note of KRW 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.
38
Korea Electric Power Corporation
Notes to Consolidated Financial Statement
(Unaudited)
(26) Commitments and Contingencies, Continued
The Company entered into the 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 KRW497,858 million for the six-month period ended
June 30, 2004.
(27) Segment Information
(a) The following table provides information for each operating segment
for the six-month period ended June 30, 2003.
Won (million)
2003
------------------------------------------------------------------------
Electric business
------------------------------
Transmission Power Consolidation
& distribution generation All other adjustment Consolidated
-------------- ------------- --------- ------------- ------------
Unaffiliated revenues KRW 10,425,992 -- 469,331 -- 10,895,323
Intersegment revenues 126,078 7,244,084 412,171 (7,782,333) --
---------- ---------- --------- ---------- ----------
Total revenues 10,552,070 7,244,084 881,502 (7,782,333) 10,895,323
Cost of goods sold (9,516,928) (5,526,515) (659,243) 7,782,136 (7,920,550)
Selling and administrative expenses (437,688) (74,067) (76,993) 89 (588,659)
---------- ---------- -------- ----------- ----------
Operating income 597,454 1,643,502 145,266 (108) 2,386,114
---------- ---------- -------- ---------- ----------
Interest income 19,595 20,357 10,277 (630) 49,599
Interest expense (304,176) (111,750) (19,369) 630 (434,665)
Gain on valuation using
the equity method of accounting 1,251,308 -- 11,940 (1,187,930) 75,318
Other income, net 189,734 (10,162) (4,030) (6,687) 168,855
---------- ---------- -------- ---------- ----------
Earnings before income tax 1,753,915 1,541,947 144,084 (1,194,725) 2,245,221
Income tax expense (471,319) (454,068) (24,275) 1,781 (947,881)
---------- ---------- -------- ---------- ----------
Segment earning
before minority interests KRW 1,282,596 1,087,879 119,809 (1,192,944) 1,297,340
========== ========== ======== ========== ==========
39
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(27) Segment Information, Continued
The following table provides information for each operating segment for the
six-month period ended June 30, 2004.
Won (million)
----------------------------------------------------------------------
2004
----------------------------------------------------------------------
Electric business
---------------------------
Transmission Power Consolidation
& distribution generation All other adjustment Consolidated
-------------- ---------- --------- ------------- ------------
Unaffiliated revenues KRW 11,005,352 -- 369,411 -- 11,374,763
Intersegment revenues 109,255 7,404,939 508,330 (8,022,524) --
---------- ---------- -------- ---------- ----------
Total revenues 11,114,607 7,404,939 877,741 (8,022,524) 11,374,763
Cost of goods sold (9,710,873) (6,157,073) (635,215) 8,002,115 (8,501,046)
Selling and administrative expenses (467,148) (89,247) (43,676) 16,327 (583,744)
---------- ---------- -------- ---------- ----------
Operating income 936,586 1,158,619 198,850 (4,082) 2,289,973
---------- ---------- -------- ---------- ----------
Interest income 19,546 23,448 10,991 (467) 53,518
Interest expense (298,721) (76,028) (19,473) 1,000 (393,222)
Gain on valuation using
the equity method of accounting 991,731 -- 12,708 (908,527) 95,912
Other income, net 285,566 (20,300) 543 13,454 279,263
---------- ---------- -------- ---------- ----------
Earnings before income tax 1,934,708 1,085,739 203,619 (898,622) 2,325,444
Income tax expense (471,458) (358,707) (22,143) 1,516 (850,792)
---------- ---------- -------- ---------- ----------
Segment earning
before minority interests KRW 1,463,250 727,032 181,476 (897,106) 1,474,652
========== ========== ======== ========== ==========
(b) The following table provides asset information for each operating segments
as of December 31, 2003 and June 30, 2004.
Won (million)
----------------------------------------------------------------------
Electric business
---------------------------
Transmission Power Consolidation
& distribution generation All other adjustment Consolidated
-------------- ---------- --------- ------------- ------------
December 31, 2003
Utility and non-utility plant KRW 29,271,047 31,735,423 1,111,682 (204,064) 61,914,088
Total assets 33,723,731 37,249,382 2,664,538 (1,910,379) 71,727,272
June 30, 2004
Utility and non-utility plant KRW 29,708,506 31,665,702 1,022,493 (226,885) 62,169,816
Total assets 57,048,039 36,561,986 2,538,127 (24,536,686) 71,611,466
40
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(28) Employee Welfare and Contributions to Society
For employee welfare, the Company maintains a refectory, an infirmary,
athletic facilities, a scholarship fund, workmen's accident compensation
insurance, unemployment insurance and medical insurance.
The Company donated KRW 40,490 million and KRW 87,958 million to the fund
for the welfare of the Company's employees and others for the six-month
periods ended June 30, 2004 and 2003, respectively.
(29) Economic Environment
In common with other Asian countries, the economic environment in the
Republic of Korea continues to be volatile. In addition, the Korean
government and the private sector continue to implement structural reforms
to historical business practices including corporate governance. The
Company may be either directly or indirectly affected by these economic
conditions and the reform program described above. The accompanying
consolidated financial statements reflect management's assessment of the
impact to date of the economic environment on the financial position and
results of operations of the Company. Actual results may differ materially
from management's current assessment.
(30) Reconciliation to United States Generally Accepted Accounting Principles
The accompanying consolidated financial statements are prepared in
accordance with generally accepted accounting principles in the Republic of
Korea ("Korean GAAP") which differ in certain respects from accounting
principles generally accepted in the United States of America ("U.S.
GAAP"). The significant differences between Korean GAAP and U.S. GAAP that
affect the Company's financial statements are described below. Other
differences do not have a significant effect on either consolidated net
earnings or stockholders' equity.
(a) Asset Revaluation and Depreciation
Under Korean GAAP, assets revaluation was allowed before 2000.
However, under U.S. GAAP, assets revaluation has not been allowed and
accordingly property, plant and equipment must be stated at cost less
accumulated depreciation. The effect of revaluation of property, plant
and equipment and the resulting depreciation of revalued amounts are
reversed out for U.S. GAAP reporting purposes.
(b) Special Depreciation
Under Korean GAAP, special depreciation, which was recognized prior to
1994, represents an acceleration of depreciation on certain energy
saving and anti-pollution facilities and equipment. However, this is
not in accordance with U.S. GAAP. Accordingly, U.S. GAAP
reconciliation reflects the reversal of special depreciation effect.
41
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(30) Reconciliation to United States Generally Accepted Accounting Principles,
Continued
(c) Accounting for Regulation
Under U.S. GAAP regulations for the establishment of electric rates
consider, in certain cases, certain income and expenses to be
recognized in different years than they are recognized for financial
reporting. In accordance with SFAS No. 71 - "Accounting for the
Effects of Certain Types of Regulation" for regulated enterprises, a
regulatory liability or regulatory asset is recognized on the
consolidated balance sheet by a charge or credit to operations to
match revenues and expenses. These assets or liabilities relate to the
adjustments for foreign currency translation, reserve for
self-insurance and deferred income taxes described below.
The following table shows the components of regulated assets and
liabilities as of December 31, 2003 and June 30, 2004.
U.S. dollars (note 2)
Won (million) (thousands)
----------------------- ---------------------
2003 2004 2003
---------- ---------- -----------
Foreign currency translation KRW 972,903 935,698 $ 809,427
Reserve for self-insurance (87,926) (87,602) (75,780)
Deferred income taxes (1,550,939) (1,695,974) (1,467,106)
---------- ---------- -----------
KRW (665,962) (847,878) $ (733,459)
========== ========== ===========
As discussed below, such adjustments exclude those relating to the
non-regulated subsidiaries and affiliates of the Company.
As discussed in Note 1, on April 2, 2001, six new power generation
subsidiaries were established in accordance with the Restructuring
Plan. Since the power generation subsidiaries' rates are determined by
a competitive system that is not cost based, they no longer meet the
criteria for application of SFAS No. 71. The power transmission and
distribution divisions of KEPCO continue to meet the criteria for
application of SFAS No. 71.
U.S. GAAP reconciliation summarized in note (30) (o) reflects the
elimination of such regulation effects that was recognized as
regulatory assets and liabilities pursuant to SFAS No 71. The effect
of this change has been recognized in current operations, resulting in
the increase in net income under U.S. GAAP of (Won) 423,146
million, in accordance with SFAS No. 101 - "Accounting for the
Discontinuation of Application of SFAS No 71". However, in accordance
with SFAS No. 101, the carrying amounts of property, plant and
equipment measured and reported pursuant to SFAS No. 71 were not
adjusted since they were not impaired under the provisions of SFAS No.
121 - "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of".
The Government of the Republic of Korea approves the rates that KEPCO
charges to its customers. KEPCO's utility rates are designed to
recover its reasonable costs plus a fair investment return. In June
2001, the Ministry of Commerce, Industry and Energy announced the
revised guidelines for utility rate setting, stating that
non-operating expenses should be excluded from reasonable costs while
income tax expense (including deferred income taxes), instead of
income tax payables, should be included for rate-making purposes. As a
result of this guideline change and the deregulation of the power
generation subsidiaries, only KEPCO's deferred income taxes caused by
the difference between Korean GAAP and U.S. GAAP are subject to SFAS
No. 71, to the extent that tax benefits or obligation will affect
future allowable costs for rate-making purposes.
42
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(30) Reconciliation to United States Generally Accepted Accounting Principles,
Continued
(c) Accounting for Regulation, Continued
Regulatory assets and liabilities are established based on the current
regulations and rate-making process. Accordingly, these assets and
liabilities may be significantly changed due to the potential future
deregulation or changes in the rate-making process.
Korean GAAP does not have accounting standards specifying for
regulated enterprises such as SFAS 71 under U.S. GAAP.
(d) Reversal of Eliminated Profit on Transactions with Subsidiaries and
Affiliated Companies
Under Korean GAAP, KEPCO's share of the profit on transactions between
KEPCO and its affiliated companies is eliminated in the preparation of
the consolidated financial statements. No elimination of such profit
is required to be in accordance with U.S. GAAP for regulated
enterprises, where the sales prices are reasonable and it is probable
that, through the rate-making process, future revenues approximately
equal to the sales price will result from KEPCO's use of the utility
plant. KEPCO meets both of these criteria, and no elimination of
profit on transactions between KEPCO and its affiliated companies is
necessary for reporting under U.S. GAAP.
(e) Foreign Currency Translation
As discussed in Note 1, under Korean GAAP, the Company capitalizes
certain foreign exchange transaction and translation gains and losses
on borrowings denominated in foreign currency associated with
property, plant and equipment during the construction period.
Under U.S. GAAP, all foreign exchange transaction gains and losses
(referred to as either transaction or translation gains (losses) under
Korean GAAP) are included in the results of operations for the current
period. The amounts of foreign exchange transaction and translation
gains and losses included in property, plant and equipment under
Korean GAAP are reversed into results of operations for the current
period under U.S. GAAP.
Under Korean GAAP, the convertible bond denominated in a foreign
currency are regarded as non-monetary liabilities since they have
equity-like characteristics, and the Company does not recognize the
associated foreign currency translation gain or loss.
Under U.S. GAAP, the convertible bond denominated in a foreign
currency are translated at the rate of exchange on the balance sheet
date, and the resulting foreign currency transaction gain or loss is
included in the results of operations.
(f) Deferred Income Taxes
As discussed in note 1, deferred tax assets and liabilities are
recorded in the financial statements prepared in accordance with
Korean GAAP, which is substantially the same as U.S. GAAP. For U.S.
GAAP purposes, the Company recognizes the deferred tax assets and
liabilities on temporary differences resulting from differences
between Korean GAAP and U.S. GAAP.
43
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(30) Reconciliation to United States Generally Accepted Accounting Principles,
Continued
(g) Asset retirement obligation
Under SFAS No. 143 of U.S. GAAP. - "Accounting for Asset Retirement
Obligations", the Company is required to recognize an estimated
liability for legal obligations associated with the retirement of
tangible long-lived assets. The Company measures the liability at fair
value when incurred and capitalizes a corresponding amount as part of
the book value of the related long-lived assets. The increase in the
capitalized cost is depreciated over the estimated useful life of
these assets. Since the fair value of the asset retirement obligations
is determined using a present value approach, accretion of the
liability due to the passage of time is recognized each period as
expense until the settlement of the liability. The Company records a
gain or loss when the liability is settled after retirement.
This statement is effective for financial statements issued for fiscal
years beginning after June 15, 2002 and it is to be applied to all
existing long-lived assets including those acquired before January 1,
2003. Accounting for asset retirement obligations under Korean GAAP is
substantially the same as SFAS No. 143, except that those assets
acquired before January 1, 2003 can be excluded from the application
of the accounting for asset retirement obligation under Korean GAAP.
Accordingly, the Company's assets acquired before January 1, 2003 were
excluded from the application of the accounting for asset retirement
obligation under Korean GAAP.
As a result of the adoption of SFAS No. 143, the Company recognized
(Won) 1,775,306 million additional pretax gain as a cumulative effect
of accounting change on January 1, 2003.
As explained in Note 1 (q) "Reserve for Decommissioning Costs and
Self-Insurance", under Korean GAAP the Company has accrued
(Won) 5,091,070 million and (Won) 5,399,206 million for the cost of
dismantling and decontaminating existing nuclear power plants as of
December 31, 2003 and June 30, 2004 in accordance with the Korean
Electricity Business Act.
For U.S. GAAP reporting purpose, the Company capitalizes asset
retirement cost additionally and recognizes asset retirement
obligation liability additionally as of December 31, 2003 and June 30,
2004 is as follows:
U.S. dollars (note 2)
Won (million) (thousands)
--------------------- ---------------------
2003 2004 2003
--------- --------- ----------
Capitalized asset retirement cost,
net of accumulated depreciation KRW 1,751,755 1,656,971 $1,433,366
Asset retirement obligation (478,140) (633,645) (548,136)
--------- --------- ----------
KRW 2,229,895 2,290,616 $1,981,502
========= ========= ==========
As of December 31, 2003 and June 30, 2004, asset retirement obligation
amounted to KRW 4,612,930 million and KRW 4,765,561 million under U.S.
GAAP, respectively.
44
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(30) Reconciliation to United States Generally Accepted Accounting Principles,
Continued
(g) Asset retirement obligation, continued
Changes of the Company's asset retirement obligation liability (after
adoption of SFAS No. 143) for the six-month period ended June 30, 2004
under U.S. GAAP is as follows:
U.S. dollars (note 2)
Won (million) (thousands)
------------- ---------------------
2004 2004
------------- ---------------------
January 1, 2004 KRW 4,612,930 $3,990,424
Liabilities incurred 10,532 9,111
Accretion expense 147,548 127,637
Payments (5,449) (4,714)
--------- ----------
Asset retirement obligation KRW 4,765,561 $4,122,458
========= ==========
(h) Derivatives
Under SFAS No. 133 - "Accounting for Derivative Instruments and
Hedging Activities", as amended by SFAS No. 138, the Company is
required to recognize all derivatives on the consolidated balance
sheet at fair value. Derivatives that do not qualify as a hedge must
be adjusted to fair value through current operations. If derivatives
qualify as a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change
in fair value of the hedged assets, liabilities or firm commitment
through earnings or recognized in other comprehensive income until the
hedged item is recognized in earnings. The ineffective portion of a
derivative's changes in fair value will be immediately recognized in
current earnings. Derivatives accounting under Korea GAAP is
substantially the same as SFSA No. 133.
(i) Convertible bonds
Under U.S. GAAP, no portion of the proceeds from the issuance of
convertible debt securities are accounted for as attributable to the
conversion feature, while under Korean GAAP, the value of the
conversion rights are recognized as capital surplus.
(j) Principles of Consolidation
Under Korean GAAP, minority interests in consolidated subsidiaries are
presented as a component of shareholder's equity in the consolidated
balance sheet.
Under U.S. GAAP, minority interests are presented between the
liability section and the stockholders' equity section in the
consolidated balance sheet.
45
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(30) Reconciliation to United States Generally Accepted Accounting Principles,
Continued
(k) Reserve for self-insurance
The Company accrues a reserve for self-insurance for non-insured
facilities in accordance with Accounting Regulations for Government
Invested Enterprises. U.S. GAAP considers accidental damage to be a
contingency that is only provided for when asset has been impaired or
a liability has been incurred.
(l) Comprehensive Income
Effective January 1, 1998, the Company adopted the provision of SFAS
No.130 under U.S.GAAP - "Reporting Comprehensive Income", which
requires the reporting and presentation of comprehensive income and
its components (revenues, expenses, gains and losses) for each period
presented. Such a presentation is not required under Korean GAAP.
Comprehensive income for the six-month periods ended June 30, 2003 and
2004 is summarized as follows:
U.S. dollars (note 2)
Won (million) (thousands)
--------------------- ---------------------
2003 2004 2003
--------- --------- ----------
Net income as adjusted in accordance with
U.S. GAAP KRW 4,551,923 1,849,187 $1,599,643
Other comprehensive income, net of tax:
Overseas operations translation (10,522) (10,651) (9,214)
Unrealized gains (losses) on investments 6,565 2,372 2,052
Deferred gains (losses) on cash flow
hedges (2,159) 1,359 1,176
--------- --------- ----------
Comprehensive income as adjusted in
accordance with U.S. GAAP KRW 4,545,807 1,842,267 $1,593,657
========= ========= ==========
Accumulated other comprehensive balances,
net of tax:
Overseas operations translation (68,851) (79,502) (68,774)
Unrealized gains (losses) on investments (20,562) (18,190) (15,735)
Deferred gains (losses) on cash flow
hedges (1,980) (621) (537)
--------- --------- ----------
KRW (91,393) (98,313) $ (85,046)
========= ========= ==========
46
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(30) Reconciliation to United States Generally Accepted Accounting Principles,
Continued
(m) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of significant financial instruments when it is
practicable to estimate such value:
(i) Cash and cash equivalents, short term financial instruments,
trade receivables, short-term borrowings, and trade payables:
The carrying amount approximates fair value because of the nature
or short maturity of those instruments.
(ii) Investments.
The fair value of market-traded investments is estimated based on
quoted market prices for those or similar investments. For other
investments for which there are no quoted market prices, a
reasonable estimate of fair value could not be made without
incurring excessive costs.
(iii) Long-term debt
The fair value of long-term debt is estimated based on the quoted
market prices for the same or similar issues or on the current
rates offered for debt of the same remaining maturities.
The estimated fair values of the Company's financial instruments at
December 31, 2003 and June 30, 2004 are summarized as follow (won in
millions):
Won (million)
-----------------------------------------------------
2003 2004
------------------------- -------------------------
Carrying Fair Carrying Fair
amount value amount value
----------- ----------- ----------- -----------
Cash and cash equivalents KRW 2,050,636 2,050,636 1,415,678 1,415,678
Short-term financial instruments 119,000 119,000 117,574 117,574
Trade receivables and account
receivables-other 2,063,715 2,063,715 1,930,329 1,930,329
Investments:
Practicable to estimate fair value 19,778 19,778 14,165 14,165
Not practicable 213,163 N/A 146,237 N/A
Short-term borrowings (210,169) (210,169) (428,186) (428,186)
Trade payables and accounts payable-other (1,626,167) (1,626,167) (1,402,120) (1,402,120)
Long-term debt, including current portion (22,536,190) (22,990,590) (21,066,743) (21,423,457)
Currency and interest swaps, net (83,671) (83,671) 44,310 44,310
Other (1,617) (1,617) (431) (431)
47
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(30) Reconciliation to United States Generally Accepted Accounting Principles,
Continued
(n) Recent changes in U.S. GAAP
In April 2003, the FASB issued Statement No. 149 - "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities." This
statement amends and clarifies accounting for derivative instruments,
including certain derivative instruments embedded in other contracts,
and for hedging activities under Statement 133. The new guidance
amends statement 133 regarding implementation issues raised in
relation to the application of the definition of a derivative,
particularly regarding the meaning of an underlying and the
characteristics of a derivative that contains financing components.
The amendments set forth in statement 149 improve financial reporting
by requiring that contracts with comparable characteristics be
accounted for similarly. In particular, this statement clarifies under
what circumstances a contract with an initial net investment meets the
characteristics of a derivative as discussed in statement 133. In
addition, it clarifies when a derivative contains a financing
component that warrants special reporting in the statement of cash
flows. The Company does not believe that the impact will be
significant.
In May 2003, the FASB issued SFAS No. 150-"Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity". SFAS No. 150 provides guidance on how an entity classifies
and measures certain financial instruments with characteristics of
both liabilities and equity. SFAS No. 150 is effective for financial
instruments entered into, or monitored after, May 31, 2003, and
otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company does not believe that the
adoption of this statement will have a significant impact on its
financial condition or result of operations.
In January and December 2003, the FASB issued and then revised FIN
No.46-"Consolidation of Variable Interest Entities", which is
effective immediately for all variable interest entities created after
January 31, 2003. FIN No.46 must be applied for the first fiscal year
or interim period ending after March 15, 2004 for variable interest
entities or the first quarter of 2004. FIN No.46 requires existing
unconsolidated variable interest entities to be consolidated by their
primary beneficiaries if the entities do not effectively disperse
risks among the parties involved. A primary beneficiary absorbs the
majority of the entity's losses or receives a majority of the entity's
residual returns, if they occur, or both. Where it is reasonably
possible that the information about the variable interest entity
relationships must be disclosed or consolidated, the Company must
disclose the nature, purpose, size and activity of the variable
interest entity and the maximum exposure to loss as a result of the
Company's involvement with the variable interest entity in all
financial statements issued after January 31, 2003. The Company does
not believe that the adoption of this statement will have a
significant impact on its financial condition or result of operations.
In March 2004, the EITF reached a consensus regarding EITF 03-1, " The
Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments". The consensus provides guidance for evaluating
whether an investment is other-than-temporarily impaired. The EITF
03-1 guidance for determining other-than-temporary will be effective
beginning from the second half of 2004. The Company is currently
evaluating the impact that EITF 03-1 may have on its consolidated
financial statements.
48
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(30) Reconciliation to United States Generally Accepted Accounting Principles,
Continued
(o) Effect on Net Income and Stockholders' Equity
The effects of the significant adjustments to net income and
stockholders' equity that would be required if U.S. GAAP were applied
instead of Korean GAAP are summarized as follows:
U.S. dollars (note 2)
Won (million) (thousands)
--------------------- ---------------------
2003 2004 2004
--------- --------- ----------
Net income under Korean GAAP KRW 1,285,529 1,461,918 $1,264,635
Asset revaluation 300,262 305,684 264,433
Special depreciation (10,532) (9,188) (7,948)
Regulated operations 12,281 (181,916) (157,366)
Capitalized foreign currency translation 107,660 104,088 90,041
Reversal of eliminated profit on transactions
with subsidiaries and affiliates (7,571) (4,877) (4,219)
Asset retirement obligation (723,079) 60,721 52,527
Reserve for self-insurance (525) (324) (280)
Convertible bonds -- 50,742 43,894
Deferred income taxes 266,936 62,338 53,926
--------- --------- ----------
Net income as adjusted under U.S. GAAP 1,230,961 1,849,186 1,599,643
========= ========= ==========
49
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(30) Reconciliation to United States Generally Accepted Accounting Principles,
Continued
(o) Effect on Net Income and Stockholders' Equity, continued
U.S. dollars (note 2)
Won (million) (thousands)
----------------------- ---------------------
2003 2004 2004
---------- ---------- -----------
Stockholders' equity under Korean GAAP KRW 37,781,936 38,560,703 $33,357,010
Adjustments:
Utility plant
Asset revaluation (8,355,176) (8,066,744) (6,978,152)
Capitalized asset retirement cost 1,751,755 1,656,971 1,433,366
Special depreciation 38,272 29,084 25,159
Capitalized foreign currency translation (2,016,721) (1,912,633) (1,654,527)
Reversal of eliminated profit on transactions
with subsidiaries and affiliates 103,371 98,494 85,202
Investment securities Asset revaluation (121,977) (104,725) (90,593)
Deferred income taxes 2,252,961 2,315,299 2,002,854
Liabilities
Asset retirement obligation 478,140 633,645 548,136
Regulated operation (665,962) (847,878) (733,458)
Reserve for self-insurance 87,926 87,602 75,780
Convertible bonds (43,828) 6,914 5,981
Minority interests (127,569) (123,428) (106,772)
---------- ---------- -----------
Stockholders' equity under U.S. GAAP KRW 31,163,128 32,333,304 $27,969,986
========== ========== ===========
The reconciliation of utility plant and non-utility plant from Korean
GAAP to U.S. GAAP as of December 31, 2003 and June 30, 2003 is as
follows:
U.S. dollars (note 2)
Won (million) (thousands)
----------------------- ---------------------
2003 2004 2004
---------- ---------- -----------
Utility plant and non-utility plant, net under
Korean GAAP KRW 61,914,088 62,169,816 $53,780,118
Asset revaluation (8,355,176) (8,066,744) (6,978,152)
Special depreciation 38,272 29,084 25,159
Capitalized foreign currency translation (2,016,721) (1,912,633) (1,654,527)
Capitalized asset retirement cost, net 1,751,755 1,656,971 1,433,366
Reversal of eliminated profit on transactions
with subsidiaries and affiliates 103,371 98,494 85,202
---------- ---------- -----------
Utility plant and non-utility plant, net under
U.S. GAAP KRW 53,435,589 53,974,988 $46,691,166
========== ========== ===========
50
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(30) Reconciliation to United States Generally Accepted Accounting Principles,
Continued
(o) Effect on Net Income and Stockholders' Equity, continued
The tax effects of temporary differences that resulted in significant
portions of the deferred tax assets and liabilities as of December 31,
2003 and June 30, 2004, computed under U.S. GAAP, and a description of
the financial statement items that created these differences are as
follows:
U.S. dollars (note 2)
Won (million) (thousands)
--------------------- ---------------------
2003 2004 2004
--------- --------- ----------
Deferred tax assets:
Asset revaluation KRW 2,179,523 2,247,154 $1,943,905
Convertible bond 12,053 -- --
Regulated operation 183,140 233,166 201,701
Capitalized foreign currency translation 554,598 525,974 454,995
Decommissioning cost 1,400,318 1,484,782 1,284,413
Others 244,811 300,153 259,648
--------- --------- ----------
Total deferred asset adjustment KRW 4,574,443 4,791,229 $4,144,662
--------- --------- ----------
Deferred tax liabilities:
Special depreciation KRW 10,525 7,998 $ 6,919
Convertible bond -- 1,901 1,645
Reversal of eliminated profit on
transactions with subsidiaries and
affiliates 28,427 27,086 23,431
Asset retirement obligation 613,221 629,919 544,913
Investment in social overhead capital 222,093 249,467 215,802
Reserve for self-insurance 24,180 24,091 20,840
Long-term investment securities 1,517,157 1,572,165 1,360,004
--------- --------- ----------
Total deferred tax liabilities 2,415,603 2,512,627 2,173,554
--------- --------- ----------
Net deferred tax asset under U.S. GAAP KRW 2,158,840 2,278,602 $1,971,108
========= ========= ==========
Allowance for deferred tax assets -- -- --
Deferred tax liabilities under Korean GAAP 94,121 36,697 31,745
U.S. GAAP adjustments KRW 2,252,961 2,315,299 $2,002,853
========= ========= ==========
Effectively January 1, 2005, the statutory tax rate, including
resident surcharge, will be changed from 29.7% to 27.5%. Enacted
future tax rate of 27.5% was applied to calculate the deferred income
tax liabilities of which the tax effect will be realized after 2005.
51
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
(Unaudited)
(30) Reconciliation to United States Generally Accepted Accounting Principles,
Continued
(o) Effect on Net Income and Stockholders' Equity, continued
Earning per share for the six-month period ended June 30, 2003 and
2004 under U.S. GAAP are as follows:
Korea Won U.S. dollars (note 2)
(In millions, except (In thousands,
per share data) except per share data)
------------------------- ----------------------
2003 2004 2004
----------- ----------- ------------
Net income under U.S. GAAP KRW 1,230,961 1,849,186 $ 1,599,643
Effect of dilutive securities -- (1,427) (1,234)
----------- ----------- ------------
Adjusted net income KRW 1,230,961 1,847,759 $ 1,598,409
=========== =========== ============
Weighted average number of shares 631,387,812 629,858,023 629,858,023
Effect of dilutive securities -- 9,999,847 9,999,847
----------- ----------- ------------
Adjusted average number of shares 631,387,812 639,857,870 639,857,870
=========== =========== ============
Basic earnings per share as adjusted in
accordance with U.S. GAAP (in Won) KRW 1,950 2,936 $ 2,54
=========== =========== ============
Diluted earnings per share as adjusted in
accordance with U.S. GAAP (in Won) KRW 1,950 2,888 $ 2,50
=========== =========== ============
(p) Segment Information
Under U.S. GAAP, a company reports segment information based on the
disaggregation of the company by management for making operating
decisions. Each of the Company's consolidated subsidiaries is an
operating segment in accordance with SFAS No. 131 - "Disclosures about
Segments of an Enterprise and Related Information". Operating segments
that have similar economic characteristics and are similar in terms of
the nature of their products and services, the nature of the
production process, the type or class of customer, and methods of
distribution have been aggregated into two reportable segments:
transmission and distribution of electricity, and power generation,
which are engaged in the transmission and sales of electricity, and
production of electricity, respectively. Prior to the spin-off of the
power generation division (see Note 1), the Company did not
disaggregate the information for transmission and distribution of
electricity, and power generation. Therefore, the reportable segments
in 2000 were combined into one operating segment, the electric
business. Operating segments that do not meet the quantitative
thresholds of SFAS No. 131 have been combined and disclosed in an "all
other" category. All other revenues consist primarily of the revenues
from the engineering and maintenance for utility plant, information
services, sales of nuclear fuel, communication line leasing and
others.
The accounting policies of the segments are the same as those
described in Note 1 - Summary of Significant Accounting Policies and
Note 30 - Reconciliation to United States Generally Accepted
Accounting Principles. The Company evaluates performance based on net
income. There are no revenues from transactions with a single external
customer that amount to 10% or more of the consolidated revenues of
the Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KOREA ELECTRIC POWER CORPORATION
By: /s/ Lee, Do-Shik
------------------------------
Name: Lee, Do-Shik
Title: Head of Treasury Department
Date: Oct. 22, 2004