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 April 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
AS OF DECEMBER 31, 2002 AND 2003
TOGETHER WITH INDEPENDENT PUBLIC
ACCOUNTANTS' REPORT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
English Translation of a Report Originally Issued in Korean
To the Stockholders and Board of Directors of
Korea Electric Power Corporation:
We have audited the accompanying consolidated balance sheets of Korea Electric
Power Corporation and its subsidiaries (collectively referred to as the
"Company") as of December 31, 2002 and 2003, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
years ended December 31, 2001, 2002 and 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Korea Hydro & Nuclear Power Co., Ltd., Korea South-East
Power Co., Ltd., Korea Midland Power Co., Ltd. and Korea East-West Power Co.,
Ltd., which statements reflect 42.1 percent of the total consolidated assets as
of December 31, 2001 and 44.8 percent of the consolidated income before income
tax for the year then ended. We did not audit the financial statements of Korea
Hydro & Nuclear Power Co., Ltd., Korea South-East Power Co., Ltd., Korea Midland
Power Co., Ltd. and Korea East-West Power Co., Ltd., which statements reflect
41.5 percent of the consolidated assets as of December 31, 2002 and 41.7 percent
of the consolidated income before income tax for the year then ended. We did not
audit the financial statements of Korea Hydro & Nuclear Power Co., Ltd. and
Korea South-East Power Co., Ltd., which statements reflect 32.1 percent of the
consolidated assets as of December 31, 2003 and 38.4 percent of the consolidated
income before income tax for the year then ended. Those statements were audited
by other auditors whose reports have been furnished to us, and our opinion,
insofar as it relates to amounts included for those entities, is based solely on
the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the Republic of Korea. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of the Company as of December 31, 2002 and 2003, and the
results of their operations, changes in its stockholders' equity and their cash
flows for years ended December 31, 2001, 2002 and 2003 in conformity with the
Korea Electric Power Corporation Act, the Accounting Regulations for Government
Invested Enterprises and the financial accounting standards in the Republic of
Korea (see Note 2).
The translated amounts in the accompanying financial statements have been
translated in to U.S. dollars, solely for the convenience of the reader, on the
basis set forth in Note 2.
As discussed in Note 18, sales and purchases to and from related parties,
including the six power generation subsidiaries, amounted to W343,026 million
and W14,792,969 million, respectively, for the year ended December 31, 2003 and
W371,643 million and W13,713,243 million, respectively, for the year ended
December 31, 2002. Related receivables and payables amount to W23,296 million
and W1,241,020 million, respectively, as of December 31, 2003 and W31,954
million and W1,172,012 million, respectively, as of December 31, 2002.
As discussed in Note 1, the Company is considering the gradual privatization of
its power generation subsidiaries and distribution business, 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.
As discussed in Note 2, in 2003, the Company adopted Statements of Korea
Accounting Standards ("SKAS") No. 2, 3, 4, 5, 6, 7, 8 and 9, which are effective
from January 1, 2003. Those statements provide accounting and reporting
standards for the interim financial reporting, intangible assets, revenue
recognition, tangible assets, events occurring after the balance sheet date,
capitalization of financing costs, investment in securities and convertible
securities. The prior year financial statements, which are presented for
comparative purposes, were restated to conform to the provisions of those
standards. As a result of the adoption of SKAS No. 6 - "Events Occurring after
the Balance Sheet Date", stockholders' equity increased and current liabilities
decreased by W511,350 million as of December 31, 2002.
Accounting principles and auditing standards and their application in practice
vary among countries. The accompanying financial statements are not intended to
present the financial position, results of operations and cash flows in
accordance with accounting principles and practices generally accepted in
countries other than the Republic of Korea. The Company's financial statements
are prepared in accordance with the Korea Electric Power Corporation Act,
Accounting Regulations for Government Invested Enterprises as well as generally
accepted accounting principles in the Republic of Korea. In addition, the
procedures and practices utilized in the Republic of Korea to audit such
financial statements may differ from those generally accepted and applied in
other countries. Accordingly, this report and the accompanying financial
statements are for use by those knowledgeable about Korean accounting procedures
and auditing standards and their application in practice as well as the Korea
Electric Power Corporation Act and Accounting Regulations for Government
Invested Enterprises.
Anjin Deloitte LLC
Seoul, Korea
March 26, 2004
Notice to Readers
This report is effective as of March 26, 2004, the auditors' report date.
Certain subsequent events or circumstances may have occurred between the
auditors' report date and the time the auditors' report is read. Such events or
circumstances could significantly affect the accompanying financial statements
and may result in modifications to the auditors' report.
KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2002 AND 2003
Translation into
Korean Won U.S. Dollars (Note 2)
--------------------------- ---------------------
2002 2003 2003
------------ ------------ --------------
(In millions) (In thousands)
ASSETS
Utility plant (Notes 3, 5 and 12) W 75,588,054 W 81,548,400 $ 68,413,087
Less: Accumulated depreciation (11,963,081) (16,875,523) (14,157,318)
Construction grants (2,321,219) (2,758,789) (2,314,420)
------------ ------------ ------------
61,303,754 61,914,088 51,941,349
------------ ------------ ------------
Investments and others:
Long-term investment securities (Note 6) 1,353,308 1,529,120 1,282,818
Long-term loans (Note 7) 257,098 287,139 240,888
Deferred income tax assets 1,261,813 1,352,449 1,134,605
Currency and interest rate swaps (Note 14) 324,093 131,429 110,260
Intangibles (Note 4) 459,202 515,993 432,881
Other non-current assets (Note 13) 638,359 456,138 382,665
------------ ------------ ------------
4,293,873 4,272,268 3,584,117
------------ ------------ ------------
Current assets:
Cash and cash equivalents (Note 13) 1,997,480 2,050,636 1,720,332
Trade receivables, net of allowance for doubtful
accounts (Notes 13 and 18) 1,534,847 1,605,355 1,346,774
Accounts receivable-other, net of allowance for
doubtful accounts (Notes 13 and 18) 310,497 458,360 384,530
Short-term investment securities (Note 6) 23,136 161,596 135,567
Short-term financial instruments (Note 13) 137,852 119,000 99,832
Short-term loans (Note 7) 14,661 16,284 13,661
Inventories (Notes 5 and 8) 721,556 904,933 759,173
Other current assets 174,463 224,752 188,550
------------ ------------ ------------
4,914,492 5,540,916 4,648,419
------------ ------------ ------------
Total assets W 70,512,119 W 71,727,272 $ 60,173,885
============ ============ ============
(continued)
KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF DECEMBER 31, 2002 AND 2003
Translation into
Korean Won U.S. Dollars (Note 2)
------------------------ ---------------------
2002 2003 2003
----------- ----------- --------------
(In millions) (In thousands)
Stockholders' Equity and Liabilities
Stockholders' Equity (Notes 6 and 9):
Common stock W 3,200,504 W 3,203,743 $ 2,687,704
Capital surplus 14,483,121 14,544,520 12,201,779
Retained earnings 18,419,413 20,231,488 16,972,725
Capital adjustments (137,973) (325,384) (272,974)
Minority interest in consolidated subsidiaries 108,073 127,569 107,021
----------- ----------- -----------
Total stockholders' equity 36,073,138 37,781,936 31,696,255
----------- ----------- -----------
Long-term Liabilities:
Long-term debt (Note 11) 17,665,355 15,813,137 13,266,055
Accrued severance indemnities, net (Note 2) 454,326 635,049 532,759
Reserve for decommissioning cost (Note 2) 4,417,934 5,091,070 4,271,032
Reserve for self-insurance 82,536 87,926 73,763
Currency and interest swaps (Note 14) 477,075 215,100 180,453
Financing lease liabilities (Note 12) 5,366 372 312
Deferred income tax liabilities 1,346,043 1,446,570 1,213,565
Other long-term liabilities 395,541 515,839 432,751
----------- ----------- -----------
24,844,176 23,805,063 19,970,690
----------- ----------- -----------
Current Liabilities:
Trade payables (Notes 13 and 18) 734,437 755,248 633,597
Accounts payable-other (Notes 13 and 18) 931,892 870,919 730,637
Short-term borrowings (Note 11) 157,733 210,169 176,316
Current portion of long-term debt (Note 11) 5,653,428 6,621,266 5,554,753
Income tax payable 1,270,664 809,479 679,093
Accrued expenses (Note 13) 264,685 317,868 266,668
Dividends payable 2,474 2,324 1,950
Other current liabilities (Note 13) 579,492 553,000 463,926
----------- ----------- -----------
9,594,805 10,140,273 8,506,940
----------- ----------- -----------
Total liabilities 34,438,981 33,945,336 28,477,630
----------- ----------- -----------
Total stockholders' equity and liabilities W70,512,119 W71,727,272 $60,173,885
=========== =========== ===========
See accompanying notes to consolidated financial statements.
KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
Translation into
Korean Won U.S. Dollars (Note 2)
--------------------------------------- ---------------------
2001 2002 2003 2003
----------- ----------- ----------- ---------------------
(In millions, except per share amounts) (In thousands, except
per share amounts)
OPERATING REVENUES: (Notes 18 and 20)
Sale of electricity W18,863,802 W20,406,404 W21,834,288 $18,317,356
Other operating revenues 1,361,186 959,271 940,306 788,847
----------- ----------- ----------- -----------
20,224,988 21,365,675 22,774,594 19,106,203
OPERATING EXPENSES
(Notes 4, 15, 16, 18, 19 and 20):
Power generation, transmission and
distribution 13,685,512 13,405,043 14,391,644 12,073,527
Purchased power 987,272 1,207,381 1,383,818 1,160,921
Other operating costs 445,022 545,867 539,104 452,268
Selling and administrative expenses 1,118,355 1,160,601 1,236,230 1,037,106
----------- ----------- ----------- -----------
16,236,161 16,318,892 17,550,796 14,723,822
----------- ----------- ----------- -----------
OPERATING INCOME 3,988,827 5,046,783 5,223,798 4,382,381
OTHER INCOME (EXPENSES):
Interest income 88,427 90,929 99,897 83,806
Interest expense (1,203,179) (1,016,422) (829,743) (696,093)
Gain (loss) on foreign currency
transactions and translation, net (13,228) 511,950 (206,572) (173,298)
Gain on valuation using the equity
method of accounting (Note 6) 97,548 94,853 96,866 81,263
Donations (112,431) (121,379) (185,805) (155,877)
Valuation gain (loss) on currency and
interest rate swaps, net (Note 14) (132,008) 64,008 (93,490) (78,431)
Gain on disposal of investments, net
(Note 6) 162,439 433,151 45,244 37,956
Other, net 55,329 66,985 (40,305) (33,814)
----------- ----------- ----------- -----------
(1,057,103) 124,075 (1,113,909) (934,488)
----------- ----------- ----------- -----------
ORDINARY INCOME 2,931,724 5,170,858 4,109,889 3,447,893
EXTRAORDINARY ITEM -- -- -- --
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE 2,931,724 5,170,858 4,109,889 3,447,893
INCOME TAX EXPENSE (Note 17) (1,293,133) (2,103,792) (1,763,271) (1,479,254)
----------- ----------- ----------- -----------
INCOME BEFORE MINORITY INTERESTS 1,638,591 3,067,066 2,346,618 1,968,639
MINORITY INTERESTS (3,741) (18,961) (23,193) (19,457)
----------- ----------- ----------- -----------
NET INCOME W 1,634,850 W 3,048,105 W 2,323,425 $ 1,949,182
=========== =========== =========== ===========
ORDINARY INCOME PER SHARE (Note 2) W 2,559 W 4,770 W 3,686 $ 3.09
=========== =========== =========== ===========
EARNINGS PER SHARE (Note 2) W 2,559 W 4,770 W 3,686 $ 3.09
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
Korean Won (In millions)
------------------------------------------------------------------------------
Common Capital Retained Capital Minority
stock surplus earnings adjustments interests Total
---------- ----------- ----------- ----------- --------- -----------
Balances at January 1, 2001 W3,200,504 W15,138,325 W14,020,125 W (70,844) W104,180 W32,392,290
Net income -- -- 1,634,850 -- -- 1,634,850
Dividends declared -- -- (333,317) -- -- (333,317)
Gain on disposal of treasury
stock -- 13,258 -- -- -- 13,258
Changes in capital adjustments -- -- -- 32,621 -- 32,621
Changes in minority interests -- -- -- -- 67,879 67,879
Changes in equity interests -- (73,463) -- -- -- (73,463)
Adjustment of equity of the
investee not subject to equity
method -- (172,883) (22,867) (5,242) -- (200,992)
---------- ----------- ----------- --------- -------- -----------
Balances at December 31, 2001 3,200,504 14,905,237 15,298,791 (43,465) 172,059 33,533,126
---------- ----------- ----------- --------- -------- -----------
Net income -- -- 3,048,105 -- -- 3,048,105
Dividends declared -- -- (351,432) -- -- (351,432)
Gain on disposal of treasury
stock -- (310) -- -- -- (310)
Gain on disposal of subsidiary's
common stock (423,949) 423,949 -- -- --
Changes in capital adjustments -- -- -- (93,347) (93,347)
Changes in minority interests -- -- -- -- 19,620 19,620
Changes in equity interests -- 2,143 -- (2,143) -- --
Disposal of subsidiary's common
stock -- -- -- 982 (83,606) (82,624)
---------- ----------- ----------- --------- -------- -----------
Balances at December 31, 2002 3,200,504 14,483,121 18,419,413 (137,973) 108,073 36,073,138
---------- ----------- ----------- --------- -------- -----------
Net income -- -- 2,323,425 -- -- 2,323,425
Dividends declared -- -- (511,350) -- -- (511,350)
Capital increase by real assets 3,239 11,425 -- -- -- 14,664
Gain on disposal of treasury
stock -- 5,604 -- -- -- 5,604
Gain on disposal of subsidiary's
common stock -- -- -- (187,411) -- (187,411)
Changes in capital adjustments -- 45,171 -- -- -- 45,171
Changes in minority interests -- -- -- -- 19,496 19,496
Changes in equity interests -- (801) -- -- -- (801)
---------- ----------- ----------- --------- -------- -----------
Balances at December 31, 2003 W3,203,743 W14,544,520 W20,231,488 W(325,384) W127,569 W37,781,936
========== =========== =========== ========= ======== ===========
Translation into U.S. Dollars
(In thousands) (Note 2) $2,687,704 $12,201,779 $16,972,725 $(272,974) $107,021 $31,696,255
========== =========== =========== ========= ======== ===========
See accompanying notes to consolidated financial statements.
KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
Translation into
Korean Won U.S. Dollars (Note 2)
------------------------------------ ---------------------
2001 2002 2003 2003
---------- ---------- ---------- --------------
(In millions) (In thousands)
Cash flows from operating activities:
Net income W1,634,850 W3,048,105 W2,323,425 $1,949,182
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,955,661 4,906,138 5,088,736 4,269,074
Utility plant removal cost 281,490 256,010 245,974 206,353
Provision for severance and retirement
benefits 174,717 202,763 219,762 184,364
Provision for decommissioning costs 424,092 583,372 698,400 585,906
Provision for self-insurance 4,861 5,465 6,400 5,369
Allowance for doubtful accounts 13,726 8,602 23,178 19,445
Interest expense, net 9,072 17,192 21,273 17,847
Loss (gain) on foreign currency translation,
net 22,273 (424,791) 221,104 185,490
Gain on disposal of investment, net (162,439) (433,151) (45,244) (37,956)
Gain on valuation using the equity
method of accounting (97,548) (94,853) (96,866) (81,263)
Valuation gain (loss) on currency and
interest rate swaps, net 132,008 (64,008) 93,490 78,431
Decrease in deferred income tax assets 334,697 220,937 8,232 6,906
Increase in trade receivables (36,903) (68,932) (77,918) (65,367)
Decrease (increase) in accounts receivable-
other (64,655) (42,383) 9,300 7,802
Increase in inventories (108,111) (7,128) (43,715) (36,674)
Increase (decrease) in trade payables (128,164) 44,799 (3,611) (3,029)
Increase (decrease) in accounts payable-other (189,387) 90,129 (65,492) (54,943)
Increase (decrease) in income tax payable 398,489 700,762 (459,232) (385,262)
Increase (decrease) in accrued expenses (110,662) (47,472) 59,882 50,237
Payment of severance and retirement
benefits (36,160) (15,826) (15,084) (12,654)
Payment of decommissioning costs (16,211) (13,841) (25,264) (21,195)
Payment of self-insurance (1,736) (1,171) (1,011) (848)
Other, net 235,134 (113,603) 125,373 105,178
---------- ---------- ---------- ----------
Net cash provided by operating activities 7,669,094 8,757,115 8,311,092 6,972,393
---------- ---------- ---------- ----------
(continued)
KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
Translation into
Korean Won U.S. Dollars (Note 2)
--------------------------------------- ---------------------
2001 2002 2003 2003
----------- ----------- ----------- --------------
(In millions) (In thousands)
Cash flows from investing activities:
Disposal of utility plant W 66,562 W 106,821 W 42,515 $ 35,667
Additions to utility plant (7,187,492) (6,653,066) (6,781,993) (5,689,592)
Receipt of construction grants 564,009 626,566 618,092 518,534
Acquisition of long-term financial instruments (2,000) (2,500) (3) (3)
Proceeds from disposal of investment
securities, net 138,219 404,284 13,861 11,629
Collection of long-term loans 139,229 183,915 87,683 73,560
Payment of long-term loans (181,871) (153,391) (219,881) (184,464)
Increase in intangibles, net (18,046) (45,783) (26,039) (21,845)
Increase in other non-current assets (132,009) (96,031) (14,262) (11,964)
Withdrawal (acquisition) of short-term
financial instruments, net (227,666) 246,461 18,852 15,815
Collection of short-term loans, net 27,269 10,517 22,363 18,761
Proceeds from sale (acquisition) of short-term
investment securities, net 20,372 (20,002) (134,204) (112,588)
----------- ----------- ----------- -----------
Net cash used in investing activities (6,793,424) (5,392,209) (6,373,016) (5,346,490)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt 8,426,715 3,382,873 5,378,021 4,511,762
Payment of long-term debt (1,431,553) (1,301,807) (1,131,595) (949,325)
Payment of current portion of long-term debt (5,687,204) (5,241,520) (5,289,645) (4,437,622)
Proceeds from short-term borrowings 1,292,543 721,329 2,611,227 2,190,627
Payment of short-term borrowings (1,253,752) (870,476) (2,560,998) (2,148,488)
Cash dividends (333,462) (329,659) (511,577) (429,175)
Acquisition of treasury stock -- (180,120) (151,107)
Other, net 56,019 (30,389) (180,427) (151,365)
----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities 1,069,306 (3,669,649) (1,865,114) (1,564,693)
----------- ----------- ----------- -----------
Net decrease in cash and cash equivalents from
changes in consolidated subsidiaries -- (1,731) (19,806) (16,616)
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents 1,944,976 (306,474) 53,156 44,594
Cash and cash equivalents at beginning of the
year 358,978 2,303,954 1,997,480 1,675,738
----------- ----------- ----------- -----------
Cash and cash equivalents at end of the year W 2,303,954 W 1,997,480 W 2,050,636 $ 1,720,332
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2002 AND 2003
1. GENERAL:
(1) The Company
Korea Electric Power Corporation (the "KEPCO") 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 the electric power resources. KEPCO was given a government
investment status 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 KEPCO has listed its Depository
Receipt (DR) on the New York Stock Exchange on October 27, 1994.
As of December 31, 2003, Government of the Republic of Korea, Korea Development
Bank and foreign investors hold 32.42 percent, 21.55 percent and 28.98 percent
of KEPCO's shares, respectively.
KEPCO spun off its power generation division on April 2, 2001, resulting in the
establishment of six new power generation subsidiaries. The Company is
considering the gradual privatization of its 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 determination of utility rate,
result in changes in management structure, related laws and regulations, and
affect electricity supply and demand policy.
(2) Consolidated Subsidiaries
Ownership
percentage (%)
Year of --------------
Subsidiaries establishment 2002 2003 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.)
(3) The affiliates accounted for using the equity method
Ownership
percentage (%)
Year of ---------------
Affiliate establishment 2002 2003 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 44.0 43.1 Communication line leasing
Korea Electric Power Industrial Development 1990 100.0 49.0 Disposal of power-plant ash and
Co., Ltd.(*) electric meter reading
YTN 1993 21.4 21.4 Broadcasting
(*) KEPCO sold a portion of its investment in Korea Electric Power Industrial
Development Co., Ltd. during 2003, which reduced its ownership interest to
49%.
(4) Uncertainties of domestic economic situation
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 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(1) Basis of Consolidated Financial Statement Presentation
KEPCO maintains its official accounting records in Korean won and prepares
statutory consolidated financial statements in the Korean language (Hangul) in
conformity with 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, the accompanying financial statements are intended for use by for
those who are informed about Korean accounting principles and practices, Korea
Electric Power Corporation 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 and results of operations, is
not presented in the accompanying financial statements.
In 2003, the Company adopted Statements of Korea Accounting Standards ("SKAS")
No 2, 3, 4, 5, 6, 7, 8 and 9, which are effective from January 1, 2003. Those
statements provide accounting and reporting standards for the interim financial
reporting, intangible assets, revenue recognition, tangible assets, events
occurring after the balance sheet date, capitalization of financing costs,
investment in securities and convertible securities. The prior year financial
statements, which are presented for comparative purposes, were restated to
conform to the provisions of those standards. As a result of the adoption of
SKAS No. 6 - "Events Occurring After the Balance Sheet Date", stockholders'
equity increased and current liabilities decreased by W511,350 million as of
December 31, 2002.
The U.S. dollar amounts presented in these financial statements were computed by
translating the Korean won into U.S. dollars at the rate of W1,192.00 to
US$1.00, 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 on
December 31, 2003, solely for the convenience of the reader. These convenience
translations into U.S. dollars should not be construed as representations that
the Korean won amounts have been, could have been, or could in the future be,
converted at this or any other rate of exchange.
-2-
(2) Principles of Consolidation
The consolidated financial statements include the accounts of KEPCO and its
controlled subsidiaries (collectively referred to as the "Company"). Controlled
subsidiaries include majority owned entities and entities of which KEPCO owns
more than 30 percent of total outstanding voting stock and is the largest
stockholder. 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 percent 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) Property, Plant and Equipment
Property, plant and equipment are stated at cost, except for assets revalued
upward in accordance with the KEPCO Act and the Assets Revaluation Law of Korea,
net of depreciations. Expenditures incurred after the acquisition of the
property, plant and equipment that increases the future economic benefits beyond
the property's most recently measured performance are capitalized as additions
to property, plant and equipment.
The Company capitalizes interest and other borrowing costs on debt issued to
finance capital expenditures as part of the acquisition cost of major facilities
and equipment. For the years ended December 31, 2002 and 2003, the amount of
capitalized interest was W548,292 million and W524,101 million, respectively, of
which foreign currency transaction and translation gains deducted from the
capitalized interest amounted to W63,549 million and W 5,102 million,
respectively, and foreign currency transaction and translation losses added to
the capitalized interest amounted to W19,916 million and W25,691 million,
respectively.
Depreciation is computed using the declining-balance method (straight-line
method for buildings and structures, unit-of-production method and straight-line
method for nuclear fuel) based on the estimated useful lives described as
follows:
Years
-----
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
-3-
Construction grants are initially recorded and presented in the financial
statements as deductions from the assets acquired under such grants and are
offset against depreciation expense during the useful lives of the related
assets. KEPCO received W624,527 million and W611,862 million of construction
grants, and offset W205,975 million and W174,211 million against depreciation
expense and others for the years ended December 31, 2002 and 2003, respectively.
(4) Asset Impairment
The Company assesses any possible recognition of impairment loss when there is
an indication that expected future economic benefits of a tangible asset is
considerably less than its carrying amount as a result of technological
obsolescence or rapid decline in market value. When it is determined that a
tangible asset may have been impaired and that its estimated total future cash
flows from continued use or disposal is less than its carrying amount, the
carrying amount of a tangible asset is reduced to its recoverable amount and the
difference is recognized as an impairment loss. If the recoverable amount of the
impaired asset exceeds its carrying amount in subsequent reporting period, the
amount equal to the excess is treated as reversal of the impairment loss;
however, it cannot exceed the carrying amount that would have been determined
had no impairment loss were recognized.
In 2001, the Company recognized an impairment loss on property, plant and
equipment in the Youngwol and Busan thermal power plants amounting to W11,206
million, which is the difference between the book value and recoverable value
considering future cash flows.
(5) Accounting for Leases
Lease agreements that include a bargain purchase option, result in the transfer
of ownership by the end of the lease term, have a term equal to at least 75
percent of the estimated economic life of the leased property or where the
present value of the minimum lease payments at the beginning of the lease term
equals or exceeds 90 percent of the fair value of the leased property are
accounted for as financial or capital lease. All other leases are accounted for
as operating leases. Assets and liabilities related to financial leases are
recorded as property and equipment and long-term debt, respectively, and the
related interest is calculated using the effective interest rate method. In
respect to operating leases, the future minimum lease payments are expensed
ratably over the lease term while contingent rentals are expensed as incurred.
(6) Securities other than those Accounted for Using the Equity Method
(a) Classification of Securities
At acquisition, the Company classifies securities into one of the three
categories: trading, held-to-maturity or available-for-sale. Trading
securities are those that were acquired principally to generate profits
from short-term fluctuations in prices. Held-to-maturity securities are
those with fixed and determinable payments and fixed maturity that an
enterprise has the positive intent and ability to hold to maturity.
Available-for-sale securities are those not classified either as
held-to-maturity or trading securities.
(b) Valuation of Securities
Securities are recognized initially at cost determined using the weighted
average method. The cost includes the market value of the consideration
given and incidental expenses. If the market price of the consideration
given is not available, the market prices of the securities purchased are
used as the basis for measurement. If neither the market prices of the
consideration given nor those of the acquired securities are available, the
acquisition cost is measured at the best estimates of its fair value.
-4-
After initial recognition, held-to-maturity securities are valued at
amortized cost. The difference between face value and acquisition cost is
amortized over the remaining term of the security using the effective
interest method. Trading securities are valued at fair value, with
unrealized gains and losses reflected in current operations.
Available-for-sale securities are also valued at fair value, with
unrealized gains and losses reflected in capital adjustments, until the
securities are sold or if the securities are determined to be impaired and
the lump-sum cumulative amount of capital adjustments are reflected in
current operations. However, available-for-sale equity securities that are
not traded in an active market and whose fair values cannot be reliably
estimated are accounted for at their acquisition cost. For those securities
that are traded in an active market, fair values refer to those quoted
market prices, which are measured as the closing price at the balance sheet
date. The fair value of non-marketable debt securities are measured at the
discounted future cash flows by using the discount rate that appropriately
reflects the credit rating of issuing entity assessed by a publicly
reliable independent credit rating agency. If application of such
measurement method is not feasible, estimates of the fair values may be
made using a reasonable valuation model or quoted market prices of similar
debt securities issued by entities conducting similar business in similar
industries.
Securities are evaluated at each balance sheet date to determine whether
there is any objective evidence of impairment loss. When any such evidence
exists, unless there is a clear counter-evidence that recognition of
impairment is unnecessary, the Company estimates the recoverable amount of
the impaired security and recognizes any impairment loss in current
operations. The amount of impairment loss of the held-to-maturity security
or non-marketable equity security is measured as the difference between the
recoverable amount and the carrying amount. The recoverable amount of
held-to maturity security is the present value of expected future cash
flows discounted at the securities' original effective interest rate. For
available-for-sale debt or equity security stated at fair value, the amount
of impairment loss to be recognized in the current period is determined by
subtracting the amount of impairment loss of debt or equity security
already recognized in prior period from the amount of amortized cost in
excess of the recoverable amount for debt security or the amount of the
acquisition cost in excess of the fair value for equity security. For
non-marketable equity security accounted for at acquisition cost, the
impairment loss is equal to the difference between the recoverable amount
and the carrying amount.
If the realizable value subsequently recovers, in case of a security stated
at fair value, the increase in value is recorded in current operation, up
to the amount of the previously recognized impairment loss, while for the
security stated at amortized cost or acquisition cost, the increase in
value is recorded in current operation, so that its recovered value does
not exceed what its amortized cost would be as of the recovery date if
there had been no impairment loss.
If the intent and ability to hold the securities change, transferred
securities are accounted for at fair value. In case held-to-maturity
securities are reclassified into available-for-sale securities, unrealized
gain or loss between the book value and fair value is reported in
shareholders' equity as a capital adjustment. In case the available for
sale securities are reclassified into held-to maturity securities, the
unrealized gain or loss at the date of the transfer continues to be
reported in shareholder's equity as a capital adjustment, but it is
amortized over the remaining term of the security using the effective
interest rate method.
(7) Securities Using the Equity Method
Investments in equity securities of companies in which the Company is able to
exercise significant influence over the operating and financial policies of the
investees are accounted for using the equity method. The change in the Company's
share of an investee's net equity resulting from a change in an investee's net
equity is reflected in current operations, retained earnings, and capital
adjustment in accordance with the causes of the change which consist of the
investee's net income (loss), changes in retained earnings and changes in
capital surplus and capital adjustments.
(8) Intangibles
Intangible assets are stated at cost, net of accumulated amortization computed
using the straight -line method over the estimated useful lives, from 4 years to
50 years, of related assets.
-5-
(9) Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based on management's
estimate of the collectibility of individual accounts and prior year collection
experience. Smaller-balance homogeneous receivables are evaluated considering
current economic conditions and trends, prior charge-off experience and
delinquencies.
(10) Inventories
Inventories are stated at the lower cost or net realizable value, cost being
determined by 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.
(11) Convertible Bonds
When issuing convertible bonds or bonds with stock purchase warrants, the values
of the conversion rights or stock warrants are recognized separately.
Considerations for conversion rights or stock warrants are measured by deducting
the present value of ordinary or straight debt securities from the gross
proceeds of the convertible bonds or bonds with stock purchase warrants received
at the date of issuance.
The value of the common shares issued pursuant to the exercise of the conversion
rights is 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. When the
conversion rights are exercised during an accounting period, the value of common
shares issued pursuant to the exercise is measured based on the carrying amount
of the convertible bonds determined on the actual date such rights have been
exercised.
(12) Discount on Debentures
Discounts on debentures issued are amortized over the redemption period of
debentures using the effective interest rate method. Amortization of discounts
is recognized as interest expense.
(13) Accrued Severance Indemnities
Employees and directors with more than one year of service are entitled to
receive a lump-sum payment upon termination of their service with the Company
based on their length of service and rate of pay at the time of termination. The
accrued severance indemnities that would be payable assuming all eligible
employees were to resign are W520,891 million and W717,917 million as of
December 31, 2002 and 2003, respectively. Severance indemnities paid amounted to
W15,826 million and W15,084 million in 2002 and 2003, respectively.
Funding of the severance indemnities are not required, however, tax deductions
are limited if the liability is not funded. The Company has purchased severance
insurance deposits, which meet the funding requirement for tax deduction
purposes. These consist of individual severance insurance deposits, in which the
beneficiary is the respective employee, with a balance of W66,449 million and
W82,771 million as of December 31, 2002 and 2003, respectively, which are
presented as deduction from accrued severance indemnities.
The Company and its employees each pay 4.5 percent of monthly pay to the
National Pension Fund under the revised National Pension Law of Korea. Before
April 1999, the Company and its employees paid 3 percent and 6 percent,
respectively, of monthly pay to the Fund. The Company paid half of the
employees' 6 percent portion and is paid back at the termination of service by
offsetting the receivable against the severance payments. Such receivables, with
a balance of W116 million and W97 million as of December 31, 2002 and 2003,
respectively, are presented as a deduction from accrued severance benefits.
-6-
(14) Reserve for Decommissioning Costs and Self-Insurance
The Company accrues expenses for estimated decommissioning costs of nuclear
facilities based on engineering studies prepared in 1992. These expenses are
included in operating expenses in the accompanying statements of income. As of
December 31, 2003, the Company has accrued W 5,091,070 million for the cost of
dismantling and decontaminating existing nuclear power plants, consisting of
dismantling costs of nuclear plant of W1,950,165 million and dismantling costs
of spent fuel and radioactive waste of W3,140,905 million. 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 W583,372 million and W698,400 million as
the reserve for decommissioning costs for the years ended December 31, 2002 and
2003, respectively.
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.
(15) Foreign Currency Transactions and Translations
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 with balances denominated in foreign currencies are recorded and
reported in the accompanying consolidated financial statements at the exchange
rates prevailing at the balance sheet date. The balances have been translated
using the Bank of Korea basic rate, which was W1,200.40 and W1,197.80 to US$1.00
at December 31, 2002 and 2003, respectively. The translation gains or losses are
reflected in current operations. Foreign currency assets and liabilities of the
Company's overseas subsidiaries are translated at the rate at the balance sheet
date, and income and expenses are translated at the weighted average rate of the
reporting period. Gains or losses on translation are offset and the net amount
is recognized as an overseas operations translation debit or credit in capital
adjustments. Overseas operations translation credit or debit is treated as an
extraordinary gain or loss upon closing the foreign subsidiaries.
(16) Accounting for Derivative Instruments
All derivative instruments are accounted for at fair value with the valuation
gain or loss recorded as an asset or liability. If the derivative instrument is
not part of a transaction qualifying as a hedge, the adjustment to fair value is
reflected in current operations. The accounting for derivative transactions that
are part of a qualified hedge based both on the purpose of the transaction and
on meeting the specified criteria for hedge accounting differs depending on
whether the transaction is a fair value hedge or a cash flow hedge. Fair value
hedge accounting is applied to a derivative instrument designated as hedging the
exposure to changes in the fair value of an asset or a liability or a firm
commitment (hedged item) that is attributable to a particular risk. The gain or
loss both on the hedging derivative instruments and on the hedged item
attributable to the hedged risk is reflected in current operations. Cash flow
hedge accounting is applied to a derivative instrument designated as hedging the
exposure to variability in expected future cash flows of an asset or a liability
or a forecasted transaction that is attributable to a particular risk. 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.
-7-
(17) Income Tax Expense
The Company recognizes deferred income taxes arising from temporary differences
between pretax accounting income and taxable income. Accordingly, provision for
income tax expense consists of the corporate income tax and resident tax
surcharges currently payable, and the changes in deferred income assets and
liabilities during the period. However, deferred income tax assets are
recognized only if the future tax benefits on accumulated temporary differences
are realizable. The deferred income tax assets and liabilities will be charged
or credited to income tax expense in the period each temporary difference
reverses in the future. Deferred income taxes will be recalculated based on the
enacted future tax rate in effect at each balance sheet date.
(18) Ordinary Income Per Share and Earnings Per Share
Ordinary income per share and earnings per share are computed by dividing
ordinary income and net income by the weighted average number of common shares
outstanding during the period. The number of shares used in computing earnings
and ordinary income per share is 638,975,080 shares, 639,046,001 shares and
630,372,064 shares for the years ended December 31, 2001, 2002 and 2003,
respectively.
3. PROPERTY, PLANT AND EQUIPMENT:
(1) Asset revaluation
KEPCO has 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 the resultant gain from asset revaluation was
W12,552,973 million.
(2) Publicly announced land prices
The published price of the Company's land as announced by Korean Government
is as follows (won in millions):
Purpose Book value Land prices
---------------------- ---------- -----------
Sites of utility plant W5,593,520 W5,322,945
(3) Changes in utility plant
Changes in utility plant and construction grants for the year ended
December 31, 2003 are shown below (won in millions).
Increase Decrease
December ------------------------ -------------------------- December
31, 2002 Acquisition Other Depreciation Others(*) 31, 2002
------------ ----------- ---------- ------------ ----------- -----------
Land W 5,557,943 W 3,970 W 68,439 W -- W 36,832 W 5,593,520
Buildings 7,514,099 7,408 292,800 494,856 100,929 7,218,522
Structures 22,720,502 1,055 2,203,388 876,301 357,526 23,691,118
Machinery 17,470,324 26,110 1,803,353 3,110,784 177,971 16,011,032
Vehicles 15,601 11,540 870 9,888 197 17,926
Nuclear fuel 1,578,172 427,417 -- 388,949 12,927 1,603,713
Others 991,826 116,001 14,274 134,581 1,125 986,395
Construction
in- progress 7,776,506 6,188,492 29,525 -- 4,443,872 9,550,651
Construction
grants (2,321,219) (618,092) -- -- (180,522) (2,758,789)
----------- ---------- ---------- ---------- ---------- -----------
W61,303,754 W6,163,901 W4,412,649 W5,015,359 W4,950,857 W61,914,088
=========== ========== ========== ========== ========== ===========
(*) Others include the utility plant of Korea Electric Power Industrial
Development Co., Ltd as a result of excluding it from consolidation.
-8-
4. INTANGIBLES:
(1) Changes in intangibles as of December 31, 2003 are shown below (won in
millions).
Acquisition Accumulated December 31,
Useful lives cost amortization 2003
------------ ----------- ------------ ------------
Development cost 5 W204,288 W 63,934 W140,354
Port facility usage right 20 208,919 48,922 159,997
Water usage right 10, 5 168,021 46,227 121,794
Dam usage right 50 7,229 397 6,832
Electricity usage right 10 63,256 34,558 28,698
Others 20~40 136,713 78,395 58,318
-------- -------- --------
W788,426 W272,433 W515,993
======== ======== ========
(2) Estimated amortization expense for the next five years is as follows (won
in millions):
2004 2005 2006 2007 2008
------- ------- ------- ------- -------
Estimated amortization expense W73,944 W67,188 W63,948 W53,031 W41,128
(3) Ordinary development expenses for the years ended December 31, 2002 and
2003 are as follows (won in millions):
2002 2003
-------- --------
Ordinary development expenses W307,391 W332,017
5. INSURED ASSETS:
Insured assets as of December 31, 2003 are as follows (won in millions):
Insured assets Insurance type Insured value
------------------------- -------------------------- -------------
Buildings and machinery Fire insurance W2,845,049
Buildings and machinery Construction insurance 1,881,180
Buildings and machinery Nuclear property insurance 610,878
Buildings General insurance 163,400
Construction in progress Construction insurance 97,357
Inventories and machinery Shipping insurance 2,688,168
In addition, the Company carries compensation and responsibility insurance in
relation to the operation of the nuclear power plants and gas accident,
construction and other general insurance for its utility plants and inventories,
damage insurance for its light water nuclear reactor construction in North
Korea, general insurance for vehicles, casualty insurance for its employees and
responsibility insurance for its directors.
-9-
6. SECURITIES:
(1) Securities as of December 31, 2002 and 2003 are as follows (won in
millions):
2002 2003
---------- ----------
Short-term investment securities
Available-for-sale-securities W 19,881 W 141,585
Held-to-maturity securities 3,255 20,011
---------- ----------
23,136 161,596
---------- ----------
Investment securities
Available-for-sale-securities 137,497 230,744
Held-to-maturity securities 1,540 2,197
Securities subject to equity method 1,214,271 1,296,179
---------- ----------
1,353,308 1,529,120
---------- ----------
W1,376,444 W1,690,716
========== ==========
Held-to-maturity securities are debt securities including government and
municipal bonds.
(2) Available-for-sale securities as of December 31, 2002 and 2003 are as
follows (won in millions):
2002 2003
---------------------- ------------------------------------
Ownership Ownership Acquisition
Company name (%) Book value (%) cost Book value
----------------------------------------------- --------- ---------- --------- ----------- ----------
Other current assets
Fund for debt securities W 19,881 W137,164 W141,585
Investment securities
Securities Market Stabilization Fund 7.57 W 20,744 7.57 W 7,763 W 7,763
Energy Savings Investment Cooperative 40.6 5,000 40.6 5,000 5,000
Korea Power Exchange 100.0 99,709 100.0 125,213 125,213
Hwan Young Steel Co., Ltd. -- 120 -- 1,364 120
Investment securities in treasury stock fund -- 10,772 -- 26,295 17,581
Other equity securities -- 1,152 -- 1,051 1,051
Debt securities -- -- -- 73,412 74,016
-------- -------- --------
137,497 240,098 230,744
-------- -------- --------
W157,378 W377,262 W372,329
======== ======== ========
The Company entered into a treasury stock fund, composed of treasury stock
and other investment securities, and recorded other investment securities
in available-for-sale securities. Losses on valuation of available for sale
securities in the treasury stock fund, which are recorded in capital
adjustments, amount to W8,509 million and W3,689 million as of December 31,
2002 and 2003, respectively.
Available-for-sales securities other than investment securities in treasury
stock fund are non-marketable equity securities and stated at cost due to
the lack of information to determine the fair value.
-10-
(3) Securities subject to the equity method as of December 31, 2002 and 2003 are
as follows (won in millions):
2002 2003
---------------------- -------------------------------------------------
Ownership Book Ownership Acquisition Net asset Book
Company name (%) value (%) cost value value
-------------------------------- --------- ---------- --------- ----------- ---------- ----------
Korea Gas Corporation 24.5 W 690,705 24.5 W 94,500 W 740,280 W 740,280
Korea District Heating Co., Ltd. 26.1 147,716 26.1 5,660 159,165 159,165
Powercomm Corporation 44.0 352,235 43.1 323,470 357,318 350,518
Korea Electric Power Industrial
Development Co., Ltd. -- 49.0 7,987 22,072 22,072
YTN 21.4 23,615 21.4 59,000 24,144 24,144
---------- -------- ---------- ----------
W1,214,271 W490,617 W1,302,979 W1,296,179
========== ======== ========== ==========
In 2003, the Company has disposed some of its investments in Korea Electric
Power Industrial Development Co., Ltd. and Powercomm Corporation, with the
gain on disposal of investments of W45,214 million. In 2002, the Company
has disposed some of its investments in Powercomm Corporation, with the
gain on disposal of investments of W433,335 million.
As of December 31, 2003, unrealized profits of W 6,800 million arisen from
the transactions with Powercomm corporation were eliminated.
(4) Details of valuation using the equity method for the years ended December
31, 2002 and 2003 are as follows (won in millions):
2002 2003
-------------------------------------- ---------------------------------------------------
Gain (loss) Gain (loss)
on valuation on valuation
Book value using the Book value using the Book value
as of equity as of equity as of
January method of January method of December
Company name 1, 2002 accounting Others (*) 1, 2003 accounting Others (*) 31, 2003
------------------------------- ---------- ------------ ---------- ---------- ------------ ---------- ----------
Korea Gas Corporation W710,921 W50,612 W(70,828) W 690,705 W73,329 W(23,754) W 740,280
Korea District Heating Co. 136,533 12,486 (1,303) 147,716 13,486 (2,037) 159,165
Powercomm Corporation -- 33,042 319,193 352,235 6,508 (8,225) 350,518
Korea Electric Power Industrial
Development Co., Ltd. -- -- -- -- 3,107 18,965 22,072
YTN 24,915 (1,287) (13) 23,615 436 93 24,144
-------- ------- -------- ---------- ------- -------- ----------
W872,369 W94,853 W247,049 W1,214,271 W96,866 W(14,958) W1,296,179
======== ======= ======== ========== ======= ======== ==========
(*) 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.
(5) Loss on valuation using the equity method, which are recorded in capital
adjustment as of December 31, 2002 and 2003 are as follows (won in millions):
2002 2003
------- -------
Loss on valuation using the equity method W30,079 W25,560
-11-
7. LOANS TO EMPLOYEES:
The Company has provided housing and tuition loans to employees as follows (won
in millions):
2002 2003
-------- --------
Short-term loans W 14,661 W 16,284
Long-term loans 228,124 251,788
-------- --------
W242,785 W268,072
======== ========
8. INVENTORIES:
Inventories as of December 31, 2002 and 2003 consist of the following (won in
millions):
2002 2003
-------- --------
Raw materials W243,198 W261,497
Supplies 422,508 519,727
Other 55,850 123,709
-------- --------
W721,556 W904,933
======== ========
9. STOCKHOLDERS' EQUITY:
(1) Capital
The Company has 1,200,000,000 authorized shares of W5,000 par value common
stock, of which 640,748,573 shares are issued as of December 31, 2003. In
2003, the Company's capital was increased by W3,238 million (647,697
shares) in the form of fixed asset injection by the government of the
Republic of Korea.
(2) Capital Surplus
Capital surplus as of December 31, 2002 and 2003 is as follows (won in
millions):
2002 2003
----------- -----------
Paid-in capital in excess of par value W 799,876 W 811,301
Reserves for asset revaluation 12,552,973 12,552,973
Other capital surplus 1,130,272 1,180,246
----------- -----------
W14,483,121 W14,544,520
=========== ===========
KEPCO revalued its property, plant and equipment in accordance with the
KEPCO Act and Asset Revaluation Law, and recorded revaluation gain of
W12,552,973 million as reserves for asset revaluation. The reserves for
asset revaluation may be credited to paid-in capital or offset against any
accumulated deficit by resolution of the shareholders.
(3) Appropriated retained earnings
Appropriated retained earnings as of December 31, 2002 and 2003 consist of
the following (won in millions):
2002 2003
----------- -----------
Legal reserve W 1,600,252 W 1,600,252
Reserve for business expansion 8,556,873 10,925,338
Reserve for investment on social overhead capital 4,892,449 5,012,449
Reserve for research and human development 60,000 120,000
----------- -----------
W15,109,574 W17,658,039
=========== ===========
-12-
The KEPCO Act requires the Company to appropriate a legal reserve to at
least 20 percent of net income for each accounting period until the reserve
equals to 50 percent of the common stock. The legal reserve is not
available for cash dividend; however, this reserve may be credited to
paid-in capital or accumulated deficits by resolution of the stockholders.
Prior to 1990, according to the KEPCO Act, at least 20 percent of net
income in each fiscal year was required to be established as a reserve for
business expansion until such reserve equals the common stock. Beginning in
1990, no percentage was specified in respect to this reserve and
appropriations became optional.
The reserve for the investment on social overhead capital and the reserve
for research and human development are appropriated by the Company to avail
of qualified tax credits to reduce corporate tax liabilities. These
reserves are not available for cash dividends for a certain period defined
in the Tax Incentive Control Law. As of December 31, 2003, the amounts of
reserve for investment on social overhead and reserve for research and
human development allowable under the Korean tax law for tax benefits are
W807,610 million and W 175,885 million, respectively.
(4) Capital adjustments
Capital adjustments as of December 31, 2002 and 2003 are as follows (won in
millions):
2002 2003
--------- ---------
Treasury stock W (16,669) W(195,379)
Losses on valuation of available for sale securities (8,509) (3,689)
Losses on valuation using the equity method (30,079) (25,560)
Overseas operations translation (82,971) (97,939)
Valuation gain on currency and interest rate swaps 255 (2,817)
--------- ---------
W(137,973) W(325,384)
========= =========
The Company has its own shares held as treasury stock, amounting to W16,669
million and W195,379 million as of December 31, 2002 and 2003,
respectively, for the purpose of stock price stabilization. The number of
shares held as treasury stock by the Company is 913,375 shares and
10,713,050 shares as of December 31, 2002 and 2003, respectively.
10. DIVIDENDS:
Dividends for the years ended December 31, 2002 and 2003 are as follows (won in
millions):
Outstanding Dividend Dividend Total
stocks rate per share dividend
----------- -------- --------- --------
2002:
Outstanding stocks other
than treasury stock 639,187,501 16% W 800 W511,350
Treasury stock 913,375 -- -- --
----------- --------
640,100,876 W511,350
=========== ========
2003:
Outstanding stocks other
than treasury stock 630,035,523 21% W1,050 W661,537
Treasury stock 10,713,050 -- -- --
----------- --------
640,748,573 W661,537
=========== ========
-13-
11. BORROWINGS AND DEBENTURES:
(1) Short-term borrowings as of December 31, 2002 and 2003 are as follows (won
in millions):
Annual
Financial institution Type interest rate(%) 2002 2003
-------------------------------- ---------- ---------------- -------- --------
Local currency loan
National Agricultural General
Cooperative Federation and
others 3.00~4.10 W -- W 53,245
Foreign currency loan
Korea Exchange Bank and Usance
others and others Libor+0.25~0.35 157,733 156,924
-------- --------
W157,733 W210,169
======== ========
(2) Long-term borrowings as of December 31, 2002 and 2003 are as follows (won in
millions):
Annual interest
Financial institution Type rate (%) 2002 2003
------------------------------------ ------------------- --------------- ---------- -----------
Local currency loan
Korea Development Bank Industrial facility 4.50~9.00 W5,007,813 W 4,951,239
Kookmin Bank General 6.07~6.16 85,714 --
Chohung Bank Industrial facility 5.50 1,455 --
Koram Bank Rural area
development 4.00 50,000 50,000
National Agricultural Cooperative Rural area
Federation development 4.00 -- 50,000
Korea Exchange Bank Energy
rationalization 3.00 -- 6,000
Others General 5.50~6.00 37 29,935
---------- -----------
5,145,019 5,087,174
---------- -----------
Foreign currency loan
Japan Bank of International
Cooperation Facility 6.2~8.2 286,226 260,712
Barclays International Financial
Services (Ireland) Ltd. Commercial 6M Libor-1.00 376,482 187,851
Kredit Anstalt Fur Wieder Aufbau Facility 6.00 180 --
Asia Development Bank " 6.00 1,415 --
National Agricultural Cooperative
Federation " Libor+1.30 18,006 12,833
Korea Development Bank General Libor+0.30~1.50 429,761 283,823
The Export-Import Bank of Korea Purchase of
nuclear fuel Libor+0.70~1.03 260,074 202,454
Korea Exchange Bank Facility Libor+0.15 34,255 17,090
Kookmin Bank " Libor+1.40 22,407 15,970
Norinchukin Bank " Libor+0.19 42,015 41,923
Nippon Life Insurance " Libor+0.19 98,439 98,226
US-EXIM " Govco+0.25~0.30 155,038 141,219
Others " 10.00 -- 1,199
---------- -----------
1,724,298 1,263,300
---------- -----------
6,869,317 6,350,474
Less: Current portion (1,771,805) (1,633,841)
---------- -----------
W5,097,512 W 4,716,633
========== ===========
-14-
(3) Debentures as of December 31, 2002 and 2003 are as follows (won in
millions):
Annual
interest rate (%) 2002 2003
-------------------- ----------- -----------
Domestic debentures
Electricity bonds 4.79~12.43 W 7,125,700 W 6,334,359
Others 4.32~7.75 2,558,703 3,039,030
----------- -----------
9,684,403 9,373,389
----------- -----------
Foreign debentures
FY-93 7.75 2,043,899 419,230
FY-95 3.4~4.15 420,342 464,634
FY-96 3.8~8.278 629,745 660,547
FY-97 6M Libor+0.31~1.65 1,159,764 1,176,117
FY-99 5.75 31,664 37,839
FY-00 2.10~8.25 663,981 695,220
FY-01 1.18~1.27 607,722 671,760
FY-02 6M Libor+0.75, 4.625 1,260,420 1,257,690
FY-03(*) 1.33~4.75 -- 1,149,610
----------- -----------
6,817,537 6,532,647
----------- -----------
16,501,940 15,906,036
Less: Discount on debentures issued (52,474) (76,533)
Current portion (3,881,623) (4,987,425)
----------- -----------
W12,567,843 W10,842,078
=========== ===========
(*) In 2003, the Company has sold to KEPCO Cayman Company Limited the foreign
debentures of US$ 250,000,000 and the right to exchange it into the shares of
Powercomm Corporation held by the Company. Based on these assets, KEPCO Cayman
Company Limited issued foreign debentures of US$ 250,000,000, the details of
which are as follows:
.. Maturity date: November 26, 2008
.. Qualifying Public Offering (QPO): QPO is 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)
.. Exchange 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 the payment guarantees to KEPCO Cayman Company
Limited for the principal and interest of the above foreign debentures.
-15-
(4) Exchangeable bonds as of December 31, 2002 and 2003 are as follows (won in
millions):
Annual
Description interest rate (%) 2002 2003
---------------------------------- ----------------- ----------- -------
Overseas exchangeable bonds 0.00 -- 277,256
Plus: Premium on debentures issued -- 20,987
Less: Conversion right adjustment -- (43,817)
--- -------
-- 254,426
=== =======
On November 4, 2003, the Company has issued overseas exchangeable bonds of JPY
28,245,468,400 with the premium value. The details of the bonds are as follows:
.. Maturity date: November 4, 2008
.. Amount to be paid at maturity: JPY 25,935,061,000
.. Exchange period: From December 15, 2003 to 10th day prior to its maturity
.. Shares to be exchanged: Common stock held by the Company or its equivalent
Deposit Receipt (DR).
.. Exchange price: W30,000 per share
.. Put option: Bond holders have the put option that they can request
redemption at JPY 26,834,000,000 on November 6, 2006.
(5) Foreign currency debt, by currency, as of December 31, 2002 and 2003 is as
follows (won in millions):
2002 2003
----------------------------------- -----------------------------------
Foreign currencies Won equivalent Foreign currencies Won equivalent
------------------ -------------- ------------------ --------------
Short-term borrowings US$ 131,400,198 W 157,733 US$ 131,011,984 W 156,924
---------- ----------
Long-term borrowings US$ 1,421,141,288 1,724,118 US$ 953,128,672 1,151,340
EUR 143,104 180 JPY 10,000,000,000 111,960
---------- ----------
1,724,298 1,263,300
---------- ----------
Debentures US$ 4,130,542,219 W4,965,644 US$ 3,552,030,395 W4,258,819
JPY175,060,000,000 1,773,130 JPY195,060,000,000 2,183,892
EUR 25,183,000 31,664 EUR 25,183,000 37,839
GBP 24,467,000 47,099 GBP 24,467,000 52,097
---------- ----------
6,817,537 6,532,647
---------- ----------
Exchangeable bonds -- JPY 25,935,061,000 277,256
---------- ----------
W8,699,568 W8,230,127
========== ==========
(6) Aggregate maturities of the Company's long-term debt as of December 31,
2003 are as follows (won in millions):
Local Foreign Local Foreign
Year ended currency currency currency currency Exchangeable
December 31 borrowings borrowings debentures debentures bonds Total
----------- ---------- ---------- ---------- ----------- ------------ -----------
2004 W1,254,049 W 379,792 W3,987,273 W1,002,750 W -- W 6,623,864
2005 1,261,767 271,531 1,841,433 1,277,043 -- 4,651,774
2006 1,212,845 217,703 1,429,673 348,656 -- 3,208,877
2007 776,669 89,068 865,010 1,421,769 -- 3,152,516
Thereafter 581,844 305,206 1,250,000 2,482,429 277,256 4,896,735
---------- ---------- ---------- ---------- -------- -----------
W5,087,174 W1,263,300 W9,373,389 W6,532,647 W277,256 W22,533,766
========== ========== ========== ========== ======== ===========
-16-
12. LEASES:
(1) The Company entered into financial lease agreements with Korea Development
Leasing Corp. and others for certain computer systems, of which the
acquisition cost is W35,655 million as of December 31, 2002 and 2003.
Depreciation of the leased assets amounted to W10,804 million and W1,091
million for the years ended December 31, 2002 and 2003, respectively.
(2) Annual payments of the Company under these lease agreements as of December
31, 2003 are as follows (won in millions):
Amount
---------------------------------
Year Financial lease Operating lease
------------------ --------------- ---------------
2004 W 4,799 W1,850
2005 375 92
2006 -- 68
------- ------
Total W 5,174 W2,010
Less: Interest (152) --
Current portion (4,650) --
------- ------
W 372 W2,010
======= ======
13. FOREIGN CURRENCY DENOMINATED ASSETS AND LIABILITIES:
Significant assets and liabilities of the Company (excluding foreign
subsidiaries) denominated in foreign currencies other than those mentioned in
Note 11 as of December 31, 2002 and 2003 are as follows (won in millions):
2002 2003
--------------------------- ---------------------------
Foreign Equivalent Foreign Equivalent
Account currencies(*) Korean Won currencies(*) Korean Won
---------------------------- -------------- ---------- -------------- ----------
Assets:
Cash and cash equivalents US$ 20,051,047 W 24,069 US$ 5,616,964 W 6,728
JPY 653,143 7
Short-term financial
instruments US$ 616,908 741 -- --
Trade receivables US$ 5,711,200 6,855 US$ 7,549,016 9,041
Accounts receivable-other US$ 21,013,291 25,224 US$ 1,289,865 1,545
Other non-current assets US$ 322,203 387 US$ 43,413 52
JPY 5,859,783 59 JPY 5,859,783 66
-------- --------
W 57,335 W 17,439
======== ========
Liabilities:
Trade payables US$112,475,105 W135,016 US$122,962,932 W147,285
Accounts payable-other US$ 2,125,135 2,551 US$ 1,510,269 1,809
EUR 433,907 546 EUR 321,484 483
Accrued expenses US$ 695,932 833
Other current liabilities -- US$ 144,972 173
-------- --------
W138,113 W150,583
======== ========
(*) Foreign currencies other than US$, JPY and EUR are converted into US$.
-17-
14. SWAP TRANSACTIONS:
The Company had entered into the following currency and interest rate swap
transactions with various financial institutions as of December 31, 2003.
(1) Currency swap contracts as of December 31, 2003 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 JPY27,000 7.68 4.15
Mizuho Co., Ltd.
(formerly The Fuji Bank, Ltd.) 1995 2005 US$ 149 JPY14,425 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 JPY10,000 Libor+0.13 3.80
J.P. Morgan Chase Bank 1996 2006 US$ 200 JPY21,000 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 (*) 2002 2007 JPY 76,700 US$ 650 1.18 4.25
Barclays Bank PLC, 3M
London 2002 2007 JPY 30,400 US$ 250 1.04 Libor+0.75
ABN AMRO (***) 2002 2008 KRW181,500 US$ 150 5.95 4.625
Deutsche Bank(**) 2003 2013 KRW178,350 US$ 150 CD+3.3 7.75
Union Bank of Switzerland(**) 2003 2013 KRW148,625 US$ 125 CD+3.3 7.75
Credit Swiss First Boston(**) 2003 2013 KRW 89,175 US$ 75 CD+3.3 7.75
ABN AMRO & Deutsche Bank(****) 2003 2008 KRW185,550 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 KRW177,720 US$ 150 5.12 4.75
(*) If the Republic of Korea declares a default on its debts, KEPCO is to
receive Korean government bonds instead of cash. Valuation for these embedded
derivatives is reflected in the valuation of the currency swap.
(**) The Company has purchased call option in addition to these swaps, under
which the Company can exchange each KRW 5,945,000,000 into the amounts of KRW
5,000,000 multiplied by Spot FX (US$/KRW) until December 22, 2004, and the
valuation for this call option is considered in the valuation of the swaps.
(***) The swaption has an interest pay rate of CD+0.5% and an interest receive
rate of 5.95%, of which an exercise date is January 2006.
(****) The swaption has an interest pay rate of CD+0.15% and an interest receive
rate of 5.30%, of which an exercise date is January 2006.
-18-
(2) Interest rate swap contracts as of December 31, 2003 are as follows:
Contract interest rate per annum
Notional amount --------------------------------------------
in millions Pay (%) Receive (%) Term
--------------- --------------------- -------------------- ---------
J.P. Morgan Securities Ltd. US$ 149 6.91 Libor+0.155 1995-2005
Korea Development Bank US$ 97 6.10 Libor+0.13 1997-2004
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 KRW178,350 5+2 x (JPY/KRW-11.03) CD+3.3 2003-2013
Union Bank of Switzerland KRW148,625 5+2 x (JPY/KRW-11.03) CD+3.3 2003-2013
Credit Swiss First Boston KRW 89,175 5+2 x (JPY/KRW-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 KRW100,000 3M CD+0.35 3Y CMT+0.06 2002-2004
Deutsche Bank KRW100,000 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 CD-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 KRW100,000 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.
-19-
(3) The gains and losses on swaps for the years ended December 31, 2001, 2002
and 2003 are as follows (won in millions):
Other income (expense)
--------------------------------
2001 2002 2003
--------- -------- ---------
Currency swaps
Gains W 79,913 W118,247 W 78,302
Losses (157,109) (35,890) (158,995)
--------- -------- ---------
(77,196) 82,357 (80,693)
--------- -------- ---------
Interest rate swaps
Gains 7,534 9,216 13,975
Losses (62,346) (25,345) (27,374)
--------- -------- ---------
(54,812) (16,129) (13,399)
--------- -------- ---------
Swaptions
Gains -- -- 602
Losses -- (2,220) --
--------- -------- ---------
-- (2,220) 602
--------- -------- ---------
W(132,008) W 64,008 W (93,490)
========= ======== =========
(4) The gains on interest swap contract of W255 million and the losses on
interest swap contract of W2,817 million, classified as cash flow hedge
derivatives, are reflected in capital adjustments for the years ended
December 31, 2002 and 2003, respectively.
15. POWER GENERATION, TRANSMISSION AND DISTRIBUTION EXPENSES:
Power generation, transmission and distribution expenses for the years ended
December 31, 2001, 2002 and 2003 are as follows (won in millions):
2001 2002 2003
----------- ----------- -----------
Fuel W 4,838,318 W 4,405,750 W 4,849,387
Depreciation and amortization 4,660,383 4,777,277 4,921,585
Utility plant removal cost 281,490 256,010 245,974
Maintenance 1,573,065 1,522,221 1,587,488
Labor 969,559 1,098,389 1,241,052
Reserve for decommissioning costs 424,092 583,372 698,400
Research and development 276,629 278,691 296,348
Others 661,976 483,333 551,410
----------- ----------- -----------
W13,685,512 W13,405,043 W14,391,644
=========== =========== ===========
16. SELLING AND ADMINISTRATIVE EXPENSES:
Selling and administrative expenses for years ended December 31, 2001, 2002 and
2003 are as follows (won in millions):
2001 2002 2003
---------- ---------- ----------
Labor W 347,535 W 409,744 W 437,907
Employee benefits 43,422 49,343 56,116
Sales commission 235,311 253,040 280,051
Compensation for damages 2,367 2,107 716
Depreciation and amortization 76,586 57,644 53,914
Promotion 51,085 18,971 19,301
Commission-others 111,194 127,068 109,023
Bad debts 14,883 8,379 23,178
Maintenance 23,573 15,904 26,644
Others 212,399 218,401 229,380
---------- ---------- ----------
W1,118,355 W1,160,601 W1,236,230
========== ========== ==========
-20-
17. INCOME TAX:
The statutory corporate income tax rates (including resident surtax) applicable
to the Company are approximately 30.8 percent for the year ended December 31,
2001 and 29.7 percent for the years ended December 31, 2002 and 2003. Income tax
and effective tax rate for the years ended December 31, 2001, 2002 and 2003 are
as follows (won in millions):
2001 2002 2003
---------- ---------- ----------
Income tax currently payable W 535,831 W 928,844 W 577,750
Changes in deferred income taxes 211,749 339,634 205,870
---------- ---------- ----------
747,580 1,268,478 783,620
Income tax of subsidiaries 545,553 835,314 979,651
---------- ---------- ----------
Income tax W1,293,133 W2,103,792 W1,763,271
========== ========== ==========
Effective tax rate 44.1% 40.7% 42.9%
========== ========== ==========
18. RELATED PARTY TRANSACTIONS:
(1) Significant transactions between KEPCO and related parties for the years
ended December 31, 2002 and 2003 are as follows. These were eliminated in
the consolidation (won in millions):
Transaction 2002 2003
---------------------------------------------- ----------- -----------
Sales and other income:
Korea Hydro & Nuclear Power Co., Ltd. Sales of electricity and others W 138,270 W 92,380
Korea South-East Power Co., Ltd. " 41,148 49,124
Korea Midland Power Co., Ltd. " 21,734 26,749
Korea Western Power Co., Ltd. " 38,022 34,025
Korea Southern Power Co., Ltd. " 17,788 18,604
Korea East-West Power Co., Ltd. " 42,586 35,817
Others " 72,095 86,327
----------- -----------
W 371,643 W 343,026
=========== ===========
Purchases and others:
Korea Hydro & Nuclear Power Co., Ltd. Purchase of electricity W 4,636,130 W 5,065,317
Korea South-East Power Co., Ltd. " 1,449,355 1,454,157
Korea Midland Power Co., Ltd. " 1,598,036 1,781,897
Korea Western Power Co., Ltd. " 2,011,776 2,122,901
Korea Southern Power Co., Ltd. " 1,785,817 2,048,591
Korea East-West Power Co., Ltd. " 1,844,336 1,867,833
Korea Power Engineering Co., Inc. Designing of the power plant 41,399 40,396
Korea Plant Service & Engineering Co., Ltd. Utility plant maintenance 38,744 40,251
Korea Electric Power Data Network Co., Ltd. Maintenance of computer system 153,301 203,074
Others Maintenance service 154,349 168,552
----------- -----------
W13,713,243 W14,792,969
=========== ===========
-21-
(2) Receivables arising from related parties transactions as of December 31,
2002 and 2003 are as follows. These were eliminated in the consolidation
(won in millions):
2002 2003
------- -------------------------------------
Related party Total Trade receivables Others Total
------------------------------------- ------- ----------------- ------- -------
Korea Hydro & Nuclear Power Co., Ltd. W 8,020 W -- W 319 W 319
Korea South-East Power Co., Ltd. 3,639 1,778 367 2,145
Korea Midland Power Co., Ltd. 382 1,107 2,232 3,339
Korea Western Power Co., Ltd. 3,145 1,940 248 2,188
Korea Southern Power Co., Ltd. 1,647 1,157 360 1,517
Korea East-West Power Co., Ltd. 4,518 1,978 213 2,191
Others 10,603 1,990 9,607 11,597
------- ------ ------- -------
W31,954 W9,950 W13,346 W23,296
======= ====== ======= =======
(3) Payables arising from related parties transactions as of December 31, 2002
and 2003 are as follows. These were eliminated in the consolidation (won in
millions):
2002 2003
---------- --------------------------------------
Related party Total Trade payables Others Total
------------------------------------------- ---------- -------------- -------- ----------
Korea Hydro & Nuclear Power Co., Ltd. W 368,509 W 379,121 W 1,954 W 381,075
Korea South-East Power Co., Ltd. 124,031 117,954 4,411 122,365
Korea Midland Power Co., Ltd. 168,410 145,548 9,387 154,935
Korea Western Power Co., Ltd. 176,816 167,876 140 168,016
Korea Southern Power Co., Ltd. 130,181 179,803 93 179,896
Korea East-West Power Co., Ltd. 142,017 142,776 223 142,999
Korea Power Engineering Co., Inc. 7,108 - 5,909 5,909
Korea Plant Service & Engineering Co., Ltd. 6,845 - 5,509 5,509
Korea Electric Power Data Network Co., Ltd. 25,502 - 56,334 56,334
Others 22,593 4,363 19,619 23,982
---------- ---------- -------- ----------
W1,172,012 W1,137,441 W103,579 W1,241,020
========== ========== ======== ==========
19. COMMITMENTS AND CONTINGENCIES:
(1) The Company is engaged in 299 lawsuits as a defendant and 47 lawsuits as a
plaintiff. The total amount claimed from the Company is W202,315 million
and the amount claimed by the Company is W18,500 million as of December 31,
2003. The outcome of these lawsuits cannot presently be determined.
(2) The Company has been provided a credit (overdraft) line amounting to
W1,468,000 million by banks including the National Agricultural Cooperative
Federation as of December 31, 2003.
-22-
(3) The debt repayment guarantees, which KEPCO has provided for its related
parties in connection with the related parties' borrowings as of December
31, 2003 are as follows:
Loan type Guaranteed Company Financial institutions Amount
--------------------- ------------------------ ---------------------- --------------
Foreign currency loan KEPCO International Hong Nippon Life Insurance
Kong Ltd. US$ 82,006,000
" " Norinchukin Bank US$ 35,000,000
" " Korea Development Bank US$ 9,272,000
" KEPCO Philippines Korea Development Bank
Corporation US$ 45,435,000
--------------
US$171,713,000
(4) KEPCO Ilijan Corporation, which is a subsidiary of KEPCO International
Philippines Inc., is engaged in the power generation business in the
Philippines. KEPCO Ilijian Corporation has borrowed US$ 393,458,586 by
project financing from Japan Bank of International Cooperation and others.
In relation to these borrowings, KEPCO has provided repayment guarantees
for some of the borrowings of KEPCO Ilijan Corporation. In addition, KEPCO
has provided Japan Bank of International Cooperation and others with a
performance guarantee for the power generation business of KEPCO Ilijan
Corporation.
(5) KEPCO's debts of W17,646,157 million, including borrowings of W13,825,884
million, were transferred to the power generation subsidiaries at the time
of spin-off. KEPCO and power generation subsidiaries are jointly and
severally liable for the liabilities as of spin-off date, under the
Commercial Code of the Republic of Korea. Details of these borrowings
outstanding as of December 31, 2003 by the debtor are as follows (won in
millions):
Debtor Amounts
------------------------------------- ---------
KEPCO 1,203,052
Korea Hydro & Nuclear Power Co., Ltd. 1,501,535
Korea South-East Power Co., Ltd. 307,825
Korea Midland Power Co., Ltd. 163,470
Korea Western Power Co., Ltd. 186,759
Korea Southern Power Co., Ltd. 537,449
Korea East-West Power Co., Ltd. 751,917
---------
4,652,007
=========
(6) Korea Development Bank has provided the repayment guarantees of
US$151,263,250 for the Company's commercial borrowings. In addition, Korea
Development Bank has also provided the repayment guarantee for some of
foreign currency debentures of the Company, which existed at the time of
spin-off, but not redeemed as of December 31, 2003, instead of the
collective responsibilities of the power generation subsidiaries to
facilitate the Restructuring Plan. Guarantee amounts by currency are as
follows:
USD JPY EUR GBP
------------- -------------- ---------- ----------
Guaranteed amounts 2,234,611,791 44,126,200,000 26,634,989 32,785,780
(including interest)
(7) The Company has provided 1 promissory note of W1,771 million to Hyundai
Heavy Industry, Co., Ltd. as a guarantee for performance of contract.
(8) The Company entered into a turnkey contract with the Korea Peninsula Energy
Development Organization (KEDO) on December 15, 1999, to construct two
1,000,000 KW-class pressurized light-water reactor units in North Korea.
The contract amount is US$ 4,182 million and subject to adjustment to cover
any changes in the price level. As of December 31, 2003, the construction
projects are temporarily suspended due to the political environments
surrounding the Korean peninsula.
-23-
(9) 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 those
companies amounted to W987,272 million, W1,140,810 million and W1,055,081
million for the years ended December 31, 2001 ,2002 and 2003, respectively.
20. SEGMENT INFORMATION:
(1) The following table provides information for each operating segments as of
and for the years ended December 31, 2001, 2002 and 2003 (won in millions).
2001
----------------------------------------------------------------------------
Electric business
-------------------------------
Transmission Power Consolidation
& distribution generation(*1) All other adjustments Consolidated
-------------- -------------- ----------- ------------- ------------
Unaffiliated revenues W 18,863,802 W -- W 1,361,186 W -- W 20,224,988
Intersegment revenues 589,201 9,615,336 1,044,766 (11,249,303) --
------------ ----------- ----------- ------------ ------------
Total revenues 19,453,003 9,615,336 2,405,952 (11,249,303) 20,224,988
Cost of goods sold (16,645,119) (7,827,444) (1,745,215) 11,099,972 (15,117,806)
Selling and administrative expenses (891,024) (106,387) (120,867) (77) (1,118,355)
------------ ----------- ----------- ----------- ------------
Operating income 1,916,860 1,681,505 539,870 (149,408) 3,988,827
Interest income 31,475 42,620 19,018 (4,686) 88,427
Interest expense (805,688) (353,237) (48,940) 4,686 (1,203,179)
Gain on valuation using the equity
method of accounting (*) 1,309,848 -- -- (1,212,300) 97,548
Other income, net 28,088 153,054 (28,094) (192,947) (39,899)
------------ ----------- ----------- ------------ ------------
Earnings before income tax 2,480,583 1,523,942 481,854 (1,554,655) 2,931,724
Income tax expense (747,580) (520,027) (34,280) 8,754 (1,293,133)
------------ ----------- ----------- ------------ ------------
Segment earning before minority interests 1,733,003 1,003,915 447,574 (1,545,901) 1,638,591
Utility and non-utility plant 27,158,901 32,364,535 2,398,339 (198,047) 61,723,728
Total assets 30,145,577 37,416,984 3,963,388 (963,806) 70,562,143
Capital expenditures 4,790,219 2,322,810 247,884 (62,189) 7,298,724
(*) Power generation represents the resul t of operations for the period from
April 2, 2001 to December 31, 2001.
-24-
2002
--------------------------------------------------------------------------
Electric business
-----------------------------
Transmission Power Consolidation
& distribution generation All other adjustments Consolidated
-------------- ------------ ----------- ------------- ------------
Unaffiliated revenues W 20,406,404 W -- W 959,271 W -- W 21,365,675
Intersegment revenues 309,893 13,404,975 841,006 (14,555,874) --
------------ ------------ ----------- ------------ ------------
Total revenues 20,716,297 13,404,975 1,800,277 (14,555,874) 21,365,675
Cost of goods sold (17,897,871) (10,348,054) (1,481,333) 14,568,967 (15,158,291)
Selling and administrative expenses (940,016) (153,324) (81,905) 14,644 (1,160,601)
------------ ------------ ----------- ------------ ------------
Operating income 1,878,410 2,903,597 237,039 27,737 5,046,783
Interest income 23,710 46,982 22,233 (1,996) 90,929
Interest expense (627,954) (360,606) (29,858) 1,996 (1,016,422)
Gain on valuation using the equity
method of accounting 2,178,492 -- 18,566 (2,102,205) 94,853
Other income, net 871,284 101,946 (1,622) (16,893) 954,715
------------ ------------ ----------- ------------ ------------
Earnings before income tax 4,323,942 2,691,919 246,358 (2,091,361) 5,170,858
Income tax expense (1,268,478) (792,863) (39,685) (2,766) (2,103,792)
------------ ------------ ----------- ------------ ------------
Segment earning before minority interests 3,055,464 1,899,056 206,673 (2,094,127) 3,067,066
Utility and non-utility plant 28,157,412 32,145,415 1,200,843 (199,916) 61,303,754
Total assets 31,792,880 36,933,338 2,604,890 (818,989) 70,512,119
Capital expenditures 3,461,673 3,146,396 97,103 (52,106) 6,653,066
2003
--------------------------------------------------------------------------
Electric business
-----------------------------
Transmission Power Consolidation
& distribution generation All other adjustments Consolidated
-------------- ------------ ----------- ------------- ------------
Unaffiliated revenues W 21,834,288 W -- W 940,306 W -- W 22,774,594
Intersegment revenues 253,167 14,348,938 956,299 (15,558,404) --
------------ ------------ ----------- ------------ ------------
Total revenues 22,087,455 14,348,938 1,896,605 (15,558,404) 22,774,594
Cost of goods sold (19,285,025) (11,138,278) (1,429,265) 15,538,002 (16,314,566)
Selling and administrative expenses (992,116) (167,479) (90,120) 13,485 (1,236,230)
------------ ------------ ---------- ------------ ------------
Operating income 1,810,314 3,043,181 377,220 (6,917) 5,223,798
Interest income 38,780 34,585 27,663 (1,131) 99,897
Interest expense (583,557) (207,374) (39,488) 676 (829,743)
Gain on valuation using the equity
method of accounting 2,123,518 -- 23,616 (2,050,268) 96,866
Other income, net (291,991) (145,207) (588) (43,143) (480,929)
------------ ------------ ----------- ------------ ------------
Earnings before income tax 3,097,064 2,725,185 388,423 (2,100,783) 4,109,889
Income tax expense (783,620) (948,458) (35,865) 4,672 (1,763,271)
------------ ------------ ----------- ------------ ------------
Segment earning before minority interests 2,313,444 1,776,727 352,558 (2,096,111) 2,346,618
Utility and non-utility plant 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
Capital expenditures 3,624,453 3,103,081 105,508 (51,049) 6,781,993
-25-
(2) The following summary shows the details of revenues from the sale of
electric power for the years ended December 31, 2001, 2002 and 2003 (won in
millions).
2001 2002 2003
----------- ----------- -----------
Industrial W 8,312,651 W 8,922,547 W 9,518,541
Commercial 5,123,306 5,895,673 6,198,741
Residential 4,787,878 5,081,424 5,494,326
Others 639,967 506,760 622,680
----------- ----------- -----------
W18,863,802 W20,406,404 W21,834,288
=========== =========== ===========
21. STATEMENTS OF CASH FLOWS:
(1) Cash in the statements of cash flows represents cash and cash equivalents
in the balance sheets.
(2) Transactions not involving cash flows for the years ended December 31,
2001, 2002 and 2003 are as follows (won in millions):
2001 2002 2003
---------- ---------- ----------
Reclassification of long-term loans to current portion of long-term
loans W 19,881 W 10,905 W 11,255
Reclassification of construction in progress to utility plant 6,593,638 8,776,599 4,443,872
Reclassification of property, plant and equipment to inventories 178,945 -- --
Reclassification of long-term debt to current portion of long-term
debt 4,735,632 4,440,013 6,623,864
-26-
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/ Kim, Myung-Whan
---------------------------------------
Name: Kim, Myung-Whan
Title: General Manager
International Finance Department
Date: April 20, 2004