-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VvWO+oxi04HgpVHj5/63NZb8q6qUh6k9bQ/J2eFkZE3Yc1pXaVVLt2WR3i2zxLK8 NH12lg1uJB18Iw1rd2mObw== 0001193125-04-066013.txt : 20040421 0001193125-04-066013.hdr.sgml : 20040421 20040421071747 ACCESSION NUMBER: 0001193125-04-066013 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20040420 FILED AS OF DATE: 20040421 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KOREA ELECTRIC POWER CORP CENTRAL INDEX KEY: 0000887225 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 133442428 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13372 FILM NUMBER: 04744124 BUSINESS ADDRESS: STREET 1: 167, SAMSONG-DONG STREET 2: KANGNAM-KU CITY: SEOUL 135-7911 KOREA STATE: NY ZIP: 10286 BUSINESS PHONE: 2018948855 MAIL ADDRESS: STREET 1: 167 SAMSEENG DONG GANGNAMGU CITY: SEOUL STATE: MO ZIP: 999999999 6-K 1 d6k.txt FORM 6K 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 -----END PRIVACY-ENHANCED MESSAGE-----