-----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, EN7kOMDEqt191OVz9zUhnPXjPXdCCMfIgmnUDjosnna3OpOZ1XI1/UaJpcty+hcv LM4bWa4WdiUD6Lhn+ZKsTQ== 0001193125-04-099209.txt : 20040607 0001193125-04-099209.hdr.sgml : 20040607 20040607070248 ACCESSION NUMBER: 0001193125-04-099209 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20040604 FILED AS OF DATE: 20040607 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: 04850920 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 6-K 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 June, 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 Non-consolidated Financial Statements (Unaudited) As of March 31, 2004 (With Independent Accountants' Review Report Thereon) Independent Accountants' Review Report Based on a report originally issued in Korean The Board of Directors and Stockholders Korea Electric Power Corporation: We have reviewed the accompanying non-consolidated balance sheet of Korea Electric Power Corporation (the "Company") as of March 31, 2004 and the related non-consolidated statements of income and cash flows for the three-month period then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to issue a report on these financial statements based on our review. We did not review the financial statements of Korea Southern Power Co., Ltd., Korea Midland Power Co., Ltd. and Korea South-East Power Co., Ltd. whose total assets constituted 11.1% of the total non-consolidated assets as of March 31, 2004, and whose total income constituted 15.7% of non-consolidated income before income tax for the three-month period then ended. These financial statements were reviewed by other accountants whose reports have been furnished to us, and our report, insofar as it relates to the amounts included for Korea Southern Power Co., Ltd., Korea Midland Power Co., Ltd. and Korea South-East Power Co., Ltd., is based solely on the reports of the other accountants. We conducted our review in accordance with the Review Standards for Semiannual Financial Statements established by the Securities and Futures Commission of the Republic of Korea. These Standards require that we plan and perform the review to obtain moderate assurance as to whether the financial statements are free of material misstatement. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data and, thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion. Based on our review and the reports of the other accountants, nothing has come to our attention that causes us to believe that the financial statements referred to above are not presented fairly, in all material respects, in accordance with the Korea Electric Power Corporation Act, the Accounting Regulations for Government Invested Enterprises and the Financial Accounting Standards, as established by the Financial Supervisory Commission of the Republic of Korea. The accompanying non-consolidated statements of income and cash flows for the three-month period ended March 31, 2003, presented for comparative purpose, were reviewed by other accountants, whose report dated May 6, 2003 stated that they were not aware of any material modifications that should have been made to the financial statements in order for them to be in conformity with the Korea Electric Power Corporation Act, the Accounting Regulations for Government Invested Enterprises and the Financial Accounting Standards as established by the Financial Supervisory Commission of the Republic of Korea. The accompanying non-consolidated balance sheet of the Company as of December 31, 2003 and the related non-consolidated statements of operations, changes in stockholders' equity and cash flows for the year then ended, which are not accompanying this report were audited by other accountants and their report thereon, dated February 11, 2004, expressed an unqualified opinion. The accompanying non-consolidated balance sheet of the Company as of December 31, 2003, presented for comparative purposes is not different from the above-stated balance sheet audited by other accountants in all material respects. The accompanying financial statements have been translated into United States dollars solely for the convenience of the reader and have been translated on the basis set forth in Note 2 to the non-consolidated financial statements. The following matters may be helpful to the readers in their understanding of the financial statements: As discussed in Note 1(b) to the financial statements, 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. In addition, the procedures and practices utilized in the Republic of Korea to review 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 discussed in Note 7 and 26, sales and purchases to and from related parties, including the six power generation subsidiaries, amounted to W132,692 million and W3,961,410 million, respectively, for the three-month period ended March 31, 2004. Related receivables and payables amounted to W302,486 million and W1,168,085 million, respectively, as of March 31, 2004. The Company is providing debt guarantees to the extent not exceeding US$ 274,395 thousand for its foreign related subsidiaries including KEPCO Ilijan Co. The Company also has loans of W161,203 million to employees as of March 31, 2004. The Company and its six power generation companies including Korea Hydro & Nuclear Power Co., Ltd. are jointly and severally liable for outstanding debts as of March 31, 2004 assumed by each company at the time of spin-off on April 2, 2001 under the Commercial Code of the Republic of Korea. The Company is providing joint and several liability guarantee for debts of its six power generation companies amounting to W2,122,167 million and the six power generation companies are providing such a guarantee for debts of the Company amounting to W 128,037 million. The Company is also provided with guarantees for its certain foreign currency debt by the Korea Development Bank, one of its major shareholders. KPMG Samjong Accounting Corp. Seoul, Korea April 30, 2004 - -------------------------------------------------------------------------------- This report is effective as of April 30, 2004, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any. - -------------------------------------------------------------------------------- Korea Electric Power Corporation Non-Consolidated Balance Sheets March 31, 2004 and December 31, 2003 (Unaudited) (In millions of Won and in thousands of U.S. dollars)
Won U.S. dollars (note 2) ------------------------ ------------------------ Assets 2004 2003 2004 2003 ------ ----------- ---------- ----------- ---------- Property, Plant and Equipment (notes 3, 5, 16 and 26): Utility plant W37,540,959 37,235,281 $32,542,441 32,277,463 Less: accumulated depreciation (7,868,494) (7,472,373) (6,820,816) (6,477,438) Less: construction grants (2,826,140) (2,758,789) (2,449,844) (2,391,461) ----------- ---------- ----------- ---------- 26,846,325 27,004,119 23,271,781 23,408,564 Construction in-progress 2,426,026 2,266,928 2,103,004 1,965,090 ----------- ---------- ----------- ---------- 29,272,351 29,271,047 25,374,785 25,373,654 ----------- ---------- ----------- ---------- Investments and others: Investment securities (note 6) 24,541,514 23,865,370 21,273,851 20,687,733 Long-term loans (note 7) 151,811 142,368 131,597 123,412 Long-term other accounts receivable, less discount on present value of W 10,375 in 2004 and W 35,576 in 2003 and allowance for doubtful accounts of W15,500 in 2004 and 2003 (note 19) 239,125 213,924 207,286 185,440 Currency and interest rate swaps (note 21) 200,480 124,345 173,786 107,789 Intangibles (note 4) 139,835 144,367 121,216 125,145 Other non-current assets (notes 8 and 17) 150,192 143,110 130,194 124,056 ----------- ---------- ----------- ---------- 25,422,957 24,633,484 22,037,930 21,353,575 ----------- ---------- ----------- ---------- Current assets: Cash and cash equivalents (notes 9 and 17) 687,371 366,817 595,848 317,976 Trade receivables, less allowance for doubtful accounts of W 30,187 in 2004 and W 27,787 in 2003 (notes 17 and 26) 1,501,138 1,501,949 1,301,264 1,301,967 Other account receivables, less allowance for doubtful accounts of W14,112 in 2004 and W14,184 in 2003 and present value discount of W19,843 in 2004 (notes 17, 19 and 26) 383,023 434,648 332,024 376,775 Short-term financial instruments (note 10) 61,000 61,000 52,878 52,878 Inventories (note 11) 86,795 78,796 75,238 68,304 Other current assets (notes 7 and 12) 152,384 121,921 132,095 105,687 ----------- ---------- ----------- ---------- 2,871,711 2,565,131 2,489,347 2,223,587 ----------- ---------- ----------- ---------- Total assets W57,567,019 56,469,662 $49,902,062 48,950,816 =========== ========== =========== ==========
Korea Electric Power Corporation Non-Consolidated Balance Sheets, Continued March 31, 2004 and December 31, 2003 (Unaudited) (In millions of Won and in thousands of U.S. dollars, except share data)
Won U.S. dollars (note 2) ------------------------ ------------------------ Liabilities and Shareholders' Equity 2004 2003 2004 2003 ------------------------------------ ----------- ---------- ----------- ---------- Stockholders' equity: Common stock of W 5,000 par value Authorized - 1,200,000,000 shares Issued and outstanding - 640,748,573 shares W 3,203,743 3,203,743 $ 2,777,170 2,777,170 Capital surplus (note 13) 14,371,048 14,373,779 12,457,566 12,459,933 Retained earnings (note 14) Appropriated 19,554,340 17,899,939 16,950,710 15,516,591 Unappropriated 1,047,930 2,315,938 908,400 2,007,575 Capital adjustments (note 15) (162,305) (150,681) (140,694) (130,618) ----------- ---------- ----------- ---------- Total shareholders' equity 38,014,756 37,642,718 32,953,152 32,630,651 ----------- ---------- ----------- ---------- Long-term liabilities: Long-term borrowings (notes 16 and 26) 9,096,260 9,641,037 7,885,109 8,357,348 Reserve for retirement and severance benefit, net (note 18) 326,936 316,408 283,405 274,279 Reserve for self insurance 87,746 87,926 76,062 76,219 Currency and interest rate swaps (note 21) 158,491 178,283 137,388 154,545 Deferred income tax liabilities (note 24) 1,650,972 1,462,016 1,431,148 1,267,351 Other long-term liabilities 461,679 486,981 400,207 422,138 ----------- ---------- ----------- ---------- 11,782,084 12,172,651 10,213,319 10,551,880 ----------- ---------- ----------- ---------- Current liabilities: Trade payables (note 26) 1,221,879 1,256,526 1,059,188 1,089,222 Other accounts payable (note 26) 323,807 571,772 280,692 495,641 Short-term borrowings -- 16,245 -- 14,082 Current portion of long-term debt (note 16) 4,579,767 4,030,652 3,969,978 3,493,977 Income tax payable 355,625 164,170 308,274 142,311 Accrued expenses 124,632 146,094 108,037 126,642 Dividends payable 663,848 2,324 575,458 2,015 Other current liabilities (note 20) 500,621 466,510 433,964 404,395 ----------- ---------- ----------- ---------- 7,770,179 6,654,293 6,735,591 5,768,285 ----------- ---------- ----------- ---------- Total liabilities 19,552,263 18,826,944 16,948,910 16,320,165 ----------- ---------- ----------- ---------- Commitments and contingencies (note 27) Total shareholders' equity and liabilities W57,567,019 56,469,662 $49,902,062 48,950,816 =========== ========== =========== ==========
See accompanying notes to non-consolidated financial statements. Korea Electric Power Corporation Non-Consolidated Statements of Income For the three-month periods ended March 31, 2004 and 2003 (Unaudited) (In millions of Won and in thousands of U.S. dollars, except earnings per share)
Won U.S. dollars (note 2) ---------------------- ---------------------- 2004 2003 2004 2003 ---------- --------- ---------- --------- Operating revenues: Sale of electricity (note 26) W5,853,050 5,535,832 $5,073,726 4,798,745 Other operating revenues (note 27) 13,149 75,873 11,398 65,771 ---------- --------- ---------- --------- 5,866,199 5,611,705 5,085,124 4,864,516 ---------- --------- ---------- --------- Operating expenses (notes 22, 23 and 26): Power generation, transmission, distribution 718,646 716,910 622,959 621,455 Purchased power 4,219,580 4,172,423 3,657,750 3,616,872 Other operating costs 11,952 75,203 10,361 65,190 Selling and administrative expenses 221,923 205,156 192,374 177,840 ---------- --------- ---------- --------- 5,172,101 5,169,692 4,483,444 4,481,357 ---------- --------- ---------- --------- Operating income 694,098 442,013 601,680 383,159 Other income (expenses): Interest income 9,944 10,534 8,620 9,131 Interest expense (152,256) (148,067) (131,983) (128,352) Gain (loss) on foreign currency transactions and translation, net 188,010 (284,376) 162,976 (246,512) Donations (5,871) (1,715) (5,089) (1,487) Rental income 32,070 25,872 27,800 22,427 Equity income of affiliates (note 6) 703,449 710,137 609,786 615,583 Gain on disposal of investments, net (note 6) 7,472 44,626 6,477 38,684 Loss on disposal of utility plant, net 490 (3,884) 425 (3,367) Valuation gain (loss) on currency and interest rate swaps, net (note 21) 13,202 (20,135) 11,445 (17,454) Other, net (6,151) 16,637 (5,333) 14,422 ---------- --------- ---------- --------- 790,359 349,629 685,124 303,075 ---------- --------- ---------- --------- Income before income taxes 1,484,457 791,642 1,286,804 686,234 Income taxes (note 24) (436,527) (237,599) (378,404) (205,963) ---------- --------- ---------- --------- Net income W1,047,930 554,043 $ 908,400 480,271 ========== ========= ========== ========= Earnings per share (note 25) W 1,664 875 $ 1.44 0.76 ========== ========= ========== =========
See accompanying notes to non-consolidated financial statements. Korea Electric Power Corporation Non-Consolidated Statements of Cash Flows For the three month-periods ended March 31, 2004 and 2003 (Unaudited) (In millions of Won and in thousands of U.S. dollars)
Won U.S. dollars (note 2) --------------------- --------------------- 2004 2003 2004 2003 ---------- -------- --------- -------- Cash flows from operating activities: Net income W1,047,930 554,043 $ 908,400 480,271 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 401,619 376,053 348,144 325,981 Provision for severance and retirement benefits 12,460 6,879 10,801 5,963 Bad debt expenses 5,245 3,817 4,547 3,309 Interest expense 4,381 2,128 3,798 1,845 Loss (gain) on foreign currency translation, net (188,252) 283,723 (163,186) 245,946 Equity income of affiliates (703,449) (710,137) (609,786) (615,583) Gain on disposal of investments, net (7,472) (44,626) (6,477) (38,684) Loss (gain) on disposal of utility plant, net (490) 3,884 (425) 3,367 Deferred income tax expense 186,437 187,937 161,613 162,913 Valuation loss (gain) on currency and interest rate swaps (13,202) 20,135 (11,445) 17,454 Changes in assets and liabilities: Decrease (increase) in trade receivables (4,461) 11,982 (3,867) 10,387 Decrease in other accounts receivable 31,782 14,937 27,551 12,948 Decrease in inventories 5,769 25,555 5,001 22,152 Increase in other current assets (30,341) (34,541) (26,301) (29,942) Increase in trade payables (34,647) (65,019) (30,034) (56,362) Increase in other accounts payable (247,970) (137,855) (214,953) (119,500) Increase (decrease) in income tax payable 191,455 (240,968) 165,963 (208,883) Increase (decrease) in accrued expenses (21,462) 21,809 (18,605) 18,906 Increase in other current liabilities 34,111 45,220 29,569 39,199 Decrease in other long-term liabilities (25,301) (1,012) (21,932) (877) Payment of severance and retirement benefits (1,932) (744) (1,675) (645) Payment of self-insurance (180) (335) (156) (291) Other, net 20,173 25,744 17,487 22,318 ---------- -------- --------- -------- Net cash provided by operating activities 662,203 348,609 574,032 302,192 ---------- -------- --------- --------
Korea Electric Power Corporation Non-Consolidated Statements of Cash Flows For the three month periods ended March 31, 2004 and 2003 (Unaudited) (In millions of Won and in thousand of U.S. dollars)
Won U.S. dollars (note 2) ------------------- --------------------- 2004 2003 2004 2003 -------- -------- --------- --------- Cash flows from investing activities: Proceeds from disposal of utility plant W 1,036 18,428 $ 898 15,975 Additions to utility plant (554,880) (786,105) (480,998) (681,437) Receipt of construction grants 117,493 123,238 101,849 106,829 Proceeds from disposal of investment securities 5,214 64,390 4,520 55,817 Acquisition of investment securities (23) (8,000) (20) (6,935) Collection of long-term loans 965 888 837 770 Extension of long-term loans (12,843) (13,003) (11,133) (11,271) Acquisition of intangibles (172) (2,527) (149) (2,190) Collection of short-term loans 2,309 2,110 2,002 1,829 Decrease in other non-current assets 8,154 1,719 7,068 1,489 -------- -------- --------- -------- Net cash used in investing activities (432,747) (598,862) (375,126) (519,124) -------- -------- --------- -------- Cash flows from financing activities: Proceeds from long-term debt 370,181 429,699 320,892 372,485 Payment of short-term borrowings (16,245) -- (14,082) -- Payment of long-term debt (181,431) (141,786) (157,274) (122,908) Acquisition of treasury stock -- (180,120) -- (156,137) Other, net (81,407) (80,980) (70,568) (70,198) -------- -------- --------- -------- Net cash provided by financing activities 91,098 26,813 78,966 23,242 -------- -------- --------- -------- Net increase (decrease) in cash and cash equivalents 320,554 (223,440) 277,872 (193,690) Cash and cash equivalents, at beginning of the period 366,817 610,056 317,976 528,828 -------- -------- --------- -------- Cash and cash equivalents, at end of the period W 687,371 386,616 $ 595,848 335,138 ======== ======== ========= ========
See accompanying notes to non-consolidated financial statements. Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements March 31, 2004 and 2003 (Unaudited) (1) Summary of Significant Accounting Policies and Basis of Presenting Financial Statements (a) Description of Business Korea Electric Power Corporation (the "Company") was incorporated on January 1, 1982 in accordance with the Korea Electric Power Corporation Act (the "KEPCO Act") to engage in the generation, transmission and distribution of electricity and development of electric power resources in the Republic of Korea. The Company was given a status of government-invested enterprise on December 31, 1983 following the enactment of the Government-Invested Enterprise Management Basic Act. The Company's stock was listed on the Korea Stock Exchange on August 10, 1989 and the Company listed its Depository Receipts (DR) on the New York Stock Exchange on October 27, 1994. As of March 31, 2004, the Government of the Republic of Korea, Korea Development Bank and foreign investors hold 32.42%, 21.55% and 28.77%, respectively, of the Company's shares. The Company spun off its power generation division on April 2, 2001, resulting in the establishment of six new power generation subsidiaries. The Company has been considering the gradual privatization of the Company's power generation subsidiaries and distribution business, which is in accordance with the restructuring plan, dated January 21, 1999, of the electricity industry in the Republic of Korea announced by the Ministry of Commerce, Industry and Energy ("Restructuring Plan"). This Restructuring Plan, which is intended to introduce a competitive system in the electricity industry, is expected to affect the determination of utility rates, result in changes in management structure, related laws and regulations, and affect electricity supply and demand policy. (b) Basis of Presenting Financial Statements The Company maintains its accounting records in Korean Won and prepares statutory financial statements in the Korean language (Hangul) in conformity with the Korea Electric Power Corporation Act ("KEPCO Act"), the Accounting Regulations for Government Invested Enterprises, which have been approved by the Korean Ministry of Finance and Economy and, in the absence of specialized accounting regulations for utility companies, the accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use only by those who are informed about Korean accounting principles and practices, KEPCO Act and Accounting Regulations for Government Invested Enterprises. The accompanying financial statements have been condensed, restructured and translated into English (with certain expanded descriptions) from the Korean language financial statements. Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (1) Summary of Significant Accounting Policies and Basis of Presenting Financial Statements, Continued (b) Basis of Presenting Financial Statements, Continued Certain information included in the Korean language financial statements, but not required for a fair presentation of the Company's financial position, results of operations or cash flows, is not presented in the accompanying financial statements. The accompanying financial statements include only the accounts of the Company, and do not include the accounts of any of its subsidiaries. Instead, these entities are accounted for under the equity method of accounting (note 6). Effective January 1, 2003, the Company adopted Statements of Korean Financial Accounting Standards ("SKAS") No. 2 through No. 9. Those statements provide accounting and reporting standards for the interim financial statements, intangible assets, revenue recognition, tangible assets, events occurring after the balance sheet date, capitalization of interest costs, marketable securities and convertible securities. As a result of the accounting change of capitalizing interest costs, which is applied prospectively, capitalized interest for three month period ended March 31, 2003 decreased by W63,746 million compared to the previous method. As a result of the adoption of SKAS No. 6 - "Events Occurring After the Balance Sheet Date", shareholders' equity increased and current liabilities decreased by W511,350 million as of December 31, 2002. Effective January 1, 2004, the Company adopted Statements of Korea Accounting Standards No. 10, 12 and 13. The adoption of these standards did not have a significant impact on accompanying financial statements. (c) Property, Plant and Equipment Property, plant and equipment are stated at cost, except in the case of revaluation made in accordance with the KEPCO Act and the Assets Revaluation Law of Korea. Plant and equipment under capital leases are stated at an amount equal to the lower of their fair value or the present value of minimum lease payments at inception of lease. Significant additions or improvements extending useful lives of assets are capitalized. However, normal maintenance and repairs are charged to expense as incurred. The Company capitalizes interest cost and other financial charges on borrowing associated with the manufacture, purchase, or construction of property, plant and equipment, incurred prior to completing the acquisition, as part of the cost of such assets. As described in note 1(b), effective January 1, 2003, the Company adopted Statement of Korea Accounting Standards No. 7, "Capitalization of Interest Costs". Under this standard, the calculation of capitalized interest includes exchange differences arising from foreign borrowings to the extent that they are regarded as an adjustment to interest costs, which is limited to the extent of interest cost calculated by the weighted average interest rate of local currency borrowings. For the three-month periods ended March 31, 2004 and 2003, the amount of capitalized interest was W16,024 million and W26,574 million, respectively, of which net foreign currency transactions and translation gains deducted from the capitalized interest in calculation of capitalized interest rate amounted to W55,808 million and nil, respectively for the three-month period ended March 31, 2004 and 2003. 2 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (1) Summary of Significant Accounting Policies and Basis of Presenting Financial Statements, Continued (c) Property, Plant and Equipment, Continued The impact on the Company's financial position as of and for the three-month period ended March 31, 2004, if the interest and other borrowing costs were expensed instead of being capitalized, is as follows.
Won (millions) ------------------------------------------------------------------ Construction Income before in-progress Total assets Interest expense Income tax expense ------------ ------------ ---------------- ------------------ Capitalized W2,426,025 57,567,018 152,255 1,484,456 Expensed 2,410,001 57,550,994 168,279 1,468,432 --------- ---------- ------- --------- W 16,024 16,024 (16,024) 16,024 ========= ========== ======= =========
Depreciation is computed by declining-balance method (straight-line method for buildings and structures) using rates based on the estimated useful lives described in the Korean Corporate Income Tax Law and as permitted under the Accounting Regulations for Government Invested Enterprises as follows: Estimated useful life --------------------- Buildings 8, 15, 30 Structures 8, 15, 30 Machinery 16 Ships 9 Vehicles 4 Others 4 The Company records the following funds and materials, which relate to the construction of transmission and distribution facilities as construction grants: . Grants from the government or public institutions . Funds, construction materials or other items contributed by customers Construction grants are initially recorded and presented in the accompanying financial statements as deductions from the assets acquired under such grants and are offset against depreciation expense during the estimated useful lives of the related assets. The Company received W117,493 million and W123,238 million of construction grants, and offset W32,256 million and W29,571 million against depreciation expense, and W17,886 million and W7,898 million against utility plant removal cost for the three-month periods ended March 31, 2004 and 2003, respectively. 3 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (1) Summary of Significant Accounting Policies and Basis of Presenting Financial Statements, Continued (d) Leases The Company accounts for and classifies its lease transactions as either operating or capital leases, depending on the terms of the lease under Korea Lease Accounting Standards. If a lease is substantially noncancellable and meets any of the criteria listed below, the present value of future minimum lease payments is reflected as an obligation under capital lease. - Ownership of the leased property shall be transferred to the lessee at the end of the lease term without additional payment or for a contract price. - The lease has a bargain purchase option. - The lease term is equal to 75% or more of the estimated economic useful life of the leased property. - The present value at the beginning of the lease term of the minimum lease payments equals or exceeds 90% of the fair value of the leased property. If the above criteria are not met, the lease is classified as an operating lease and lease payments are expensed under straight-line over the lease term. (e) Investments in Securities Effective January 1, 2003, the Company adopted Statement of Korea Accounting Standards (SKAS) No. 8, "Investments in Securities." In accordance with SKAS No. 8, certain debt and equity securities should be classified into one of the three categories of held-to-maturity, available-for-sale, or trading securities at the time of acquisition and such determination should be reassessed at each balance sheet date. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity. Securities that are bought and held principally for the purpose of selling them in the near term (thus held for only a short period of time) are classified as trading securities. Trading generally reflects active and frequent buying and selling, and trading securities are generally used to generate profit on short-term differences in price. Investments not classified as either held-to-maturity or trading securities are classified as available-for-sale securities. Trading securities are carried at fair value, with unrealized holding gains and losses included in earnings. Available-for-sale securities are carried at fair value, with unrealized holding gains and losses reported as a capital adjustment. Investments in equity securities that do not have readily determinable fair values are stated at cost. Declines in value judged to be other-than-temporary on available-for-sale securities are charged to current results of operations. Investments in debt securities that are classified into held-to-maturity are reported at amortized cost at the balance sheet date and such amortization is included in interest income. Marketable securities are at the quoted market prices as of the period end. Non-marketable debt securities are recorded at the fair values derived from the discounted cash flows by using an interest rate deemed to approximate the market interest rate. The market interest rate is determined by the issuers' credit rate announced by the accredited credit rating agencies in Korea. Money market funds are recorded at the fair value determined by the investment management companies. 4 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (1) Summary of Significant Accounting Policies and Basis of Presenting Financial Statements, Continued (e) Investments in Securities, Continued Trading securities are classified as current assets, whereas available-for-sale securities and held-to-maturity securities are classified as long-term investments. However, available-for-sale securities whose maturity dates are due within one year from the balance sheet date or whose likelihood of being disposed of within one year from the balance sheet date is probable are classified as current assets. Likewise, held-to-maturity securities whose maturity dates are due within one year from the balance sheet date are classified as current assets. (f) Investment Securities under the Equity Method of Accounting Investments in affiliated companies owned 20% or more or over which the Company has significant management control are stated at an amount as determined using the equity method. Under the equity method of accounting, the Company's initial investment is recorded at cost and is subsequently increased to reflect the Company's share of the investee income and reduced to reflect the Company's share of the investee losses or dividends received. Any excess in the Company's acquisition cost over the Company's share of the investee's identifiable net assets is generally recorded as goodwill or other intangibles and amortized by the straight-line method over the estimated useful life. The amortization of goodwill is recorded against the equity income of affiliates. When events or circumstances indicate that carrying amount may not be recoverable, the Company reviews goodwill for any impairment. Under the equity method of accounting, the Company does not record its share of losses of affiliate companies when such losses would make the Company's investment in such entity less than zero. (g) Intangible Assets Intangible assets are stated at cost less accumulated amortization, as described below. (i) Research and Development Costs Expenditure on research activities, undertaken with the prospects of gaining new scientific or technical knowledge and understanding, is recognized in the statement of income as an expense as incurred. Expenditure on development incurred in conjunction with new products or technologies, in which the elements of costs can be identified and future economic benefits are clearly expected, is capitalized and amortized on a straight-line basis over 5 years. The capitalized expenditure includes the cost of materials, direct labor and an appropriate proportion of overheads. (ii) Other Intangible Assets Other intangible assets, which consist of industrial rights, land rights and others, are stated at cost less accumulated amortization and impairment losses. Such intangible assets are amortized using the straight-line method over a reasonable period, from 4 years to 20 years, based on the nature of the asset. 5 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (1) Summary of Significant Accounting Policies and Basis of Presenting Financial Statements, Continued (h) Cash Equivalents The Company considers short-term financial instruments with maturities of three months or less at the acquisition date to be cash equivalents. (i) Financial Instruments Short-term financial instruments are financial instruments handled by financial institutions which are held for short-term cash management purposes or will mature within one year, including time deposits, installment savings deposits, restricted bank deposits. (j) Allowance for Doubtful Accounts Allowance for doubtful accounts is estimated based on an analysis of individual accounts and past experience of collection. (k) Inventories Inventories are stated at the lower of cost or net realizable value, cost being determined using the weighted average method for raw materials, moving average method for supplies and specific identification method for other inventories. The Company maintains perpetual inventory records, which are adjusted through physical counts at the end of year. In accordance with the Company's policy for physical inventory counts, the Company did not perform a physical count of the inventory as of March 31, 2004 and 2003. Effective January 1, 2004, the Company adopted Statement of Korea Accounting Standards No. 10, "Inventories". Through 2003, a valuation loss incurred when the market value of inventory falls below its carrying amount was reported as non-operating expense. In 2004, in accordance with SKAS No.10, the Company included inventory valuation loss in its cost of goods sold ("a component of operating expenses"). (l) Long-Lived Assets The Company reviews for the impairment of long-lived assets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. 6 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (1) Summary of Significant Accounting Policies and Basis of Presenting Financial Statements, Continued (m) Valuation of Receivables and Payables at Present Value Receivables and payables arising from long-term installment transactions, long-term cash loans/borrowings and other similar loan/borrowing transactions are stated at present value. The difference between nominal value and present value is deducted directly from the nominal value of related receivables or payables and is amortized using the effective interest method. The amount amortized is included in interest expense or interest income. (n) Convertible Bonds When issuing convertible bonds or bonds with stock purchase warrants, the values of the conversion rights or stock warrants shall be recognized separately. Considerations for conversion rights or stock warrants shall be measured by deducting the present value of ordinary or straight debt securities from the gross proceeds of the convertible bonds or bonds with stock purchase warrants received at the date of issue. The value of the common shares issued pursuant to the exercise of the conversion rights shall be measured as the sum of the carrying amount, at the time of conversion, and the amount of consideration received for such rights, at the time of issuance, of those convertible bonds that are actually related to the exercise. When the conversion rights are exercised during an accounting period, the value of common shares issued pursuant to the exercise shall be measured based on the carrying amount of the convertible bonds determined on the actual date such rights have been exercised. (o) Discount (Premium) on Debentures Discount (premium) on debenture issued, which represents the difference between the face value and issuance price of debentures, is amortized using the effective interest method over the life of the debentures. The amount amortized is included in interest expense. (p) Retirement and Severance Benefits Employees and directors who have been with the Company for more than one year are entitled to lump-sum payments based on current rates of pay and length of service when they leave the Company. The Company's estimated liability under the plan which would be payable if all employees left on the balance sheet date is accrued in the accompanying balance sheets. Through March 1999, under the National Pension Scheme of Korea, the Company transferred a certain portion of retirement allowances of employees to the National Pension Fund. The amount transferred will reduce the retirement and severance benefit amount to be payable to the employees when they leave the Company and is accordingly reflected in the accompanying financial statements as a reduction from the retirement and severance benefit liability. Since April 1999, however, a new regulation applies and such transfers to the National Pension Fund are no longer required. 7 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (1) Summary of Significant Accounting Policies and Basis of Presenting Financial Statements, Continued (q) Reserve for Self-Insurance The Company provides a self-insurance reserve for liability to third parties that may arise in connection with the Company's non-insured facilities. Payments made to settle applicable claims are charged to this reserve. (r) Foreign Currency Translation Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at the balance sheet date, with the resulting gains and losses recognized in current results of operations. Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at W1,153.6 to US$1, the rate of exchange on March 31, 2004 that is permitted by the Financial Accounting Standards. Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historical cost, are translated into Korean Won at the foreign exchange rate ruling at the date of the transaction. Foreign currency assets and liabilities of foreign-based operations and companies accounted for using the equity method are translated at current rate of exchange at the balance sheet date while profit and loss items in the statement of income are translated at average rate and capital account at historical rate. The translation gains and losses arising from collective translation of the foreign currency financial statements of foreign-based operations are offset and the balance is accumulated as capital adjustment. (s) Derivatives Derivative instruments are presented as assets or liabilities valued principally at the fair value of rights or obligations associated with the derivative contracts. The unrealized gain or loss from derivative transactions is recognized in current operations. However, for derivative instruments with the purpose of hedging the exposure to the variability of cash flows of a forecasted transaction, the hedge-effective portion of the derivative's gain or loss is deferred as a capital adjustment, a component of stockholder's equity. The ineffective portion of the gain or loss is charged or credited to current results of operations. (t) Contingent Liabilities Contingent losses are generally recognized as a liability when probable and reasonably estimable. (u) Revenue Recognition The Company recognizes revenue from the sale of electric power based on meter readings made on a monthly basis. The Company does not accrue revenue for power sold after the meter readings but prior to the end of the accounting period. The Company recognizes revenue on long-term contacts, which are related to the construction of power plants in the Democratic People's Republic of Korea (North Korea), based on the percentage-of-completion method. Revenue other than sale of electric power and revenue on long-term contracts is recognized when the Company's revenue-earning activities have been substantially completed, the amount of revenue can be measured reliably, and it is probable that the economic benefits associated with the transaction will flow to the Company. 8 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (1) Summary of Significant Accounting Policies and Basis of Presenting Financial Statements, Continued (v) Income Taxes Income tax on the earnings or loss for the period comprises current and deferred tax. Income tax is recognized in the statement of income except to the extent that it relates to items recognized directly to equity, in which case it is recognized in equity. Deferred tax is provided using the asset and liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognized only to the extent that it is probable that future taxable earnings will be available against which the unused tax losses and credits can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized. (w) Dividends payable As described in note 1(b), effective January 1, 2003, the Company adopted Statement of Korea Accounting Standards No. 6, "Events Occurring After the Balance Sheet Date". Under this standard, dividends are not recorded until approved by the board of director and shareholders. (x) Prior Period Adjustments Prior period adjustments resulting from other than fundamental errors are charged or credited to net income for the current period. The fundamental errors are defined as errors with such a significant effect on the financial statements for one or more prior periods that those financial statements can no longer be considered to have been reliable at the date of their issue. The prior period adjustments resulting from the fundamental errors are charged or credited to the beginning balance of retained earnings, and the financial statements of the prior year are restated. (y) Earnings Per Share Earnings per common share are calculated by dividing net earnings by the weighted-average number of shares of common stock outstanding during each period. (z) Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the Republic of Korea requires management to make estimates and assumptions that affect the amounts reported in the financial statements and related notes to financial statements. Actual results could differ from those estimates. 9 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (2) Basis of Translating Financial Statements The financial statements are expressed in Korean Won and, solely for the convenience of the reader, have been translated into U.S. dollars at the rate of W1,153.6 to US$1, the basic exchange rate on March 31, 2004. These translations should not be construed as a representation that any or all of the amounts shown could be converted into U.S. dollars at this or any other rate. (3) Property, Plant and Equipment (a) Asset revaluation The Company revalued its property, plant and equipment in accordance with the KEPCO Act and the Asset Revaluation Law (the latest revaluation date was January 1, 1999), and recorded a revaluation gain of W12,552,973 million as a reserve for asset revaluation, a component of capital surplus. (b) Officially Declared Value of Land The officially declared value of land at March 31, 2004, as announced by the Minister of Construction and Transportation, is as follows: Won (millions) --------------------------- Purpose Book value Declared value ----------------------------------- ---------- -------------- Transmission and distribution sites and other W3,329,249 3,347,751 The officially declared value, which is used for government purposes, is not intended to represent fair value. (c) Utility plant Utility plants, accumulated depreciation and construction grants as of March 31, 2004 and December 31, 2003 are as follows: (i) Cost Won (millions) ------------------------ 2004 2003 ----------- ---------- Land W 3,327,851 3,329,249 Buildings 2,323,204 2,333,407 Structures 24,120,887 24,370,274 Machinery 7,136,620 7,180,573 Vehicles 59,011 56,628 Ships 252 252 Others 267,456 270,576 Construction-in-progress 2,266,928 2,426,026 ----------- ---------- W39,502,209 39,966,985 =========== ========== 10 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (3) Property, Plant and Equipment, Continued (c) Utility Plant, Continued (ii) Accumulated depreciation Won (millions) ---------------------- 2004 2003 ---------- --------- Buildings W 465,338 497,576 Structures 3,686,719 3,873,169 Machinery 3,055,912 3,228,281 Vehicles 46,313 45,606 Ships 205 208 Others 217,886 223,654 ---------- --------- W7,472,373 7,868,494 ========== ========= (iii) Construction grants Won (millions) ---------------------- 2004 2003 ---------- --------- Construction grants W2,758,789 2,826,140 ========== ========= (4) Intangibles Changes of intangibles for the three-month period ended March 31, 2004 are as follows: Won (millions) ----------------------------------------------------- December 31, March 31, 2003 Acquisition Amortization 2004 ------------ ----------- ------------ -------- Development cost W106,834 6,621 8,772 104,683 Others 37,533 929 3,310 35,152 -------- ----- ------ ------- W144,367 7,550 12,082 139,835 ======== ===== ====== ======= In addition, the Company expensed ordinary development expenses amounting to W17,531 million and W14,502 million for the three-month periods ended March 31, 2004 and 2003, respectively. 11 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (5) Insured Assets Insured assets as of March 31, 2004 are as follows:
Won (millions) Insured assets Insurance type Insured value Insurer ------------------------ ------------------ -------------- -------------------------------- Buildings and machinery Fire insurance W386,458 Samsung Insurance Co., Ltd. and others Buildings General insurance 149,354 Dongyang Insurance Co., Ltd. and others Construction in progress Assemble insurance 365,312 LG Fire Insurance Co., Ltd. and others Construction in progress Construction 97,537 Hyundai Marine Fire Insurance insurance Co., Ltd. and others
In addition, the Company carries damage insurance for construction of its light-water nuclear reactor in North Korea, general insurance for vehicles, marine cargo insurance for inventories, general insurance for movables, group casualty insurance for its employees and compensation liability insurance for its directors. (6) Investments (a) Investments other than those under the equity method as of March 31, 2004 and December 31, 2003 are summarized as follows:
Won (millions) -------------------------------------------------- 2004 -------------------------------------------------- Unrealized Acquisition holding Fair Book % cost losses value value ---- ----------- ---------- ------ ------ Available-for-sale: Equity securities: Energy Savings Investment Cooperative 40.6 W 5,000 -- (**) 5,000 Korea Power Exchange 50.0 62,606 -- (**) 62,606 Hwan Young Steel Co., Ltd. (*2) 0.14 1,364 -- -- 120 Investment securities in treasury stock fund (*3) -- 17,306 5,598 11,708 11,708 ------- ----- ------ ------ 86,276 5,598 11,708 79,434 ------- ----- ------ ------ Held-to-maturity: Government bonds 59 -- -- 59 ------- ----- ------ ------ Total W86,335 5,598 11,708 79,493 ======= ===== ====== ======
(**) Fair values are not available (*1) The Company recognized an impairment loss of W1,244 million that was deemed to be an other than temporary decline. (*2) The Company has an investment in a treasury stock fund, composed of treasury stock and other investment securities, and records such an investment as available-for-sale securities. Losses on valuation of these available-for-sale securities recorded as a capital adjustment, amount to W5,598 million and W8,714 million as of March 31, 2004 and December 31, 2003, respectively. 12 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (6) Investments, Continued
Won (millions) -------------------------------------------------- 2003 -------------------------------------------------- Unrealized Acquisition holding Fair Book % cost losses value value ---- ----------- ---------- ------- ------ Available-for-sale: Equity securities: Securities Market Stabilization Fund 7.64 W 7,763 -- (*) 7,763 Energy Savings Investment Cooperative 40.6 5,000 -- (*) 5,000 Korea Power Exchange 50.0 62,606 -- (*) 62,606 Hwan Young Steel 1,364 -- -- 120 Co., Ltd. 0.14 Investment securities in Treasury stock fund -- 26,295 8,714 17,581 17,581 -------- ----- ------- ------ 103,028 8,714 17,581 93,070 -------- ----- ------- ------ Held-to-maturity: Government bonds 36 -- -- 36 -------- ----- ------- ------ Total W103,064 8,714 W17,581 93,106 ======== ===== ======= ======
(*) Fair values are not available (b) Investments in affiliated companies accounted for using the equity method as of March 31, 2004 and December 31, 2003 are as follows:
Won (millions) ---------------------------------------------------- 2004 ---------------------------------------------------- Percentag Acquisition Net asset Affiliate of ownership Cost value Book value ------------------------------------------------ ------------ ----------- ---------- ---------- Korea Hydro & Nuclear Power Co., Ltd. (*1) 100.0 W 9,364,799 11,251,589 11,251,589 Korea South-East Power Co., Ltd. (*1) 100.0 1,232,004 2,071,377 2,071,377 Korea Midland Power Co., Ltd. (*1) 100.0 1,325,891 2,173,157 2,173,157 Korea Western Power Co., Ltd. (*1) 100.0 1,442,638 2,051,420 2,051,420 Korea Southern Power Co., Ltd. (*1) 100.0 1,797,378 2,153,411 2,153,411 Korea East-West Power Co., Ltd. (*1) 100.0 2,322,905 2,478,530 2,478,530 Korea Power Engineering Co., Ltd. (*1) 97.9 4,991 203,627 70,155 Korea Plant Service & Engineering Co., Ltd.(*1) 100.0 6,000 275,307 275,307 KEPCO Nuclear Fuel Co., Ltd. (*1) 96.4 89,757 161,980 147,361 Korea Electric Power Data Network Co., Ltd. (*1) 100.0 64,000 130,128 113,065 Korea Electric Power Industrial Development, Ltd. (*1) 49.8 7,987 19,030 19,030 Powercomm Corporation (*1) 43.1 323,470 368,387 368,387 Korea Gas Corporation (*1) 24.5 94,500 811,229 811,229 Korea District Heating Co. (*1) 26.1 5,660 169,959 169,959 KEPCO International Hong Kong Ltd. (*1, *2) 100.0 20,000 180,368 180,368 KEPCO International Philippines Inc. (*1, *2) 100.0 91,716 127,676 127,676 ----------- ---------- ---------- W18,193,696 24,627,175 24,462,021 =========== ========== ==========
13 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (6) Investments, Continued (*1) The Company used unaudited financial statements of the above affiliated companies when applying the equity method of accounting. The Company eliminated the unrealized gains arising from the transactions with the above affiliates. The eliminated unrealized gain arising from transactions with Korea Power Engineering Co., Ltd., KEPCO Nuclear Fuel Co., Ltd. and Korea Electric Power Data Network Co., Ltd. amounted to W133,472 million, W14,619 million and W17,063 million, respectively, for the three-month period ended March 31, 2004 (*2) As KEPCO International Hong Kong Ltd. owns 100 percent of the shares of KEPCO Philippines Corporation ("KEPHILCO") and KEPCO International Philippines Inc. holds 51 percent of the shares of KEPCO Ilijan Corporation ("KEILCO"), when applying the equity method, the Company accounts for equity incomes from KEPCO International Hong Kong Ltd. and KEPCO International Philippines Inc., that include the changes in the net equity of KEPHILCO and KEILCO, respectively. Investments in affiliated companies accounted for using equity method as of December 31, 2003 are as follows:
Won (millions) ---------------------------------------------------- 2003 ---------------------------------------------------- Percentage Acquisition Net asset Affiliate of ownership Cost value Book value ------------------------------------------- ------------ ----------- ---------- ---------- Korea Hydro & Nuclear Power Co., Ltd. 100.0 W 9,364,799 11,014,714 11,014,714 Korea South-East Power Co., Ltd. 100.0 1,232,004 1,990,715 1,990,715 Korea Midland Power Co., Ltd. 100.0 1,325,891 2,080,695 2,080,695 Korea Western Power Co., Ltd. 100.0 1,442,638 1,988,052 1,988,052 Korea Southern Power Co., Ltd. 100.0 1,797,378 2,092,460 2,092,460 Korea East-West Power Co., Ltd. 100.0 2,322,905 2,424,164 2,424,164 Korea Power Engineering Co., Ltd. 97.9 4,991 195,624 69,038 Korea Plant Service & Engineering Co., Ltd. 100.0 6,000 267,041 267,041 KEPCO Nuclear Fuel Co., Ltd. 96.4 89,757 157,701 145,098 Korea Electric Power Data Network Co., Ltd. 100.0 64,000 129,724 115,382 Korea Electric Power Industrial Development, Ltd. 49.0 7,987 22,092 22,092 Powercomm Corporation 43.1 323,470 363,687 363,687 Korea Gas Corporation 24.5 94,500 740,280 740,280 Korea District Heating Co. 26.1 5,660 159,165 159,165 KEPCO International Hong Kong Ltd. 100.0 20,000 173,629 173,629 KEPCO International Philippines Inc. 100.0 91,716 126,052 126,052 ----------- ---------- ---------- W18,193,696 23,925,795 23,772,264 =========== ========== ==========
14 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (6) Investments, Continued (c) Details of changes in investments in affiliated companies under the equity method as of March 31, 2004 and December 31, 2003 are as follows:
Won (millions) ----------------------------------------------------------------------------- 2004 ----------------------------------------------------------------------------- Book value as of Equity income Capital Book value as of Affiliate January 1, 2004 (loss) adjustment Others (*) March 31, 2004 ------------------------------- ---------------- ------------- ---------- ---------- ---------------- Korea Hydro & Nuclear Power Co., Ltd. W11,014,714 236,875 -- -- 11,251,589 Korea South-East Power Co., Ltd. 1,990,715 80,662 -- -- 2,071,377 Korea Midland Power Co., Ltd. 2,080,695 92,462 -- -- 2,173,157 Korea Western Power Co., Ltd. 1,988,052 59,432 3,936 -- 2,051,420 Korea Southern Power Co., Ltd. 2,092,460 60,269 682 -- 2,153,411 Korea East-West Power Co., Ltd. 2,424,164 52,892 1,474 -- 2,478,530 Korea Power Engineering Co., Ltd. 69,038 1,117 -- -- 70,155 Korea Plant Service & Engineering Co., Ltd. 267,041 8,266 -- -- 275,307 KEPCO Nuclear Fuel Co., Ltd. 145,098 2,263 -- -- 147,361 Korea Electric Power Data Network Co., Ltd. 115,382 (2,737) 420 -- 113,065 Korea Electric Power Industrial Development, Ltd. 22,092 858 -- (3,920) 19,030 Powercomm Corporation 363,687 5,994 -- (1,294) 368,387 Korea Gas Corporation 740,280 70,520 429 -- 811,229 Korea District Heating Co. 159,165 10,794 -- -- 169,959 KEPCO International Hong Kong Ltd. 173,629 16,801 (10,062) -- 180,368 KEPCO International Philippines Inc. 126,052 6,981 (5,357) -- 127,676 ----------- ------- ------- ------ ---------- W23,772,264 703,449 (8,478) (5,214) 24,462,021 =========== ======= ======= ====== ==========
(*) Others are composed of dividends from the affiliates. 15 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (6) Investments, Continued
Won (millions) ------------------------------------------------------------------------------ 2003 ------------------------------------------------------------------------------ Book value as of Capital Book value as of Affiliate January 1, 2003 Equity income adjustment Others (*) December 31, 2003 ------------------------------- ---------------- ------------- ---------- ---------- ----------------- Korea Hydro & Nuclear Power Co., Ltd. W10,577,527 652,182 -- (214,995) 11,014,714 Korea South-East Power Co., Ltd. 1,679,117 345,669 (801) (33,270) 1,990,715 Korea Midland Power Co., Ltd. 1,781,127 345,230 223 (45,885) 2,080,695 Korea Western Power Co., Ltd. 1,772,973 254,077 5,002 (44,000) 1,988,052 Korea Southern Power Co., Ltd. 1,953,743 182,849 (261) (43,871) 2,092,460 Korea East-West Power Co., Ltd. 2,373,207 84,995 (3,298) (30,740) 2,424,164 Korea Power Engineering Co., Ltd. 51,991 28,800 -- (11,753) 69,038 Korea Plant Service & Engineering Co., Ltd. 238,947 37,094 -- (9,000) 267,041 KEPCO Nuclear Fuel Co., Ltd. 134,538 12,487 -- (1,927) 145,098 Korea Electric Power Data Network Co., Ltd. 118,075 1,807 -- (4,500) 115,382 Korea Electric Power Industrial Development, Ltd. 40,730 3,114 -- (21,752) 22,092 Powercomm Corporation 359,090 10,421 1,188 (7,012) 363,687 Korea Gas Corporation 690,705 73,329 4,596 (28,350) 740,280 Korea District Heating Co. 147,898 13,304 (1,358) (679) 159,165 KEPCO International Hong Kong Ltd. 124,808 56,817 (7,996) -- 173,629 KEPCO International Philippines Inc. 108,255 21,343 (4,769) 1,223 126,052 ----------- --------- ------ -------- ---------- W22,152,731 2,123,518 (7,474) (496,511) 23,772,264 =========== ========= ====== ======== ==========
(*) Other are composed of acquisition (disposal) amounts of investment securities and dividends from the affiliates. (7) Loans to employees The Company has provided housing and tuition loans to employees as follows as of March 31, 2004 and December 31, 2003: Won (millions) ------------------ 2004 2003 -------- ------- Short-term loans W 9,392 9,267 Long-term loans 151,811 142,368 -------- ------- W161,203 151,635 ======== ======= 16 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (8) Other Non-current Assets Other assets as of March 31, 2004 and December 31, 2003 are as follows: Won (millions) ------------------ 2004 2003 -------- ------- Long-term trade receivable, net W 2,509 2,509 Deposit received 65,406 58,135 Others 82,277 82,466 -------- ------- W150,192 143,110 ======== ======= (9) Cash and Cash Equivalents Cash and cash equivalents as of March 31, 2004 and December 31, 2003 are summarized as follows: Won (millions) ------------------ 2004 2003 -------- ------- Cash and cash equivalents: Cash on hand W 78 71 Sundry deposits 376,939 366,558 Cash equivalents (*) 310,354 188 -------- ------- 687,371 366,817 ======== ======= (*) Cash equivalents consist of money market funds, money market deposit accounts and time deposits with maturities of three months or less at the acquisition date. (10) Short-term financial Instruments Short-term financial instruments as of March 31, 2004 and December 31, 2003 are summarized as follows: Won (millions) --------------- 2004 2003 ------ ------ Time Deposits 3,000 13,000 Trust accounts 20,000 43,000 Repurchase agreement 38,000 5,000 ------ ------ 61,000 61,000 ====== ====== 17 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (11) Inventories Inventories as of March 31, 2004 and December 31, 2003 are summarized as follows: Won (millions) ---------------- 2004 2003 ------- ------ Raw materials W 2,825 1,991 Supplies 76,837 73,066 Other 7,133 3,739 ------- ------ W86,795 78,796 ======= ====== (12) Other Current Assets Other current assets at March 31, 2004 and December 31, 2003 are summarized as follows: Won (millions) ------------------ 2004 2003 -------- ------- Held-to-maturity securities (*) W 4 5 Short-term loans 9,392 9,267 Accrued interest income 1,803 2,777 Advance payments 1,477 297 Prepaid expenses 23,657 3,244 Other current assets 116,051 106,331 -------- ------- W152,384 121,921 ======== ======= (*) Held-to-maturity securities consist of government and municipal bonds (13) Capital Surplus Capital surplus as of March 31, 2004 and December 31, 2003 are as follows: Won (millions) ------------------------ 2004 2003 ----------- ---------- Paid-in capital in excess of par value W 811,296 811,301 Reserves for asset revaluation 12,552,973 12,552,973 Other capital surplus 1,006,779 1,009,505 ----------- ---------- W14,371,048 14,373,779 =========== ========== The Company revalued its property, plant and equipment in accordance with the KEPCO Act and the Asset Revaluation Law, and recorded a revaluation gain of W12,552,973 million as a reserve for asset revaluation. The reserve for asset revaluation may be credited to paid-in capital or offset against any accumulated deficit by resolution of the shareholders. s 18 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (14) Retained Earnings Appropriated retained earnings as of March 31, 2004 and December 31, 2003 are summarized as follows:
Won (millions) ------------------------ 2004 2003 ----------- ---------- Legal reserve W 1,601,871 1,600,252 Reserve for business rationalization 31,900 31,900 Reserve for business expansion 12,438,120 10,925,338 Reserve for investment on social overhead capital 5,092,449 5,012,449 Reserve for research and human development 180,000 120,000 Voluntary reserve 210,000 210,000 ---------- ---------- W19,554,340 17,899,939 =========== ==========
The KEPCO Act requires the Company to appropriate a legal reserve equal to at least 20 percent of net income for each accounting period until the reserve equals 50 percent of the common stock. The legal reserve is not available for cash dividends; however, this reserve may be credited to paid-in capital or offset against accumulated deficit by the resolution of the shareholders. Under the Special Tax Treatment Control Law, investment tax credit was allowed for certain investments. The Company was, however, required to appropriate from retained earnings the amount of tax benefits obtained and transfer such amount into a reserve for business rationalization. Effective December 11, 2002, the Company is no longer required to establish a reserve for business rationalization despite tax benefits received for certain investments and, consequently, the existing balance is now regarded as a voluntary reserve. The reserves for the investment on social overhead capital and research and human development are appropriated by the Company to avail itself of qualified tax credits to reduce corporate tax liabilities. This reserve is not available for cash dividends for a certain period as defined in the Tax Incentive Control Law. (15) Capital Adjustments Details of capital adjustments as of March 31, 2004 and December 31, 2003 are as follows: Won (millions) ---------------------- 2004 2003 ---------- --------- Treasury stock W(201,641) (195,379) Loss on valuation of available- for-sale securities (5,598) (8,714) Equity income of affiliates 44,934 53,412 ---------- --------- W(162,305) (150,681) ========== ========= The Company has shares held as treasury stock amounting to W 201,641 million (11,068,050 shares) and W 195,379 million (10,713,050 shares) as of March 31, 2004 and December 31, 2003, respectively, for the purpose of stock price stabilization. 19 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (16) Long-term borrowings Long-term borrowings as of March 31, 2004 and December 31, 2003 are as follows: (a) Local currency long-term borrowings
Won (millions) Annual ---------------------- Lender Type interest rate (%) 2004 2003 ------------------------ ------------------- ----------------- ---------- --------- Korea Development Bank Industrial facility 4.76~7.50 W3,536,579 3,505,628 Others 5.50~6.00 34 35 ---------- --------- Less: Current portion (728,292) (715,775) ---------- --------- W2,808,321 2,789,888 ========== =========
(b) Foreign currency long-term borrowings
Won (millions) Annual -------------------- Lender Type interest rate (%) 2004 2003 ------------------------ ---------- ----------------- --------- -------- Barclays International Financial Services 6 month Libor (Ireland) Ltd. Commercial -1.00 W 181,221 187,851 Less: Current portion (181,221) (187,851) --------- -------- W -- -- ========= ========
(c) Debentures
Won (millions) Annual ------------------------ interest rate (%) 2004 2003 ----------------- ----------- ---------- Domestic debentures (Electricity bonds) 4.79~9.67 W 4,395,000 4,235,000 Foreign debentures(*) 1.18~8.28 5,347,056 5,530,157 ----------- ---------- 9,742,056 9,765,157 ----------- ---------- Less: Current portion (3,669,261) (3,122,750) Discount (42,213) (46,056) Plus: Current portion of discount 1,753 -- ----------- ---------- W 6,032,335 6,596,351 =========== ==========
20 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (16) Long-term borrowings, Continued (*) In 2003, the Company sold foreign debentures of US$ 250,000 thousand to KEPCO Cayman Company Limited. These debentures have the right to be exchanged with the shares of Powercomm Corporation held by the Company. Based on these assets, KEPCO Cayman Company Limited issued foreign debentures of US$ 250,000 thousand, the details of which are as follows: . Maturity date: November 26, 2008 . Qualifying Public Offering (QPO): QPO means the first listing on the Korea Stock Exchange, New York Stock Exchange or National Association of Securities Dealers Automated Quotations (NASDAQ) meeting certain requirements. It is not required that Powercomm Corporation must perform QPO prior to the maturity of the debentures, neither the Company guarantees the QPO of Powercomm Corporation. . Shares to be exchanged: Powercomm Corporations shares or Deposit Receipt (DR) . Exchangeable period: From 10th day after the listing of Powercomm Corporation to 10th day before its maturity . Exchange price: 120% of lower amount of market price on listing day or weighted average price for 10 days after its listing. . Early redemption: When certain conditions are met or after 3 years from the listing, outstanding debentures are redeemable at the guaranteed return of 2.88% (102.74% of issuance amount) . Repayment at the maturity: Repayment will be made with the guaranteed return of 3.68% (109.13% of issuance amounts). The Company has provided payment guarantees to KEPCO Cayman Company Limited for the principal and interest of the above foreign debentures. (d) Exchangeable bonds
Won (millions) Annual ------------------ Description interest rate (%) 2004 2003 ------------------------------------- ----------------- -------- ------- Overseas exchangeable bonds 0.00 W277,256 277,256 Plus: Premium on debentures issued 19,949 20,987 Less: Conversion right adjustment (41,650) (43,817) -------- ------- 255,555 254,426 ======== =======
On November 4, 2003, the Company issued overseas exchangeable bonds of Japanese Yen 28,245,468 thousand at a premium value. The details of the bonds are as follows: . Maturity date: November 4, 2008 . Amount to be paid at maturity: JPY 25,935,061 thousand . Exchange period: From December 15, 2003 to 10th day prior to its maturity . Shares to be exchanged: Common stock held by the Company or its equivalent Deposit Receipt (DR). . Exchange price: W30,000 per share . Put option: Bond holders have the put option that they can request redemption at JPY 26,834,000 thousand on November 6, 2006. 21 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (16) Long-term borrowings, Continued (e) Leases (i) The Company entered into a capital lease agreement with Korea Development Leasing Corporation for certain computer systems, of which the acquisition cost is W33,870 million as of March 31, 2004. Depreciation of the leased assets amounted to W91 million for the three- month period ended March 31, 2004 (ii) Annual payments under capital and operating lease agreements as of March 31, 2004 are as follows: Won (millions) ------------------------------- Year ended March 31 Capital lease Operating lease -------------------- ------------- --------------- 2005 W2,809 1,067 2006 50 -- ------ ----- 2,859 1,067 ===== Less : Interest 64 Current portion 2,746 ------ W 49 ====== (f) Foreign currency debts, by currency, as of March 31, 2004 and December 31, 2003 are as follows:
Won (millions), USD, JPY, EUR and GBP (thousands) --------------------------------------------------------- 2004 2003 ------------------------ ------------------------ Foreign Won Foreign Won currency equivalent Currency equivalent ----------- ---------- ----------- ---------- Current portion of long-term borrowings USD 150,000 W 181,221 USD 150,000 W 187,851 ---------- ---------- Debentures USD 2,902,030 3,351,979 USD 2,902,030 3,480,249 JPY 175,060,000 1,908,154 JPY 175,060,000 1,959,972 EUR 25,183 35,377 EUR 25,183 37,839 GBP 24,467 51,546 GBP 24,467 52,097 ---------- ---------- 5,347,056 5,530,157 Exchangeable bond JPY 25,935,061 277,256 JPY 25,935,061 277,256 ---------- ---------- W5,805,533 W5,995,264 ========== ==========
22 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (16) Long-term borrowings, Continued (g) Aggregate maturities of the Company's long-term debt as of March 31, 2004 are as follows:
Won (millions) -------------------------------------------------------------------------------------------- Local Foreign Capital Year ended currency currency Electricity Foreign Exchangeable lease March 31 borrowings borrowings bonds debentures bonds obligations Total ---------- ---------- ---------- ----------- ---------- ------------ ----------- ---------- 2005 W 728,292 181,221 2,350,000 1,319,261 -- 2,746 4,581,520 2006 928,027 -- 150,000 1,230,115 -- 49 2,308,191 2007 959,123 -- 710,000 1,521 -- -- 1,670,644 2008 602,808 -- 265,000 1,197,513 -- -- 2,065,321 2009 302,774 -- 800,000 316,173 277,256 -- 1,696,203 Thereafter 15,589 -- 120,000 1,282,473 -- -- 1,418,062 ---------- ------- --------- --------- ------- ----- ---------- W3,536,613 181,221 4,395,000 5,347,056 277,256 2,795 13,739,941 ========== ======= ========= ========= ======= ===== ==========
(17) Assets and Liabilities Denominated in Foreign Currencies There are no significant liabilities denominated in foreign currencies other than those mentioned in Note 16(f). Major assets denominated in foreign currencies as of March 31, 2004 and December 31, 2003 are as follows: 2004 2003 ------------------------ ------------------------ Foreign Won Foreign Won currency equivalent currency equivalent (thousands) (millions) (thousands) (millions) ----------- ---------- ----------- ---------- Cash and cash equivalents USD 1,454 W1,677 USD 4,578 W 5,484 Trade receivables USD 585 675 USD 4,959 5,940 Other account receivables USD -- -- USD 607 727 Other non-current USD 12 13 USD 12 14 assets JPY 5,860 64 JPY 5,860 66 ------ ------- W2,429 W12,231 ====== ======= 23 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (18) Retirement and Severance Benefits Changes in retirement and severance benefits for three-month period ended March 31, 2004 and for the year ended December 31, 2003 are summarized as follows: Won (millions) ------------------ 2004 2003 -------- ------- Estimated severance liability at beginning of year W316,503 226,708 Provision for retirement and severance benefits 12,460 98,150 Payments (1,932) (8,355) -------- ------- Estimated severance liability at end of year 327,031 316,503 Transfer to National Pension Fund (95) (95) -------- ------- Net balance at end of year W326,936 316,408 ======== ======= (19) Receivables at Prevent Value Present value discounts on receivables as of March 31, 2004 are as follows:
Won (millions) ---------------------------------- Present Interest rate (%) Period Nominal value Discount value ----------------- ---------- ------------- -------- ------- Other accounts 2002.12~ receivable 5.24, 6.00 2005.12 W180,958 19,843 161,115 Long-term other 2002.12~ accounts receivable 5.24, 6.00 2005.12 265,000 10,375 254,625 -------- ------ ------- W445,958 30,218 415,740 ======== ====== =======
(20) Other Current Liabilities Other current liabilities as of March 31, 2004 and December 31, 2003 are as follows: Won (millions) ------------------ 2004 2003 -------- ------- Advance received W 36,952 281 Withholdings 128,637 141,623 Unearned revenue 14,054 3,304 Others 320,978 321,302 -------- ------- W500,621 466,510 ======== ======= 24 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (21) Derivative Instruments Transactions The Company entered into the various swap contracts to hedge the fluctuation risk of exchange rate and interest rate of foreign currency debts. (a) Currency swap contracts as of March 31, 2004 are as follows:
Contract amounts Contract interest rate in millions per annum Contract Settlement ------------------------------- -------------------------- Year Year Pay Receive Pay (%) Receive (%) -------- ---------- ---------------- ------------ ----------- ------------ The Sumitomo Bank Ltd. 1995 2005 US$ 286 JPY 27,000 7.68 4.15 Mizuho Co., Ltd. 1995 2005 US$ 149 JPY 14,425 6M Libor 3.40 (former The Fuji Bank, Ltd.) + 0.155 Canadian Imperial Bank of Commerce 1996 2006 US$ 97 JPY 10,000 Libor+ 0.13 3.80 J.P. Morgan Chase Bank 1996 2006 US$ 200 JPY 21,000 Libor+ 0.14 4.00 Deutsche Bank 1998 2004 JPY 1,705 US$ 55 6.41 7.11 (former Bankers Trust Co.) EUR 13 CHF 20 CAD 20 Deutsche Bank 1998 2004 JPY 2,945 US$ 95 6.36 7.05 (former Bankers Trust Co.) EUR 22 CHF 35 CAD 34 J.P. Morgan Chase Bank & Deutsche Bank (*1) 2002 2007 JPY 76,700 US$ 650 1.18 4.25 Barclays Bank PLC, London 2002 2007 JPY 30,400 US$ 250 1.04 3M Libor + 0.75 Deutsche Bank(*2) 2003 2013 KRW 178,350 US$ 150 CD+3.3 7.75 Union Bank of Switzerland (*2) 2003 2013 KRW 148,625 US$ 125 CD+3.3 7.75 Credit Swiss First Boston(*2) 2003 2013 KRW 89,175 US$ 75 CD+3.3 7.75
(*1) If the Republic of Korea declares default on its debts, KEPCO is entitled to receive Korean government bonds instead of cash. Valuation for these embedded derivatives is reflected in the valuation of the currency swap. (*2) The Company has purchased call option in addition to these swaps, under which the Company can exchange each KRW 5,945 million with the amounts of KRW 5,000,000 multiplied by Spot FX rate (US$/KRW) until December 22, 2004, and the valuation for this call option is considered in the valuation of the swaps. 25 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (21) Derivative Instruments Transactions, Continued (b) Interest rate swap contracts as of March 31, 2004 are as follows
Contract interest rate per annum Notional amount ----------------------------------- in millions Pay (%) Receive (%) Term --------------- ---------------- ---------------- --------- J.P. Morgan Chase Bank US $ 149 6.91 Libor+0.155 1995-2005 Barclays Bank PLC, London US $ 150 6M Libor-1 Libor+0.45 1997-2004 Shinhan Bank US $ 100 6.50 6.75 1997-2004 Deutsche Bank US $ 55 6.93 1998-2004 (formerly Bankers Trust Co.) 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 (formerly Bankers Trust Co.) JPY 2,945 6.36 EUR 22 6.36 CHF 35 6.36 CAD 34 6.36 Deutsche Bank US $ 100 Max Max 1998-2007 (formerly Bankers Trust Co.) (6,074-Libor, 0) (Libor-6.074, 0) Deutsche Bank US $ 100 Max Max 1998-2007 (formerly Bankers Trust Co.) (Libor-6.074,0) (6.074-Libor, 0) Deutsche Bank KRW 178,350 5%+2X[JPY/ CD+3.3 2003-2013 KRW-11.03%] Union Bank of Switzerland KRW 148,625 5%+2X[JPY/ CD+3.3 2003-2013 KRW-11.03%] Credit Swiss First Boston KRW 89,175 5%+2X[JPY/ CD+3.3 2003-2013 KRW-11.03%]
(c) The gains and losses on swap transactions recorded as other income or expense for the three-month periods ended March 31, 2004 and 2003 are as follows: Won (millions) -------------------- 2004 2003 --------- -------- Currency swap Gains W 12,529 8,120 Losses (22,937) (26,654) Interest rate swap Gains 24,599 3,053 Losses (989) (4,653) -------- ------- W 13,202 (20,135) ======== ======= 26 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (22) Power Generation, Transmission and Distribution Expenses Power generation, transmission and distribution expenses for the three-month periods ended March 31, 2004 and 2003 are as follows: Won (millions) ----------------- 2004 2003 ------- ------- Material expenses: Oil 4,213 2,702 ------- ------- 4,213 2,702 Labor expenses: Salaries 127,690 114,865 Severance and retirement benefits 7,283 3,915 ------- ------- 134,973 118,780 Overhead expenses: Employee benefits 17,513 13,793 Taxes and dues 1,134 1,101 Rent 10,227 9,314 Depreciation 391,806 366,279 Maintenance 86,325 115,076 Commission and consultation fees 16,855 14,581 Compensation expense 2,431 5,411 Ordinary development expenses 14,193 12,226 Impairment loss on utility plant 24,412 41,201 Others 14,564 16,446 ------- ------- 579,460 595,428 ------- ------- 718,646 716,910 ======= ======= (23) Selling, General and Administrative Expenses Details of selling, general and administrative expenses the three-month periods ended March 31, 2004 and 2003 are as follows: Won (millions) ------------------- 2004 2003 -------- -------- Salaries W 84,059 W 76,164 Employee benefits 12,680 9,203 Taxes and dues 1,274 1,097 Rent 3,330 5,367 Depreciation 4,982 9,773 Amortization 2,529 -- Maintenance 1,997 1,483 Commission and consultation fees 79,435 72,247 Ordinary development 3,338 2,253 Promotion 4,191 3,761 Bad debts 5,245 3,107 Communication 6,542 6,097 Insurance 173 2,856 Rewards 683 139 Miscellaneous 11,465 11,609 -------- -------- W221,923 205,156 ======== ======== 27 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (24) Income Taxes (a) The Company is subject to a number of income taxes based on taxable earnings which result in the following normal tax rates: Taxable earnings Prior to 2005 Thereafter ------------------ ------------- ---------- Up to W100 million 16.5% 14.3% Over W100 million 29.7% 27.5% The Korean government reduced the corporate income tax rate beginning in 2005. Specifically, effective from January 1, 2005, the income tax rate will be reduced from 29.7% to 27.5%. The components of income tax expense for the three-month period ended March 31, 2004 and 2003 are summarized as follows: Won (millions) ------------------ 2004 2003 -------- ------- Current income tax expense W250,090 49,662 Deferred income tax expense 186,437 187,937 -------- ------- W436,527 237,599 ======== ======= (b) The provision for income taxes calculated using the normal tax rates differs from the actual provision for the three-month periods ended March 31, 2004 and 2003 for the following reasons: Won (millions) ------------------ 2004 2003 -------- ------- Provision for income taxes at normal tax rates W429,922 235,105 Tax effects of permanent differences, primarily entertainment expenses in excess of tax limit 6,686 2,081 Tax credit (81) -- Other, net -- 413 -------- ------- Actual provision for income taxes W436,527 237,599 ======== ======= The effective tax rates, after adjustments for certain differences between amounts reported for financial accounting and income tax purposes, were approximately 29.41 % and 30.01 % for the three-month periods ended March 31, 2004 and 2003, respectively. 28 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (24) Income Taxes, Continued (c) The tax effects of temporary differences that result in significant portions of the deferred income tax assets and liabilities as of March 31, 2004 and December 31, 2003 are presented below:
Won (millions) ------------------------ 2004 2003 ----------- ---------- Deferred tax assets: Loss on valuation of derivatives W 121,480 115,270 Retirement and severance benefits 54,152 52,379 Deferred foreign exchange translation loss 13,648 14,655 Other 201,977 266,562 ----------- ---------- Total deferred tax assets 391,257 448,866 ----------- ---------- Deferred tax liabilities: Gain on valuation of derivatives 96,501 86,309 Deferred foreign exchange translation gain 34,043 37,176 Reserve for social overhead capital investment 201,079 270,239 Gain on valuation of investment securities using the equity method 1,710,606 1,517,158 ----------- ---------- Total deferred tax liabilities 2,042,229 1,910,882 ----------- ---------- Net deferred tax asset (liability) W(1,650,972) (1,462,016) =========== ==========
(25) Earnings Per Share Earnings per common share are calculated by dividing net earnings by the weighted-average number of shares of common stock outstanding. Won -------------------------- 2004 2003 ------------ ----------- Net income in million Won W 1,047,930 554,043 Weighted-average number of common shares outstanding 629,858,023 633,398,087 ------------ ----------- Earnings per common share in Won W 1,664 875 ============ =========== 29 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (25) Earnings Per Share, Continued Diluted earnings per share for the three month periods ended March 31, 2004 and 2003 are calculated as follows: Won -------------------------- 2004 2003 ------------ ----------- Net income in million Won W 1,047,930 554,043 Exchangeable bond interest in million Won 795 -- ------------ ----------- 1,048,725 554,043 ------------ ----------- Weighted-average number of common shares and diluted securities outstanding 639,857,870 633,398,087 ------------ ----------- Diluted earnings per share in Won W 1,639 875 ============ =========== (26) Transactions and Balances with Related Companies (a) Transactions with related parties for the three-month periods ended March 31, 2004 and 2003 are as follows:
Won (millions) ---------------------- Related party Transaction 2004 2003 ------------------------------------ --------------------------------------- ---------- --------- Sales and other income: Korea Hydro & Nuclear Power Co., Ltd. Sales of electricity and others W 27,540 20,219 Korea South-East Power Co., Ltd. " 5,786 8,973 Korea Midland Power Co., Ltd. " 4,248 6,125 Korea Western Power Co., Ltd. " 2,984 2,707 Korea Southern Power Co., Ltd. " 3,294 4,250 Korea East-West Power Co., Ltd. " 6,185 10,286 Others " 82,655 73,307 ---------- --------- W 132,692 125,867 ========== ========= Purchases and others: Korea Hydro & Nuclear Power Co., Ltd. Purchase of electricity and others W1,152,799 1,287,808 Korea South-East Power Co., Ltd. " 400,382 419,156 Korea Midland Power Co., Ltd. " 532,837 530,202 Korea Western Power Co., Ltd. " 512,462 576,807 Korea Southern Power Co., Ltd. " 702,250 474,600 Korea East-West Power Co., Ltd. " 559,048 502,345 Korea Power Engineering Co., Inc. Designing of the power plant and others 3,878 10,108 Korea Plant Service & Engineering Co., Ltd. Utility plant maintenance 8,994 8,928 Korea Electric Power Data Network Co., Ltd. Maintenance of computer system 40,489 19,829 Others Commissions for service and others 48,271 13,024 ---------- --------- W3,961,410 3,842,807 ========== =========
30 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (26) Transactions and Balances with Related Companies, Continued (b) Receivables arising from related parties transactions as of March 31, 2004 and December 31, 2003 are as follows: Won (millions) ----------------------------------- 2004 ----------------------------------- Trade Other Related party receivables receivables Total ------------------------------------- ----------- ----------- ------- Korea Hydro & Nuclear Power Co., Ltd. W 458 237,626 238,084 Korea South-East Power Co., Ltd. 1,108 643 1,751 Korea Midland Power Co., Ltd. 1,454 -- 1,454 Korea Western Power Co., Ltd. 1,471 -- 1,471 Korea Southern Power Co., Ltd. 1,047 -- 1,047 Korea East-West Power Co., Ltd. 2,003 33,867 35,870 Others 19,735 3,074 22,809 ------- ------- ------- W27,276 275,210 302,486 ======= ======= ======= Won (millions) ----------------------------------- 2003 ----------------------------------- Trade Other Related party receivables receivables Total ------------------------------------- ----------- ----------- ------- Korea Hydro & Nuclear Power Co., Ltd. W -- 319 319 Korea South-East Power Co., Ltd. 1,778 367 2,145 Korea Midland Power Co., Ltd. 1,107 2,232 3,339 Korea Western Power Co., Ltd. 1,940 248 2,188 Korea Southern Power Co., Ltd. 1,157 360 1,517 Korea East-West Power Co., Ltd. 1,978 213 2,191 Others 1,990 9,607 11,597 ------ ------ ------ W9,950 13,346 23,296 ====== ====== ====== 31 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (26) Transactions and Balances with Related Companies, Continued (c) Payables arising from related parties transactions as of March 31, 2004 and December 31, 2003 are as follows: Won (millions) --------------------------------- 2004 --------------------------------- Trade Other Related party payables payables Total ------------------------------------- ---------- -------- --------- Korea Hydro & Nuclear Power Co., Ltd. W 339,270 278 339,548 Korea South-East Power Co., Ltd. 123,049 123 123,172 Korea Midland Power Co., Ltd. 137,560 5,853 143,413 Korea Western Power Co., Ltd. 130,146 -- 130,146 Korea Southern Power Co., Ltd. 213,511 1,356 214,867 Korea East-West Power Co., Ltd. 157,338 63 157,401 Korea Power Engineering Co., Inc. 5,358 25 5,383 Korea Plant Service & Engineering Co., Ltd. 5,449 -- 5,449 Korea Electric Power Data Network Co., Ltd. 9,410 9,309 18,719 Others 3,956 26,031 29,987 -------- ------ --------- W1,125,047 43,038 1,168,085 ========== ====== ========= Won (millions) --------------------------------- 2003 --------------------------------- Trade Other Related party payables payables Total ------------------------------------- ---------- -------- --------- Korea Hydro & Nuclear Power Co., Ltd. W 379,121 1,954 381,075 Korea South-East Power Co., Ltd. 117,954 4,411 122,365 Korea Midland Power Co., Ltd. 145,548 9,387 154,935 Korea Western Power Co., Ltd. 167,876 140 168,016 Korea Southern Power Co., Ltd. 179,803 93 179,896 Korea East-West Power Co., Ltd. 142,776 223 142,999 Korea Power Engineering Co., Inc. -- 5,909 5,909 Korea Plant Service & Engineering Co., Ltd. -- 5,509 5,509 Korea Electric Power Data Network Co., Ltd. -- 56,334 56,334 Others 4,363 19,619 23,982 ---------- -------- --------- W1,137,441 103,579 1,241,020 ========== ======== ========= 32 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (26) Transactions and Balances with Related Companies, Continued (d) The guarantees the Company has provided for related companies as of March 31, 2004 are as follows:
Won (millions), Type Loan type Guaranteed company Financial institutions US$ (thousands) ------------------ ----------- ------------------- ---------------------- --------------- Payment guarantee Foreign KEPCO International Nippon Life Insurance US$ 82,006 currency Hong Kong Ltd. loan " Norinchukin Bank 35,000 " Korea Development Bank 6,954 KEPCO International Korea Development Bank 45,435 Philippines Inc. ---------- US$169,395 ---------- Joint liability on Spin-off of six power generation Korea Development Bank guarantee(*) power subsidiaries and others W2,122,167 generation subsidiaries
(*) The Company has the joint and several responsibilities with the subsidiaries to repay those debts, which were transferred and outstanding at the time of spin-off on April 2, 2001, under the Commercial Code of the Republic of Korea. The balance of the power generation subsidiaries' debts for which the Company has those joint and several responsibilities as of March 31, 2004 is W2,122,167 million. KEPCO Ilijan Corporation, which is the subsidiary of KEPCO International Philippines Inc., is engaged in the power generation business in the Philippines and borrowed US$ 393,459 thousand as project financing from Japan Bank of International Cooperation and others for that business. The Company has provided Japan Bank of International Cooperation and others with the guarantees for performance of the power generation business of KEPCO Ilijan Corporation as well as with the partial guarantees for the repayment of that borrowing. 33 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (26) Transactions and Balances with Related Companies, Continued (e) The guarantees provided by related companies as of March 31, 2004 are as follows:
Won (millions), USD, JPY, EUR and GBP (thousands) ------------------------------------------------- Balance of borrowing as of Guaranteed Type of March, 31 Type Related party Currency amounts borrowings 2004 ------------------ ------------- -------- ----------- ---------------- ----------------- Payment Korea USD 151,263 Commercial USD 150,000 guarantee (*1) Development borrowings bank USD 2,199,683 Foreign USD 1,729,205 currency bond JPY 118,760,453 " JPY 115,060,000 EUR 26,635 EUR 25,183 GBP 32,786 " GBP 24,467 Joint liability on six power KRW 128,037 Long-term debts KRW 128,037 guarantee (*2) generation subsidiaries
(*1) Korea Development Bank has also provided the repayment guarantee for some of foreign currency debentures of the Company, which existed at the time of spin-off, but not redeemed as of March 31, 2004, instead of the collective responsibilities of the power generation subsidiaries to facilitate the Restructuring Plan. (*2) As described note 26(d), the balance of the Company's borrowings for which six power generation subsidiaries have the joint and several responsibilities is W128,037 million as of March 31, 2004. (27) Commitments and Contingencies The Company is engaged in 221 lawsuits as a defendant and 34 lawsuits as a plaintiff. The total amount claimed against the Company is W96,496 million and the total amount claimed by the Company is W10,423 million as of March 31, 2004. The outcome of these lawsuits cannot presently be determined. Five banks including the National Agricultural Cooperative Federation have provided the Company a credit (overdraft) line amounting to W245,000 million as of March 31, 2004. The Company entered into a turnkey contract with the Korea Peninsula Energy Development Organization (KEDO) on December 15, 1999, to construct two 1,000,000 KW-class pressurized light-water reactor units in North Korea. The contract amount is US$ 4,182 million and subject to adjustment to cover any changes in the price level. The construction projects have been temporarily suspended from December 1, 2003 due to the political environments surrounding the Korean peninsula. The Company entered into the Power Purchase Agreement with LG Energy Co., Ltd. and other independent power producers for power purchases in accordance with the Electricity Business Act and power purchased from these companies amounted to W251,684 million for the three-month period ended March 31, 2004. 34 Korea Electric Power Corporation Notes to Non-Consolidated Financial Statements (Unaudited) (28) Employee Welfare and Contributions to Society For employee welfare, the Company maintains a refectory, an infirmary, athletic facilities, a scholarship fund, workmen's accident compensation insurance, unemployment insurance and medical insurance. The Company donated W5,871 million and W1,715 million to the farming and fishing communities and others for the three-month periods ended March 31, 2004 and 2003, respectively. (29) Economic Environment In common with other Asian countries, the economic environment in the Republic of Korea continues to be volatile. In addition, the Korean government and the private sector continue to implement structural reforms to historical business practices including corporate governance. The Company may be either directly or indirectly affected by these economic conditions and the reform program described above. The accompanying 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. 35 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KOREA ELECTRIC POWER CORPORATION By: /s/ Lee, Do-Shik --------------------------------------- Name: Lee, Do-Shik Title: Chief Financial Officer Date : June 4, 2004 -----END PRIVACY-ENHANCED MESSAGE-----