SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the Month of October, 2003
KOREA ELECTRIC POWER CORPORATION
(Translation of registrant's name into English)
167, Samseong-dong, Gangnam-gu, Seoul 135-791, Korea
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will
file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F X Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1):
---------
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7):
---------
Indicate by check mark whether the registrant by furnishing
the information contained in this form is also thereby
furnishing the information to the Commission pursuant to Rule
12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
--- ---
If "Yes" is marked, indicate below the file number assigned to
the registrant in connection with Rule 12g3-2(b): 82-_______.
This Report of Foreign Private Issuer on Form 6-K is deemed filed for all
purposes under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, including by reference in the Registration
Statement on Form F-3 (Registration No. 33-99550) and the Registration Statement
on Form F-3 (Registration No. 333-9180).
KOREA ELECTRIC POWER CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AS OF JUNE 30, 2002 AND 2003
KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
AS OF DECEMBER 31, 2002 AND JUNE 30, 2003
Translation into
Korean won U.S. Dollars (Note 2)
------------------------------ ---------------------
2002 2003 2003
-------------- ------------- ---------------------
ASSETS (In millions) (In thousands)
------
Utility plant (Notes 3 and 5) W 75,588,054 W 78,746,061 $ 65,841,188
Less: Accumulated depreciation (11,963,081) (14,415,743) (12,053,297)
Construction grants (2,321,219) (2,521,038) (2,107,891)
-------------- ------------- -------------
61,303,754 61,809,280 51,680,000
-------------- ------------- -------------
Investments and others:
Long-term investment securities (Note 6) 1,353,308 1,440,696 1,204,595
Long-term loans (Note 7) 257,098 271,617 227,105
Deferred income tax assets 1,261,813 1,349,745 1,128,549
Currency and interest rate swaps (Note 13) 324,093 334,157 279,395
Intangibles (Note 4) 459,202 480,819 402,023
Other non-current assets (Note 12) 638,359 622,456 520,449
-------------- ------------- -------------
4,293,873 4,499,490 3,762,116
-------------- ------------- -------------
Current assets:
Cash and cash equivalents (Note 12) 1,997,480 1,258,208 1,052,013
Trade receivables, net of allowance for
doubtful accounts (Notes 12 and 17) 1,534,847 1,456,732 1,218,003
Accounts receivable-other, net of
allowance for doubtful accounts (Notes 12 and 17) 310,497 231,892 193,890
Short-term investment securities (Note 6) 23,136 133,870 111,931
Short-term financial instruments (Note 12) 137,852 156,705 131,024
Short-term loans (Note 7) 14,661 14,231 11,899
Inventories (Notes 5 and 8) 721,556 876,777 733,091
Prepayments 1,992 11,340 9,482
Other current assets 172,471 237,305 198,416
-------------- ------------- -------------
4,914,492 4,377,060 3,659,749
-------------- ------------- -------------
Total assets W 70,512,119 W 70,685,830 $ 59,101,865
============== ============= =============
(continued)
KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
AS OF DECEMBER 31, 2002 AND JUNE 30, 2003
Translation into
Korean won U.S. Dollars (Note 2)
------------------------------ ---------------------
2002 2003 2003
-------------- ------------- ---------------------
(In millions) (In thousands)
Stockholders' Equity and Liabilities
Stockholders' Equity (Notes 6 and 9):
Common stock W 3,200,504 W 3,200,504 $ 2,676,007
Capital surplus 14,483,121 14,486,093 12,112,118
Retained earnings 18,419,413 19,193,592 16,048,154
Capital adjustments (137,973) (327,297) (273,660)
Minority interest in consolidated subsidiaries 108,073 118,344 98,950
-------------- ------------- --------------
Total stockholders' equity 36,073,138 36,671,236 30,661,569
-------------- ------------- --------------
Long-term Liabilities:
Long-term debt (Note 10) 17,665,355 16,449,334 13,753,624
Accrued severance indemnities, net (Note 2) 454,326 522,536 436,903
Reserve for decommissioning cost (Note 2) 4,417,934 4,719,860 3,946,371
Reserve for self-insurance 82,536 82,011 68,571
Currency and interest swaps (Note 13) 479,295 408,657 341,686
Financing lease liabilities (Note 11) 5,366 2,330 1,948
Deferred income tax liabilities 1,346,043 1,496,622 1,251,356
Other long-term liabilities 393,321 348,423 291,324
-------------- ------------- --------------
24,844,176 24,029,773 20,091,783
-------------- ------------- --------------
Current Liabilities:
Trade payables (Notes 12 and 17) 734,437 638,635 533,976
Accounts payable-other (Notes 12 and 17) 931,892 753,139 629,715
Short-term borrowings (Note 10) 157,733 447,928 374,522
Current portion of long-term debt (Note 10) 5,653,428 6,320,093 5,284,359
Income tax payable 1,270,664 857,814 717,236
Accrued expenses 264,685 327,532 273,856
Dividends payable 2,474 1,751 1,464
Other current liabilities 579,492 637,929 533,385
-------------- ------------- --------------
9,594,805 9,984,821 8,348,513
-------------- ------------- --------------
Total liabilities 34,438,981 34,014,594 28,440,296
-------------- ------------- --------------
Total stockholders' equity and liabilities W 70,512,119 W 70,685,830 $ 59,101,865
============== ============= ==============
See accompanying notes to consolidated financial statements.
KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2002 AND 2003
Translation into
Korean Won U.S. Dollars (Note 2)
---------------------------- ---------------------
2002 2003 2003
------------ ------------ ---------------------
(In millions, except (In thousands, except
per share amounts) per share amounts)
OPERATING REVENUES: (Note 17)
Sale of electricity W 9,517,966 W 10,425,992 $ 8,717,385
Other operating revenues 620,946 469,331 392,417
------------ ------------ ------------------
10,138,912 10,895,323 9,109,802
OPERATING EXPENSES (Notes 4, 14, 15, 17 and 19):
Power generation, transmission and distribution 6,283,114 6,987,408 5,842,315
Purchased power 522,854 743,397 621,569
Other operating costs
310,393 189,745 158,650
Selling and administrative expenses 545,748 588,659 492,190
------------ ------------ ------------------
7,662,109 8,509,209 7,114,724
------------ ------------ ------------------
OPERATING INCOME 2,476,803 2,386,114 1,995,078
OTHER INCOME (EXPENSE):
Interest income 43,584 49,599 41,471
Interest expense (526,741) (434,665) (363,432)
Gain on foreign currency transactions and
translation, net 567,720 59,884 50,070
Gain on valuation using the equity method of
accounting (Note 6) 72,863 75,318 62,975
Donations (Note 21) (10,469) (41,490) (34,691)
Valuation gain on currency and interest rate
swaps, net (Note 13) 52,506 1,571 1,314
Gain (loss) on disposal of investments, net (184) 45,243 37,829
Other, net 181,443 103,647 86,661
------------ ------------ ------------------
380,722 (140,893) (117,803)
------------ ------------ ------------------
ORDINARY INCOME 2,857,525 2,245,221 1,877,275
EXTRAORDINARY ITEM -- -- --
INCOME BEFORE INCOME TAX EXPENSE
------------ ------------ ------------------
2,857,525 2,245,221 1,877,275
INCOME TAX EXPENSE (Note 16) (1,159,118) (947,881) (792,543)
------------ ------------ ------------------
INCOME BEFORE MINORITY INTERESTS 1,698,407 1,297,340 1,084,732
------------ ------------ ------------------
MINORITY INTERESTS (5,260) (11,811) (9,875)
------------ ------------ ------------------
NET INCOME W 1,693,147 W 1,285,529 $ 1,074,857
============ ============ ==================
ORDINARY INCOME PER SHARE (Note 2) W 2,650 W 2,036 $ 1.70
============ ============ ==================
EARNINGS PER SHARE (Note 2) W 2,650 W 2,036 $ 1.70
============ ============ ==================
See accompanying notes to consolidated financial statements.
KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2002 AND 2003
Korean Won (In millions)
-----------------------------------------------------------------------------------------
Common Capital Retained Capital Minority
Stock Surplus Earnings Adjustments Interests Total
------------ ------------ ------------ ------------ ------------ ------------
Balance at January 1, 2002 W 3,200,504 W 14,905,237 W 14,947,359 W (43,465) W 172,059 W 33,181,694
Net income -- -- 1,693,147 -- -- 1,693,147
Gain on disposal of treasury stock -- 2,005 -- -- -- 2,005
Changes in capital adjustments -- -- -- (21,809) -- (21,809)
Changes in minority interests -- -- -- -- 10,046 10,046
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 2002 W 3,200,504 W 14,907,242 W 16,640,506 W (65,274) W 182,105 W 34,865,083
============ ============ ============ ============ ============ ============
Balances at January 1, 2003 W 3,200,504 W 14,483,121 W 18,419,413 W (137,973) W 108,073 W 36,073,138
Net income -- -- 1,285,529 -- -- 1,285,529
Dividends declared -- -- (511,350) -- -- (511,350)
Gain on disposal of treasury stock -- 2,972 -- -- -- 2,972
Changes in capital adjustments -- -- -- (189,324) -- (189,324)
Changes in minority interests -- -- -- -- 10,271 10,271
------------ ------------ ------------ ------------ ------------ ------------
Balances at June 30, 2003 W 3,200,504 W 14,486,093 W 19,193,592 W (327,297) W 118,344 W 36,671,236
============ ============ ============ ============ ============ ============
Translation into U.S. Dollars (In
thousands) (Note 2) $ 2,676,007 $ 12,112,118 $ 16,048,154 $ (273,660) $ 98,950 $ 30,661,569
============ ============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements.
KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2002 AND 2003
Translation into
Korean Won U.S. Dollars (Note 2)
---------------------------- ---------------------
2002 2003 2003
------------ ------------ ---------------------
(In millions) (In thousands)
Cash flows from operating activities:
Net income W 1,693,147 W 1,285,529 $ 1,074,857
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,219,249 2,281,237 1,907,389
Amortization of nuclear fuel and heavy water 192,753 210,054 175,630
Utility plant removal cost 88,112 90,891 75,996
Provision for severance and retirement
benefits 67,952 79,038 66,085
Provision for decommissioning costs 276,501 312,756 261,502
Allowance for doubtful accounts 12,414 9,158 7,657
Interest expense (income), net 8,398 (949) (793)
Gain on foreign currency translation (521,234) (64,541) (53,964)
Loss (gain) on disposal of investment 184 (45,243) (37,829)
Gain on valuation using the equity
method of accounting (72,863) (75,318) (62,975)
Valuation gain on currency and
interest rate swaps, net (52,506) (1,571) (1,314)
Increase in deferred income tax assets (74,130) (88,778) (74,229)
Decrease (increase) in accounts receivable (120,613) 62,251 52,049
Decrease in accounts receivable-other 3,154 78,884 65,957
Increase in inventories (60,607) (113,274) (94,711)
Decrease (increase) in prepayments 22,524 (28,462) (23,798)
Increase in deferred income tax liabilities 186,609 150,579 125,902
Decrease in trade payables (231,682) (95,138) (79,547)
Decrease in accounts payable-other (97,145) (180,408) (150,843)
Increase (decrease) in income tax payable 457,533 (410,935) (343,591)
Increase (decrease) in accrued expenses (43,545) 71,415 59,712
Payment of severance and retirement benefits (8,787) (7,744) (6,475)
Payment of decommissioning costs (5,961) (10,557) (8,827)
Payment of self-insurance (456) (526) (440)
Other, net (63,604) 5,895 4,929
------------ ------------ ------------
Net cash provided by operating activities 3,875,397 3,514,243 2,938,329
(continued)
KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2002 AND 2003
Translation into
Korean Won U.S. Dollars (Note 2)
---------------------------- ---------------------
2002 2003 2003
------------ ------------ ---------------------
(In millions) (In thousands)
Cash flows from investing activities:
Disposal of utility plant W 50,350 W 32,375 $ 27,069
Disposal of non-utility plant 2,631 -- --
Additions to utility plant (3,046,311) (3,496,445) (2,923,449)
Additions to non-utility plant (85,293) -- --
Receipt of construction grants 259,539 280,086 234,186
Proceeds from disposal of investment
securities, net 8,299 77,168 64,522
Payment of long-term loans, net (32,341) (25,751) (21,531)
Increase in intangibles, net (6,495) (9,228) (7,716)
Decrease (increase) in other non-current assets (27,910) 12,903 10,788
Withdrawal (acquisition) of short-term
financial instruments, net 191,116 (18,853) (15,763)
Decrease in short-term loans, net 10,595 8,364 6,993
Proceeds from sale (acquisition) of short-term
investment securities 11 (110,816) (92,655)
------------ ------------ ------------
Net cash used in investing activities (2,675,809) (3,250,197) (2,717,556)
Cash flows from financing activities:
Proceeds from long-term debt 1,482,891 3,070,357 2,567,188
Payment of long-term debt (507,715) (627,333) (524,526)
Payment of current portion of long- term debt (3,279,177) (2,936,848) (2,455,558)
Proceed from (Payment of) in short-term
borrowings, net (3,567) 292,805 244,820
Cash dividends (331,228) (512,073) (428,155)
Acquisition of treasury stock -- (180,120) (150,602)
Other, net (14,678) (90,300) (75,501)
------------ ------------ ------------
Net cash provided by financing activities (2,653,474) (983,512) (822,334)
Net decrease in cash and cash equivalents from
changes in consolidated subsidiaries -- (19,806) (16,560)
Net decrease in cash and cash equivalents (1,453,886) (739,272) (618,121)
Cash and cash equivalents at beginning of the period 2,303,954 1,997,480 1,670,134
------------ ------------ ------------
Cash and cash equivalents at end of the period W 850,068 W 1,258,208 $ 1,052,013
============ ============ ============
See accompanying notes to consolidated financial statements.
KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2003
(UNAUDITED)
1. GENERAL:
(1) The Company
Korea Electric Power Corporation (the "KEPCO") was incorporated on January 1,
1982 in accordance with the Korea Electric Power Corporation Act (the "KEPCO
Act") to engage in the generation, transmission and distribution of electricity
and development of electric power resources. KEPCO was given a government
investment status on December 31, 1983 following the enactment of the
Government-Invested Enterprise Management Basic Act. KEPCO's stock was listed on
the Korea Stock Exchange on August 10, 1989 and the Company listed its
Depository Receipts (DR) on the New York Stock Exchange on October 27, 1994.
As of June 30, 2003, the Government of the Republic of Korea, Korea Development
Bank and foreign investors hold 32.35 percent, 21.57 percent and 25.47 percent,
respectively, of KEPCO's shares.
KEPCO spun off its power generation division on April 2, 2001, resulting in the
establishment of six new power generation subsidiaries. The Company has been
considering the gradual privatization of its power generation subsidiaries and
distribution business in accordance with the Restructuring Plan, dated January
21, 1999, of the electricity industry in the Republic of Korea announced by the
Ministry of Commerce, Industry and Energy ("Restructuring Plan"). This
Restructuring Plan, which is intended to introduce a competitive system in the
electricity industry, is expected to affect the determination of utility rates,
result in changes in management structure, related laws and regulations, and
affect electricity supply and demand policy.
In response to general unstable economic conditions, the Korean government and
the private sector have been implementing structural reforms to historical
business practices. Implementation of these reforms is progressing slowly,
particularly in the areas of restructuring private enterprises and reforming the
banking industry. The Korean government continues to apply pressure to Korean
companies to restructure into more efficient and profitable firms. The Company
may be either directly or indirectly affected by these general unstable economic
conditions and the reform program described above. The accompanying consolidated
financial statements reflect management's current assessment of the impact to
date of the economic situation on the financial position of the Company. Actual
results may differ materially from management's current assessment
(2) Consolidated Subsidiaries
Ownership
percentage (%)
Year of -------------------
Subsidiaries establishment 2002 2003 Primary business
------------------------------------------------ ------------- -------- -------- -------------------------------
Korea Hydro & Nuclear Power Co., Ltd. 2001 100.0 100.0 Power generation
Korea South-East Power Co., Ltd. 2001 100.0 100.0 Power generation
Korea Midland Power Co., Ltd. 2001 100.0 100.0 Power generation
Korea Western Power Co., Ltd. 2001 100.0 100.0 Power generation
Korea Southern Power Co., Ltd. 2001 100.0 100.0 Power generation
Korea East-West Power Co., Ltd. 2001 100.0 100.0 Power generation
Korea Power Engineering Co., Ltd. 1977 97.9 97.9 Engineering for utility plant
Korea Plant Services & Engineering Co., Ltd. 1984 100.0 100.0 Utility plant maintenance
KEPCO Nuclear Fuel Co., Ltd. 1982 96.4 96.4 Nuclear fuel
Korea Electric Power Data Network Co., Ltd. 1992 100.0 100.0 Information services
Korea Electric Power Industrial Development Co., 1990 100.0 49.0 Disposal of power-plant ash and
Ltd. (*) electric meter reading
-2-
Ownership
percentage (%)
Year of -------------------
Subsidiaries establishment 2002 2003 Primary business
------------------------------------------------ ------------- -------- -------- -------------------------------------
KEPCO International Hong Kong Ltd. 1995 100.0 100.0 Holding Company
KEPCO International Philippines Inc. 2000 100.0 100.0 Holding Company
KEPCO Philippines Corporation 1995 100.0 100.0 Utility plant rehabilitation and
operation (Subsidiary of KEPCO
International Hong Kong Ltd.)
KEPCO Ilijan Corporation 1997 51.0 51.0 Construction and operation of utility
plant (Subsidiary of KEPCO
International Philippines Inc.)
(*) KEPCO sold a portion of its investment in Korea Electric Power Industrial
Development Co., Ltd. during 2003, which reduced its ownership interest to
49% and losing its status as the major shareholder. Accordingly, KEPCO has
begun to account for Korea Electric Power Industrial Development Co., Ltd
using the equity method from 2003.
(3) The affiliates accounted for using the equity method
Ownership
percentage (%)
Year of -------------------
Subsidiaries establishment 2002 2003 Primary business
------------------------------------------------ ------------- -------- -------- ----------------------------------------
Korea Gas Corporation 1983 24.5 24.5 Sales of liquefied natural gas
Korea District Heating Co., Ltd. 1985 26.1 26.1 Providing of heating
Powercomm Corporation 2000 44.0 43.1 Communication line leasing
Korea Electric Power Industrial Development Co., 1990 100.0 49.0 Disposal of power-plant ash and electric
Ltd. meter reading
YTN 1993 21.4 21.4 Broadcasting
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(1) Basis of Consolidated Financial Statement Presentation
KEPCO maintains its official accounting records in Korean won and prepares the
consolidated financial statements in the Korean language (Hangul) in conformity
with the Accounting Regulations for Government Invested Enterprises, which have
been approved by the Korean Ministry of Finance and Economy and, in the absence
of specialized accounting regulations for utility companies, the accounting
principles generally accepted in the Republic of Korea. Certain accounting
principles applied by the Company that conform with financial accounting
standards and accounting principles in the Republic of Korea may not conform
with generally accepted accounting principles in other countries. Accordingly,
the accompanying financial statements are intended for use by for those who are
informed about Korean accounting principles and practices, Korea Electric Power
Corporation Act and Accounting Regulations for Government Invested Enterprises.
The accompanying financial statements have been condensed, restructured and
translated into English (with certain expanded descriptions) from the Korean
language financial statements. Certain information included in the Korean
language financial statements, but not required for a fair presentation of the
Company's financial position and results of operations, is not presented in the
accompanying financial statements.
The U.S. dollar amounts presented in these financial statements were computed by
translating the Korean won into U.S. dollars at the rate of W1,196.00 to
US$1.00, the noon buying rate in the City of New York for cable transfers in won
as certified for customs purposes by the Federal Reserve Bank of New York on
June 30, 2003, solely for the convenience of the reader. These convenience
translations into U.S. dollars should not be construed as representations that
the Korean won amounts have been, could have been, or could in the future be,
converted at this or any other rate of exchange.
-3-
In 2003, the Company adopted Statements of Korean Financial Accounting Standards
("SKAS") No 2, 3, 4, 5, 6, 7, 8 and 9, which are effective from January 1, 2003.
Those statements provide accounting and reporting standards for the interim
financial statements, intangible assets, revenue recognition, tangible assets,
events occurring after the balance sheet date, capitalization of interest costs,
marketable securities and convertible securities. The prior year financial
statements, which are presented for comparative purposes, were restated to
conform to the provisions of those standards. As a result of the adoption of
SKAS No. 6 - "Events Occurring After the Balance Sheet Date", shareholders'
equity increased and current liabilities decreased by W511,350 million as of
December 31, 2002.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual result could differ from those estimates.
(2) Principles of Consolidation
The consolidated financial statements include the accounts of KEPCO and its
controlled subsidiaries (collectively referred to as the "Company"). Controlled
subsidiaries include majority owned entities and entities of which KEPCO owns
more than 30 percent of total outstanding voting stock and is the largest
stockholder. Investments in affiliates in which KEPCO is able to exercise
significant influence over the operating and financial policies of the investee
are accounted for using the equity method. Significant influence is deemed to
exist when the investor owns more than 20 percent of the investee's voting
shares unless there is evidence to the contrary.
Investments of KEPCO and equity accounts of subsidiaries subject to
consolidation were eliminated at the dates KEPCO obtained control of the
subsidiaries. Any difference between the cost of acquisition and the book value
of the subsidiary is recorded as either goodwill or negative goodwill. Goodwill
is amortized using the straight-line method over five years from the year the
acquisition occurred. Negative goodwill is recovered, within the limit of the
aggregate fair values of identifiable non-monetary assets, using the
straight-line method over weighted-average years of depreciable assets and the
amounts in excess of the limit are charged to current operations and presented
as extraordinary gain at the acquisition date.
Intercompany receivables and payables including trade receivables and trade
payables are eliminated. Profits and losses on intercompany sales of products,
property or other assets are eliminated in the consolidated financial statements
based on the gross profit or loss recognized. For sales from KEPCO to
subsidiaries (downstream sales), the full amount of intercompany gain or loss is
eliminated in the consolidated income. For upstream sales, the elimination is
allocated proportionately to consolidated income and minority interests.
(3) Property, Plant and Equipment
Property, plant and equipment are stated at cost except for assets revalued
upward in accordance with the KEPCO Act and the Assets Revaluation Law of Korea.
Expenditures, as incurred after the acquisition of the property, plant and
equipment, that increases the future economic benefits beyond the property's
most recently measured performance, are capitalized as additions to property,
plant and equipment.
According to SKAS No. 5 "Tangible Assets", when the estimated cost of
dismantling and removing the asset, and restoring the site, after the
termination of the asset's useful life, meets the criteria for recognition of
provisions, the present value of the estimated cost are capitalized as part of
the carrying amount of the tangible assets and the same amounts are recognized
as a liability. Those capitalized assets shall be depreciated using the
systematic and rational method over the asset's useful life and the liability
shall be increased by the effective interest rate method. The Company applies
this accounting treatment to tangible assets acquired after January 1, 2003.
The Company capitalizes interest and other borrowing costs on debt issued to
finance capital expenditures as part of the acquisition cost of major facilities
and equipment. For the six-month periods ended June 30, 2002 and 2003, the
amounts of capitalized interest was W220,116 million and W252,639 million,
respectively.
-4-
The impact on the Company's financial position as of and for the six month
period ended June 30, 2003, if the interest and other borrowing costs were
expensed instead of being capitalized, are shown below (won in millions).
Income before
Construction Interest Income
in-progress Total assets expense tax expense
------------ ------------ ------------ -------------
Capitalized $ 9,101,695 $ 70,685,830 $ 434,665 $ 2,245,221
Expensed 8,849,056 70,433,191 687,304 1,992,582
------------ ------------ ------------ ------------
$ 252,639 $ 252,639 $ (252,639) $ 252,639
============ ============ ============ ============
Depreciation is computed using the declining-balance method (straight-line
method for buildings, structures and heavy water, units of production method for
nuclear fuel) 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:
Years
-----
Buildings 8~30
Structures 8~30
Heavy water 30
Machinery 16
Ships 9
Vehicles 4
Others 4
The Company assesses any possible recognition of impairment loss when there is
an indication that expected future economic benefits of a tangible asset is
considerably less than its carrying amount as a result of technological
obsolescence or rapid decline in market value. When it is determined that a
tangible asset may have been impaired and that its estimated total future cash
flows from continued use or disposal is less than its carrying amount, the
carrying amount of a tangible asset is reduced to its recoverable amount and the
difference is recognized as an impairment loss. If the recoverable amount of the
impaired asset exceeds its carrying amount in subsequent reporting period, the
amount equal to the excess is treated as reversal of the impairment loss;
however, it cannot exceed the carrying amount that would have been determined
had no impairment loss were recognized.
The Company records the following funds and materials, which relate to the
construction of transmission and distribution facilities as construction grants:
o Grants from the government or public institutions
o Funds, construction materials or other items contributed by customers
Construction grants are initially recorded and presented in the accompanying
consolidated financial statements as deductions from the assets acquired under
such grants and are offset against depreciation expense during the estimated
useful lives of the related assets. The Company received W255,168 million and
W280,086 million of construction grants, and offset W93,232 million and W80,267
million against depreciation expense and utility plant removal cost for the
six-month periods ended June 30, 2002 and 2003, respectively.
(4) Accounting for Leases
Lease agreements that include a bargain purchase option, result in the transfer
of ownership by the end of the lease term, have a term equal to at least 75
percent of the estimated economic life of the leased property or where the
present value of the minimum lease payments at the beginning of the lease term
equals or exceeds 90 percent of the fair value of the leased property are
accounted for as financial or capital leases. All other leases are accounted for
as operating leases. Assets and liabilities related to financial leases are
recorded as property and equipment and long term debt, respectively, and the
related interest is calculated using the effective interest rate method. In
respect to operating leases, the future minimum lease payments are expensed
ratably over the lease term while contingent rentals are expensed as incurred.
-5-
(5) Investment Securities other than those Accounted for Using the Equity Method
Classification of Securities
At acquisition, the Company classifies securities into one of the three
categories: trading, held-to-maturity or available-for-sale. Trading securities
are those that were acquired principally to generate profits from short-term
fluctuations in prices. Held-to-maturity securities are those with fixed and
determinable payments and fixed maturity that an enterprise has the positive
intent and ability to hold to maturity. Available-for-sale securities are those
not classified either as held-to-maturity or trading securities.
Valuation of Securities
Securities are recognized initially at cost determined using the weighted
average method. The cost includes the market value of the consideration given
and incidental expenses. If the market price of the consideration given is not
available, the market prices of the securities purchased are used as the basis
for measurement. If neither the market prices of the consideration given nor
those of the acquired securities are available, the acquisition cost is measured
at the best estimates of its fair value.
After initial recognition, held-to-maturity securities are valued at amortized
cost. The difference between face value and acquisition cost is amortized over
the remaining term of the security using the effective interest method. Trading
securities are valued at fair value, with unrealized gains and losses reflected
in current operations. Available-for-sale securities are also valued at fair
value, with unrealized gains and losses reflected in capital adjustments, until
the securities are sold or if the securities are determined to be impaired and
the lump-sum cumulative amount of capital adjustments are reflected in current
operations. However, available-for-sale equity securities that are not traded in
an active market and whose fair values cannot be reliably estimated are
accounted for at their acquisition cost. For those securities that are traded in
an active market, fair values refers to those quoted market prices, which are
measured as the closing price at the balance sheet date. The fair value of
non-marketable debt securities are measured at the discounted future cash flows
by using the discount rate that appropriately reflects the credit rating of
issuing entity assessed by a publicly reliable independent credit rating agency.
If application of such measurement method is not feasible, estimates of the fair
values may be made using a reasonable valuation model or quoted market prices of
similar debt securities issued by entities conducting similar business in
similar industries.
Securities are evaluated at each balance sheet date to determine whether there
is any objective evidence of impairment loss. When any such evidence exists,
unless there is a clear counter-evidence that recognition of impairment is
unnecessary, the Company estimates the recoverable amount of the impaired
security and recognizes any impairment loss in current operations. The amount of
impairment loss of the held-to-maturity security or non-marketable equity
security is measured as the difference between the recoverable amount and the
carrying amount. The recoverable amount of held-to maturity security is the
present value of expected future cash flows discounted at the securities'
original effective interest rate. For available-for-sale debt or equity security
stated at fair value, the amount of impairment loss to be recognized in the
current period is determined by subtracting the amount of impairment loss of
debt or equity security already recognized in prior period from the amount of
amortized cost in excess of the recoverable amount for debt security or the
amount of the acquisition cost in excess of the fair value for equity security.
For non-marketable equity securities accounted for at acquisition costs, the
impairment loss is equal to the difference between the recoverable amount and
the carrying amount.
If the realizable value subsequently recovers, in case of a security stated at
fair value, the increase in value is recorded in current operation, up to the
amount of the previously recognized impairment loss, while for the security
stated at amortized cost or acquisition cost, the increase in value is recorded
in current operation, so that its recovered value does not exceed what its
amortized cost would be as of the recovery date if there had been no impairment
loss.
If the intent and ability to hold the securities change, transferred securities
are accounted for at fair value. In case held-to-maturity securities are
reclassified into available-for-sale securities, unrealized gain or loss between
the book value and fair value is reported in shareholders' equity as a capital
adjustment. In case the available for sale securities are reclassified into
held-to maturity securities, the unrealized gain or loss at the date of the
transfer continues to be reported in shareholder's equity as a capital
adjustment, but it is amortized over the remaining term of the security using
the effective interest method.
-6-
(6) Investment Securities Using the Equity Method
Investments in equity securities of companies in which the Company is able to
exercise significant influence over the operating and financial policies of the
investees are accounted for using the equity method. The change in the Company's
share of an investee's net equity resulting from a change in an investee's net
equity is reflected in current operations, retained earnings, and capital
adjustment in accordance with the causes of the change which consist of the
investee's net income (loss), changes in retained earnings and changes in
capital surplus and capital adjustments.
(7) Intangibles
Intangible assets are stated at cost, net of accumulated amortization computed
using the straight-line method over the estimated useful lives, from 4 years to
50 years, of related assets.
If the recoverable amount of an intangible asset becomes less than its carrying
amount as a result of obsolescence, sharp decline in market value or other
causes of impairment, the carrying amount of an intangible asset is reduced to
its recoverable amount and the reduced amount is recognized as impairment loss.
If the recoverable amount of a previously impaired intangible asset exceeds its
carrying amount in subsequent periods, an amount equal to the excess shall be
recorded as reversal of impairment loss; however, it cannot exceed the carrying
amount that would have been determined had no impairment loss were recognized in
prior years.
(8) Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based on management's
estimated loss on uncollectible accounts and prior year collection experience.
(9) 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.
(10) Discount on Debentures
Discounts on debentures issued are amortized over the redemption period of
debentures using the effective interest rate method. Amortization of discounts
is recognized as interest expense.
(11) Accrued Severance Indemnities
Employees and directors with more than one year of service are entitled to
receive a lump-sum payment upon termination of their service with the Company,
based on their length of service and rate of pay at the time of termination. The
accrued severance indemnities that would be payable assuming all eligible
employees were to resign are W520,891 million and W579,207 million as of
December 31, 2002 and June 30, 2003, respectively. Actual severance payments
were W8,787 million and W7,744 million for the six-month periods ended June 30,
2002 and 2003, respectively.
Before April 1999, the Company and its employees paid 3 percent and 6 percent,
respectively, of monthly pay (as defined) to the National Pension Fund in
accordance with the National Pension Law of Korea. The Company paid half of the
employees' 6 percent portion and is paid back at the termination of service by
offsetting the receivable against the severance payments. Such receivables, with
a balance of W116 million and W101 million as of December 31, 2002 and June 30,
2003, respectively, are presented as a deduction from accrued severance
indemnities. Starting April 1999, the Company and its employees each pay 4.5
percent of monthly pay to the Fund under the revised National Pension Law of
Korea.
-7-
Funding of the severance indemnities are not required, however, tax deductions
are limited if the liability is not funded. The Company has purchased severance
insurance deposits, which meet the funding requirement for tax deduction
purposes. These consist of individual severance insurance deposits, in which the
beneficiary is the respective employee, with a balance of W66,449 million and
W56,570 million as of December 31, 2002 and June 30, 2003, respectively, which
are presented as deduction from accrued severance indemnities.
(12) Reserve for Self-Insurance
The Company provides a self-insurance reserve for liability to third parties
that may arise in connection with the KEPCO's non-insured facilities. Payments
made to settle applicable claims are charged to this reserve.
(13) Reserve for Decommissioning Costs
As discussed in Note 2 (3) Property, Plant and Equipment, for the tangible
assets acquired after January 1, 2003, the Company recognizes the present value
of the estimated cost of dismantling and removing the asset, and restoring the
site as a liability. For the assets acquired before January 1, 2003, the Company
accrues expenses for estimated decommissioning costs of nuclear facilities based
on engineering studies prepared in 1992. These expenses are included in
operating expenses in the accompanying statements of income. Annual additions to
the reserve are in amounts such that the current costs would be fully accrued
for at estimated dates of decommissioning on a straight-line basis, reflecting
the inflation rate. The Company accrued W276,501 million and W312,756 million as
a reserve for decommissioning costs for the six-month periods ended June 30,
2002 and 2003, respectively. The accounting for decommissioning costs for
nuclear power plants involves significant estimates related to costs to be
incurred many years in the future. Changes in these estimates could
significantly impact the Company's financial position, results of operations and
cash flows.
(14) Foreign Currency Transactions and Translation
The Company maintains its accounts in Korean won. Transactions in foreign
currencies are recorded in Korean won based on the prevailing rates of exchange
on the transaction date. Monetary assets and liabilities with balances
denominated in foreign currencies are recorded and reported in the accompanying
financial statements at the exchange rates prevailing at the balance sheet date.
The balances have been translated using the Bank of Korea Basic Rate, which was
W1,200.40 and W1,193.10 to US$ 1.00 at December 31, 2002 and June 30, 2003,
respectively. The translation gains or losses are reflected in current
operations.
(15) Accounting for Derivative Instruments
All derivative instruments are accounted for at fair value with the valuation
gain or loss recorded as an asset or liability. If the derivative instrument is
not part of a transaction qualifying as a hedge, the adjustment to fair value is
reflected in current operations. The accounting for derivative transactions that
are part of a qualified hedge based both on the purpose of the transaction and
on meeting the specified criteria for hedge accounting differs depending on
whether the transaction is a fair value hedge or a cash flow hedge. Fair value
hedge accounting is applied to a derivative instrument designated as hedging the
exposure to changes in the fair value of an asset or a liability or a firm
commitment (hedged item) that is attributable to a particular risk. The gain or
loss both on the hedging derivative instruments and on the hedged item
attributable to the hedged risk is reflected in current operations. Cash flow
hedge accounting is applied to a derivative instrument designated as hedging the
exposure to variability in expected future cash flows of an asset or a liability
or a forecasted transaction that is attributable to a particular risk. The
effective portion of gain or loss on a derivative instrument designated as a
cash flow hedge is recorded as a capital adjustment and the ineffective portion
is recorded in current operations. The effective portion of gain or loss
recorded as a capital adjustment is reclassified to current earnings in the same
period during which the hedged forecasted transaction affects earnings. If the
hedged transaction results in the acquisition of an asset or the incurrence of a
liability, the gain or loss in capital adjustment is added to or deducted from
the asset or the liability.
(16) Revenue Recognition
KEPCO recognizes revenue from the sale of electric power based on meter readings
made on a monthly basis. KEPCO does not accrue revenue for power sold after the
meter readings but prior to the end of the accounting period. KEPCO recognizes
revenue on long-term contracts, which are related to construction of power
plants in North Korea, based on the percentage-of-completion.
-8-
(17) Income Tax Expense
The Company recognizes deferred income taxes arising from temporary differences
between pretax accounting income and taxable income. Accordingly, the provision
for income tax expense consists of the corporate income tax and resident tax
surcharges currently payable, and the changes in deferred income tax assets and
liabilities during the period. However, deferred income tax assets are
recognized only if the future tax benefits on accumulated temporary differences
are realizable. The deferred income tax assets and liabilities will be charged
or credited to income tax expense in the period each temporary difference
reverses in the future. Deferred income taxes will be recalculated based on the
actual tax rate in effect at each balance sheet date.
(18) Ordinary Income Per Share and Earnings Per Share
Ordinary income per share and earnings per share are computed by dividing
ordinary income (after deduction for tax effect) and net income by the weighted
average number of common shares outstanding during the period. The number of
shares used in computing earnings and ordinary income per share is 638,988,360
shares and 631,387,812 shares for the six-month periods ended June 30, 2002 and
2003, respectively. Ordinary income per share and earnings per share of the
Company for 2002 is W4,770.
3. PROPERTY, PLANT AND EQUIPMENT:
(1) Asset revaluation KEPCO has revalued its property, plant and equipment in
accordance with the KEPCO Act and the Asset Revaluation Law (the latest
revaluation date was January 1, 1999). The gain from the asset revaluation
was W12,552,973 million.
(2) Publicly announced land prices The published price of the Company's land as
of June 30, 2003, as announced by the Korean Government, is as follows (won
in millions):
Purpose Book value Land prices
------------------------------------- -------------- -------------
Sites of utility plant W 5,547,553 W 4,804,123
(3) Utility plant
Utility plant as of December 31, 2002 and June 30, 2003 is as follows (won
in millions):
December 31, June 30,
2002 2003
------------ ------------
Land W 5,557,943 W 5,547,553
Buildings 8,493,206 8,515,386
Structures 25,944,743 26,749,266
Machinery 24,034,908 24,828,026
Nuclear fuel and heavy water 2,262,641 2,450,771
Vehicles 71,199 70,341
Ships 385 372
Construction in progress 7,776,506 9,101,695
Others 1,446,522 1,482,651
------------ ------------
W 75,588,053 W 78,746,061
============ ============
-9-
(4) Changes of utility plant
Changes of cost of utility plant, accumulated depreciation and construction
grants for the six-month period ended June 30, 2003 are shown below (won in
millions):
Increase Decrease
December 31, --------------------------- ------------------------------------------- June 30,
2002 Acquisition Other Disposal Other(*) Depreciation 2003
------------ ------------ ------------ ------------ ------------ ------------ ------------
Land W 5,557,943 W 450 W 22,270 W 33,005 W 105 W -- W 5,547,553
Buildings 7,514,099 6,221 107,182 13,403 64,692 251,101 7,298,306
Structures 22,720,502 -- 934,655 104,977 428 452,308 23,097,444
Machinery 17,470,324 56,037 833,029 17,234 49,815 1,549,651 16,742,690
Nuclear fuel and
heavy water 1,578,172 177,534 4,986 -- -- 210,054 1,550,638
Vehicles 15,601 656 2,794 24 86 4,392 14,549
Ships 137 -- -- 4 -- 18 115
Others 991,689 48,772 9,292 193 18,409 53,823 977,328
Construction in-
progress 7,776,506 3,206,775 38,656 -- 1,920,242 -- 9,101,695
Construction
grants (2,321,219) -- (280,086) -- (18,274) (61,993) (2,521,038)
------------ ------------ ------------ ------------ ------------ ------------ ------------
W 61,303,754 W 3,496,445 W 1,672,778 W 168,840 W 2,035,503 W 2,459,354 W 61,809,280
============ ============ ============ ============ ============ ============ ============
(*) Other includes utility plants of Korean Electric Power Industrial
Development Co., Ltd., which was excluded from the consolidation from 2003.
4. INTANGIBLES:
(1) Changes of intangibles for the six-month period ended June 30, 2003 are
shown below (won in millions):
Increase Decrease
December 31, --------------------------- --------------------------- June 30,
2002 Increase Other Amortization Other 2003
------------ ------------ ------------ ------------ ------------ ------------
Patents-industrial W 1,045 W -- W 264 W 97 W -- W 1,212
Land rights 572 -- -- 137 -- 435
Port facility usage rights 182,146 -- 3,053 5,076 755 179,368
Water facility usage
rights 137,531 -- -- 8,334 14 129,183
Others 137,908 9,228 46,519 18,293 4,741 170,621
------------ ------------ ------------ ------------ ------------ ------------
W 459,202 W 9,228 W 49,836 W 31,937 W 5,510 W 480,819
============ ============ ============ ============ ============ ============
(2) Ordinary development expenses for the six-month periods ended June 30, 2002
and 2003 are W122,991 million and W125,212 million, respectively.
5. INSURED ASSETS:
Insured assets as of June 30, 2003 are as follows (won in millions):
Insured assets Insurance type Insured value
----------------------------- ----------------------------- -----------------
Buildings and machinery Fire insurance W 2,134,309
Buildings and machinery Assemble insurance 4,826,907
Buildings and machinery Nuclear property insurance 1,801,581
Inventories and machinery Shipping insurance 881,892
Buildings General insurance 144,011
Construction in progress Construction insurance 119,424
In addition, the Company carries damage insurance for its light water nuclear
reactor construction in North Korea, general insurance for vehicles, general
insurance for movables, compensation responsibility insurance against gas
accident, compensation and responsibility insurance in relation to the operation
of the nuclear power plants, casualty insurance for its employees and
compensation liability insurance for its directors.
-10-
6. SECURITIES:
(1) Securities as of December 31, 2002 and June 30, 2003 are as follows (won in
millions):
December 31, June 30,
2002 2003
------------ ------------
Short-term investment securities
Available-for-sale securities W 19,881 W 133,865
Held-to-maturity securities 3,255 5
------------ ------------
23,136 133,870
------------ ------------
Long-term investment securities
Available-for-sale-securities 137,497 166,371
Held-to-maturity securities 1,540 1,878
Securities subject to equity method 1,214,271 1,272,447
------------ ------------
1,353,308 1,440,696
------------ ------------
W 1,376,444 W 1,574,566
============ ============
Held-to-maturity securities are government and municipal bonds.
(2) Available-for-sale securities as of December 31, 2002 and June 30, 2003 are
as follows (won in millions):
December 31, 2002 June 30, 2003
------------------------ ------------------------------------------
Ownership Ownership Acquisition
Company name (%) Book value (%) cost Book value
------------------------------------------------ ---------- ------------ ------------ ------------ ------------
Short-term investment securities
Beneficiary certificates -- W 19,881 -- W 119,881 W 119,881
Corporate bonds -- -- -- 13,984 13,984
------------ ------------ ------------
19,881 133,865 133,865
------------ ------------ ------------
Long-term investment securities
Securities Market Stabilization Fund 7.57 W 20,744 7.57 W 20,744 W 20,744
Energy Savings Investment Cooperative 40.6 5,000 40.6 5,000 5,000
Korea Power Exchange 100.0 99,709 100.0 125,212 125,212
Hwan Young Steel Co., Ltd. -- 120 -- 1,364 120
Investment securities in treasury stock fund -- 10,772 -- 23,830 14,220
Other -- 1,152 -- 1,075 1,075
------------ ------------ ------------
137,497 177,225 166,371
------------ ------------ ------------
W 157,378 W 311,090 W 300,236
============ ============ ============
The Company entered into a treasury stock fund, composed of treasury stock
and other investment securities and recorded other investment securities in
long-term investment securities. Losses on valuation of available for sale
securities in the treasury stock fund, which are recorded in capital
adjustment, amount to W8,509 million and W9,610 million as of December 31,
2002 and June 30, 2003, respectively.
Available-for-sales securities other than investment securities in treasury
stock fund and Hwan Young Steel Co., Ltd, which is recorded by its net
asset value, are non-marketable equity securities and stated at cost due to
the lack of information to determine the fair value.
-11-
(3) Securities subject to the equity method as of December 31, 2002 and June
30, 2003 are as follows (won in millions):
December 31, 2002 June 30, 2003
------------------------ ---------------------------------------------------------
Ownership Ownership Acquisition Net asset
Company name (%) Book value (%) Cost Value Book value
-------------------------------------- ---------- ------------ ------------ ------------ ------------ ------------
Korea Gas Corporation 24.5 W 690,705 24.5 W 94,500 W 717,478 W 717,478
Korea District Heating Co. 26.1 147,716 26.1 5,660 153,286 153,286
Powercomm Corporation 44.0 352,235 43.1 323,470 357,982 357,982
Korea Electric Power Industrial
Development, Ltd. -- -- 49.0 7,987 19,745 19,745
YTN 21.4 23,615 21.4 59,000 23,956 23,956
------------ ------------ ------------ ------------
W 1,214,271 W 490,617 W 1,272,447 W 1,272,447
============ ============ ============ ============
The Company used draft financial statements of Korea Electric Power
Industrial Development, Ltd., Korea District Heating Co., and YTN using the
equity method valuation.
If the difference between the cost of acquisition and the book value of the
subsidiary is a positive goodwill, the difference is amortized using the
straight-line method within twenty years from the year it was acquired, and
if it is a negative goodwill, the difference related to the depreciable
assets is amortized over the weighted average useful life of related assets
from the year it was acquired and the difference related to the
non-depreciable assets is amortized at the time assets are disposed of. As
of June 2003, there are no positive or negative goodwill.
In 2003, the Company has disposed some of its investments in Korea Electric
Power Industrial Development, Ltd. and recognized gain on disposal of
investment of W44,104 million. As a result, the Company lost its status as
the major shareholder of Korea Electric Power Industrial Development, Ltd.
and has begun to account for it using the equity method from 2003.
Loss on valuation of investment in relation to equity method, which are
recorded in capital adjustment as of December 31, 2002 and June 30, 2003,
are W30,079 million and W30,148 million, respectively.
Details of valuation using the equity method for the six-month period ended
June 30, 2003 are as follows (won in millions):
December 31, Gain on Other changes June 31,
Company name 2002 valuation (*) 2003
------------------------------- ------------ ------------ ------------- ------------
Korea Gas Corporation W 690,705 W 55,977 W (29,204) W 717,478
Korea District Heating Co. 147,716 7,352 (1,782) 153,286
Powercomm Corporation 352,235 10,944 (5,197) 357,982
Korea Electric Power Industrial
Development, Ltd. -- 780 18,965 19,745
YTN 23,615 265 76 23,956
------------ ------------ ------------ ------------
W 1,214,271 W 75,318 W (17,142) W 1,272,447
============ ============ ============ ============
(*) Other changes are composed of acquisition (disposal) amounts of investment
securities, dividends and others and include the book value of Korea
Electric Power Industrial Development, Ltd at the time of disposal of the
investment.
-12-
7. LOANS TO EMPLOYEES:
The Company has provided housing and tuition loans to employees as follows (won
in millions):
December 31, June 30,
2002 2003
------------ ------------
Short-term loans W 14,661 W 14,231
Long-term loans 228,124 242,161
------------ ------------
W 242,785 W 256,392
============ ============
8. INVENTORIES:
Inventories as of December 31, 2002 and June 30, 2003 consist of the following
(won in millions):
December 31, June 30,
2002 2003
------------ ------------
Raw materials W 243,198 W 277,953
Supplies 422,508 457,616
Other 55,850 141,208
------------ ------------
W 721,556 W 876,777
============ ============
9. SHAREHOLDERS' EQUITY:
(1) Capital
The Company has 1,200,000,000 authorized shares of W5,000 par value common
stock, of which 640,100,876 shares are issued as of June 30, 2003.
(2) Capital Surplus
Capital surplus as of December 31, 2002 and June 30, 2003 is as follows
(won in millions):
December 31, June 30,
2002 2003
------------ ------------
Paid-in capital in excess of par value W 799,876 W 799,876
Reserves for asset revaluation 12,552,973 12,552,973
Other capital surplus 1,130,272 1,133,244
------------ ------------
W 14,483,121 W 14,486,093
============ ============
KEPCO 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.
(3) Retained earnings
Retained earnings as of December 31, 2002 and June 30, 2003 consist of the
following (won in millions):
December 31, June 30,
2002 2003
------------ ------------
Legal reserve W 1,600,252 W 1,600,252
Reserve for business expansion 8,556,873 10,925,338
Reserve for investment on social overhead capital 4,892,449 5,012,449
Reserve for research and human development 60,000 120,000
Voluntary reserve and other 3,309,839 1,535,553
------------ ------------
W 18,419,413 W 19,193,592
============ ============
-13-
The KEPCO Act requires the Company to appropriate a legal reserve equal to
at least 20 percent of net income for each accounting period until the
reserve equals 50 percent of the common stock. The legal reserve is not
available for cash dividends; however, this reserve may be credited to
paid-in capital or offset against accumulated deficit by the resolution of
the shareholders.
Prior to 1990, according to the KEPCO Act, at least 20 percent of net
income in each fiscal year was required to be established as a reserve for
business expansion until such reserve equals the common stock. Beginning in
1990, no percentage was specified in respect to this reserve.
The reserve for the investment on social overhead capital and research and
human development is 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.
(4) Capital adjustments
Capital adjustments as of December 31, 2002 and June 30, 2003 are as
follows (won in millions):
December 31, June 30,
2002 2003
------------ ------------
Treasury stock W (16,669) W (195,208)
Overseas operation translation (82,971) (87,196)
Valuation gain (loss) on currency and interest rate swaps 255 (5,135)
Loss on valuation of equity method securities (30,079) (30,148)
Loss on valuation of available for sale securities (8,509) (9,610)
------------ ------------
W (137,973) W (327,297)
============ ============
The Company has shares held as treasury stock amounting to W16,669 million
(913,375 shares) and W 195,208 million (10,798,355 shares) as of December
31, 2002 and June 30, 2003, respectively, for the purpose of stock price
stabilization.
10. BORROWINGS AND DEBENTURES:
(1) Short-term borrowings as of December 31, 2002 and June 30, 2003 are as
follows (won in millions):
Annual December 31,
Financial institution Type interest rate (%) 2002 June 30, 2003
----------------------------------- ----------------- ----------------- --------------- ---------------
Local currency loan
National Agricultural Cooperative General
Federation and others 4.28~4.42 W -- W 270,000
Foreign currency loan
Korea Exchange Bank and others Usance and others Libor+0.25~0.50 157,733 177,928
--------------- ---------------
W 157,733 W 447,928
=============== ===============
-14-
(2) Long-term borrowings as of December 31, 2002 and June 30, 2003 are as
follows (won in millions):
Annual interest December 31, June 30,
Financial institution Type rate (%) 2002 2003
------------------------------------------------- -------------------- ----------------- ------------ ------------
Local currency loan
Korea Development Bank Facility 4.75~9.00 W 5,007,813 W 4,801,562
Kookmin Bank General 6.07~6.16 85,714 --
Chohung Bank Facility 5.50 1,455 --
Rural area
Koram Bank development 4.00 50,000 50,000
National Agricultural Cooperative
Federation " 4.00 -- 50,000
Others General 5.50~6.00 37 29,934
------------ ------------
5,145,019 4,931,496
------------ ------------
Foreign currency loan
Japan Bank of International Cooperation Industrial facility 8.28 286,226 271,385
Barclays International Financial
Services (Ireland) Ltd. Commercial 6M Libor-1.00 376,482 280,720
Kredit Anstalt Fur Wieder Aufbau Industrial facility 6.00 180 --
Asia Development Bank " 6.00 1,415 1,065
National Agricultural Cooperative Federation " Libor+2.00 18,006 15,340
Korea Development Bank General Libor+0.30~1.75 429,761 288,866
Purchase of
The Export-Import Bank of Korea nuclear fuel Libor+1.50~2.70 260,074 276,417
Korea Exchange Bank Industrial facility Libor+0.15~2.00 34,255 25,535
Kookmin Bank " Libor+1.40 22,407 19,089
Norinchukin Bank " Libor+0.19 42,015 41,758
Nippon Life Insurance " Libor+0.19 98,439 97,841
US-EXIM " Libor+0.25~0.30 155,038 146,999
------------ ------------
1,724,298 1,465,015
------------ ------------
6,869,317 6,396,511
Less: Current portion (1,771,805) (1,658,170)
------------ ------------
W 5,097,512 W 4,738,341
============ ============
(3) Debentures as of December 31, 2002 and June 30, 2003 are as follows (won in
millions):
Annual December 31, June 30,
interest rate (%) 2002 2003
----------------- ------------ -----------
Domestic debentures
Electricity bonds 4.70~12.43 W 7,125,700 W 5,829,363
Corporate bonds 4.78~7.75 2,558,703 3,038,867
------------ -----------
9,684,403 8,868,230
------------ -----------
-15-
Annual December 31,
interest rate (%) 2002 June 30, 2003
----------------------------- ------------ -------------
Foreign debentures
FY-93 4.00~7.75 2,043,899 2,031,489
FY-95 6.91~7.68 420,342 413,510
FY-96 6M Libor +0.14 629,745 621,927
FY-97 6M Libor + (0.31, 0.60, 1.65) 1,159,764 1,152,880
FY-99 5.75 31,664 34,308
FY-00 2.10~8.25 663,981 656,853
FY-01 1.18~1.27 607,722 597,846
FY-02 1.04~1.18 1,080,360 1,073,790
Eurobond 1.33~4.75 180,060 974,797
------------ ------------
6,817,537 7,557,400
------------ ------------
16,501,940 16,425,630
Less: Discount on debentures issued (52,474) (52,714)
Current portion (3,881,623) (4,661,923)
------------ ------------
W 12,567,843 W 11,710,993
============ ============
(4) Foreign currency debt, by currency, as of December 31, 2002 and June 30,
2003 is as follows (won in millions):
December 31, 2002 June 30, 2003
----------------------------------------- ------------------------------------------
Foreign currencies Won equivalent Foreign currencies Won equivalent
--------------------- -------------- -------------------- --------------
Short-term borrowings US$ 131,400,198 W 157,733 US$ 149,131,225 W 177,928
-------------- --------------
Long-term borrowings US$ 1,421,141,288 1,724,118 US$ 1,217,721,142 1,465,015
EUR 143,104 180 --
-------------- --------------
W 1,724,298 W 1,465,015
-------------- --------------
Debentures US$ 4,130,542,219 W 4,965,644 US$ 4,629,875,632 W 5,531,320
JPY 175,060,000,000 1,773,130 JPY 195,060,000,000 1,943,597
EUR 25,183,000 31,664 EUR 25,183,000 34,308
GBP 24,467,000 47,099 GBP 24,467,000 48,175
-------------- --------------
6,817,537 7,557,400
-------------- --------------
W 8,699,568 W 9,200,343
============== ==============
(5) Aggregate maturities of the Company's long-term debt as of June 30, 2003
are as follows (won in millions):
Long-term borrowings Debentures
---------------------------------- ----------------------------------
Year ended
June 30 Local Currency Foreign Currency Local Currency Foreign Currency Total
------------- -------------- ---------------- -------------- ---------------- ------------
2004 W 1,235,250 W 422,920 W 2,647,277 W 2,014,646 W 6,320,093
2005 1,291,449 265,179 2,991,433 1,459,633 6,007,694
2006 1,160,537 283,421 1,029,673 570,087 3,043,718
2007 665,264 94,441 1,009,847 49,736 1,819,288
Thereafter 578,996 399,054 1,190,000 3,463,298 5,631,348
------------ ------------ ------------ ------------ ------------
W 4,931,496 W 1,465,015 W 8,868,230 W 7,557,400 W 22,822,141
============ ============ ============ ============ ============
-16-
11. LEASES:
(1) The Company entered into a financial lease agreement with Korea Development
Leasing Corporation and others for certain computer systems, the
acquisition cost of which is W35,655 million as of December 31, 2002 and
June 30, 2003. Depreciation of the leased assets amounted to W570 million
for the six-month periods ended June 30, 2003, respectively.
(2) Annual payments under financial and operating lease agreements as of June
30, 2003 are as follows (won in millions):
Amount
--------------------------------
Year ended June 30 Financial lease Operating lease
--------------------- --------------- ---------------
2004 W 7,533 W 3,602
2005 2,339 222
2006 -- 43
---------- ------------
9,872 3,867
Less: Interest (408) --
Current portion (7,134) --
---------- ------------
W 2,330 W 3,867
========== ============
12. FOREIGN CURRENCIES DENOMINATED ASSETS AND LIABILITIES:
Significant assets and liabilities of the Company (excluding foreign
subsidiaries) denominated in foreign currencies other than those mentioned in
Note 10 as of December 31, 2002 and June 30, 2003 are as follows (won in
millions):
December 31, 2002 June 30, 2003
------------------------------------ -----------------------------------------
Foreign Equivalent Foreign Equivalent
Account Currencies(*) Korean Won Currencies(*) Korean Won
---------------------------- ----------------- ------------ --------------------- -----------
Assets:
Cash and cash equivalents US$ 20,051,047 W 24,069 US$ 8,349,539 W 9,962
" -- -- JPY 11,906,545,755 118,638
Short-term financial
instruments US$ 616,908 741 -- --
Trade receivables US$ 5,711,200 6,855 US$ 6,769,682 8,076
Accounts receivable-other US$ 21,013,291 25,224 US$ 1,262,725 1,508
Other non-current assets US$ 322,203 387 US$ 17,003 21
JPY 5,859,783 59 JPY 5,859,783 58
------------ -----------
W 57,335 W 138,263
============ ===========
Liabilities:
Trade payables US$ 139,003,977 W 166,860 US$ 99,788,287 W 119,057
" -- -- EUR 6,935,069 9,448
Accrued expenses -- -- US$ 266,958 318
Accounts payable-other US$ 2,125,135 2,551 US$ 98,138 117
EUR 433,907 546 -- --
------------ -----------
W 169,957 W 128,940
============ ===========
(*) Foreign currencies other than US$, JPY and EUR are converted into US$.
-17-
13. SWAP TRANSACTIONS:
The Company entered into the various swap contracts to hedge the fluctuation
risk of exchange rate and interest rate of foreign currency debts.
(1) Currency swap contracts as of June 30, 2003 are as follows (foreign
currency in millions):
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
The Fuji Bank, Ltd. 1995 2005 US$ 149 JPY 14,425 Libor+0.155 3.40
Union Bank of Switzerland 1995 2005 US$ 82 JPY 7,000 Libor+0.19 3.102
Canadian Imperial Bank of Commerce 1996 2006 US$ 97 JPY 9,865 Libor+0.13 3.80
J.P. Morgan Chase Bank 1996 2006 US$ 200 JPY 20,723 Libor+0.14 4.00
Deutsche Bank 1998 2004 JPY 1,705 US$ 55 6.41 7.11
(formerly Bankers Trust Co.) DEM 25
CHF 20
CAD 20
Deutsche Bank 1998 2004 JPY 2,945 US$ 95 6.36 7.05
(formerly Bankers Trust Co.) DEM 43
CHF 35
CAD 34
Union Bank of Switzerland 1998 2003 JPY 12,150 US$ 100 4.00 6.375
J.P. Morgan Chase Bank & Deutsche 2002 2009 JPY 76,700 US$ 650 1.18 4.25
Bank (*)
Barclays Bank PLC, London 2002 2007 JPY 30,400 US$ 250 1.04 3M Libor+0.75
ABN AMRO (**) 2002 2008 KRW 181,500 US$ 150 5.95 4.625
ABN AMRO & Deutsche Bank (***) 2003 2008 KRW 181,550 US$ 100 5.30 4.25
J.P. Morgan Chase Bank & Deutsche 2003 2008 JPY 23,770 US$ 200 1.28 4.25
Bank
CSFB 2003 2013 KRW 177,720 US$ 150 5.12 4.75
(*) If the Republic of Korea declares a default on its debts, KEPCO is to
receive Korean government bonds instead of cash. Valuation for these embedded
derivatives is reflected in the valuation of the currency swap.
(**) The swaption, which has an interest pay rate of CD+0.5% and an interest
receive rate of 5.95%, with the exercise date of January 2006, is embedded
(***) The swaption, which has an interest pay rate of CD+0.15% and an interest
receive rate of 5.30%, with the exercise date of March 2006, is embedded
-18-
(2) Interest rate swap contracts as of June 30, 2003 are as follows (foreign
currency in millions):
Contract interest rate per annum
Notional amount ------------------------------------------------------------------
in millions Pay (%) Receive (%) Term
--------------- -------------------- -------------------- ---------
Lehman Brothers Special Financing, US$ 150 Libor+0.25 6.375 1993-2003
Inc
J.P. Morgan Securities Ltd. US$ 149 6.91 Libor+0.155 1995-2005
Woori Bank US$ 150 6.10 Libor+0.25 1996-2003
Korea Development Bank US$ 97 6.10 Libor+0.13 1997-2004
Barclays Bank PLC, London US$ 225 6M Libor-1 Libor+0.45 1997-2004
Shinhan Bank US$ 100 6.50 6.75 1997-2004
Deutsche Bank US$ 55 6.93 1998-2004
JPY 1,705 6.41
DEM 25 6.41
CHF 20 6.41
CAD 20 6.41
Deutsche Bank US$ 95 6.87 1998-2004
JPY 2,945 6.36
DEM 43 6.36
CHF 35 6.36
CAD 34 6.36
Deutsche Bank US$ 100 Max (6.074-Libor, 0) Max (Libor-6.074, 0) 1998-2007
Deutsche Bank US$ 100 Max (Libor-6.074,0) Max (6.074-Libor, 0) 1998-2007
Union Bank of Switzerland US$ 35 Libor+0.19 Libor+0.155 2000-2005
CSFB KRW 100,000 3M CD+0.35 3Y CMT+0.06 2002-2004
Deutsche Bank KRW 100,000 6.09 3M CD+0.35 2002-2004
CSFB KRW 50,000 6.89 (5Y CMT-CD) x 2+4.3 2002-2007
CSFB KRW 50,000 6.89 7.30 2002-2007
J.P. Morgan Chase Bank KRW 50,000 CD-0.3 3 year: 7.75 2002-2008
3 year: 14.65-CD
Deutsche Bank KRW 50,000 4.98 CD-0.3 2002-2005
CSFB KRW 30,000 6.09 1 year: 7.25 2002-2005
2 year: (5Y CMT-CD) x 5+1.5
Citibank KRW 50,000 CD-0.3 7.65/2.50(*) 2002-2005
Koram Bank KRW 10,000 CD-0.3 7.65/2.50(*) 2002-2005
Deutsche Bank KRW 20,000 CD-0.31 7.65/2.50(*) 2002-2005
Deutsche Bank KRW 40,000 CD-0.37 7.65/2.50(*) 2002-2005
Kookmin Bank KRW 20,000 5.995 CD-0.325 2002-2005
Deutsche Bank KRW 100,000 5.995 CD-0.325 2002-2005
(*) If CD rate is equal to or lower than 6.75%, then 7.65% will be applied,
otherwise, 2.50% will be applied.
(3) The gains and losses on swap transactions for the six-month periods ended
June 30, 2002 and 2003 are as follows (won in millions):
Other income (expense) 2002 2003
--------------------- -------------- -------------
Currency swap
Gains W 84,157 W 41,635
Losses (33,042) (43,646)
Interest rate swap
Gains 10,099 11,375
Losses (8,708) (9,070)
Swaption
Gains -- 1,277
------------- ------------
W 52,506 W 1,571
============= ============
-19-
14. POWER GENERATION, TRANSMISSION AND DISTRIBUTION EXPENSES:
Power generation, transmission and distribution expenses for the six-month
periods ended June 30, 2002 and 2003 are as follows (won in millions):
2002 2003
---------------- --------------
Fuel W 2,265,818 W 2,552,044
Labor 459,180 553,568
Amortization of nuclear fuel and heavy water 192,753 210,054
Depreciation 2,067,761 2,206,006
Maintenance 597,788 685,227
Ordinary development expenses 111,477 113,176
Provision for decommissioning costs 276,501 312,756
Others 311,836 354,577
---------------- --------------
W 6,283,114 W 6,987,408
================ ==============
15. SELLING AND ADMINISTRATIVE EXPENSES:
Selling and administrative expenses for the six-month periods ended June 30,
2002 and 2003 are as follows (won in millions):
2002 2003
----------- ------------
Labor W 184,886 W 195,935
Employee benefits 23,735 31,725
Taxes and dues 3,372 3,199
Rent 19,569 14,320
Depreciation 40,980 52,832
Maintenance 5,692 6,042
Commission and consultation fees 59,301 61,504
Ordinary development expenses 11,514 12,036
Collection expense 110,582 120,501
Promotion 9,225 8,636
Bad debts 15,041 9,158
Communication 12,960 13,668
Insurance 5,793 6,682
Rewards 1,999 1,416
Others 41,099 51,005
----------- -----------
W 545,748 W 588,659
=========== ===========
16. INCOME TAX EXPENSE:
Income tax expense and effective tax rate for the six-month periods ended June
30, 2002 and 2003 are as follows (won in millions):
2002 2003
-------------- --------------
Income tax currently payable W 514,396 W 309,167
Changes in deferred income taxes 190,704 162,152
-------------- --------------
KEPCO's income tax expense 705,100 471,319
Income tax of subsidiaries 454,018 476,562
-------------- --------------
Income tax expense W 1,159,118 W 947,881
============== ==============
Effective tax rate 40.6% 42.2%
-20-
17. RELATED PARTY TRANSACTIONS:
(1) Transactions with related parties for the six-month periods ended June 30,
2002 and 2003 are as follows (won in millions):
Related party Transaction 2002 2003
--------------------------------------------- -------------------------------------- ------------ -----------
Sales and other income:
Korea Hydro & Nuclear Power Co., Ltd. Sales of electricity and others W 44,143 W 50,845
Korea South-East Power Co., Ltd. " 19,495 17,148
Korea Midland Power Co., Ltd. " 10,259 12,244
Korea Western Power Co., Ltd. " 19,334 17,268
Korea Southern Power Co., Ltd. " 9,179 8,588
Korea East-West Power Co., Ltd. " 22,897 19,290
Others " 37,122 39,483
----------- -----------
W 162,429 W 164,866
=========== ===========
Purchases and others:
Korea Hydro & Nuclear Power Co., Ltd. Purchase of electricity and others W 2,279,475 W 2,417,162
Korea South-East Power Co., Ltd. " 727,855 735,508
Korea Midland Power Co., Ltd. " 658,351 968,803
Korea Western Power Co., Ltd. " 937,066 1,052,707
Korea Southern Power Co., Ltd. " 917,749 1,000,022
Korea East-West Power Co., Ltd. " 942,528 1,010,237
Korea Power Engineering Co., Inc. Designing of the power plant and others 17,584 19,994
Korea Plant Service & Engineering Co., Ltd. Utility plant maintenance 20,249 20,595
Korea Electric Power Data Network Co., Ltd. Maintenance of computer system 48,823 98,094
Others Commissions for service and others 73,598 86,487
----------- -----------
W 6,623,278 W 7,409,609
=========== ===========
(2) Receivables arising from related parties transactions as of December 31,
2002 and June 30, 2003 are as follows (won in millions):
December 31,
2002 June 30, 2003
------------- -----------------------------------------
Other account
Trade receivables
Related party Total receivables and other Total
------------------------------------- ------------- ----------- ------------- -----------
Korea Hydro & Nuclear Power Co., Ltd. W 8,020 W -- W 193 W 193
Korea South-East Power Co., Ltd. 3,639 1,883 236 2,119
Korea Midland Power Co., Ltd. 382 1,546 381 1,927
Korea Western Power Co., Ltd. 3,145 2,034 105 2,139
Korea Southern Power Co., Ltd. 1,647 1,208 315 1,523
Korea East-West Power Co., Ltd. 4,518 2,447 199 2,646
Others 10,603 -- 4,114 4,114
------------- ---------- ---------- -----------
W 31,954 W 9,118 W 5,543 W 14,661
============= ========== ========== ===========
-21-
(3) Payables arising from related parties transactions as of December 31, 2002
and June 30, 2003 are as follows (won in millions):
December 31,
2002 June 30, 2003
--------------- --------------------------------------------
Other accounts
Trade payable
Related party Total payables and other Total
------------------------------------------- --------------- ------------ -------------- ------------
Korea Hydro & Nuclear Power Co., Ltd. W 368,509 W 316,396 W 816 W 317,212
Korea South-East Power Co., Ltd. 124,031 95,743 110 95,853
Korea Midland Power Co., Ltd. 168,410 123,334 170 123,504
Korea Western Power Co., Ltd. 176,816 132,051 116 132,167
Korea Southern Power Co., Ltd. 130,181 142,262 58 142,320
Korea East-West Power Co., Ltd. 142,017 132,354 699 133,053
Korea Power Engineering Co., Inc. 7,108 -- 7,330 7,330
Korea Plant Service & Engineering Co., Ltd. 6,845 -- 7,384 7,384
Korea Electric Power Data Network Co., Ltd. 25,502 -- 29,647 29,647
Others 22,593 358 19,753 20,111
--------------- ------------ ----------- ------------
W 1,172,012 W 942,498 W 66,083 W 1,008,581
=============== ============ =========== ============
18. SEGMENT INFORMATION:
(1) The following table provides business performance information for each
operating segments for the six-month periods ended June 30, 2002 and 2003
(won in millions).
June 30, 2002
-------------------------------------------------------------------------------------------
Electric business
---------------------------------
Transmission Power Consolidation
& distribution generation(*) All other adjustments Consolidated
-------------- ------------- ------------- ------------- -------------
Unaffiliated revenues W 9,517,966 W -- W 620,946 W -- W 10,138,912
Inter-segment revenues 156,139 6,475,280 413,535 (7,044,954) --
------------- ------------- ------------- ------------- -------------
Total revenues 9,674,105 6,475,280 1,034,481 (7,044,954) 10,138,912
Cost of goods sold (8,416,052) (4,984,349) (802,612) 7,086,652 (7,116,361)
Selling and administrative expenses (405,483) (72,504) (66,946) (815) (545,748)
------------- ------------- ------------- ------------- -------------
Operating income 852,570 1,418,427 164,923 40,883 2,476,803
Interest income 11,914 24,248 8,581 (1,159) 43,584
Interest expense (303,637) (204,604) (19,659) 1,159 (526,741)
Gain on valuation using the equity
method of accounting (*1) 1,238,853 -- (661) (1,165,329) 72,863
Other income, net 593,177 249,758 (6,593) (45,326) 791,016
------------- ------------- ------------- ------------- -------------
Earnings before income tax expense 2,392,877 1,487,829 146,591 (1,169,772) 2,857,525
Income tax expense (705,100) (422,068) (32,511) 561 (1,159,118)
------------- ------------- ------------- ------------- -------------
Segment earning before minority
interests W 1,687,777 W 1,065,761 W 114,080 W (1,169,211) W 1,698,407
============= ============= ============= ============= =============
-22-
June 30, 2002
-----------------------------------------------------------------------------------------
Electric business
---------------------------------
Transmission Power Consolidation
& distribution generation(*) All other adjustments Consolidated
-------------- ------------ ------------ ------------- -------------
Unaffiliated revenues W 10,425,992 W -- W 469,331 W -- W 10,895,323
Inter-segment revenues 126,078 7,244,084 412,171 (7,782,333) --
------------ ------------ ------------ ------------ ------------
Total revenues 10,552,070 7,244,084 881,502 (7,782,333) 10,895,323
Cost of goods sold (9,516,928) (5,526,515) (659,243) 7,782,136 (7,920,550)
Selling and administrative expenses (437,688) (74,067) (76,993) 89 (588,659)
------------ ------------ ------------ ------------ ------------
Operating income 597,454 1,643,502 145,266 (108) 2,386,114
Interest income 19,595 20,357 10,277 (630) 49,599
Interest expense (304,176) (111,750) (19,369) 630 (434,665)
Gain on valuation using the equity
method of accounting (*1) 1,251,308 -- 11,940 (1,187,930) 75,318
Other income, net 189,734 (10,162) (4,030) (6,687) 168,855
------------ ------------ ------------ ------------ ------------
Earnings before income tax expense 1,753,915 1,541,947 144,084 (1,194,725) 2,245,221
Income tax expense (471,319) (454,068) (24,275) 1,781 (947,881)
------------ ------------ ------------ ------------ ------------
Segment earning before minority
interests W 1,282,596 W 1,087,879 W 119,809 W (1,192,944) W 1,297,340
============ ============ ============ ============ ============
(*) Excluding power generation businesses in foreign countries.
(2) The following table provides asset information for each operating segments
as of December 31, 2002 and June 30, 2003 (won in millions).
Electric business
---------------------------------
Transmission Power Consolidation
& distribution generation(*) All other adjustments Consolidated
-------------- ------------- ------------ ------------- -------------
June 30, 2003
Utility and non-utility plant W 28,979,475 W 31,916,042 W 1,117,912 W (204,149) 61,809,280
Total assets 32,298,107 36,405,824 2,551,583 (569,684) 70,685,830
December 31, 2002
Utility and non-utility plant 28,157,412 32,145,415 1,200,843 (199,916) 61,303,754
Total assets 31,792,880 36,933,338 2,604,890 (818,989) 70,512,119
19. CONTINGENT LIABILITIES:
(1) The Company is engaged in 293 lawsuits as a defendant and 51 lawsuits as a
plaintiff. The total amount claimed from the Company is W221,181 million
and the total amount claimed by the Company is W115,009 million as of June
30, 2003. The outcome of these lawsuits cannot presently be determined.
However, management believes that the ultimate disposition of those
litigations will not have a materially adverse effect on the operations or
financial position of the Company.
(2) The Company's liabilities of W17,646,157 million, including borrowings of
W13,825,884 million, were transferred to the power generation subsidiaries
at the time of spin-off. The Company has the collective responsibility
together with the subsidiaries to repay those debts, which were transferred
and outstanding, Details of those outstanding borrowings of each company as
of June 30, 2003 are as follows (won n millions).
-23-
Company Amounts
------------------------------------- -------------------
Korea Electric Power Corporation W 1,151,422
Korea Hydro & Nuclear Power Co., Ltd. 1,722,286
Korea South-East Power Co., Ltd. 391,800
Korea Midland Power Co., Ltd. 179,089
Korea Western Power Co., Ltd. 249,259
Korea Southern Power Co., Ltd. 602,914
Korea East-West Power Co., Ltd. 812,261
-------------------
W 5,109,031
===================
(3) The Company has provided debt repayment guarantees for its related parties
in connection with the related parties' borrowings as of June 30, 2003 as
follows:
Loan type Guaranteed company Financial institutions Amount
--------------- ---------------------------------- ---------------------- -------------------
Foreign
currency loan KEPCO International Hong Kong Ltd. Nippon Life Insurance US$ 82,006,000
" Norinchukin Bank 35,000,000
" Korea Development Bank 11,590,000
KEPCO Philippines Co. Korea Development Bank 54,522,000
-------------------
US$ 183,118,000
===================
(4) 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$ 412,196,437 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
those borrowings.
(5) Korea Development Bank has provided the repayment guarantees of
US$228,044,114 for the Company's commercial borrowings. In addition, Korea
Development Bank has also provided the repayment guarantee for some of
foreign currency debentures of the Company, which existed at the time of
spin-off, but not redeemed at June 30, 2003, instead of the collective
responsibilities of the power generation subsidiaries to facilitate the
Restructuring Plan. Guarantee amounts by currency are as follows.
USD JPY EUR GBP
-------------- -------------- ---------- ----------
Guaranteed amounts 3,686,080,502 44,747,400,000 28,083,012 32,785,780
(including interest)
(6) Financial institutions including the National Agricultural Cooperative
Federation has provided the Company a credit (overdraft) line amounting to
W1,372,000 million as of June 30, 2003.
(7) The Company entered into a turnkey contract with the Korea Peninsula Energy
Development Organization (KEDO) on December 15, 1999, to construct two
1,000,000 KW-class pressurized light-water reactor units in North Korea.
The contract amount is US$ 4,182 million and subject to adjustment to cover
any changes in the price level.
(8) The Company entered into the Power Purchase Agreement with LG Energy Co.,
Ltd. and other independent power producers for power purchases in
accordance with the Electricity Business Act and power purchased from those
companies amounted to W522,854 million and W 570,707 million for the
six-month periods ended June 30, 2002 and 2003, respectively.
(9) The Company has provided 1 blank note to the Export-Import Bank of Korea in
relation to the debt repayment guarantee and 1 promissory note of W1,771
million to Hyundai Heavy Industry, Co., Ltd. as guarantee for contract
performance as of June 30, 2003.
-24-
20. STATEMENT OF CASH FLOWS:
Cash flows from operating activities were presented using the indirect method.
Transactions not involving cash flows for the six-month periods ended June 30,
2002 and 2003 are as follows (won in millions):
2002
(Unreviewed) 2003
------------- --------------
Reclassification of long term loans to short-term loans W 8,074 W 4,831
Reclassification of construction in-progress to utility plant 4,048,861 1,920,242
Reclassification of debenture and long-term borrowings to
current portions 2,723,332 3,603,513
21. WELFARE PROGRAM AND CONTRIBUTIONS:
Details of welfare programs and contributions for the six-month periods ended
June 30, 2002 and 2003 are as follows (won in millions):
2002 2003
------------ -----------
Contributions to Welfare Funds W -- W 31,669
Electrification of rural areas 8,693 6,702
Contributions to Korea Volleyball Association and others 1,776 3,119
------------ -----------
W 10,469 W 41,490
============ ===========
22. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
Accounting practices used by the Company in preparing the accompanying
consolidated financial statements conform with generally accepted accounting
principles in the Republic of Korea ("Korean GAAP"), but do not conform with
accounting principles generally accepted in the United States of America ("U.S.
GAAP"). The significant differences are described below. Other differences do
not have a significant effect on either consolidated net earnings or
stockholders' equity.
(1) Asset Revaluation and Depreciation
Under U.S. GAAP, property, plant and equipment must be stated at cost less
accumulated depreciation. The revaluation of property, plant and equipment and
the resulting depreciation of revalued amounts are not included in consolidated
financial statements prepared in accordance with U.S. GAAP. When assets are
sold, any revaluation surplus related to those assets under Korean GAAP would be
reflected in income as additional gain on sale of assets under U.S. GAAP.
Additionally, special depreciation recognized through December 31, 1995 for
certain energy saving and anti-pollution facilities and equipment is not
recognized under U.S. GAAP. Accordingly, related depreciation costs would be
reversed under U.S. GAAP.
(2) Accounting for Regulation
Regulations for the establishment of electric rates consider, in certain cases,
certain income and expenses to be recognized in different years than they are
recognized for financial reporting. In accordance with SFAS No. 71 - "Accounting
for the Effects of Certain Types of Regulation" for regulated enterprises, a
regulatory liability or regulatory asset is recognized on the consolidated
balance sheet by a charge or credit to operations to match revenues and
expenses. These assets or liabilities relate to the adjustments for foreign
currency translation, reserve for self-insurance and deferred income taxes
described below. And such adjustments exclude those relating to the
non-regulated subsidiaries and affiliates of the Company. Regulatory assets and
liabilities are established based on the current regulations and rate-making
process. Accordingly, these assets and liabilities may be significantly changed
due to the potential future deregulation or changes in the rate-making process.
-25-
(3) Foreign Currency Translation
As discussed in Note 2, under Korean GAAP, the Company capitalizes certain
foreign exchange transaction and translation gains and losses on the borrowings
associated with property, plant and equipment during the construction period.
Under U.S. GAAP, all foreign exchange transaction gains and losses (referred to
as either transaction or translation gains and losses under Korean GAAP) are
included in the results of operations for the current period. The amounts of
foreign exchange transaction and translation gains and losses included in
property, plant and equipment under Korean GAAP are reversed into results of
operations for the current period under U.S. GAAP.
(4) Deferred Income Taxes
As discussed in Note 2, deferred tax assets and liabilities are recorded in the
financial statements prepared in accordance with Korean GAAP, which is
substantially the same as for U.S. GAAP. For U.S. GAAP purposes, the Company is
required to recognize the deferred tax assets and liabilities resulting from
differences between Korean GAAP and U.S. GAAP.
(5) Reversal of Eliminated Profit on Transactions with Subsidiaries and
Affiliated Companies
Under Korean GAAP, KEPCO's share of the profit on transactions between KEPCO and
its affiliated companies is eliminated in the preparation of the consolidated
financial statements. No elimination of such profit is required in accordance
with U.S. GAAP for regulated enterprises, where the sales prices is reasonable
and it is probable that, through the rate making process, future revenues
approximately equal to the sales price will result from KEPCO's use of the
utility plant. KEPCO meets both of these criteria, and no elimination of profit
is necessary for reporting under U.S. GAAP.
(6) Derivatives
Under SFAS No. 133 - "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS No. 138, the Company is required to recognize
all derivatives on the consolidated balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through current operations.
If derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of derivatives will either be offset against the change in fair value
of the hedged assets, liabilities or firm commitment through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's changes in fair value will
be immediately recognized in current earnings. The Company recorded all
derivatives on the consolidated balance sheet at fair value by Korean GAAP. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in current earnings. The Company believes that there is no material
impact on net income and stockholders' equity under U.S. GAAP since derivatives
accounting under Korean GAAP is substantially the same as SFAS No. 133.
(7) Principles of Consolidation
Under Korean GAAP, minority interests in consolidated subsidiaries are disclosed
within the shareholder's equity section of the balance sheet. Under U.S. GAAP,
minority interests are presented between the liability section and the
stockholders' equity section in the consolidated balance sheet.
(8) Reserve for self-insurance
The Company accrues a reserve for self-insurance for non-insured facilities in
accordance with Accounting Regulations for Government Invested Enterprises. U.S.
GAAP considers accidental damage to be a contingency that is only provided for
when asset has been impaired or a liability has been incurred.
-26-
(9) Asset retirement obligation
Under SFAS No. 143 - "Accounting for Asset Retirement Obligations", the Company
is required to recognize an estimated liability for legal obligations associated
with the retirement of tangible long-lived assets. The Company measures the
liability at fair value when incurred and capitalize a corresponding amount as
part of the book value of the related long-lived assets. The increase in the
capitalized cost is included in determining depreciation expense over the
estimated useful life of these assets. Since the fair value of the asset
retirement obligations is determined using a present value approach, accretion
of the liability due to the passage of time is recognized each period as expense
until the settlement of the liability. The Company records a gain or loss when
the liability is settled after retirement. This statement is effective for
financial statements issued for fiscal years beginning after June 15, 2002 and
it is to be applied to all existing long-lived assets including those acquired
before January 1, 2003. Accounting for asset retirement obligations under Korean
GAAP is substantially the same as SFAS No. 143, except for those assets acquired
before January 1, 2003. Under Korean GAAP, such assets can be excluded from the
application of the current "Accounting for Asset Retirement Obligation" standard
in Korean GAAP. Accordingly, the Company's assets acquired before January 1,
2003 were excluded from the application of the current "Accounting for Asset
Retirement Obligation" standard in Korean GAAP.
As explained in Note 2 (13) Reserve for Decommissioning Costs, the Company has
accrued W4,719,860 million for the cost of dismantling and decontaminating of
its existing nuclear power plants, consisting of dismantling costs of nuclear
plant of W1,651,020 million and dismantling costs of spent fuel and radioactive
waste of W3,068,840 million, as of June 30, 2003 in accordance with Korean GAAP.
As a result of the adoption of SFAS No. 143, the Company recognized W690,573
million additional pretax loss as a cumulative effect of accounting change on
January 1, 2003.
Asset retirement obligation liability additionally recognized under U.S. GAAP as
of June 30, 2003 is as follows (Korean won in millions)
Amount
--------------
Asset retirement obligations as of January 1, 2003 W 3,271,784
Accretion expense 98,341
--------------
Asset retirement obligations as of June 30, 2003 3,370,125
Liability recognized under Korean GAAP as of
June 30, 2003 (dismantling costs of nuclear plant) (-)1,651,020
--------------
Asset retirement obligation liability additionally
recognized under U.S. GAAP as of June 30, 2003 W 1,719,105
==============
As of June 30, 2003, capitalized asset retirement cost and its accumulated
depreciation recognized under U.S. GAAP are W1,671,520 million and W675,494
million, respectively.
The pro-forma asset retirement obligation liability that the Company would have
recognized additionally as of January 1, 2002, had the Company implemented SFAS
No. 143 as of that date, was approximately W1,510,333 million, based on the
information, assumptions and interest rate as of January 1, 2003. The pro-forma
capitalized asset retirement cost and its accumulated depreciation recognized as
of January 1, 2002, under U.S. GAAP are W1,439,334 million and W577,184 million,
respectively.
(10) Comprehensive Income
Effective January 1, 1998, the Company adopted the provision of SFAS No.130 -
"Reporting Comprehensive Income", which requires the reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
for each period presented. Such a presentation is not required under Korean
GAAP. Comprehensive income for the six month periods ended June 30, 2002 and
2003 is summarized as follows:
-27-
Korean Won Translation into
---------------------------------- U.S. Dollars (Note 2)
2003 2002 2003
-------------- ------------- ---------------------
(In millions) (In thousands)
Net income as adjusted in accordance with
U.S. GAAP W 2,149,554 W 1,230,961 $ 1,029,231
Other comprehensive income, net of tax:
Overseas operations translation (12,718) (2,970) (2,483)
Unrealized losses on investment securities (4,371) (823) (688)
Deferred gains (losses) on cash flow hedges 594 (3,789) (3,168)
-------------- ------------- ------------
Comprehensive income as adjusted in
accordance with U.S. GAAP W 2,133,059 W 1,223,379 $ 1,022,892
============== ============= ============
Accumulated other comprehensive balances, net of tax, as of December 31, 2002
and June 30, 2003 is as follows
Korean Won
------------------------------ Translation into
December 31, June 30, U.S. Dollars (Note 2)
2002 2003 June 30, 2003
------------- ------------ ---------------------
(In millions) (In thousands)
Overseas operations translation W (58,329) W (61,299) $ (51,253)
Unrealized losses on investment securities (27,127) (27,950) (23,370)
Deferred gains (losses) on cash flow hedges 179 (3,610) (3,018)
------------- ------------ -----------
W (85,277) W (92,859) $ (77,641)
============= ============ ===========
(11) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments in which it is practicable to estimate that
value:
(i) Cash and cash equivalents, marketable securities, trade receivables,
short-term borrowings, and trade payables: The carrying amount
approximates fair value because of the nature or short maturity of
those instruments.
(ii) Investments. The fair value of market-traded investments is estimated
based on quoted market prices for those or similar investments. For
other investments for which there are no quoted market prices, a
reasonable estimate of fair value could not be made without incurring
excessive costs.
(iii) Long-term debt The fair value of long-term debt is estimated based on
the quoted market prices for the same or similar issues or on the
current rates offered for debt of the same remaining maturities.
The estimated fair values of the Company's financial instruments at December 31,
2002 and June 30, 2003 are summarized as follow (Korean won in millions):
December 31, 2002 June 30, 2003
------------------------------------- -------------------------------------
Carrying Carrying
Amount Fair value Amount Fair value
-------------- --------------- --------------- ---------------
Cash and cash equivalents W 1,997,480 W 1,997,480 W 1,258,208 W 1,258,208
Short-term financial instruments 137,852 137,852 156,705 156,705
Trade receivables and account
receivables-other 1,845,344 1,845,344 1,688,624 1,688,624
Investments:
Practicable to estimate fair value 12,312 12,312 16,098 16,098
Not practicable 126,725 N/A 152,151 N/A
Short-term borrowings (157,733) (157,733) (447,928) (447,928)
Trade payables and accounts payable-other (1,666,329) (1,666,329) (1,391,774) (1,391,774)
Long-term debt, including current portion (23,385,808) (24,141,001) (22,831,605) (23,759,398)
Currency and interest swaps, net (155,202) (155,202) (74,500) (74,500)
-28-
(12) Recent Changes in U.S. GAAP
In June 2002, the FASB issued SFAS No. 146 - Accounting for Exit or Disposal
Activities. SFAS No. 146 addresses significant issues regarding the recognition,
measurement and reporting of costs that are associated with exit and disposal
activities, including restructuring activities that are currently accounted for
under EITF 94-3. The provisions of this Statement is effective for exit or
disposal activities initiated after December 31, 2002, with early application
encouraged. The Company does not believe the adoption of this statement to have
a significant impact on its financial condition or result of operations.
In April 30, 2003, the FASB issued Statement No. 149 - "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." This statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
Statement 133. The new guidance amends statement 133 regarding implementation
issues raised in relation to the application of the definition of a derivative,
particularly regarding the meaning of an underlying and the characteristics of a
derivative that contains financing components. The amendments set forth in
statement 149 improve financial reporting by requiring that contracts with
comparable characteristics be accounted for similarly. In particular, this
statement clarifies under what circumstances a contract with an initial net
investment meets the characteristic of a derivative as discussed in statement
133. In addition, it clarifies when a derivative contains a financing component
that warrants special reporting in the statement of cash flows. The Company is
still evaluating the impact of the adoption of this statement, but does not
believe that the impact will be significant.
In November 2002, the FASB issued Interpretation No. (FIN) 45 - "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". This Interpretation provides the
disclosures to be made by a guarantor in interim and annual financial statements
about obligations under certain guarantees. The Interpretation also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation. The initial recognition and
measurement requirements are effective prospectively for guarantees issued or
modified after December 31, 2002, while the disclosures are effective for
financial statements of interim or annual periods ending after December 15,
2002. The Company does not believe the adoption of this statements to have a
significant impact on its financial conditions or result of operations.
In January 2003, the FASB issued FIN 46 - "Consolidation of Variable Interest
Entities", that addresses conditions when an entity should be consolidated based
on variable interests rather than voting interests. Variable interests are
ownership interests or contractual relationships that enable the holder to share
in the financial risks and rewards resulting from the activities of a Variable
Interest Entity (VIE). A VIE is a corporation, partnership, trust, or any other
legal structure used for business purposes that either does not have equity
investors with voting rights or has equity investors that do not provide
sufficient financial resources for the entity to support its activities. This
provision will be applied to every VIE created after January 31, 2003 and to VIE
in which an enterprise obtains an interest after that date. It applies in the
first year or interim period beginning after June 15, 2003, to VIE in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
The Company does not believe the adoption of this statements to have a
significant impact on its financial conditions or result of operations.
In May 2003, the FASB issued SFAS No. 150 - "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". This statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 is effective for interim periods beginning after June 15, 2003, for
financial instruments entered into or modified after May 31, 2003. The Company
does not believe the adoption of this statement to have a significant impact on
its financial condition or result of operations.
-29-
(13) Effect on Net Income and Stockholders' Equity
The effects of the significant adjustments to net income for the six month
periods ended June 30, 2002 and 2003 that are required if U.S. GAAP were applied
instead of Korean GAAP are summarized as follows:
Korean Won
------------------------------------ Translation into
U.S. dollars (Note 2)
2003 2002 2003
------------- --------------- ---------------------
(In millions, except per share data) (In thousands, except
per share data)
Net income under Korean GAAP W 1,693,147 W 1,285,529 $ 1,074,857
Adjustments:
Asset revaluation 309,552 300,262 251,055
Special depreciation (12,123) (10,532) (8,807)
Regulated operations (25,051) 12,281 10,268
Capitalized foreign currency translation 144,407 107,660 90,017
Asset retirement obligation -- (723,079) (604,581)
Deferred income taxes 70,371 266,936 223,191
Reversal of eliminated profit on transactions with
subsidiaries and affiliates (31,206) (7,571) (6,330)
Reserve for self-insurance 457 (525) (439)
------------- ------------- -------------
Net income as adjusted in accordance with U.S. GAAP W 2,149,554 W 1,230,961 $ 1,029,231
============= ============= =============
Basic earnings per share as adjusted in accordance with U.S.
GAAP W 3,364 W 1,950 $ 1.63
============= ============= =============
Diluted earnings per share as adjusted in accordance with
U.S. GAAP W 3,364 W 1,950 $ 1.63
============= ============= =============
The effects of the significant adjustments to stockholders' equity at December
31, 2002 and June 30, 2003 that are required if U.S. GAAP were applied instead
of Korean GAAP are summarized as follows:
Korean Won
--------------------------------------- Translation into
December 31, U.S. dollars (Note 2)
2002 June 30, 2003 June 30, 2003
-------------- -------------- --------------------
(In millions) (In thousands)
Stockholders' equity under Korean GAAP W 36,073,138 W 36,671,236 $ 30,661,569
Adjustments:
Asset revaluation (9,044,919) (8,744,657) (7,311,586)
Special depreciation 59,305 48,773 40,780
Regulated operation (836,887) (824,606) (689,470)
Capitalized foreign currency translation (2,242,663) (2,135,003) (1,785,120)
Asset retirement obligation -- (723,079) (604,581)
Deferred income taxes 3,187,609 3,454,545 2,888,416
Reversal of eliminated profit on transactions with
subsidiaries and affiliates 120,454 112,883 94,384
Minority interests (108,073) (118,344) (98,950)
Reserve for self-insurance 82,536 82,011 68,571
-------------- -------------- --------------
Stockholders' equity as adjusted in accordance with U.S. GAAP W 27,290,500 W 27,823,759 $ 23,264,013
============== ============== ==============
-30-
The tax effects of temporary differences that resulted in significant portions
of the deferred tax assets and liabilities at December 31, 2002 and June 30,
2003, computed under U.S. GAAP, and a description of the financial statement
items that created these differences as follows:
Korean Won
---------------------------------- Translation into
December 31, U.S. dollars (Note 2)
2002 June 30, 2003 June 30, 2003
------------- ------------- ---------------------
(In millions) (In thousands)
Deferred tax assets adjustment:
Asset revaluation W 2,522,334 W 2,433,156 $ 2,034,411
Regulated operation 248,556 244,908 204,773
Capitalized foreign currency translation 666,071 634,096 530,181
Asset retirement obligation -- 214,754 179,560
Decommissioning costs 1,312,126 1,401,798 1,172,072
------------- ------------- -------------
Total deferred tax assets adjustment 4,749,087 4,928,712 4,120,997
------------- ------------- -------------
Deferred tax liabilities adjustment:
Special depreciation 17,614 14,486 12,112
Reversal of eliminated profit on transactions with
subsidiaries and affiliates 35,775 33,526 28,031
Investment in social overhead capital 408,387 337,425 282,128
Reserve for self insurance 24,513 24,357 20,365
Others 987,969 1,211,250 1,012,752
------------- ------------- -------------
Total deferred tax liabilities adjustment 1,474,258 1,621,044 1,355,388
------------- ------------- -------------
Net deferred tax asset W 3,274,829 W 3,307,668 $ 2,765,609
============= ============= =============
Allowance for deferred tax assets (171,450) -- --
Deferred tax liabilities under Korean GAAP 84,230 146,877 122,807
------------- ------------- -------------
U.S GAAP adjustments W 3,187,609 W 3,454,545 $ 2,888,416
============= ============= =============
The reconciliation of utility plant and non-utility plant from Korean GAAP to
U.S. GAAP at December 31, 2002 and June 30, 2003 is as follows:
Korean Won
------------------------------------- Translation into
December 31, U.S. dollars (Note 2)
2002 June 30, 2003 June 30, 2003
--------------- --------------- ---------------------
(In millions) (In thousands)
Utility plant and non-utility plant, net under
Korean GAAP W 61,303,754 W 61,809,280 $ 51,680,000
Asset revaluation (9,044,919) (8,744,657) (7,311,586)
Special depreciation 59,305 48,773 40,780
Capitalized foreign currency translation (2,242,663) (2,135,003) (1,785,120)
Capitalized asset retirement cost, net (*) 1,029,011 996,026 832,798
Reversal of eliminated profit on transactions
with subsidiaries and affiliates 120,454 112,883 94,384
-------------- -------------- --------------
Utility plant and non-utility plant, net under
U.S. GAAP W 51,224,942 W 52,087,302 $ 43,551,256
============== ============== ==============
(*)The pro-forma capitalized asset retirement cost and its accumulated
depreciation, the Company would have recognized as of December 31, 2002, had the
Company implemented SFAS No. 143 as of that date, was approximately W1,671,520
million and W642,509 million, respectively, based on the information,
assumptions and interest rate discussed earlier.
-31-
(14) Segment Information
Under U.S. GAAP, companies report segment information based on the management
disaggregates the company for making operating decisions. Each of the Company's
consolidated subsidiaries is an operating segment in accordance with SFAS No.
131 - "Disclosures about Segments of an Enterprise and Related Information".
Operating segments that have similar economic characteristics and are similar in
terms of the nature of their products and services, the nature of the production
process, the type or class of customer, and methods of distribution have been
aggregated into two reportable segments: transmission and distribution of
electricity, and power generation, which are engaged in the transmission and
sales of electricity, and production of electricity, respectively. Operating
segments that do not meet the quantitative thresholds of SFAS No. 131 have been
combined and disclosed in an "all other" category. All other revenues consist
primarily of the revenues from the engineering and maintenance for utility
plant, information services, sales of nuclear fuel, communication line leasing
and others.
The accounting policies of the segments are the same as those described in Note
2 - Summary of Significant Accounting Policies and Note 22 - Reconciliation to
United States Generally Accepted Accounting Principles. The Company evaluates
performance based on net income. There are no revenues from transactions with a
single external customer that amount to 10 percent or more of the consolidated
revenues of the Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KOREA ELECTRIC POWER CORPORATION
By: /s/ Lee, Hi-Taek
--------------------------------
Name: Lee, Hi-Taek
Title: Chief Financial Officer
Date : October 15, 2003