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 March 2004
KOREA ELECTRIC POWER CORPORATION
(Translation of registrant's name into English)
167, Samseong-dong, Gangnam-gu, Seoul 135-791, Korea
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will
file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F X Form 40-F
---
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1): _______
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7): _______
Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.
Yes ___ No X
---
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-_______.
This Report of Foreign Private Issuer on Form 6-K is deemed filed for all
purposes under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, including by reference in the Registration
Statement on Form F-3 (Registration No. 33-99550) and the Registration Statement
on Form F-3 (Registration No. 333-9180).
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
English Translation of a Report Originally Issued in Korean
To the Shareholders and Board of Directors of
Korea Electric Power Corporation
We have audited the accompanying non-consolidated balance sheets of Korea
Electric Power Corporation (the "Company") as of December 31, 2003 and 2002, and
the related non-consolidated statements of income, appropriations of retained
earnings and cash flows for the years then ended, all expressed in Korean Won.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the financial statements of Korea Hydro &
Nuclear Power Co., Ltd. and Korea South-East Power Co., Ltd., which statements
reflect 23.0 percent of the total non-consolidated assets as of December 31,
2003 and 32.2 percent of non-consolidated income before income tax for the year
ended. Also, we did not audit the financial statements of Korea Hydro & Nuclear
Power Co., Ltd and 3 other power generating subsidiaries, which statements
reflect 30.4 percent of the total non-consolidated assets as of December 31,
2002 and 35.1 percent of non-consolidated income before income tax for the year
ended. Those statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to amounts included for
those entities, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards
in the Republic of Korea. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the non-consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of the Company as of December 31, 2003 and 2002, and the
results of its operations, changes in its retained earnings and its cash flows
for the years then ended in conformity with the Korea Electric Power Corporation
Act, the Accounting Regulations for Government Invested Enterprises and the
financial accounting standards in the Republic of Korea (see Note 2).
The translated amounts in the accompanying financial statements have been
translated in to U.S. dollars, solely for the convenience of the reader, on the
basis set forth in Note 2.
As discussed in Note 18, sales and purchases to and from related parties,
including the six power generation subsidiaries, amounted to W343,026 million
and W14,792,969 million, respectively, for the year ended December 31, 2003 and
W371,643 million and W13,713,243 million, respectively, for the year ended
December 31, 2002. Related receivables and payables amount to W23,296 million
and W1,241,020 million, respectively, as of December 31, 2003 and W31,954
million and W1,172,012 million, respectively, as of December 31, 2002.
As discussed in Note 1, the Company has been considering the gradual
privatization of the Company's power generation subsidiaries and distribution
business, which is in accordance with the restructuring plan, dated January 21,
1999, of the electricity industry in the Republic of Korea announced by the
Ministry of Commerce, Industry and Energy ("Restructuring Plan"). This
Restructuring Plan, which is intended to introduce a competitive system in the
electricity industry, is expected to affect the determination of utility rates,
result in changes in management structure, related laws and regulations, and
affect electricity supply and demand policy.
As discussed in Note 2, in 2003, the Company adopted Statements of Korea
Accounting Standards ("SKAS") No. 2, 3, 4, 5, 6, 7, 8 and 9, which are effective
from January 1, 2003. Those statements provide accounting and reporting
standards for the interim financial reporting, intangible assets, revenue
recognition, tangible assets, events occurring after the balance sheet date,
capitalization of financing costs, investment in securities and convertible
securities. The prior year financial statements, which are presented for
comparative purposes, were restated to conform to the provisions of those
standards. As a result of the adoption of SKAS No. 6 - "Events Occurring after
the Balance Sheet Date", shareholders' equity increased and current liabilities
decreased by W511,350 million as of December 31, 2002.
Accounting principles and auditing standards and their application in practice
vary among countries. The accompanying financial statements are not intended to
present the financial position, results of operations and cash flows in
accordance with accounting principles and practices generally accepted in
countries other than the Republic of Korea. The Company's financial statements
are prepared in accordance with the Korea Electric Power Corporation Act,
Accounting Regulations for Government Invested Enterprises as well as generally
accepted accounting principles in the Republic of Korea. In addition, the
procedures and practices utilized in the Republic of Korea to audit such
financial statements may differ from those generally accepted and applied in
other countries. Accordingly, this report and the accompanying financial
statements are for use by those knowledgeable about Korean accounting procedures
and auditing standards and their application in practice as well as the Korea
Electric Power Corporation Act and Accounting Regulations for Government
Invested Enterprises.
Anjin Deloitte LLC
Seoul, Korea
February 11, 2004
Notice to Readers
This report is effective as of February 11, 2004, the auditors' report date.
Certain subsequent events or circumstances may have occurred between the
auditors' report date and the time the auditors' report is read. Such events or
circumstances could significantly affect the accompanying financial statements
and may result in modifications to the auditors' report.
KOREA ELECTRIC POWER CORPORATION
NON-CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2003 AND 2002
Translation into
Korean Won U.S. Dollars (Note 2)
--------------------------------- ----------------------------------
2003 2002 2003 2002
---------------- ---------------- ---------------- ----------------
ASSETS (In millions) (In thousands)
------
Property, Plant and Equipment (Notes 3 and 18):
Utility plant W 37,235,281 W 34,432,035 $ 31,086,392 $ 28,746,063
Less: accumulated depreciation (7,472,373) (5,939,623) (6,238,414) (4,958,777)
Less: construction grants (2,758,789) (2,321,138) (2,303,213) (1,937,834)
--------------- --------------- --------------- ---------------
27,004,119 26,171,274 22,544,765 21,849,452
Construction in-progress 2,266,928 1,986,138 1,892,577 1,658,155
--------------- --------------- --------------- ---------------
29,271,047 28,157,412 24,437,342 23,507,607
--------------- --------------- --------------- ---------------
Investments and others:
Investment securities (Note 6) 23,865,369 22,239,278 19,924,335 18,566,771
Long-term loans (Note 7) 142,368 128,656 118,858 107,410
Long-term other account receivables, net of
discount on present value of W35,576 million
in 2003 and W42,034 million in 2002 and
allowance for doubtful accounts of W15,500
million in 2003 213,924 388,924 178,598 324,699
Currency and interest rate swaps (Note 14) 124,345 320,641 103,812 267,692
Intangibles (Note 4) 144,367 94,874 120,527 79,206
Other non-current assets (Note 13) 143,111 130,074 119,480 108,593
--------------- --------------- --------------- ---------------
24,633,484 23,302,447 20,565,610 19,454,371
--------------- --------------- --------------- ---------------
Current assets:
Cash and cash equivalents (Note 13) 366,817 610,056 306,242 509,314
Trade receivables, net of allowance for
doubtful accounts of W 27,787 million in
2003 and W 21,588 million in 2002
(Notes 13 and 18) 1,501,949 1,400,411 1,253,923 1,169,152
Other account receivables, net of allowance for
doubtful accounts of W 14,184 million in
2003 and W 3,007 million in 2002 (Notes
13 and 18) 434,648 228,101 362,872 190,433
Short-term financial instruments 61,000 79,000 50,927 65,954
Short-term loans (Note 7) 9,267 8,450 7,736 7,055
Inventories (Note 8) 78,796 65,217 65,783 54,448
Other current assets (Note 6) 112,654 94,519 94,048 78,911
--------------- --------------- --------------- ---------------
2,565,131 2,485,754 2,141,531 2,075,267
--------------- --------------- --------------- ---------------
Total Assets W 56,469,662 W 53,945,613 $ 47,144,483 $ 45,037,245
=============== =============== =============== ===============
(continued)
KOREA ELECTRIC POWER CORPORATION
NON-CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF DECEMBER 31, 2003 AND 2002
Translation into
Korean Won U.S. Dollars (Note 2)
-------------------------------- --------------------------------
2003 2002 2003 2002
--------------- --------------- --------------- ---------------
SHAREHOLDERS' EQUITY AND LIABILITIES (In millions) (In thousands)
------------------------------------
Shareholders' equity (Notes 6 and 9):
Common stock W 3,203,743 W 3,200,504 $ 2,674,689 $ 2,671,986
Capital surplus 14,373,779 14,311,579 12,000,149 11,948,221
Retained earnings
Appropriated 17,899,939 15,351,474 14,944,013 12,816,391
Unappropriated (Net income of W 2,315,938
million in 2003 and W 3,059,815 million in
2002) 2,315,938 3,059,815 1,933,493 2,554,530
Capital adjustments: (150,681) 35,707 (125,798) 29,811
--------------- --------------- --------------- ---------------
Total Shareholders' Equity 37,642,718 35,959,079 31,426,546 30,020,939
--------------- --------------- --------------- ---------------
Long-term liabilities:
Long-term debt (Note 11) 9,640,665 9,973,313 8,048,643 8,326,359
Accrued severance indemnities, net (Note 2) 316,408 226,609 264,158 189,187
Reserve for self insurance 87,926 82,537 73,406 68,907
Currency and interest rate swaps (Note 14) 178,283 468,900 148,842 391,467
Financial lease liabilities (Note 12) 372 4,993 310 4,168
Deferred income tax liabilities (Note 17) 1,462,016 1,354,128 1,220,585 1,130,513
Other long-term liabilities 486,981 325,533 406,564 271,776
--------------- --------------- --------------- ---------------
12,172,651 12,436,013 10,162,508 10,382,377
--------------- --------------- --------------- ---------------
Current liabilities:
Trade payables (Note 18) 1,256,526 1,238,749 1,049,028 1,034,186
Other accounts payable (Note 18) 571,772 552,350 477,352 461,137
Short-term borrowings (Note 11) 16,245 - 13,562 -
Current portion of long-term debt (Note 11) 4,026,376 2,454,722 3,361,476 2,049,359
Current portion of financial lease liabilities
(Note 12) 4,276 8,538 3,570 7,128
Income tax payable 164,170 682,777 137,059 570,025
Accrued expenses 146,094 166,144 121,968 138,708
Dividends payable 2,324 2,153 1,940 1,798
Other current liabilities 466,510 445,088 389,474 371,588
--------------- --------------- --------------- ---------------
6,654,293 5,550,521 5,555,429 4,633,929
--------------- --------------- --------------- ---------------
Total Liabilities 18,826,944 17,986,534 15,717,937 15,016,306
--------------- --------------- --------------- ---------------
Total Shareholders' Equity and Liabilities W 56,469,662 W 53,945,613 $ 47,144,483 $ 45,037,245
=============== =============== =============== ===============
See accompanying notes to non-consolidated financial statements.
KOREA ELECTRIC POWER CORPORATION
NON-CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Translation into
Korean Won U.S. Dollars (Note 2)
-------------------------------- ---------------------------------
2003 2002 2003 2002
--------------- --------------- --------------- ---------------
(In millions) (In thousands)
(In thousands, except per share amounts)
OPERATING REVENUES (Note 18):
Sale of electricity W 22,087,455 W 20,716,297 $ 18,440,020 $ 17,295,289
Other operating revenues 310,034 331,578 258,836 276,822
--------------- --------------- --------------- ---------------
22,397,489 21,047,875 18,698,856 17,572,111
--------------- --------------- --------------- ---------------
OPERATING EXPENSES (Notes 15, 16 and 18):
Power generation, transmission, distribution 3,560,513 3,365,041 2,972,544 2,809,351
Purchased power 15,724,513 14,532,830 13,127,828 12,132,936
Other operating costs 307,539 327,226 256,753 273,189
Selling and administrative expenses 992,115 940,017 828,284 784,786
--------------- --------------- --------------- ---------------
20,584,680 19,165,114 17,185,409 16,000,262
--------------- --------------- --------------- ---------------
OPERATING INCOME 1,812,809 1,882,761 1,513,447 1,571,849
OTHER INCOME (EXPENSES):
Interest income 38,780 23,710 32,376 19,795
Interest expense (583,556) (627,954) (487,190) (524,257)
Gain (loss) on foreign currency transactions
and translation, net (183,676) 398,543 (153,345) 332,730
Donations (125,090) (76,825) (104,433) (64,139)
Rent 121,535 108,439 101,465 90,532
Gain on valuation using the equity method of
accounting (Note 6) 2,123,518 2,178,492 1,772,849 1,818,745
Gain on disposal of investments, net (Note 6) 45,214 433,335 37,747 361,776
Loss on disposal of utility plant, net (2,755) (16,671) (2,300) (13,918)
Valuation gain (loss) on currency and interest
rate swaps, net (Note 14) (59,689) 63,158 (49,832) 52,728
Other, net (Note 6) (87,531) (38,695) (73,075) (32,305)
--------------- --------------- --------------- ---------------
1,286,750 2,445,532 1,074,262 2,041,687
--------------- --------------- --------------- ---------------
ORDINARY INCOME 3,099,559 4,328,293 2,587,709 3,613,536
INCOME TAX EXPENSE (Note 17) (783,621) (1,268,478) (654,216) (1,059,006)
--------------- --------------- --------------- ---------------
NET INCOME W 2,315,938 W 3,059,815 $ 1,933,493 $ 2,554,530
=============== =============== =============== ===============
ORDINARY INCOME PER SHARE (Note 2) W 3,674 W 4,788 $ 3.07 $ 4.00
=============== =============== =============== ===============
EARNINGS PER SHARE (Note 2) W 3,674 W 4,788 $ 3.07 $ 4.00
=============== =============== =============== ===============
See accompanying notes to non-consolidated financial statements.
KOREA ELECTRIC POWER CORPORATION
NON-CONSOLIDATED STATEMENTS OF APPROPRIATIONS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Translation into
Korean Won U.S. Dollars (Note 2)
-------------------------------- --------------------------------
2003 2002 2003 2002
--------------- --------------- --------------- ---------------
(In millions) (In thousands)
RETAINED EARNINGS BEFORE APPROPRIATIONS:
Unappropriated retained earnings carried
over from prior years W - W - $ - $ -
Net income 2,315,938 3,059,815 1,933,493 2,554,530
--------------- --------------- --------------- ---------------
2,315,938 3,059,815 1,933,493 2,554,530
--------------- --------------- --------------- ---------------
APPROPRIATIONS OF RETAINED EARNINGS:
Legal reserve 1,619 - 1,352 -
Reserve for business expansion 1,512,782 2,368,465 1,262,967 1,977,346
Reserve for investment in social overhead
capital 80,000 120,000 66,789 100,184
Reserve for research and human development 60,000 60,000 50,092 50,092
Cash dividends (Note 10) 661,537 511,350 552,293 426,908
--------------- --------------- --------------- ---------------
2,315,938 3,059,815 1,933,493 2,554,530
--------------- --------------- --------------- ---------------
UNAPPROPRIATED RETAINED EARNINGS TO BE CARRIED
FORWARD TO SUBSEQUENT YEAR W - W - $ - $ -
=============== =============== =============== ===============
See accompanying notes to non-consolidated financial statements.
KOREA ELECTRIC POWER CORPORATION
NON-CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Translation into
Korean Won U.S. Dollars (Note 2)
-------------------------------- ----------------------------
2003 2002 2003 2002
--------------- -------------- ------------ ------------
(In millions) (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income W 2,315,938 W 3,059,815 $ 1,933,493 $ 2,554,530
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,589,864 1,485,956 1,327,320 1,240,571
Utility plant removal cost 243,184 256,010 203,025 213,733
Provision for severance and retirement benefits 94,166 92,915 78,616 77,572
Provision for self insurance 6,400 5,465 5,343 4,563
Allowance for doubtful accounts 13,658 15,514 11,402 12,952
Interest expense 10,246 8,650 8,554 7,222
Loss (gain) on foreign currency translation, net 189,650 (370,871) 158,333 (309,627)
Gain on valuation using the equity method of
accounting (2,123,518) (2,178,492) (1,772,849) (1,818,745)
Gain on disposal of investments, net (45,214) (433,335) (37,747) (361,776)
Loss on disposal of utility plant, net 2,755 16,671 2,300 13,918
Valuation loss (gain) on currency and interest
rate swaps 59,689 (63,158) 49,832 (52,728)
Increase in trade receivables (115,201) (109,221) (96,177) (91,184)
Increase in other account receivables (58,270) (20,915) (48,647) (17,461)
Decrease in inventories 73,626 43,910 61,468 36,659
Increase in other current assets (76,215) (58,614) (63,629) (48,935)
Increase in trade payables 17,778 82,880 14,842 69,194
Increase in other accounts payable 19,422 95,643 16,214 79,849
Increase(decrease) in income tax payable (518,607) 408,698 (432,966) 341,207
Decrease in accrued expenses (20,050) (30,317) (16,739) (25,311)
Increase(decrease) in other current liabilities 21,422 (21,504) 17,884 (17,953)
Increase in deferred income tax liabilities 107,888 335,622 90,072 280,199
Increase in other long-term liabilities 161,447 92,774 134,786 77,454
Payment of severance and retirement benefits (8,355) (6,692) (6,975) (5,587)
Payment of self-insurance (1,011) (1,171) (844) (978)
Other, net 1,722 (18,849) 1,437 (15,737)
--------------- -------------- ------------- ------------
Net cash provided by operating activities 1,962,414 2,687,384 1,638,348 2,243,601
--------------- -------------- ------------- ------------
(continued)
KOREA ELECTRIC POWER CORPORATION
NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Translation into
Korean Won U.S. Dollars (Note 2)
----------------------------- ------------------------------
2003 2002 2003 2002
------------ ------------- ------------ ------------
(In millions) (In thousands)
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal of utility plant W 35,992 W 72,311 $ 30,049 $ 60,370
Additions to utility plant (3,624,453) (3,461,673) (3,025,924) (2,890,026)
Receipt of construction grants 611,862 624,527 510,822 521,395
Proceeds from disposal of investment securities 555,940 746,633 464,134 623,337
Acquisition of investment securities (13,973) (31,621) (11,666) (26,400)
Collection of long-term loans 5,077 - 4,238 -
Payment of long-term loans (28,060) (22,567) (23,426) (18,840)
Acquisition of intangibles (6,297) (30,790) (5,257) (25,706)
Collection of short-term loans 8,455 7,868 7,059 6,569
Withdrawal of short-term financial instruments 84,000 119,587 70,129 99,839
Acquisition of short-term financial instruments (66,000) (79,000) (55,101) (65,954)
Decrease (increase) in other non-current assets (13,026) 8,097 (10,877) 6,760
------------ ------------- ------------ ------------
Net cash used in investing activities (2,450,483) (2,046,628) (2,045,820) (1,708,656)
------------ ------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 16,245 - 13,562 -
Proceeds from long-term debt 3,583,164 1,909,246 2,991,454 1,593,961
Payment of current portion of long-term debt (2,454,218) (1,358,240) (2,048,938) (1,133,946)
Payment of long-term debt (33,341) (760,084) (27,835) (634,567)
Acquisition of treasury stock (180,120) - (150,375) -
Cash dividends (511,179) (351,065) (426,765) (293,092)
Other, net (175,721) (30,428) (146,703) (25,403)
------------ ------------- ------------ ------------
Net cash provided by (used in) financing
activities 244,830 (590,571) 204,400 (493,047)
------------ ------------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (243,239) 50,185 (203,072) 41,898
------------ ------------- ------------ ------------
CASH AND CASH EQUIVALENTS,
BEGINNING OF THE PERIOD 610,056 559,871 509,314 467,416
------------ ------------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF
THE PERIOD W 366,817 W 610,056 $ 306,242 $ 509,314
============ ============= ============ ============
See accompanying notes to non-consolidated financial statements.
KOREA ELECTRIC POWER CORPORATION
NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
1. THE COMPANY:
Korea Electric Power Corporation (the "Company") was incorporated on January 1,
1982 in accordance with the Korea Electric Power Corporation Act (the "KEPCO
Act") to engage in the generation, transmission and distribution of electricity
and development of electric power resources. The Company was given a government
investment status on December 31, 1983 following the enactment of the
Government-Invested Enterprise Management Basic Act. The Company's stock was
listed on the Korea Stock Exchange on August 10, 1989 and the Company listed its
Depository Receipts (DR) on the New York Stock Exchange on October 27, 1994.
As of December 31, 2003, the Government of the Republic of Korea, Korea
Development Bank and foreign investors hold 32.42 percent, 21.55 percent and
28.98 percent of the Company's shares, respectively.
The Company spun off its Power Generation division on April 2, 2001, resulting
in the establishment of six new power generation subsidiaries. The Company has
been considering the gradual privatization of the Company's power generation
subsidiaries and distribution business, which is in accordance with the
restructuring plan, dated January 21, 1999, of the electricity industry in the
Republic of Korea announced by the Ministry of Commerce, Industry and Energy
("Restructuring Plan"). This Restructuring Plan, which is intended to introduce
a competitive system in the electricity industry, is expected to affect the
determination of utility rates, result in changes in management structure,
related laws and regulations, and affect electricity supply and demand policy.
In common with other Asian countries, the economic environment in the Republic
of Korea continues to be volatile. In addition, the Korean government and the
private sector continue to implement structural reforms to historical business
practices including corporate governance. The Company may be either directly or
indirectly affected by these economic conditions and the reform program
described above. The accompanying financial statements reflect management's
assessment of the impact to date of the economic environment on the financial
position and results of operations of the Company. Actual results may differ
materially from management's current assessment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Financial Statement Presentation
The Company maintains its official accounting records in Korean won and prepares
statutory non-consolidated financial statements in the Korean language (Hangul)
in conformity with the Korea Electric Power Corporation Act ("KEPCO Act") the
Accounting Regulations for Government Invested Enterprises, which have been
approved by the Korean Ministry of Finance and Economy and, in the absence of
specialized accounting regulations for utility companies and 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, KEPCO Act and
Accounting Regulations for Government Invested Enterprises. The accompanying
financial statements have been condensed, restructured and translated into
English (with certain expanded descriptions) from the Korean language financial
statements. Certain information included in the Korean language financial
statements, but not required for a fair presentation of the Company's financial
position and results of operations, is not presented in the accompanying
financial statements.
In 2003, the Company adopted Statements of Korea Accounting Standards ("SKAS")
No 2, 3, 4, 5, 6, 7, 8 and 9, which are effective from January 1, 2003. Those
statements provide accounting and reporting standards for the interim financial
reporting, intangible assets, revenue recognition, tangible assets, events
occurring after the balance sheet date, capitalization of financing costs,
investment in securities and convertible securities. The prior year financial
statements, which are presented for comparative purposes, were restated to
conform to the provisions of those standards. As a result of the adoption of
SKAS No. 6 - "Events Occurring After the Balance Sheet Date", shareholders'
equity increased and current liabilities decreased by W511,350 million as of
December 31, 2002.
The U.S. dollar amounts presented in these financial statements were computed by
translating the Korean won into U.S. dollars based on the Bank of Korea Basic
Rate of W1,197.80 to US $1.00 at December 31, 2003, solely for the convenience
of the reader. This convenience translation 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.
The significant accounting policies followed by the Company in the preparation
of its non-consolidated financial statements are summarized below.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, except for assets revalued
upward in accordance with the KEPCO Act and the Assets Revaluation Law of Korea,
net of depreciations. Expenditures incurred after the acquisition of the
property, plant and equipment that increases the future economic benefits beyond
the property's most recently measured performance are capitalized as additions
to property, plant and equipment.
The Company capitalizes interest and other borrowing costs on debt issued to
finance capital expenditures as part of the acquisition cost of major facilities
and equipment. For the years ended December 31, 2003 and 2002, the amount of
capitalized interest was W127,367 million and W74,382 million, respectively, of
which net foreign currency transactions and translation gains deducted from the
capitalized interest amounted to W1,850 million for the year ended December 31,
2002.
The impact on the Company's financial position as of and for the year ended
December 31, 2003, if the interest and other borrowing costs were expensed
instead of being capitalized, are shown below (won in millions).
Construction Income before
in-progress Total assets Interest expense Income tax expense
------------------- ------------------ ------------------- ---------------------
Capitalized W 2,266,928 W 56,469,662 W 583,556 W 3,099,559
Expensed 2,139,561 56,342,295 710,923 2,972,192
------------------- ------------------ ------------------- ---------------------
W 127,367 W 127,367 W (127,367) W 127,367
=================== ================== =================== =====================
Depreciation is computed using the declining-balance method (straight-line
method for buildings and structures) 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, 15, 30
Structures 8, 15, 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.
-2-
The Company records the following funds and materials, which relate to the
construction of transmission and distribution facilities as construction grants:
. Grants from the government or public institutions
. Funds, construction materials or other items contributed by customers
Construction grants are initially recorded and presented in the accompanying
financial statements as deductions from the assets acquired under such grants
and are offset against depreciation expense during the estimated useful lives of
the related assets. The Company received W611,862 million and W624,527 million
of construction grants, and offset W123,862 million and W140,346 million against
depreciation expense, and W50,349 million and W65,629 million against utility
plant removal cost for the year ended December 31, 2003 and 2002, respectively.
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.
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.
-3-
Securities are evaluated at each balance sheet date to determine whether
there is any objective evidence of impairment loss. When any such evidence
exists, unless there is a clear counter-evidence that recognition of
impairment is unnecessary, the Company estimates the recoverable amount of
the impaired security and recognizes any impairment loss in current
operations. The amount of impairment loss of the held-to-maturity security or
non-marketable equity security is measured as the difference between the
recoverable amount and the carrying amount. The recoverable amount of held-to
maturity security is the present value of expected future cash flows
discounted at the securities' original effective interest rate. For
available-for-sale debt or equity security stated at fair value, the amount
of impairment loss to be recognized in the current period is determined by
subtracting the amount of impairment loss of debt or equity security already
recognized in prior period from the amount of amortized cost in excess of the
recoverable amount for debt security or the amount of the acquisition cost in
excess of the fair value for equity security. For non-marketable equity
security accounted for at acquisition cost, the impairment loss is equal to
the difference between the recoverable amount and the carrying amount.
If the realizable value subsequently recovers, in case of a security stated
at fair value, the increase in value is recorded in current operation, up to
the amount of the previously recognized impairment loss, while for the
security stated at amortized cost or acquisition cost, the increase in value
is recorded in current operation, so that its recovered value does not exceed
what its amortized cost would be as of the recovery date if there had been no
impairment loss.
If the intent and ability to hold the securities change, transferred
securities are accounted for at fair value. In case held-to-maturity
securities are reclassified into available-for-sale securities, unrealized
gain or loss between the book value and fair value is reported in
shareholders' equity as a capital adjustment. In case the available for sale
securities are reclassified into held-to maturity securities, the unrealized
gain or loss at the date of the transfer continues to be reported in
shareholder's equity as a capital adjustment, but it is amortized over the
remaining term of the security using the effective interest method.
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.
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
20 years, of related assets.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based on management's
estimate of the collectibility of individual accounts and prior year collection
experience.
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.
Convertible Bonds
When issuing convertible bonds or bonds with stock purchase warrants, the values
of the conversion rights or stock warrants shall be recognized separately.
Considerations for conversion rights or stock warrants shall be measured by
deducting the present value of ordinary or straight debt securities from the
gross proceeds of the convertible bonds or bonds with stock purchase warrants
received at the date of issue.
-4-
The value of the common shares issued pursuant to the exercise of the conversion
rights shall be measured as the sum of the carrying amount, at the time of
conversion, and the amount of consideration received for such rights, at the
time of issuance, of those convertible bonds that are actually related to the
exercise.
When the conversion rights are exercised during an accounting period, the value
of common shares issued pursuant to the exercise shall be measured based on the
carrying amount of the convertible bonds determined on the actual date such
rights have been exercised.
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.
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 W316,503 million and W226,708 million as of
December 31, 2003 and 2002, respectively. Actual severance payments were W8,355
million and W6,692 million for the years ended December 31, 2003 and 2002,
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 W95 million and W99 million as of December 31, 2003 and 2002,
respectively, are presented as a deduction from accrued severance benefits.
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.
Reserve for Self-Insurance
The Company provides a self-insurance reserve for liability to third parties
that may arise in connection with the Company's non-insured facilities. Payments
made to settle applicable claims are charged to this reserve.
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
W1,197.80 and W1,200.40 to US$ 1.00 at December 31, 2003 and 2002, respectively.
The translation gains or losses are reflected in current operations.
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.
-5-
Revenue Recognition
The Company recognizes revenue from the sale of electric power based on meter
readings made on a monthly basis. The Company does not accrue revenue for power
sold after the meter readings but prior to the end of the accounting period. The
Company recognizes revenue on long-term contacts, which are related to the
construction of power plants in the Democratic Peoples Republic of Korea (North
Korea), based on the percentage-of-completion method.
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.
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 630,372,064
shares and 639,046,001 shares for the years ended December 31, 2003 and 2002,
respectively.
3. PROPERTY, PLANT AND EQUIPMENT:
(1) Asset revaluation
The Company 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 (See Note 9).
(2) Publicly announced land prices
The published price of the Company's land as announced by the Korean
government is as follows (won in millions):
Area
Purpose (Square meters) Book value Land prices
-------------------------------------------- ----------------- ---------------- ---------------
Transmission and distribution sites and other 16,901,743 W 3,327,851 W 3,347,628
(3) Changes in utility plant
Changes in cost of utility plant, accumulated depreciation and construction
grants for the year ended December 31, 2003 are shown below (won in
millions).
[Cost]
December 31, Increase Decrease December 31,
---------------------------- ------------------------
2002 Acquisition Other Disposal Other 2003
------------ --------------- ----------- ------------ ----------- ------------
Land W 3,321,378 W 457 W 40,054 W 34,038 W - W 3,327,851
Buildings 2,135,878 161 195,653 4,284 4,204 2,323,204
Structures 22,415,717 75 2,048,353 - 343,258 24,120,887
Machinery 6,266,774 3,962 988,597 200 122,513 7,136,620
Vehicles 55,333 9,025 347 4,348 1,346 59,012
Ships 266 - - 14 - 252
Others 236,689 20,133 14,739 1,334 2,771 267,456
------------- --------------- ----------- ------------ ----------- ------------
Utility plant 34,432,035 33,813 3,287,743 44,218 474,092 37,235,281
Construction
in-progress 1,986,138 3,590,641 - 3,257,619 52,232 2,266,928
------------- --------------- ------------ ------------ ----------- ------------
W 36,418,173 W 3,624,454 W 3,287,743 W 3,301,837 W 526,324 W 39,502,209
============= =============== ============ ============ =========== ============
-6-
[Accumulated depreciation]
December 31, Increase Decrease December 31,
---------------------------- ------------------------
2002 Depreciation Other Disposal Other 2003
------------ --------------- ----------- ------------ ----------- ------------
Buildings W 344,789 W 110,801 W 11,612 W 1,118 W 746 W 465,338
Structures 2,984,483 725,040 24,200 47,004 - 3,686,719
Machinery 2,371,808 684,739 72,913 73,432 116 3,055,912
Vehicles 45,307 6,668 22 1,337 4,347 46,313
Ships 196 19 - - 10 205
Others 193,040 28,457 413 2,691 1,333 217,886
------------ --------------- ----------- ------------ ----------- ------------
W 5,939,623 W 1,555,724 W 109,160 W 125,582 W 6,552 W 7,472,373
============ =============== =========== ============ =========== ============
[Construction grants]
Increase Decrease
------------------------- -------------------------------
Received Offset
December 31, from against Offset against December 31,
2002 customers Other depreciation removal cost 2003
--------------- ------------- ---------- --------------- --------------- ------------
Construction
grants W 2,321,138 W 611,862 W - W 123,862 W 50,349 W 2,758,789
4. INTANGIBLES:
(1) Intangibles as of December 31, 2003 are shown below (won in millions).
Accumulated
Cost amortization Impairment Book value
---------------- --------------- ------------- ----------------
Development cost W 158,399 W 51,565 W - W 106,834
Others 127,817 90,284 - 37,533
---------------- ---------------- ------------- ----------------
W 286,216 W 141,849 W - W 144,367
================ ================ ============= ================
(2) Changes in intangibles for the year ended December 31, 2003 are shown below
(won in millions).
Increase Decrease
------------------------- ----------------------------
December 31, December 31,
2002 Acquisition Other Amortization Other 2003
------------- ------------- ----------- ------------- ----------- ------------
Development cost W 63,659 W - W 65,131 W 21,956 W - W 106,834
Others 31,215 6,297 17,847 12,184 5,642 37,533
------------ ---------- ----------- ----------- ----------- ------------
W 94,874 W 6,297 W 82,978 W 34,140 W 5,642 W 144,367
============ =========== =========== =========== =========== ============
(3) Ordinary development expenses for the years ended December 31, 2003 and 2002
are as follows (won in millions):
2003 2002
-------------- --------------
Ordinary development expenses W 131,545 W 106,730
5. INSURED ASSETS:
Insured assets as of December 31, 2003 are as follows (won in millions):
Insured assets Insurance type Insured value
----------------------------- -------------------------------- --------------
Buildings and machinery Fire insurance W 386,458
Buildings and machinery Assemble insurance 365,312
Buildings General insurance 149,354
Construction in progress Construction insurance 97,537
In addition, the Company carries damage insurance for its light water nuclear
reactor construction in North Korea, general insurance for vehicles, loading
insurance for inventories, general insurance for movables, insurance against
cash theft, a casualty insurance for its employees and compensation liability
insurance for its directors.
-7-
6. INVESTMENT SECURITIES:
(1) Investment securities as of December 31, 2003 and 2002 are as follows (won
in millions):
2003 2002
-------------- --------------
Other current assets
Held-to-maturity securities W 5 W -
-------------- --------------
Investment securities
Available-for-sale-securities 93,070 86,492
Held-to-maturity securities 35 55
Securities subject to equity method 23,772,264 22,152,731
-------------- --------------
23,865,369 22,239,278
-------------- --------------
W 23,865,374 W 22,239,278
============== ==============
Held-to-maturity securities are government and municipal bonds.
(2) Available-for-sale securities as of December 31, 2003 and 2002 are as
follows (won in millions):
2003 2002
-------------------------------------------- ------------------------
Ownership Acquisition Ownership
Company name (%) cost Book value (%) Book value
-------------------------------------------- ------------- -------------- ----------- ----------- -----------
Securities Market Stabilization Fund 7.64 W 7,763 W 7,763 7.57 W 20,744
Energy Savings Investment Cooperative 40.6 5,000 5,000 40.6 5,000
Korea Power Exchange 50.0 62,606 62,606 50.0 49,855
Hwan Young Steel Co., Ltd. - 1,364 120 - 120
Investment securities in treasury stock fund - 26,295 17,581 - 10,773
-------------- ----------- -----------
W 103,028 W 93,070 W 86,492
============== =========== ===========
The Company entered into a treasury stock fund, composed of treasury stock
and other investment securities, and recorded other investment securities
in available-for-sale securities. Losses on valuation of available for sale
securities in the treasury stock fund, which are recorded in capital
adjustments, amount to W8,714 million and W8,509 million as of December 31,
2003 and 2002, respectively.
Available-for-sales securities other than investment securities in treasury
stock fund are non-marketable equity securities and stated at cost due to
the lack of information to determine the fair value. But the Company
recognized impairment loss of W1,244 million between the acquisition cost
and the net asset value of Hwan Young Steel Co., Ltd.
(3) Securities subject to the equity method as of December 31, 2003 and 2002
are as follows (won in millions):
2003 2002
-------------------------------------------------------- --------------------------
Ownership Acquisition Net Asset Ownership
Company name (%) cost Value Book Value (%) Book value
-------------------------------------------- ------------- -------------- ----------- ------------- ------------ ------------
Korea Hydro & Nuclear Power Co.,
Ltd. 100.0 W 9,364,799 W 11,014,714 W 11,014,714 100.0 W 10,577,527
Korea South-East Power Co., Ltd. 100.0 1,232,004 1,990,715 1,990,715 100.0 1,679,117
Korea Midland Power Co., Ltd. 100.0 1,325,891 2,080,695 2,080,695 100.0 1,781,127
Korea Western Power Co., Ltd. 100.0 1,442,638 1,988,052 1,988,052 100.0 1,772,973
Korea Southern Power Co., Ltd. 100.0 1,797,378 2,092,460 2,092,460 100.0 1,953,743
Korea East-West Power Co., Ltd. 100.0 2,322,905 2,424,164 2,424,164 100.0 2,373,207
Korea Power Engineering Co., Ltd. 97.9 4,991 195,624 69,038 97.9 51,991
Korea Plant Service & Engineering
Co., Ltd. 100.0 6,000 267,041 267,041 100.0 238,947
KEPCO Nuclear Fuel Co., Ltd. 96.4 89,757 157,701 145,098 96.4 134,538
Korea Electric Power Data Network
Co., Ltd. 100.0 64,000 129,724 115,382 100.0 118,075
Korea Electric Power Industrial
Development, Ltd. 49.8 7,987 22,092 22,092 100.0 40,730
-8-
2003 2002
-------------------------------------------------------- ---------------------------
Ownership Acquisition Net Asset Ownership
Company name (%) cost Value Book Value (%) Book value
-------------------------------------------- ------------- -------------- ------------- ------------- ------------ ------------
Powercomm Corporation (*) 43.1 W 323,470 W 363,687 W 363,687 44.0 W 359,090
Korea Gas Corporation 24.5 94,500 740,280 740,280 24.5 690,705
Korea District Heating Co. 26.1 5,660 159,165 159,165 26.1 147,898
KEPCO International Hong Kong
Ltd. (*) 100.0 15,102 173,629 173,629 100.0 124,808
KEPCO International Philippines
Inc. (*) 100.0 104,832 126,052 126,052 100.0 108,255
-------------- ------------ ------------ ------------
W 18,201,914 W 23,925,795 W 23,772,264 W 22,152,731
============== ============ ============ ============
(*) The Company used draft financial statement of Powercomm Corporation, KEPCO
International Hong Kong Ltd. and KEPCO International Philippines Inc. for 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 over five 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 December 31,
2003, there are no positive or negative goodwill.
The Company eliminates the unrealized gains arising from the transactions
with affiliates in equity method valuation. The eliminated gain arising
from the transaction with Korea Power Engineering Co., Ltd, KEPCO Nuclear
Fuel Co., Ltd. and Korea Electric Power Data Network Co., Ltd. amounted to
W 126,586 million, W12,603 million and W14,342 million, respectively, for
the year ended December 31,2003 and W119,475 million, W15,562 million and
W2,401 million, respectively, for the year ended December 31, 2002.
In 2003, the Company has disposed some of its investments in Korea Electric
Power Industrial Development and Powercomm Corporation, with the gain on
disposal of investments of W45,214 million and in 2002, the Company has
disposed some of its investments in Powercomm Corporation, with the gain on
disposal of investments of W433,335 million.
As KEPCO International Hong Kong Ltd. owns 100 percent of the shares of
KEPCO Philippines Corporation ("KEPHILCO") and KEPCO International
Philippines Inc. holds 51 percent of the shares of KEPCO Ilijan Corporation
("KEILCO"), the Company applied the equity method for KEPCO International
Hong Kong Ltd. and KEPCO International Philippines Inc., reflecting the
changes in the net equity of KEPHILCO and KEILCO. In 2003 and 2002, the
Company acquired additional share of KEPCO International Philippines Inc.
amounting to W1,223 million and W12,453 million, respectively.
(4) Details of valuation using the equity method are as follows (won in
millions):
2003 2002
-------------------------------------------------------- --------------------------------------------
Gain on Gain on
valuation valuation
using the using the
Book Value as equity method Book value as Book value equity method
of January 1, of of December as of January of
Company name 2003 accounting Others(*) 31, 2003 1, 2002 accounting Others(*)
------------------------ ------------ -------------- ------------- ------------ ----------- -------------- -------------
Korea Hydro & Nuclear
Power Co., Ltd. W 10,577,527 W 652,182 W (214,995) W 11,014,714 W 9,930,683 W 816,577 W (169,733)
Korea South-East
Power Co., Ltd. 1,679,117 345,669 (34,071) 1,990,715 1,398,275 305,795 (24,953)
Korea Midland Power
Co., Ltd. 1,781,127 345,230 (45,662) 2,080,695 1,482,997 321,073 (22,943)
Korea Western Power
Co., Ltd. 1,772,973 254,077 (38,998) 1,988,052 1,573,395 229,494 (29,916)
Korea Southern Power
Co., Ltd. 1,953,743 182,849 (44,132) 2,092,460 1,813,187 146,893 (6,337)
Korea East-West Power
Co., Ltd. 2,373,207 84,995 (34,038) 2,424,164 2,295,361 73,621 4,225
Korea Power Engineering
Co., Ltd. 51,991 28,800 (11,753) 69,038 46,352 30,623 (24,984)
-9-
2003 2002
----------------------------------------------------------- --------------------------------------
Gain on Gain on
valuation valuation
using the Book value using the
Book value as equity Book value as as of equity
of January 1, method of of December 03 January method of
Company name 2003 accounting Others (*) 31, 2003 1, 2002 accounting Others (*)
------------------------------ ---------------- ------------- ------------ ------------- ---------- ------------ ------------
Korea Plant Service &
Engineering Co., Ltd. 238,947 37,094 (9,000) 267,041 212,431 33,116 (6,600)
KEPCO Nuclear Fuel
Co., Ltd. 134,538 12,487 (1,927) 145,098 119,555 14,983 -
Korea Electric Power
Data Network Co., Ltd. 118,075 1,807 (4,500) 115,382 112,209 14,911 (9,045)
Korea Electric Power
Industrial Development, Ltd. 40,730 3,114 (21,752) 22,092 34,879 8,751 (2,900)
Powercomm Corporation 359,090 10,421 (5,824) 363,687 718,126 35,400 (394,436)
Korea Gas Corporation 690,705 73,329 (23,754) 740,280 698,164 63,370 (70,829)
Korea District Heating Co. 147,898 13,304 (2,037) 159,165 134,955 14,154 (1,211)
KEPCO International
Hong Kong Ltd. 124,808 56,817 (7,996) 173,629 87,647 55,409 (18,247)
KEPCO International
Philippines Inc. 108,255 21,343 (3,546) 126,052 96,922 14,322 (2,988)
------------ ----------- ---------- ------------ ------------ ----------- ----------
W 22,152,731 W 2,123,518 W (503,985) W 23,772,264 W 20,755,138 W 2,178,492 W (780,897)
============ =========== ========== ============ ============ =========== ==========
(*) Others are composed of acquisition (disposal) amounts of investment
securities, dividends and the changes in investment securities in capital
adjustments.
Gain on valuation of securities subject to equity method, which are
recorded in capital adjustments amount to W 53,412 million and W 60,886
million as of December 31, 2003 and 2002, respectively.
7. LOANS TO EMPLOYEES:
The Company has provided housing and tuition loans to employees as follows (won
in million):
2003 2002
------------------ -----------------
Short-term loans W 9,267 W 8,450
Long-term loans 142,368 128,656
------------------ -----------------
W 151,635 W 137,106
================== =================
8. INVENTORIES:
Inventories as of December 31, 2003 and 2002 consist of the following (won in
millions):
2003 2002
----------------- ----------------
Raw materials W 1,991 W 1,291
Supplies 73,066 57,169
Other 3,739 6,757
----------------- ----------------
W 78,796 W 65,217
================= ================
-10-
9. SHAREHOLDERS' EQUITY:
(1) Capital
The Company has 1,200,000,000 authorized shares of W5,000 par value common
stock, of which 640,748,573 shares are issued as of December 31, 2003. In
2003, the Company's capital was increased by W3,238 million (647,697
shares) in the form of fixed asset injection by the government of the
Republic of Korea.
(2) Capital Surplus
Capital surplus as of December 31, 2003 and 2002 is as follows (won in
millions):
2003 2002
------------------ -----------------
Paid-in capital in excess of par value W 811,301 W 799,876
Reserves for asset revaluation 12,552,973 12,552,973
Other capital surplus 1,009,505 958,730
------------------ -----------------
W 14,373,779 W 14,311,579
================== =================
The Company revalued its property, plant and equipment in accordance with
the KEPCO Act and the Asset Revaluation Law, and recorded a revaluation
gain of W12,552,973 million as a reserve for asset revaluation. The reserve
for asset revaluation may be credited to paid-in capital or offset against
any accumulated deficit by resolution of the shareholders.
(3) Retained earnings
Appropriated retained earnings as of December 31, 2003 and 2002 consist of
the following (won in millions):
2003 2002
-------------- ------------
Legal reserve W 1,600,252 W 1,600,252
Reserve for business rationalization 31,900 31,900
Reserve for business expansion 10,925,338 8,556,873
Reserve for investment on social overhead capital 5,012,449 4,892,449
Reserve for research and human development 120,000 60,000
Voluntary reserve 210,000 210,000
-------------- -------------
W 17,899,939 W 15,351,474
============== =============
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 and
appropriations became optional.
The reserves for the investment on social overhead capital and research and
human development are appropriated by the Company to avail 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. As of December 31, 2003, the amounts of reserves for the
investment on social overhead capital and research and human development
allowable under the Tax Incentive Control Law are W807,610 million and
W175,885 million, respectively.
-11-
(1) Capital adjustments
Capital adjustments as of December 31, 2003 and 2002 are as follows (won in
millions):
2003 2002
--------------- -------------
Treasury stock W (195,379) W (16,670)
Valuation using the equity method 53,412 60,886
Investment securities in treasury stock fund (8,714) (8,509)
--------------- -------------
W (150,681) W 35,707
=============== =============
The Company has shares held as treasury stock amounting to W195,379 million
(10,713,050 shares) and W 16,669 million (913,375 shares) as of December
31, 2003 and 2002, respectively, for the purpose of stock price
stabilization.
10. DIVIDENDS:
Dividends as of December 31, 2003 and 2002 are as follows (won in millions,
except per share data):
(1) Earnings available for dividend
2003 2002
-------------- --------------
Retained earnings before appropriation W 2,315,938 W 3,059,815
Transfer from the voluntary reserve - -
Appropriation of the legal reserve and others (1,654,401) (2,548,465)
Other appropriation of retained earnings - -
-------------- --------------
Earnings available for dividends W 661,537 W 511,350
============== ==============
(2) Dividend
Outstanding Dividend Dividend
stocks rate per share Total dividend
-------------- ---------- ------------ ---------------
2003:
Outstanding stocks other
than treasury stock 630,035,523 21% W 1,050 W 661,537
Treasury stock 10,713,050 - - -
-------------- ----------
640,748,573 W 661,537
============== ==========
2002:
Outstanding stocks other
than treasury stock 639,187,501 16% W 800 W 511,350
Treasury stock 913,375 - - -
-------------- ----------
640,100,876 W 511,350
============== ==========
(3) Dividend to net income ratio (won in millions)
2003 2002
-------------- --------------
Dividend W 661,537 W 511,350
-------------- --------------
Net income W 2,315,938 W 3,059,815
-------------- --------------
Dividend to net income ratio 28.56% 16.71%
============== ==============
(4) Dividend yield ratio
2003 2002
-------------- --------------
Dividend per share W 1,050 W 800
-------------- --------------
Stock price at the end of year W 21,400 W 18,250
-------------- --------------
Dividend yield ratio 4.91% 4.38%
============== ==============
-12-
11. BORROWINGS AND DEBENTURES:
(1) Short-term borrowings as of December 31, 2003 and 2002 are as follows (won
in millions):
Annual interest
Financial institution Type rate (%) 2003 2002
------------------------------- ----------- ---------------- ---------- --------
National Agricultural
Cooperative Federation Overdraft floating W 16,245 W -
(2) Long-term borrowings as of December 31, 2003 and 2002 are as follows (won
in millions):
(a) Long-term borrowings denominated in Korean Won
Annual interest
Financial institution Type rate (%) 2003 2002
------------------------------- ------------------- ---------------- -------------- -------------
Korea Development Bank Industrial facility 4.50~9.00 W 3,505,628 W 2,591,564
Kookmin Bank General 6.07~6.16 - 85,714
Others " 5.50~6.00 35 37
-------------- -------------
3,505,663 2,677,315
Less: Current portion (715,775) (629,522)
-------------- -------------
W 2,789,888 W 2,047,793
============== =============
(b) Long-term borrowings denominated in foreign currency
Annual interest
Financial institution Type rate (%) 2003 2002
--------------------------------- -------------- ----------------- -------------- ------------
Barclays International Financial
Services (Ireland) Ltd. Commercial 6M Libor-1.00 187,851 376,482
Kredit Anstalt Fur Wieder Aufbau Public 6.00 - 180
Asia Development Bank " 6.00 - 1,415
-------------- ------------
187,851 378,077
Less: Current portion (187,851) (189,836)
-------------- ------------
W - W 188,241
============== ============
(3) Debentures as of December 31, 2003 and 2002 are as follows (won in
millions):
Annual
Description interest rate (%) 2003 2002
-------------------------------------- ----------------- ------------- ------------
Domestic debentures (Electricity bonds) 4.79~11.30 W 4,235,000 W 2,755,000
Foreign debentures(*) 1.18~8.28 5,530,157 6,637,477
------------ ------------
9,765,157 9,392,477
Less: Current portion (3,122,750) (1,635,364)
Discount on debentures issued (46,055) (19,834)
------------ ------------
W 6,596,352 W 7,737,279
============ ============
(*) In 2003, the Company has sold to KEPCO Cayman Company Limited the
foreign debentures of US$ 250,000,000 and the right to exchange it into the
shares of Powercomm Corporation held by the Company. Based on these assets,
KEPCO Cayman Company Limited issued foreign debentures of US$ 250,000,000,
the details of which are as follows:
- Maturity date: November 26, 2008
- Qualifying Public Offering (QPO): QPO is the first listing on the
Korea Stock Exchange, New York Stock Exchange or National Association
of Securities Dealers Automated Quotations (NASDAQ) meeting certain
requirements. It is not required that Powercomm Corporation must
perform QPO prior to the maturity of the debentures, neither the
Company guarantees the QPO of Powercomm Corporation.
- Shares to be exchanged: Powercomm Corporations shares or Deposit
Receipt (DR)
- Exchange period: From 10/th/ day after the listing of Powercomm
Corporation to 10/th/ day before its maturity
-13-
- Exchange price: 120 % of lower amount of market price on listing day
or weighted average price for 10 days after its listing.
- Early redemption: When certain conditions are met or after 3 years
from the listing, outstanding debentures are redeemable at the
guaranteed return of 2.88% (102.74% of issuance amount)
- Repayment at the maturity: Repayment will be made with the guaranteed
return of 3.68% (109.13% of issuance amounts).
The Company has provided the payment guarantees to KEPCO Cayman
Company Limited for the principal and interest of the above foreign
debentures.
(4) Exchangeable bonds
Annual
Description interest rate (%) 2003 2002
------------------------------------ ---------------- --------- --------
Overseas exchangeable bonds 0.00 277,256 -
Plus: Premium on debentures issued 20,987 -
Less: Conversion right adjustment (43,818) -
--------- --------
254,425 -
========= ========
On November 4, 2003, the Company has issued overseas exchangeable bonds of
JPY 28,245,468,400 with the premium value. The details of the bonds are as
follows:
- Maturity date: November 4, 2008
- Amount to be paid at maturity: JPY 25,935,061,000
- Exchange period: From December 15, 2003 to 10/th/ day prior to its
maturity
- Shares to be exchanged: Common stock held by the Company or its
equivalent Deposit Receipt (DR).
- Exchange price: W30,000 per share
- Put option: Bond holders have the put option that they can request
redemption at JPY 26,834,000,000 on November 6, 2006.
(5) Foreign currency debts, by currency, as of December 31, 2003 and 2002 are
as follows (won in millions):
2003 2002
------------------------------------- --------------------------------------
Foreign currencies Won equivalent Foreign currencies Won equivalent
-------------------- -------------- -------------------- --------------
Long-term borrowings US$ 150,000,000 W 187,851 US$ 301,179,115 W 377,897
- EUR 143,104 180
-------------- --------------
187,851 378,077
-------------- --------------
Debentures US$ 2,902,030,395 3,480,249 US$ 3,980,542,219 4,785,584
JPY 175,060,000,000 1,959,972 JPY 175,060,000,000 1,773,130
EUR 25,183,000 37,839 EUR 25,183,000 31,664
GBP 24,467,000 52,097 GBP 24,467,000 47,099
-------------- --------------
5,530,157 6,637,477
-------------- --------------
Exchangeable bonds JPY 25,935,061,000 277,256 -
-------------- --------------
W 5,995,264 W 7,015,554
============== ==============
(6) Aggregate maturities of the Company's long-term debt as of December 31,
2003 are as follows (won in millions):
Local Foreign
Year ended currency currency Electricity Foreign Exchangeable
December 31 borrowings borrowings bonds debentures bonds Total
--------------- -------------- -------------- -------------- -------------- ------------- ------------
2004 W 715,775 W 187,851 W 2,120,000 W 1,002,750 W - W 4,026,376
2005 819,744 - 240,000 1,277,043 - 2,336,787
2006 1,020,571 - 690,000 348,656 - 2,059,227
2007 576,769 - 185,000 1,242,099 - 2,003,868
2008 356,918 - 880,000 328,287 277,256 1,842,461
Thereafter 15,886 - 120,000 1,331,322 - 1,467,208
-------------- -------------- -------------- -------------- ------------ -------------
W 3,505,663 W 187,851 W 4,235,000 W 5,530,157 W 277,256 W 13,735,927
============== ============== ============== ============== ============ =============
-14-
12. LEASES:
(1) The Company entered into a financial lease agreement with Korea Development
Leasing Corporation for certain computer systems, of which the acquisition
cost is W33,870 million as of December 31, 2003 and 2002, respectively.
Depreciation of the leased assets amounted to W822 million and W10,235
million for the years ended December 31, 2003 and 2002, respectively.
(2) Annual payments under these lease agreements as of December 31, 2003 are as
follows (won in millions):
Amount
----------------------------------
Year ending December 31 Financial lease Operating lease
----------------------- --------------- ---------------
2004 W 4,414 W 1,685
2005 375 -
--------------- --------------
4,789 1,685
Less: Interest (141) -
Current portion (4,276) -
--------------- --------------
W 372 W 1,685
=============== ==============
13. FOREIGN CURRENCY DENOMINATED ASSETS:
There are no significant liabilities denominated in foreign currency other than
those mentioned in Note 11 and significant assets denominated in foreign
currencies as of December 31, 2003 and 2002 are as follows (won in millions):
2003 2002
------------------------------------ --------------------------------
Foreign Equivalent Foreign Equivalent
Account currencies Korean Won currencies Korean Won
----------------------------- -------------------- ------------- ----------------- ------------
Cash and cash equivalents US$ 4,578,195 W 5,484 US$ 16,395,438 W 19,681
Trade receivables US$ 4,959,424 5,940 US$ 3,497,537 4,198
Other account receivables US$ 607,162 727 US$ 644,263 773
Other non-current assets US$ 11,560 14 US$ 11,560 14
" JPY 5,859,783 66 JPY 5,859,783 59
------------- -------------
W 12,231 W 24,725
============= =============
14. SWAP TRANSACTIONS:
The Company entered into various swap contracts to hedge the fluctuation risk of
exchange rate and interest rate of foreign currency debts.
(1) Currency swap contracts as of December 31, 2003 are as follows (foreign
currency in millions):
Contract Settlement Contract amounts in millions Contract interest rate per annum
----------------------------- --------------------------------
year year Pay Receive Pay (%) Receive (%)
-------- --------- -------------- ------------ ---------------- -------------
The Sumitomo Bank Ltd. 1995 2005 US$ 286 JPY 27,000 7.68 4.15
Mizuho Co., Ltd. 1995 2005 6M Libor + 3.40
(former The Fuji Bank, Ltd.) US$ 149 JPY 14,500 0.155
Canadian Imperial Bank of 1996 2006 Libor + 0.13 3.80
Commerce US$ 97 JPY 10,000
J.P. Morgan Chase Bank 1996 2006 US$ 200 JPY 21,000 Libor + 0.14 4.00
Deutsche Bank 1998 2004 JPY 1,705 6.41 7.11
(former Bankers Trust Co.) EUR 13
CHF 20
CAD 20 US$ 55
Deutsche Bank 1998 2004 JPY 2,945 6.36 7.05
(former Bankers Trust Co.) EUR 22
CHF 35
CAD 34 US$ 95
-15-
Contract Settlement Contract amounts in millions Contract interest rate per annum
---------------------------- --------------------------------
year year Pay Receive Pay (%) Receive (%)
-------- ---------- -------------- -------------- --------------- ---------------
J.P. Morgan Chase Bank & 2002 2007 JPY 76,700 US$ 650 1.18 4.25
Deutsche Bank (*)
Barclays Bank PLC, 2002 2007 JPY 30,400 US$ 250 1.04 3M Libor + 0.75
London
Deutsche Bank (**) 2003 2013 KRW178,350 US$ 150 CD+3.3 7.75
Union Bank of Switzerland (**) 2003 2013 KRW148,625 US$ 125 CD+3.3 7.75
Credit Swiss First Boston (**) 2003 2013 KRW 89,175 US$ 125 CD+3.3 7.75
(*) If the Republic of Korea declares default on its debts, KEPCO is to receive
Korean government bonds instead of cash. Valuation for these embedded
derivatives is reflected in the valuation of the currency swap.
(**) The Company has purchased call option in addition to these swaps, under
which the Company can exchange each KRW 5,945,000,000 into the amounts of KRW
5,000,000 multiplied by Spot FX (US$/KRW) until December 22, 2004, and the
valuation for this call option is considered in the valuation of the swaps.
(2) Interest rate swap contracts as of December 31, 2003 are as follows:
Notional amount Contract interest rate per annum
----------------------------------
in millions Pay (%) Receive (%) Term
----------------- ---------------- ---------------- ----------
J.P. Morgan Chase Bank US$ 149 6.91 Libor+0.155 1995-2005
Korea Development Bank US$ 97 6.10 Libor+0.13 1997-2004
Barclays Bank PLC, London US$ 150 6M Libor-1 Libor+0.45 1997-2004
Shinhan Bank US$ 100 6.50 6.75 1997-2004
Deutsche Bank US$ 55 6.93 1998-2004
(formerly Bankers Trust Co.) JPY 1,705 6.41
EUR 13 6.41
CHF 20 6.41
CAD 20 6.41
Deutsche Bank US$ 95 6.87 1998-2004
(formerly Bankers Trust Co.) JPY 2,945 6.36
EUR 22 6.36
CHF 35 6.36
CAD 34 6.36
Deutsche Bank US$ 100 Max(6,074-Libor, Max(Libor-6.074, 1998-2007
(formerly Bankers Trust Co.) 0) 0)
Deutsche Bank US$ 100 Max(Libor-6.074,0) Max(6.074-Libor, 1998-2007
(formerly Bankers Trust Co.) 0)
Deutsche Bank KRW 178,350 5%+2X[JPY/ CD+3.3 2003-2013
KRW-11.03%]
Union Bank of Switzerland KRW 148,625 5%+2X[JPY/ CD+3.3 2003-2013
KRW-11.03%]
Credit Swiss First Boston KRW 89,175 5%+2X[JPY/ CD+3.3 2003-2013
KRW-11.03%]
(3) The gains and losses on swap transactions for the years ended December 31,
2003 and 2002 are as follows (won in millions):
Other income (expense)
------------------------------
2003 2002
--------------- ----------
Currency swap
Gains W 74,689 W 118,168
Losses (121,984) (35,890)
Interest rate swap
Gains 13,975 5,843
Losses (26,369) (24,963)
--------------- -------------
W (59,689) W 63,158
=============== =============
-16-
15. POWER GENERATION, TRANSMISSION AND DISTRIBUTION EXPENSES:
Power generation, transmission and distribution expenses for the years ended
December 31, 2003 and 2002 are as follows (won in millions):
2003 2002
-------------- --------------
Fuel 13,112 9,836
Labor 564,936 508,430
Employee benefits 61,140 52,137
Taxes and dues 16,199 15,708
Rent 21,258 20,010
Depreciation 1,546,209 1,437,953
Maintenance 775,661 778,500
Commission and consultation fees 80,318 52,834
Compensation expense 42,665 63,532
Ordinary development expenses 115,053 93,943
Utility plant removal cost 243,177 255,942
Others 80,785 76,216
-------------- --------------
W 3,560,513 W 3,365,041
============== ==============
16. SELLING AND ADMINISTRATIVE EXPENSES:
Selling and administrative expenses for the years ended December 31, 2003 and
2002 are as follows (won in millions):
2003 2002
----------------- ---------------
Labor W 357,918 W 333,016
Employee benefits 42,150 37,286
Taxes and dues 16,580 15,677
Rent 13,996 16,207
Depreciation 33,457 48,004
Maintenance 25,517 14,924
Commission and consultation fees 73,255 78,470
Ordinary development expenses 16,492 12,788
Collection expense 280,051 253,040
Promotion 19,276 18,881
Bad debts 13,658 14,380
Communication 25,860 27,788
Insurance 12,296 11,701
Rewards 6,807 4,296
Others 54,802 53,559
----------------- ---------------
W 992,115 W 940,017
================= ===============
17. INCOME TAX EXPENSE:
(1) Income tax expense for the years ended December 31, 2003 and 2002 is as
follows (won in millions):
2003 2002
----------------- --------------
Income tax currently payable W 577,751 W 928,844
Changes in deferred income taxes 205,870 339,634
----------------- --------------
Income tax expense W 783,621 W 1,268,478
================= ==============
-17-
(2) Deferred income tax liabilities as of December 31, 2003 and 2002 are as
follows (won in millions).
Accumulated Deferred income
Year temporary differences Tax rate (%) tax liabilities
---- --------------------- ------------ ------------------
2002 W (4,559,354) 29.7, 27.5% W (1,462,016)
2001 W (4,559,354) 29.7 W (1,354,128)
Accumulated temporary differences and deferred income tax liabilities as of
December 31, 2002 were adjusted by W 329,904 million and W 97,982 million,
respectively, according to the 2002 actual tax return and regular tax
investigation by National Tax Service in 2003.
Effectively January 1, 2005, the statutory tax rate including residual
surcharge will be changed from 29.7 percent to 27.5 percent. Enacted future
tax rate of 27.5 percent was applied to calculate the deferred income tax
liabilities of which the tax effect will be realized after 2005.
18. RELATED PARTY TRANSACTIONS:
(1) Transactions with related parties for the years ended December 31, 2003 and
2002 are as follows (won in millions):
Related party Transaction 2003 2002
-------------------------------------------- ---------------------------------- ------------ ----------
Sales and other income:
Korea Hydro & Nuclear Power Co., Ltd. Sales of electricity and others W 92,380 W 138,270
Korea South-East Power Co., Ltd. " 49,124 41,148
Korea Midland Power Co., Ltd. " 26,749 21,734
Korea Western Power Co., Ltd. " 34,025 38,022
Korea Southern Power Co., Ltd. " 18,604 17,788
Korea East-West Power Co., Ltd. " 35,817 42,586
Others " 86,327 72,095
------------ ------------
W 343,026 W 371,643
============ ============
Purchases and others:
Korea Hydro & Nuclear Power Co., Ltd. Purchase of electricity and others W 5,065,317 W 4,636,130
Korea South-East Power Co., Ltd. " 1,454,157 1,449,355
Korea Midland Power Co., Ltd. " 1,781,897 1,598,036
Korea Western Power Co., Ltd. " 2,122,901 2,011,776
Korea Southern Power Co., Ltd. " 2,048,591 1,785,817
Korea East-West Power Co., Ltd. " 1,867,833 1,844,336
Korea Power Engineering Co., Inc. Designing of the power plant and
others 40,396 41,399
Korea Plant Service & Engineering Co., Ltd. Utility plant maintenance 40,251 38,744
Korea Electric Power Data Network Co., Ltd. Maintenance of computer system 203,074 153,301
Others Commissions for service and others 168,552 154,349
------------ ------------
Total W 14,792,969 W 13,713,243
============ ============
-18-
(2) Receivables arising from related parties transactions as of December 31,
2003 and 2002 are as follows (won in millions):
2003 2002
------------------------------------------------ ----------
Other account
Trade receivables
Related party receivables and other Total Total
----------------------------------------- -------------- ------------ -------------- ----------
Korea Hydro & Nuclear Power Co., Ltd. W - W 319 W 319 W 8,020
Korea South-East Power Co., Ltd. 1,778 367 2,145 3,639
Korea Midland Power Co., Ltd. 1,107 2,232 3,339 382
Korea Western Power Co., Ltd. 1,940 248 2,188 3,145
Korea Southern Power Co., Ltd. 1,157 360 1,517 1,647
Korea East-West Power Co., Ltd. 1,978 213 2,191 4,518
Others 1,990 9,607 11,597 10,603
------------- ----------- ------------- -----------
Total W 9,950 W 13,346 W 23,296 W 31,954
============= =========== ============= ===========
(3) Payables arising from related parties transactions as of December 31, 2003
and 2002 are as follows (won in millions):
2003 2002
--------------------------------------------------- -----------
Trade Other accounts
Related party payables payable and other Total Total
-------------------------------------------- ------------- --------------------- ------------ -----------
Korea Hydro & Nuclear Power Co., Ltd. W 379,121 W 1,954 W 381,075 W 368,509
Korea South-East Power Co., Ltd. 117,954 4,411 122,365 124,031
Korea Midland Power Co., Ltd. 145,548 9,387 154,935 168,410
Korea Western Power Co., Ltd. 167,876 140 168,016 176,816
Korea Southern Power Co., Ltd. 179,803 93 179,896 130,181
Korea East-West Power Co., Ltd. 142,776 223 142,999 142,017
Korea Power Engineering Co., Inc. - 5,909 5,909 7,108
Korea Plant Service & Engineering Co., Ltd. - 5,509 5,509 6,845
Korea Electric Power Data Network Co., Ltd. - 56,334 56,334 25,502
Others 4,363 19,619 23,982 22,593
------------- ------------ ------------ ------------
Total W 1,137,441 W 103,579 W 1,241,020 W 1,172,012
============= ============ ============ ============
19. CONTINGENT LIABILTIES:
(1) The Company is engaged in 226 lawsuits as a defendant and 36 lawsuits as a
plaintiff. The total amount claimed from the Company is W88,666 million and
the total amount claimed by the Company is W13,636 million as of December
31, 2003. The outcome of these lawsuits cannot presently be determined.
(2) The Company has provided debt repayment guarantees for its related parties
in connection with the related parties' borrowings as of December 31, 2003
as follows:
Loan type Guaranteed company Financial institutions Amount
--------- ------------------------------------ ---------------------- --------------------
Foreign KEPCO International Hong Kong Ltd. Nippon Life Insurance US$ 82,006,000
currency loan " Norinchukin Bank 35,000,000
" Korea Development Bank 9,272,000
KEPCO International Philippines Inc. Korea Development Bank 45,435,000
--------------------
US$ 171,713,000
====================
(3) KEPCO Ilijan Corporation, which is the subsidiary of KEPCO International
Philippines Inc., is engaged in the power generation business in the
Philippines and borrowed US$ 393,458,586 as project financing from Japan
Bank of International Cooperation and others for that business. The Company
has provided Japan Bank of International Cooperation and others with the
guarantees for performance of the power generation business of KEPCO Ilijan
Corporation as well as with the partial guarantees for the repayment of
that borrowing.
-19-
(4) The Company's debts of W17,646,157 million, including borrowings of
W13,825,884 million, were transferred to the power generation subsidiaries
at the time of spin-off. The Company has the collective responsibility
together with the subsidiaries to repay those debts, which were transferred
and outstanding, under the Commercial Code of the Republic of Korea. The
balance of debts subject to those collective responsibilities as of
December 31, 2003 is W4,652,007 million. (including the Company's
borrowings of W1,203,052 million).
(5) Korea Development Bank has provided the repayment guarantees of
US$151,263,250 for the Company's commercial borrowings. In addition, Korea
Development Bank has also provided the repayment guarantee for some of
foreign currency debentures of the Company, which existed at the time of
spin-off, but not redeemed as of December 31, 2003, instead of the
collective responsibilities of the power generation subsidiaries to
facilitate the Restructuring Plan. Guarantee amounts by currency are as
follows.
USD JPY EUR GBP
------------- -------------- ---------- ----------
Guaranteed amounts 2,234,611,791 44,126,200,000 26,634,989 32,785,780
(including interest)
(6) Five banks including the National Agricultural Cooperative Federation has
provided the Company a credit (overdraft) line amounting to W245,000
million as of December 31, 2003.
(7) The Company entered into a turnkey contract with the Korea Peninsula Energy
Development Organization (KEDO) on December 15, 1999, to construct two
1,000,000 KW-class pressurized light-water reactor units in North Korea.
The contract amount is US$ 4,182 million and subject to adjustment to cover
any changes in the price level. As of December 31, 2003, the construction
projects are temporarily suspended due to the political environments
surrounding the Korean peninsula.
(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 W1,055,081 million and W 1,140,810 million for the
years ended December 31, 2003 and 2002, respectively.
20. STATEMENTS OF CASH FLOWS:
Cash flows from operating activities were presented using the indirect method.
Transactions not involving cash flows for the years ended December 31, 2003 and
2002 are as follows (won in millions):
2003 2002
----------- ------------
Reclassification of long term loans to short-term loans 9,272 8,618
Reclassification of construction in-progress to utility plant 3,257,619 4,100,723
Reclassification of current portion of debentures 3,122,750 1,632,145
Reclassification of current portion of long term debt 906,341 811,349
21. FINANCIAL INFORMATION FOR THE 4/TH/ QUARTER:
Major financial information for the 4/th/ quarter of 2003 and 2002 are as
follows (won in millions except earnings per share amounts):
2003 2002
----------- ------------
Sales W 5,571,580 W 5,334,597
Net income 26,882 459,262
Earnings Per Share 43 719
-20-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KOREA ELECTRIC POWER CORPORATION
By: /s/ Lee, Do-Shik
--------------------------------
Name: Lee, Do-Shik
Title: Head of Treasury Department
Date: March 23, 2004