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 2007
KOREA ELECTRIC POWER CORPORATION
(Translation of registrants 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, 2006 and 2007
Korea Electric Power Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 2006 and June 30, 2007
(Unaudited)
(In millions of Korean Won and in thousands of U.S. dollars)
Won | U.S. Dollars (note 2) | |||||||||||||
Assets |
2006 | 2007 | 2006 | 2007 | ||||||||||
Property, Plant and Equipment (notes 3 and 5): |
||||||||||||||
Utility plant |
(Won) | 95,803,562 | 98,122,521 | $ | 103,840,843 | 106,354,347 | ||||||||
Less: accumulated depreciation |
(34,839,815 | ) | (37,525,875 | ) | (37,762,643 | ) | (40,674,046 | ) | ||||||
Less: construction grants |
(4,090,157 | ) | (4,352,389 | ) | (4,433,294 | ) | (4,717,525 | ) | ||||||
56,873,590 | 56,244,257 | 61,644,906 | 60,962,776 | |||||||||||
Construction in-progress |
8,393,339 | 9,892,807 | 9,097,484 | 10,722,748 | ||||||||||
Less: construction grants |
| (33 | ) | | (36 | ) | ||||||||
65,266,929 | 66,137,031 | 70,742,390 | 71,685,488 | |||||||||||
Investments and others: |
||||||||||||||
Long-term investment securities (note 6) |
1,730,270 | 1,780,175 | 1,875,428 | 1,929,520 | ||||||||||
Long-term loans (notes 7 and 19) |
391,172 | 407,988 | 423,989 | 442,215 | ||||||||||
Derivatives (note 21) |
2,248 | 634 | 2,436 | 687 | ||||||||||
Intangibles, net (note 4) |
854,283 | 816,124 | 925,952 | 884,591 | ||||||||||
Non-current deferred income tax assets |
||||||||||||||
Other non-current assets (notes 8 and 16) |
399,259 | 449,320 | 432,754 | 487,015 | ||||||||||
3,377,232 | 3,454,241 | 3,660,559 | 3,744,029 | |||||||||||
Current assets: |
||||||||||||||
Cash and cash equivalents (note 16) |
1,845,892 | 1,539,446 | 2,000,751 | 1,668,595 | ||||||||||
Trade receivables, less allowance for doubtful accounts of (Won) 50,173 in 2006 and (Won) 47,033 in 2007 (notes 16 and 26) |
2,396,648 | 2,221,222 | 2,597,711 | 2,407,568 | ||||||||||
Other account receivables, less allowance for doubtful accounts of (Won) 9,871 in 2006 and (Won) 11,597 in 2007 (notes 16 and 26) |
359,372 | 269,377 | 389,521 | 291,976 | ||||||||||
Short-term investment securities (note 6) |
15,239 | 26 | 16,517 | 28 | ||||||||||
Short-term financial instruments (note 16) |
1,163,613 | 1,520,333 | 1,261,232 | 1,647,879 | ||||||||||
Inventories (notes 5 and 9) |
2,098,976 | 2,318,248 | 2,275,066 | 2,512,734 | ||||||||||
Derivatives (note 21) |
479,879 | 555.374 | 520,138 | 600,882 | ||||||||||
Current deferred income tax assets |
230,376 | 178,215 | 249,703 | 193,166 | ||||||||||
Other current assets (notes 7, 10 and 16) |
201,330 | 256,580 | 218,220 | 278,105 | ||||||||||
8,791,325 | 8,857,821 | 9,528,859 | 9,600,933 | |||||||||||
Total assets |
(Won) | 77,435,486 | 78,449,093 | $ | 83.931,808 | 85,030,450 | ||||||||
(Continued)
Korea Electric Power Corporation and Subsidiaries
Consolidated Balance Sheets, Continued
December 31, 2006 and June 30, 2007
(Unaudited)
(In millions of Korean Won and in thousands of U.S. dollars, except share data)
Won | U.S. Dollars (note 2) | |||||||||||||
Liabilities and Shareholders Equity |
2006 | 2007 | 2006 | 2007 | ||||||||||
Stockholders equity: |
||||||||||||||
Common stock of (Won) 5,000 par value Authorized - 1,200,000,000 shares Issued and outstanding - 641,567,712 shares |
(Won) | 3,207,839 | 3,207,839 | $ | 3,476,955 | 3,476,955 | ||||||||
Capital surplus (note 11) |
14,517,143 | 14,514,307 | 15,735,035 | 15,731,961 | ||||||||||
Retained earnings (note 12) |
26,118,850 | 26,413,839 | 28,310,048 | 28,629,784 | ||||||||||
Capital adjustments (note 13); Treasury stock |
(796,980 | ) | (791,104 | ) | (863,841 | ) | (857,476 | ) | ||||||
Accumulated other comprehensive income (note 13) |
37,895 | 56,658 | 41,074 | 61,411 | ||||||||||
Minority interest in consolidated Subsidiaries |
150,740 | 154,028 | 163,386 | 166,950 | ||||||||||
Total shareholders equity |
43,235,487 | 43,555,567 | 46,862,657 | 47,209,585 | ||||||||||
Long-term liabilities: |
||||||||||||||
Long-term borrowings (notes 15 and 26) |
15,427,624 | 14,359,120 | 16,721,899 | 15,563,755 | ||||||||||
Reserve for retirement and severance benefits, net (note 17) |
1,184,249 | 1,247,970 | 1,283,600 | 1,352,666 | ||||||||||
Liability for decommissioning cost (note 18) |
7,543,491 | 7,849,745 | 8,176,340 | 8,508,286 | ||||||||||
Reserve for self-insurance |
103,942 | 103,298 | 112,662 | 111,964 | ||||||||||
Derivatives (note 21) |
252,523 | 249,722 | 273,708 | 270,672 | ||||||||||
Non-current deferred income tax liabilities |
547,672 | 546,604 | 593,618 | 592,460 | ||||||||||
Other long-term liabilities (note 28) |
519,821 | 417,000 | 563,430 | 451,984 | ||||||||||
25,579,322 | 24,773,459 | 27,725,257 | 26,851,787 | |||||||||||
Current liabilities: |
||||||||||||||
Trade payables (notes 16 and 26) |
1,172,000 | 1,034,029 | 1,270,323 | 1,120,777 | ||||||||||
Other accounts payable (notes 16 and 26) |
874,759 | 592,468 | 948,145 | 596,268 | ||||||||||
Short-term borrowings (notes 14 and 26) |
476,720 | 558,136 | 516,714 | 604,960 | ||||||||||
Current portion of long-term debt (note 15) |
4,221,171 | 5,674,291 | 4,575,299 | 6,196,230 | ||||||||||
Income tax payable |
881,855 | 1,134,575 | 955,837 | 1,229,758 | ||||||||||
Accrued expenses (note 16) |
293,484 | 293,097 | 318,105 | 317,686 | ||||||||||
Dividends payable |
3,075 | 2,651 | 3,333 | 2,873 | ||||||||||
Derivatives (note 21) |
6,738 | 112,188 | 7,303 | | ||||||||||
Other current liabilities (notes 16 and 20) |
690,875 | 718,632 | 748,835 | 900,520 | ||||||||||
8,620,677 | 10,120,067 | 9,343,894 | 10,969,072 | |||||||||||
Total liabilities |
34,199,999 | 34,893,526 | 37,069,151 | 37,820,859 | ||||||||||
Commitments and contingencies (note 28) |
| | | | ||||||||||
Total shareholders equity and liabilities |
(Won) | 77,435,486 | 78,449,093 | $ | 83.931,808 | 85,030,444 | ||||||||
See accompanying notes to consolidated financial statements.
Korea Electric Power Corporation and Subsidiaries
Consolidated Statements of Income
For the six-month periods ended June 30, 2006 and 2007
(Unaudited)
(In millions of Korean Won and in thousands of U.S. dollars, except earnings per share)
Won | U.S. Dollars (note 2) | |||||||||||||
2006 | 2007 | 2006 | 2007 | |||||||||||
Operating revenues: |
||||||||||||||
Sale of electricity (note 26) |
(Won) | 12,718,586 | 13,482,856 | $ | 13,785,591 | 14,613,978 | ||||||||
Other operating revenues |
277,906 | 309,225 | 301,220 | 335,167 | ||||||||||
12,996,492 | 13,792,081 | 14,086,811 | 14,949,145 | |||||||||||
Operating expenses (notes 22, 23 and 26): |
||||||||||||||
Power generation, transmission and distribution |
10,616,248 | 11,275,718 | 11,506,881 | 12,221,676 | ||||||||||
Other operating costs |
142,411 | 195,654 | 154,358 | 212,068 | ||||||||||
Selling and administrative expenses |
732,331 | 701,261 | 793,769 | 760,092 | ||||||||||
11,490,990 | 12,172,633 | 12,455,008 | 13,193,836 | |||||||||||
Operating income |
1,505,502 | 1,619,448 | 1,631,804 | 1,755,309 | ||||||||||
Other income (expense): |
||||||||||||||
Interest income |
66,555 | 88,525 | 72,138 | 95,952 | ||||||||||
Interest expense |
(360,171 | ) | (345,562 | ) | (390,387 | ) | (374,552 | ) | ||||||
Gain (loss) on foreign currency transactions and translation, net |
246,295 | 10,804 | 266,958 | 11,710 | ||||||||||
Donations (note 30) |
(8,637 | ) | (61,223 | ) | (9,362 | ) | (66,359 | ) | ||||||
Equity income of affiliates, net (note 6) |
64,973 | 80,140 | 70,424 | 86,863 | ||||||||||
Gain (loss) on disposal of utility plant, net |
(1,655 | ) | 9,535 | (1,794 | ) | 10,335 | ||||||||
Valuation gain on currency and interest rate swaps, net (note 21) |
(145,985 | ) | (30,904 | ) | (158,232 | ) | (33,497 | ) | ||||||
Other, net |
92,701 | 142,872 | 100,478 | 154,858 | ||||||||||
(45,924 | ) | (105,813 | ) | (49,777 | ) | (114,690 | ) | |||||||
Ordinary income |
1,459,578 | 1,513,635 | 1,582,027 | 1,640,619 | ||||||||||
Income tax expense (note 24) |
(509,240 | ) | (580,493 | ) | (551,962 | ) | (629,192 | ) | ||||||
Income before minority interest |
950,338 | 933,142 | 1,030,065 | 1,011,427 | ||||||||||
Minority interest in earnings of consolidated subsidiaries |
(11,802 | ) | (17,072 | ) | (12,792 | ) | (18,504 | ) | ||||||
Net income |
(Won) | 938,536 | 916,070 | $ | 1,017,273 | 992,922 | ||||||||
Basic earnings per share (note 25) |
(Won) | 1,473 | 1,474 | $ | 1.60 | 1.60 | ||||||||
Diluted earnings per share (note 25) |
(Won) | 1,466 | 1,446 | $ | 1.59 | 1.57 | ||||||||
See accompanying notes to consolidated financial statements.
Korea Electric Power Corporation and Subsidiaries
Consolidated Statements of Stockholders Equity
For the six-month periods ended June 30, 2006 and 2007
(Unaudited)
(In millions of Korean Won and in thousands of U.S. dollars)
Won | |||||||||||||||||||||
Common stock |
Capital surplus |
Retained earnings |
Capital adjustments |
Accumulated Other Comprehensive income |
Minority interest |
Total | |||||||||||||||
Balances at January 1, 2006 |
(Won) | 3,207,839 | 14,421,065 | 24,626,421 | (118,293 | ) | 53,556 | 147,062 | 42,337,650 | ||||||||||||
Net income |
| | 938,535 | | | | 938,535 | ||||||||||||||
Dividends declared |
| | (731,535 | ) | | | | (731,535 | ) | ||||||||||||
Issuance of common stock for convertible bond |
| 3,870 | | | | | 3,869 | ||||||||||||||
Gain on disposal of treasury stock, net of tax |
| 7,072 | | | | | 7,072 | ||||||||||||||
Change in retained earnings of subsidiaries |
| | (1,648 | ) | | | | (1,648 | ) | ||||||||||||
Changes in treasury stock |
| | | 13,742 | | | 13,742 | ||||||||||||||
Changes in unrealized losses on available-for-sale securities |
| | | | (574 | ) | | (574 | ) | ||||||||||||
Changes in unrealized losses on investments in affiliates |
| | | | 2,186 | | 2,186 | ||||||||||||||
Changes in translation Adjustments of foreign subsidiaries |
| | | | (17,542 | ) | | (17,542 | ) | ||||||||||||
Changes in losses on valuation of derivatives |
| | | | (33,766 | ) | | (33,766 | ) | ||||||||||||
Changes in minority interests |
| | | | (1,220 | ) | (1,220 | ) | |||||||||||||
Other |
| (55 | ) | 52 | | | | (3 | ) | ||||||||||||
Balances at June 30, 2006 |
(Won) | 3,207,839 | 14,431,952 | 24,831,825 | (104,551 | ) | 3,861 | 145,842 | 42,516,767 | ||||||||||||
Balances at January 1, 2007 |
(Won) | 3,207,839 | 14,517,143 | 26,118,850 | (796,980 | ) | 37,895 | 150,740 | 43,235,487 | ||||||||||||
Net income |
| | 916,070 | | | | 916,070 | ||||||||||||||
Dividends declared |
| | (621,081 | ) | | | | (621,081 | ) | ||||||||||||
Issuance of common stock for convertible bond |
| (9,903 | ) | | | | | (9,903 | ) | ||||||||||||
Gain on disposal of treasury stock, net of tax |
19,809 | | | | | 19,809 | |||||||||||||||
Changes in treasury stock |
| | | 5,876 | 5,876 | ||||||||||||||||
Changes in unrealized losses on available-for-sale securities |
| | | 4,408 | | 4,408 | |||||||||||||||
Changes in unrealized losses on investments in affiliates |
| | | 1,461 | | 1,461 | |||||||||||||||
Changes in translation Adjustments of foreign subsidiaries |
| | | | 8,959 | | 8,959 | ||||||||||||||
Changes in losses on valuation of derivatives |
| | | | 3,937 | | 3,937 | ||||||||||||||
Changes in minority interests |
| | | | | 3,288 | 3,288 | ||||||||||||||
Other |
| (12,742 | ) | | | | (12,742 | ) | |||||||||||||
Balances at June 30, 2007 |
(Won) | 3,207,839 | 14,514,307 | 26,413,839 | (791,104 | ) | 56,660 | 154,028 | 43,555,569 | ||||||||||||
U.S. dollars (note 2) |
$ | 3,476,955 | 15,731,961 | 28,629,784 | (857,472 | ) | 61,413 | 166,950 | 47,209,591 | ||||||||||||
See accompanying notes to consolidated financial statements.
Korea Electric Power Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the six-month periods ended June 30, 2006 and 2007
(Unaudited)
(In millions of Korean Won and in thousands of U.S. dollars)
Won | U.S. Dollars (note 2) | |||||||||||||
2006 | 2007 | 2006 | 2007 | |||||||||||
Cash flows from operating activities: |
||||||||||||||
Net income |
(Won) | 938,536 | 916,070 | $ | 1,017,273 | 992,922 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||||
Depreciation and amortization |
2,769,671 | 2,744,132 | 3,002,028 | 2,974,346 | ||||||||||
Amortization of nuclear fuel and heavy water |
41,549 | 40,980 | 45,035 | 44,418 | ||||||||||
Utility plant removal cost |
91,898 | 121,129 | 99,608 | 131,291 | ||||||||||
Provision for severance and retirement benefits |
105,445 | 89,649 | 114,291 | 97,170 | ||||||||||
Provision for decommissioning costs |
162,498 | 174,763 | 176,131 | 189,424 | ||||||||||
Bad debt expense |
15,287 | 6,991 | 16,569 | 7,577 | ||||||||||
Interest expense, net |
12,158 | 22,343 | 13,178 | 24,217 | ||||||||||
Gain on foreign currency translation, net |
(216,914 | ) | (14,297 | ) | (235,112 | ) | (15,496 | ) | ||||||
Equity income of affiliates, net |
(64,973 | ) | (80,139 | ) | (70,424 | ) | (86,862 | ) | ||||||
Gain (loss) on disposal of utility plant, net |
1,655 | (6,713 | ) | 1,794 | (7,276 | ) | ||||||||
Deferred income tax expense (benefit), net |
(87,360 | ) | 171,644 | (94,689 | ) | 186,044 | ||||||||
Valuation loss (gain) on currency and interest rate swaps |
145,985 | (30,903 | ) | 158,232 | (33,496 | ) | ||||||||
Changes in assets and liabilities: |
||||||||||||||
Decrease in trade receivables |
368,449 | 325,345 | 399,359 | 352,640 | ||||||||||
Decrease in other accounts receivable |
73,844 | 267,373 | 80,039 | 289,804 | ||||||||||
Increase in inventories |
(255,700 | ) | (427,286 | ) | (277,152 | ) | (463,132 | ) | ||||||
Increase in other current assets |
(219,543 | ) | (75,686 | ) | (237,961 | ) | (82,036 | ) | ||||||
Decrease in trade payables |
(491,996 | ) | (141,969 | ) | (533,271 | ) | (153,879 | ) | ||||||
Decrease in other accounts payable |
(525,027 | ) | (516,009 | ) | (569,073 | ) | (559,299 | ) | ||||||
Increase in income tax payable |
26,213 | 237,844 | 28,412 | 257,798 | ||||||||||
Decrease in accrued expenses |
10,473 | 1,934 | 11,352 | 2,096 | ||||||||||
Decrease in other current liabilities |
(3,315 | ) | (37,610 | ) | (3,593 | ) | (40,765 | ) | ||||||
Decrease in other long-term liabilities |
(7,385 | ) | (18,977 | ) | (8,005 | ) | (20,569 | ) | ||||||
Payment of severance and retirement benefits |
(17,895 | ) | (29,942 | ) | (19,396 | ) | (32,454 | ) | ||||||
Payment of decommissioning costs |
(6,222 | ) | (2,632 | ) | (6,744 | ) | (2,853 | ) | ||||||
Payment of self-insurance |
(895 | ) | (644 | ) | (970 | ) | (698 | ) | ||||||
Other, net |
79,237 | (33,132 | ) | 85,884 | (35,912 | ) | ||||||||
Net cash provided by operating activities |
2,945,673 | 3,704,258 | 3,192,795 | 4,015,020 | ||||||||||
(Continued)
Korea Electric Power Corporation and Subsidiaries
Consolidated Statements of Cash Flows, Continued
For the six-month periods ended June 30, 2006 and 2007
(Unaudited)
(In millions of Korean Won and in thousands of U.S. dollars)
Won | U.S. Dollars (note 2) | ||||||||||||
2006 | 2007 | 2006 | 2007 | ||||||||||
Cash flows from investing activities: |
|||||||||||||
Proceeds from disposal of utility plant |
(Won) | 19,531 | 16,707 | 21,170 | 18,109 | ||||||||
Additions to utility plant |
(3,023,869 | ) | (3,861,031 | ) | (3,277,551 | ) | (4,184,946 | ) | |||||
Receipt of construction grants |
401,166 | 460,428 | 434,821 | 499,055 | |||||||||
Proceeds from disposal of investment securities, |
50,808 | 64,694 | 55,070 | 70,121 | |||||||||
Acquisition of investment securities |
(46,058 | ) | (415 | ) | (49,922 | ) | (450 | ) | |||||
Decrease in long-term loans |
(44,270 | ) | 22,676 | (47,984 | ) | 24,578 | |||||||
Acquisition of intangibles |
(28,140 | ) | (61,756 | ) | (30,501 | ) | (66,937 | ) | |||||
Decrease (increase) in other non-current assets |
3,335 | (21,017 | ) | 3,615 | (22,780 | ) | |||||||
Acquisition of financial instruments, net |
(146,695 | ) | (356,704 | ) | (159,002 | ) | (386,629 | ) | |||||
Decrease in short-term loans, net |
7,548 | 42,501 | 8,181 | 46,067 | |||||||||
Net cash used in investing activities |
(2,806,644 | ) | (3,693,917 | ) | (3,042,103 | ) | (4,003,812 | ) | |||||
Cash flows from financing activities: |
|||||||||||||
Proceeds from long-term debt |
2,751,721 | 2,255,655 | 2,982,572 | 2,444,889 | |||||||||
Repayment of long-term debt |
(114,631 | ) | (179,852 | ) | (124,248 | ) | (194,940 | ) | |||||
Repayment of current portion of long-term debt |
(1,507,241 | ) | (1,774,338 | ) | (1,633,688 | ) | (1,923,193 | ) | |||||
Proceeds from short-term borrowings, net |
305,687 | 81,489 | 331,332 | 88,325 | |||||||||
Dividends paid |
(739,146 | ) | (635,249 | ) | (801,155 | ) | (688,542 | ) | |||||
Other, net |
10,473 | (70,255 | ) | 11,352 | (76,149 | ) | |||||||
Net cash used in financing activities |
706,863 | (322,550 | ) | 766,164 | (349,610 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents |
(7,288 | ) | 5,763 | (7,899 | ) | 6,246 | |||||||
Net decrease in cash and cash equivalents |
838,604 | (306,446 | ) | 908,957 | (332,155 | ) | |||||||
Cash and cash equivalents, at beginning of the period |
1,399,031 | 1,845,892 | 1,516,400 | 2,000,750 | |||||||||
Cash and cash equivalents, at end of the period |
2,237,635 | 1,539,446 | 2,425,358 | 1,668,595 | |||||||||
See accompanying notes to consolidated financial statements.
Korea Electric Power Corporation
Notes to Consolidated Financial Statements
June 30, 2006 and 2007
(Unaudited)
(1) | Summary of Significant Accounting Policies and Basis of Presenting Consolidated Financial Statements |
(a) | Description of Business |
Korea Electric Power Corporation (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 in the Republic of Korea. KEPCO was given a status of government-invested enterprise on December 31, 1983 following the enactment of the Government-Invested Enterprise Management Basic Act. KEPCOs 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.
The Korea Electric Power Corporation Act, or the KEPCO Act, requires that the Government, directly, or pursuant to The Korea Development Bank Act, through Korea Development Bank (KDB), which is wholly owned by the Korean Government, own at least 51% of KEPCOs issued common stock. As of June 30, 2006, the Government of the Republic of Korea, Korea Development Bank and foreign investors hold 21.12%, 29.95% and 30.04%, respectively, of KEPCOs shares.
KEPCO divided its generation business unit into 6 subsidiaries on April 2,2001 in accordance with the Plan for Restructuring the Electricity Industry announced by the Ministry of Commerce, Energy and Industry on January 21, 1999, and established an Sub Business Unit system in order to enhance internal competence on September 25, 2006.
(b) | Basis of Presenting Consolidated Financial Statements |
KEPCO maintains its accounting records in Korean Won and prepares the 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, the accounting principles generally accepted in the Republic of Korea (collectively Korean GAAP). Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these consolidated financial statements are intended for use only by those who are informed about Korean accounting principles and practices, KEPCO Act and Accounting Regulations for Government Invested Enterprises. The accompanying consolidated financial statements have been condensed, restructured and translated into English (with certain expanded descriptions) from the Korean language consolidated financial statements. Certain information included in the Korean language consolidated financial statements, but not required for a fair presentation of the Companys financial position, results of operations or cash flows, is not presented in the accompanying consolidated financial statements.
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
In 2006, the Company additionally adopted Statements of Korea Accounting Standards (SKAS) No. 20 Related Party Disclosure, which is effective from January 1, 2006
The consolidated financial statements include the accounts of KEPCO and its controlled subsidiaries (collectively referred to as the Company). Controlled subsidiaries include (i) majority-owned entities of either the Company or controlled subsidiaries and (ii) other entities where the Company or any of its controlled subsidiary owns more than 30% of total outstanding common stock and is the largest shareholder.
For investments in companies, whether or not publicly held, that are not controlled, but under the Companys significant influence, the Company utilizes the equity method of accounting. Significant influence is generally deemed to exist if the Company can exercise influence over the operating and financial policies of an investee. The ability to exercise that influence may be indicated in several ways, such as the Companys representation on its board of directors, the Companys participation in its policy making processes, material transactions with the investee, interchange of managerial personnel, or technological dependency. Also, if the Company owns directly or indirectly 20% or more of the voting stock of an investee and the investee is not required to be consolidated, the Company generally presumes that the investee is under significant influence.
All intercompany balances including trade receivables and trade payables are eliminated in consolidation. 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 statement of income. For upstream sales, the elimination is allocated proportionately to consolidated income and minority interests.
i) The Companys ownership percentages of the companies which were consolidated at December 31, 2006 and June 30, 2007 are summarized as follows:
Year of Establishment |
Ownership percentage(%) |
|||||||
Subsidiaries |
2006 | 2007 | Primary business | |||||
Korea Hydro & Nuclear Power Co., Ltd. | 2001 | 100.0 | 100.0 | Power generation | ||||
Korea South-East Power Co., Ltd. (*1) | 2001 | 100.0 | 100.0 | Power generation | ||||
Korea Midland Power Co., Ltd. | 2001 | 100.0 | 100.0 | Power generation | ||||
Korea Western Power Co., Ltd. | 2001 | 100.0 | 100.0 | Power generation | ||||
Korea Southern Power Co., Ltd. | 2001 | 100.0 | 100.0 | Power generation | ||||
Korea East-West Power Co., Ltd. | 2001 | 100.0 | 100.0 | Power generation | ||||
Korea Power Engineering Co., Ltd. | 1977 | 97.9 | 97.9 | Engineering for utility plant | ||||
Korea Plant Services & Engineering Co., Ltd. | 1984 | 100.0 | 100.0 | Utility plant maintenance | ||||
KEPCO Nuclear Fuel Co., Ltd. | 1982 | 96.4 | 96.4 | Nuclear fuel | ||||
Korea Electric Power Data Network Co., Ltd. | 1992 | 100.0 | 100.0 | Information services | ||||
KEPCO International Hong Kong Ltd. | 1995 | 100.0 | 100.0 | Holding Company | ||||
KEPCO International Philippines Inc. | 2000 | 100.0 | 100.0 | Holding Company | ||||
KEPCO China International Ltd. | 2004 | 100.0 | 100.0 | Holding Company | ||||
KEPCO Gansu International Ltd. | 2005 | 100.0 | 100.0 | Holding Company | ||||
KEPCO Philippines Holdings Inc. | 2005 | 100.0 | 100.0 | Holding Company | ||||
KEPCO Asia International Ltd. | 2005 | 85.0 | 85.0 | Holding Company |
2
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
Year of establishment |
Ownership percentage(%) |
|||||||
Subsidiaries |
2006 | 2007 | Primary business | |||||
KEPCO Philippines Corporation (*2) |
1995 | 100.0 | 100.0 | Utility plant rehabilitation and operation (Subsidiary of KEPCO International Hong Kong Ltd.) | ||||
KEPCO Ilijan Corporation (*2) |
1997 | 51.0 | 51.0 | Construction and operation of utility plant (Subsidiary of KEPCO International Philippines Inc.) | ||||
Jiaozuo KEPCO Power Company Ltd. |
2004 | 77.0 | 77.0 | Construction and operation of utility plant (Subsidiary of KEPCO China International Ltd.) | ||||
KEPCO Salcon Power Corporation |
2005 | 60.0 | 60.0 | Construction and operation of utility plant (Subsidiary of KEPCO Philippines Corporation) | ||||
KEPCO Lebanon SARL |
2006 | 100.0 | 100.0 | Operation of utility plant | ||||
KEPCO Neimenggu international Ltd. |
2006 | 100.0 | 100.0 | Holding Company |
(*1) | Korea South-east Power Co., Ltd was designated as a primary in July 2002 according to Privatization process of Electronic Industry Restructuring Plan at Ministry of Commerce, Industry and Energy. As a way of Privatization, some of shareholders equity is scheduled to be issued in the public market. For this, as a primary party, Woori Investment Securities Co.,, Daewoo Investment Securities, Co., and Hyundai Securities Co. consisted a Consortium, and conducted an amendment of the companys articles and 100% free issue of new shares in October 2003. Also the company will decide the most appropriate listing timing considering conditions of Stock market in the future. |
(*2) | KEPCO Philippines Co, & KEPCO Ilijan Co, transfers their Power Utilities to National Power Corporation according to the contract with National Power Corporation in Philippines from September 15, 1995 and June 5, 2002 after using 15 years and 20 years respectively. |
3
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
ii) | The Companys ownership percentages of affiliated companies which were accounted for by the equity method at December 31, 2006 and June 30, 2007 are summarized as follows: |
Subsidiaries |
Year of establishment |
percentage(%) | Primary business | |||||
2006 | 2007 | |||||||
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 | ||||
Power-com Corporation |
2000 | 43.1 | 43.1 | Communication line leasing | ||||
Korea Electric Power Industrial Development Co., Ltd. |
1990 | 49.0 | 49.0 | Disposal of power-plant ash and electric meter reading | ||||
YTN |
1993 | 21.4 | 21.4 | Broadcasting | ||||
Gansu Datang Yumen Wind Power Co., Ltd. (*1) |
2005 | 40.0 | 40.0 | Construction and operation of utility plant | ||||
Salcon Power Corporation(*2) |
1994 | 40.0 | 40.0 | Construction and operation of utility plant | ||||
Datang Chifang Renewable Co., Ltd(*3) |
2006 | 40.0 | 40.0 | Construction and operation of utility plant |
(*1) | KEPCO Gansu International Ltd. owns 40.0% of the shares of Gansu Datang Yumen Wind Power Co., Ltd. |
(*2) | KEPCO Philippines Holdings Inc. owns 40.0% of the shares of Salcon Power Corporation |
(*3) | KEPCO Neimenggu international Ltd. owns 40.0% of the shares of Datang Chifang Renewable Co., Ltd |
(c) | Property, Plant and Equipment |
Property, plant and equipment are stated at cost, except in the case of revaluation made in accordance with the KEPCO Act and the Assets Revaluation Law of Korea. Significant additions or improvements extending useful lives of assets are capitalized. However, normal maintenance and repairs are charged to expense as incurred.
The Company capitalizes interest cost and other financial charges on borrowing associated with the manufacture, purchase, or construction of property, plant and equipment, incurred prior to completing the acquisition, as part of the cost of such assets. The calculation of capitalized interest includes exchange differences arising from foreign borrowings to the extent that they are regarded as an adjustment to interest costs, which is limited to the extent of interest cost calculated by the weighted average interest rate of local currency borrowings. For the six-month periods ended June 30, 2006 and 2007, the amounts of capitalized interest were (Won)101,513 million and (Won)136,982 million, respectively.
Depreciation is computed by the declining-balance method (straight-line method for buildings, structures, loaded heavy water and capitalized asset retirement cost of nuclear power plants and unit-of-production method for loaded nuclear fuel and capitalized asset retirement costs of low and intermediate level wastes) using rates based on the estimated useful lives described in the Korean Corporate Income Tax Law and as permitted under the Accounting Regulations for Government Invested Enterprises (which approximates the economic useful lives of assets) as follows:
4
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
Estimated useful life | ||
Buildings |
8 ~ 40 | |
Structures |
8 ~ 30 | |
Machinery |
5 ~ 16 | |
Vehicles |
4 ~ 5 | |
Loaded heavy water (inclued in nuclear fuel) |
30 | |
Loaded nuclear fuel |
| |
Capitalized asset retirement cost of nuclear power plant |
30 ~ 40 | |
Capitalized asset retirement costs of low & intermediate level wastes |
| |
Others |
4 ~ 9 |
Effective January 1, 2003, the Company adopted SKAS No. 5 Tangible Assets. Under this standard, the Company recorded the fair value of the liabilities for decommissioning costs as a liability in the period in which the Company incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. This standard was applicable to any new plants from January 1, 2003. However, this standard did not have any impact on the 2003 financial statements because there were no new utility plants in 2003.
As it relates to decommissioning costs, all existing plants as of December 31, 2003 were accounted for under the previous method (note 1(q)). However, as described in note 1(q), in 2004, the Company adopted SKAS No. 17 and retrospectively adjusted the liability for decommissioning costs at the estimated fair value using discounted cash flows to settle the asset retirement obligations of dismantlement of the nuclear power plants, spent fuel and radioactive waste. In addition, the corresponding asset (calculated at the net book value amount as of January 1, 2004) related to all existing plants was recognized as a utility asset. The Company subsequently depreciates the capitalized asset retirement costs using the straight-line (dismantling costs) and units-of-production depreciation method (spent fuel and radioactive wastes). The impact of adopting SKAS No. 17 is disclosed in note 18.
Changes in capitalized asset retirement costs for the six-month period ended June 30, 2007 are as follows :
Book value as of January 1, 2007 |
Adjustment of book value |
Incurred | Book value as of June 30, 2007 |
|||||||||
Capitalized asset retirement costs of nuclear power plant |
(Won) | 2,159,839 | | | 2,159,839 | |||||||
Accumulated depreciation |
(757,077 | ) | | (29,498 | ) | (786,575 | ) | |||||
Capitalized asset retirement |
||||||||||||
Costs of low & intermediate level wastes |
1,963,323 | | 103,706 | 2,067,029 | ||||||||
Accumulated depreciation |
(1,709,249 | ) | | (81,272 | ) | (1,790,521 | ) | |||||
(Won) | 1,656,836 | | (7,064 | ) | 1,649,772 | |||||||
5
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
KEPCO records the following funds and materials, which relate to the construction of transmission and distribution facilities as construction grants:
| Grants from the government or public institutions |
| Funds, construction materials or other items contributed by customers |
When the Company receives grants which relate to the construction of transmission and distribution facilities, such amounts 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. KEPCO received (Won)399,255 million and (Won)470,568 million of construction grants, and offset (Won)93,189 million and (Won)171,763 million against depreciation expense, and (Won)29,385 million and (Won) 56,403 million against utility plant removal cost for the six-month periods ended June 30, 2006 and 2007, respectively.
(d) | Asset Impairment |
When the book value exceeds the estimated recoverable value of an asset due to obsolescence, physical damage or decline in market value, and the amount is material, the impaired asset is recorded at the recoverable value, and the resulting impairment loss is charged to current operations. If the recoverable value exceeds the adjusted book value of the asset in a subsequent period, the recoveries of previously recognized losses are recognized as gain in subsequent periods to the extent the net realizable value equals the book value of the assets before the loss is recognized after consideration of accumulated depreciation.
The Company evaluates the long-lived assets for impairment when events or changes in circumstances indicate, in managements judgment, that the carrying value of such assets may not be recoverable. These computations utilize judgments and assumptions inherent in managements estimate of undiscounted future cash flows to determine recoverability of an asset. If managements assumptions about these assets change as a result of events or circumstances, and management believes the assets may have declined in value, then the Company will record impairment charges, resulting in lower profits. Management uses its best estimate in making these evaluations and considers various factors, including the future prices of energy, fuel costs and operating costs. However, actual market prices and operating costs could vary from those used in the impairment evaluations, and the impact of such variations could be material.
(e) | Investments in Securities |
Upon acquisition, securities are recorded at cost. 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.
Upon acquisition, the Company classifies debt and marketable equity securities into one of the three categories: held-to-maturity, available-for-sale, or trading securities and such determination should be reassessed at each balance sheet date. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity. Securities that are bought and held principally for the purpose of selling them in the near term (thus held for only a short period of time) are classified as trading securities. Trading generally reflects active and frequent buying and selling, and trading securities are generally used to generate profit on short-term differences in price. Investments not classified as either held-to-maturity or trading securities are classified as available-for-sale securities.
Trading securities are carried at fair value, with unrealized holding gains and losses included in income. Available-for-sale securities are carried at fair value, with unrealized holding gains and losses reported as a capital adjustment. Investments
6
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
in equity securities that do not have readily determinable fair values are stated at cost. Declines in value judged to be other-than-temporary on available-for-sale securities are charged to current results of operations. Investments in debt securities that are classified into held-to-maturity are reported at amortized cost at the balance sheet date and such amortization is included in interest income.
Marketable securities are recorded at the quoted market prices as of the period end. Non-marketable debt securities are recorded at the fair values derived from the discounted cash flows by using an interest rate deemed to approximate the market interest rate. The market interest rate is determined by the issuers credit rating announced by the accredited credit rating agencies in Korea. Money market funds are recorded at the fair value determined by the investment management companies.
Trading securities are classified as current assets, whereas available-for-sale securities and held-to-maturity securities are classified as long-term investments. However, available-for-sale securities whose maturity dates are due within one year from the balance sheet date or whose likelihood of being disposed of within one year from the balance sheet date is probable are classified as current assets. Likewise, held-to-maturity securities whose maturity dates are due within one year from the balance sheet date are classified as current assets.
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 held-to-maturity or non-marketable equity securities 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 cost, the impairment loss is equal to the difference between the recoverable amount and the carrying amount. If the realizable value subsequently recovers, the increase in value is recorded in current operations, 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 operations, 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 shareholders equity as a capital adjustment, but it is amortized over the remaining term of the security using the effective interest rate method.
(f) | Investment Securities under the Equity Method of Accounting |
Investments in affiliated companies of which the Company owns 20% or more of the voting stock or over which the Company has significant management control are stated at an amount as determined using the equity method. Under the equity method of accounting, the Companys initial investment is recognized at cost and is subsequently increased or decreased to reflect the changes in Companys share of the net assets of investee. The Companys share of the profit or loss of the investee is recognized in the investors profit or loss and other changes in the investees equity are recognized directly in equity of the Company.
7
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
Any excess in the Companys acquisition cost over the Companys share of the net fair value of the investees identifiable net assets is considered as goodwill and amortized by the straight-line method over the estimated useful life. The amortization of such goodwill is recorded against the equity income (losses) of affiliates. When events or circumstances indicate that carrying amount may not be recoverable, the Company reviews goodwill for any impairment.
Assets and liabilities of foreign-based companies accounted for using the equity method are translated at current rate of exchange at the balance sheet date while profit and loss items in the statement of income are translated at average rate and capital account at historical rate. The translation gains and losses arising from collective translation of the foreign currency financial statements of foreign-based companies are offset and the balance is accumulated as capital adjustment.
(g) | Intangible Assets |
Intangible assets are stated at cost less accumulated amortization, as described below.
(i) | Research and Development Costs |
Expenditure on research activities, undertaken with the prospects of gaining new scientific or technical knowledge and understanding, is recognized in the statement of income as an expense as incurred.
Expenditure on development incurred in conjunction with new products or technologies, in which the elements of costs can be identified and future economic benefits are clearly expected, is capitalized and amortized on a straight-line basis over 5 years. The capitalized expenditure includes the cost of materials, direct labor and an appropriate proportion of overheads.
(ii) | Other Intangible Assets |
Other intangible assets, which consist of industrial rights, land rights and others, are stated at cost less accumulated amortization and impairment losses. Such intangible assets are amortized using the straight-line method over a reasonable period, from 4 years to 50 years, based on the nature of the asset.
The Company reviews for the impairment of intangible assets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
(h) | Cash Equivalents |
The Company considers short-term financial instruments with maturities of three months or less at the acquisition date to be cash equivalents.
8
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(i) | Financial Instruments |
Short-term financial instruments are financial instruments handled by financial institutions which are held for short-term cash management purposes or will mature within one year, including time deposits, installment savings deposits and restricted bank deposits.
(j) | Allowance for Doubtful Accounts |
The allowance for doubtful accounts is estimated based on an analysis of individual accounts and past experience of collection. Smaller-balance homogeneous receivables are evaluated considering current economic conditions and trends, prior charge-off experience and delinquencies.
(k) | Inventories |
Inventories are stated at the lower of cost or net realizable value, cost being determined using the weighted average method for raw materials, moving-average method for supplies and specific-identification method for other inventories. The Company maintains perpetual inventory records, which are adjusted through physical counts at the end of year.
(l) | Valuation of Receivables and Payables at Present Value |
Receivables and payables arising from long-term cash loans/borrowings and other similar loan/borrowing transactions are stated at present value. The difference between nominal value and present value is deducted directly from the nominal value of related receivables or payables and is amortized using the effective interest rate method. The amount amortized is included in interest expense or interest income.
(m) | Convertible Bonds |
When issuing convertible bonds, the value of the conversion rights is recognized separately as a component of capital surplus. Considerations for conversion rights is measured by deducting the present value of ordinary or straight debt securities from the gross proceeds of the convertible bonds received at the date of issuance.
Convertible bonds are not subject to foreign currency translation because convertible bonds are regarded as non-monetary foreign currency liabilities in accordance with Korean GAAP. 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.
(n) | Discount (Premium) on Debentures |
Discount (premium) on debenture issued, which represents the difference between the face value and issuance price of debentures, is amortized using the effective interest rate method over the life of the debentures. The amount amortized is included in interest expense.
9
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(o) | Retirement and Severance Benefits |
Employees and directors who have been with the Company for more than one year are entitled to lump-sum payments based on current rates of pay and length of service when they leave the Company. The Companys estimated liability under the plan which would be payable if all employees left on the balance sheet date is accrued in the accompanying balance sheets.
Although funding of the retirement and severance benefits are not required, tax deductions, however, 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 (Won)343,093 million and (Won)315,618 million as of December 31, 2006 and June 30, 2007, respectively, which are presented as deduction from accrual of retirement and severance benefits.
Through March 1999, under the National Pension Scheme of Korea, the Company transferred a certain portion of retirement allowances of employees to the National Pension Fund. The amount transferred will reduce the retirement and severance benefit amount to be payable to the employees when they leave the Company and is accordingly reflected in the accompanying financial statements as a reduction from the retirement and severance benefit liability. However, due to a new regulation applied since April 1999, such transfers to the National Pension Fund are no longer required.
(p) | Reserve for Self-Insurance |
In accordance with the Accounting Regulations for Government Invested Enterprises, the Company provides a self-insurance reserve for loss from accident and liability to third parties that may arise in connection with the Companys non-insured facilities. The self-insurance reserve is recorded until the amount meets a certain percentage of non-insured buildings and machinery. Payments made to settle applicable claims are charged to this reserve.
(q) | Liability for Decommissioning Costs |
Prior to January 1, 2003, the Company recorded a liability for the estimated decommissioning costs of nuclear facilities based on engineering studies and the expected decommissioning dates of the nuclear power plant. Additions to the liability were charged to expense in amounts such that the current costs would be fully accrued for at estimated dates of decommissioning on a straight-line basis.
Effective January 1, 2003, the Company adopted SKAS No. 5 Tangible Assets. Under this standard, the Company records the fair value of liabilities for the decommissioning costs as a liability in the period in which the Company incurs a legal obligation associated with the retirement of tangible long-lived assets. However, this standard was only applicable to new plants (with an associated asset retirement liability) put into service after January 1, 2003. For plants put into service before January 1, 2003, SKAS No. 5 did not apply and the previous Korean GAAP (as described above) was required. Since the Company did not place into service any assets with liabilities for decommissioning costs during 2003, SKAS No. 5 had no impact on the 2003 consolidated financial statements.
In October 2004, Korea Accounting Standard Board issued SKAS No. 17 Provisions and Contingent Liabilities & Assets. In January 2005, the Company decided to early adopt SKAS No. 17. Under this standard, the Company retrospectively adjusted the liability for decommissioning costs at the estimated fair value using discounted cash flows
10
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(also based on engineering studies and the expected decommissioning dates) to settle the liabilities for decommissioning costs and the same amount was recognized as an utility asset. The liability for decommissioning costs should be adjusted based on the best estimates on each balance sheet date. Under SKAS No. 17, the discount rate was set at the date of adoption (January 1, 2004) and should be applied in all future periods. In addition, any new obligation arising from new plant would use the discount rate in effect at the time of its commencement. Accretion expense consists of period-to-period changes in the liability for decommissioning costs resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. The Company subsequently depreciates the asset retirement costs using the straight-line and units-of-production depreciation method.
(r) | Foreign Currency Translation |
KEPCO and its domestic subsidiaries maintain their accounts in Korean Won. Transactions in foreign currencies are recorded in Korean Won based on the prevailing rates of exchange on the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at the balance sheet date, with the resulting gains and losses recognized in current results of operations. Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at (Won)926.8 to US$1, the rate of exchange on June 30, 2007. Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historical cost, are translated into Korean Won at the foreign exchange rate prevailing at the date of the transaction.
Foreign currency assets and liabilities of foreign-based operations and the Companys overseas subsidiaries are translated at current rate of exchange at the balance sheet date while profit and loss items in the statement of income are translated at average rate and capital account at historical rate. The translation gains and losses arising from collective translation of the foreign currency financial statements of foreign-based operations and the Companys overseas subsidiaries are offset and the balance is accumulated as a capital adjustment.
(s) | Derivatives |
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 designed 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 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.
11
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(t) | 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 construction contracts based on the percentage-of-completion method, whereby revenue is recognized based on the actual costs incurred as a percentage of total estimated costs of the contract.
(u) | Income Taxes |
Deferred tax is provided using the asset and liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date.
A deferred tax asset is recognized only to the extent that it is probable that future taxable income will be available against which the unused tax losses and credits can be utilized. A deferred tax asset is reduced to the extent that it is no longer probable that the related tax benefit will be realized.
12
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(v) | Dividends payable |
Dividends are recorded when approved by the board of director and shareholders.
(w) | Prior Period Adjustments |
Prior period adjustments resulting from other than fundamental errors are charged or credited to result of operations for the current period. The fundamental errors are defined as errors with such a significant effect on the financial statements for one or more prior periods that those financial statements can no longer be considered to have been reliable at the date of their issue. Prior period adjustments resulting from the fundamental errors are charged or credited to the beginning balance of retained earnings, and the financial statements of the prior year are restated.
(x) | Earnings Per Share |
Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income, after addition for the effect of expenses related to dilutive securities on net income, by the weighted average number of common shares plus the dilutive potential common shares.
(y) | Minority Interest in Consolidated Subsidiaries |
Minority interest in consolidated subsidiaries is presented as a separate component of stockholders equity in the consolidated balance sheets.
(z) | Use of Estimates |
The preparation of consolidated financial statements in accordance with Korean GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes to financial statements. Actual results could differ from those estimates.
13
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(aa) | Accounting Principles |
Certain subsidiaries apply different accounting methods for cost of inventory and the depreciation of fixed assets and intangible assets than those of KEPCO. The effect of the different accounting is not considered material.
(i) | Cost of Inventory |
Company |
Raw material | Supplies | Others | |||
KEPCO |
Weighted-average | Moving-average | Specific identification | |||
Korea Hydro & Nuclear Power Co., Ltd. |
Moving-average | Moving-average | Moving average | |||
Korea Western Power Co., Ltd. |
Weighted-average | Weighted-average | Weighted-average | |||
Korea Power Engineering Co., Ltd. |
Weighted-average | FIFO | FIFO | |||
Korea Plant Service & Engineering Co., Ltd. |
Weighted-average | FIFO | Specific identification | |||
KEPCO Nuclear Fuel Co., Ltd. |
Weighted-average | Weighted-average | Specific identification | |||
Korea Electric Power Data Network Co., Ltd. |
Moving-average | Moving-average | Moving-average | |||
KEPCO Philippines Corporation |
Weighted-average | Weighted-average | Weighted- average | |||
KEPCO Ilijan Corporation |
Weighted-average | Weighted-average | Weighted- average |
(ii) | Depreciation Methods |
Company |
Machinery | Vehicles | Others | Computer software | ||||
KEPCO |
Declining- balance | Declining- balance | Declining- balance | Straight-line | ||||
Korea Hydro & Nuclear Power Co., Ltd. |
Declining- balance | Declining- balance | Declining- balance | Declining- balance | ||||
Korea Plant Service & Engineering Co., Ltd. |
Declining- balance | Declining- balance | Declining- balance | Declining- balance | ||||
KEPCO Nuclear Fuel Co., Ltd. |
Straight-line | Straight-line | Straight-line | Straight-line | ||||
Korea Electric Power Data Network Co., Ltd. |
Straight-line | Straight-line | Straight-line | Straight-line | ||||
KEPCO Philippines Corporation |
Straight-line | Straight-line | Straight-line | Straight-line | ||||
KEPCO Ilijan Corporation |
Straight-line | Straight-line | Straight-line | Straight-line |
14
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(ab) | Elimination of Investments and Shareholders Equity |
For consolidated subsidiaries and investments accounted for under the equity method, if the acquisition date is not as of the fiscal year end of the investee, the nearest fiscal year end of such investee is considered as the acquisition date in determining the amount of goodwill or negative goodwill.
The elimination entries of the parent companys investments against the related investees shareholders equity at December 31, 2006 and June 30, 2007 are summarized as follows:
<2006>
Won (millions) |
Won (millions) | |||||||
Accounts |
Amount | Accounts |
Amount | |||||
Common stock |
(Won) | 2,666,540 | Investments in affiliates |
(Won) | 17,999,678 | |||
Capital surplus |
15,448,710 | Consolidated capital surplus |
2,192 | |||||
Retained earnings |
7,817,566 | Consolidated retained earnings |
7,758,572 | |||||
Consolidated Capital adjustment |
158,728 | Equity gain of affiliates |
19,105 | |||||
Capital adjustment |
169,239 | |||||||
Minority interests |
142,353 | |||||||
Other |
405 | |||||||
(Won) | 26,091,544 | (Won) | 26,091,544 | |||||
<2007>
Won (millions) |
Won (millions) | |||||||
Accounts |
Amount | Accounts |
Amount | |||||
Common stock |
(Won) | 2,666,540 | Investments in affiliates |
(Won) | 17,999,678 | |||
Capital surplus |
15,448,710 | Consolidated capital surplus |
2,192 | |||||
Retained earnings |
8,671,654 | Consolidated retained earnings |
8,599,796 | |||||
Consolidated Capital adjustment |
221,746 | Equity gain of affiliates |
19,074 | |||||
Capital adjustment |
232,330 | |||||||
Minority interests |
155,175 | |||||||
Other |
405 | |||||||
(Won) | 27,008,650 | (Won) | 27,008,650 | |||||
15
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(2) | Basis of Translating Consolidated Financial Statements |
The consolidated financial statements are expressed in Korean Won and, solely for the convenience of the reader, the consolidated financial statements have been translated into United States dollars at the rate of (Won)922.6 to US$1, 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 as of June 30, 2007. The translation should not be construed as a representation that any or all of the amounts shown could be converted into U.S. dollars at this or any other rate.
(3) | Property, Plant and Equipment |
(a) | Asset revaluation |
KEPCO revalued its property, plant and equipment in accordance with the KEPCO Act and the Asset Revaluation Law (the latest revaluation date was January 1, 1999), and recorded a revaluation gain of (Won)12,552,973 million as a reserve for asset revaluation, a component of capital surplus.
(b) | Officially Declared Value of Land |
The officially declared value of land at June 30, 2007, as announced by the Minister of Construction and Transportation, is as follows:
Won (millions) | |||||
Purpose |
Book value | Declared value | |||
Land - utility plant, transmission and distibution sites and other |
(Won) | 6,013,138 | 9,135,536 |
The officially declared value of land, which is used for government purposes, is not intended to represent fair value.
(c) | Utility plant |
Changes in property, plant and equipment and construction grants for the six-month periods ended June 30, 2007 are as follows:
Won (millions) | |||||||||||||||||||
Book value as of January 1, 2007 |
Acquisitions | Disposals | Depreciation | Others | Book value June 30, 2007 |
||||||||||||||
Land |
(Won) | 5,993,983 | 1,240 | (2,578 | ) | | 20,493 | 6,013,138 | |||||||||||
Buildings |
7,248,966 | 2,897 | (4,472 | ) | (310,499 | ) | 179,283 | 7,116,175 | |||||||||||
Structures |
27,513,258 | 6,034 | (625 | ) | (459,071 | ) | 1,189,493 | 28,249,089 | |||||||||||
Machinery |
16,845,422 | 28,411 | (620 | ) | (1,501,573 | ) | 969,962 | 16,341,602 | |||||||||||
Vehicles |
32,411 | 2,584 | (185 | ) | (9,175 | ) | 207 | 25,842 | |||||||||||
Nuclear fuel |
970,873 | | | (196,778 | ) | 240,151 | 1,014,246 | ||||||||||||
Capitalized asset retirement cost |
1,656,836 | | | (110,770 | ) | 103,706 | 1,649,772 | ||||||||||||
Others |
698,735 | 19,959 | (9,571 | ) | (49,862 | ) | (475,709 | ) | 183,552 | ||||||||||
Construction in- progress |
8,393,340 | 3,799,906 | (1,413,842 | ) | | (886,630 | ) | 9,892,774 | |||||||||||
Construction grants |
(4,086,894 | ) | (470,568 | ) | | 171,763 | 56,403 | (4,329,296 | ) | ||||||||||
(Won) | 65,266,930 | 3,390,463 | (1,431,893 | ) | (2,465,965 | ) | 1,397,359 | 66,156,894 | |||||||||||
16
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
The Company depreciates the capitalized asset retirement costs using the straight-line and units-of-production depreciation methods
(4) | Intangible Assets |
Changes in intangible assets for the six-month period ended June 30, 2007 are as follows:
Won (millions) | ||||||||||||||||
Book value as of |
Acquisitions | Amortization | Others | Book value June 30, 2007 |
||||||||||||
Port facility usage right |
(Won) | 133,414 | | (4,422 | ) | 128,992 | ||||||||||
Water usage right |
73,924 | (8,476 | ) | 65,448 | ||||||||||||
Dam usage right |
6,398 | | (72 | ) | | 6,326 | ||||||||||
Electricity usage right |
35,510 | | (46,660 | ) | 47,028 | 35,878 | ||||||||||
Future radioactive wastes repository sites usage rights (*1) |
300,000 | | | 300,000 | ||||||||||||
Computer software |
175,933 | 15,123 | (36,890 | ) | 44,286 | 198,452 | ||||||||||
Others |
129,104 | 46,633 | (9,884 | ) | (84,825 | ) | 81,028 | |||||||||
Construction grants |
(33,873 | ) | (1,928 | ) | 699 | | (35,102 | ) | ||||||||
(Won) | 820,410 | 59,828 | (105,705 | ) | 6,489 | 781,022 | ||||||||||
(*1) | In November 2005, GyeongJu city was selected as the repository site for Low and Intermediate-Level Radioactive Wastes (LILRW). In relation to the future repository site, the Korean government enacted the Special Act for the Region Hosting Low and Intermediate Radioactive Wastes Repository Site (the Act) to support the area. In compliance with the Act, the Company is obligated to pay (Won)300,000 million to the region in consideration for building the repository site. As of June 30, 2006, the timing of this payment obligation has not been determined. As a result, the Company recognized this obligation as an intangible asset and other long-term liabilities. |
In addition, the Company expensed research and development cost amounting to W224,215 million and W301,964 million for the six-month periods ended June 30, 2006 and 2007, respectively
(5) | Insured Assets |
Insured assets as of June 30, 2007 are as follows:
Won (millions) | |||||
Insured assets |
Insurance type |
Insured value | |||
Buildings and machinery |
Fire insurance |
(Won) | 805,190 | ||
Buildings and machinery |
Nuclear property insurance |
472,668 | |||
Buildings, machinery and construction in progress |
Construction and shipping insurance |
8,679,796 | |||
Buildings |
General insurance |
20,689,174 | |||
Construction in progress |
Construction insurance |
1,165,617 | |||
Inventories and machinery |
Shipping insurance |
4,782,633 |
17
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
In addition, as of June 30, 2007, the Company carries compensation and responsibility insurance in relation to the operation of the nuclear power plants and gas accident, construction and other general insurance for its utility plants and inventories, damage insurance for its light water nuclear reactor construction in North Korea, general insurance for vehicles, casualty insurance for its employees and responsibility insurance for its directors.
(6) | Investment securities |
(a) | Short-term Investment securities as of December 31, 2006 and June 30, 2007 are summarized as follows: |
Won (millions) | |||||
2006 | 2007 | ||||
Short-term investment securities |
|||||
Available-for-sale securities |
(Won) | 15,145 | | ||
Held-to-maturity securities |
94 | 26 | |||
(Won) | 15,239 | 26 | |||
Available-for-sale securities consist of bond funds and held-to-maturity securities consist of debt securities including government and municipal bonds.
(b) | Long-term investments other than those under the equity method as of December 31, 2006 and June 30, 2007 are summarized as follows: |
2006 | |||||||
Ownership % |
Acquisition cost |
Book value | |||||
Available-for-sale: |
|||||||
Equity securities: |
|||||||
Energy Savings Investment Cooperatives (*1, *2) |
25.0~48.0 | (Won) | 5,000 | 5,000 | |||
Korea Power Exchange (*1, *3) |
100.0 | 127,839 | 127,839 | ||||
Hwan Young Steel Co., Ltd. (*1) |
0.14 | 1,091 | 97 | ||||
KNOC Nigerian East Oil Co., Ltd (*5) |
15.0 | 12 | 12 | ||||
KNOC Nigerian West Oil Co., Ltd (*5) |
15.0 | 12 | 12 | ||||
Dolphin Property Limited. (*5) |
15.0 | 12 | 12 | ||||
Equity securities in treasury stock fund (*4) |
| 11,713 | 15,381 | ||||
Other equity securities (*1) |
| 24,695 | 24,695 | ||||
Debt securities |
5,149 | 10,310 | |||||
175,523 | 183,358 | ||||||
Held-to-maturity: |
|||||||
Government and municipal bonds |
3,531 | 3,531 | |||||
Total |
(Won) | 179,054 | 186,889 | ||||
18
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
2007 | |||||||
Ownership % |
Acquisition cost |
Book value | |||||
Available-for-sale: |
|||||||
Equity securities: |
|||||||
Energy Savings Investment Cooperatives (*1, *2) |
25.0~48.0 | (Won) | 5,000 | 5,000 | |||
Korea Power Exchange (*1, *3) |
100.0 | 127,839 | 127,839 | ||||
Hwan Young Steel Co., Ltd. (*1) |
0.14 | 96 | 96 | ||||
KNOC Nigerian East Oil Co., Ltd (*5) |
15.0 | 12 | 12 | ||||
KNOC Nigerian West Oil Co., Ltd (*5) |
15.0 | 12 | 12 | ||||
Dolphin Property Limited (*5) |
15.0 | 12 | 12 | ||||
Equity securities in treasury stock fund (*4) |
| 18,481 | 29,728 | ||||
Other equity securities (*1) |
| 30,210 | 30,210 | ||||
Debt securities |
5,149 | 8,386 | |||||
186,811 | 201,295 | ||||||
Held-to-maturity: |
|||||||
Government and municipal bonds |
3,556 | 3,556 | |||||
Total |
(Won) | 190,367 | 204,851 | ||||
(*1) | These available-for-sale non-marketable equity securities are stated at cost due to the lack of information to determine fair value. |
(*2) | As described in note 1(f), investment in affiliates in which the Company owns 20% or more of the voting stock should be stated at an amount as determined using equity method of accounting. However, if the difference between the equity method and cost is considered to be immaterial, the Company can record the investment within available-for-sale securities at cost. |
(*3) | Korea Power Exchange operates under the regulations for government affiliated organization and the Electricity Enterprises Act. Moreover, when the purpose of establishment, articles of incorporation of Korea Power Exchange and electric power market managerial regulations are considered, the Company does not appear to have significant management control. Therefore, the investment is accounted for under the cost method. |
(*4) | In order to stabilize the price of the Companys common stock in the market, the Company entered into a treasury stock fund (the Fund) composed of treasury stock and other equity securities in December, 1992. The treasury stock (excluded from the above table) is recorded at cost within capital adjustments (note 13). The other equity securities in the Fund are recorded at fair value within available-for-sale securities. As of June 30, 2007, gains on the valuation of these available-for-sale securities in the Fund, which are recorded in capital adjustments, amount to (Won)8,154 million (after excluding deferred tax). As of December 31, 2006, gains on these securities of (Won)2,659 million (after excluding deferred tax) were recorded in capital adjustments. |
(*5) | The Company invested in overseas oil development industry with a consortium of Korean companies (the Korean Consortium) consisting of the company, Korea National Oil Corporation and Deawoo Shipbuilding & Marine Engineering Co., Ltd. The Korean Consortium, owing 60% equity interest in the hoint venture incorporated with English Equator and Nigeria, invested in KNOC Nigerian East 323, KNOC Nigerian West 321 and Dolphin Property Ltd. Additionally, the Company provides performance guarantees of US$25 Million related to the oil and gas producing activities and US$35 million related to the construction of power generation plants and gas pipes to the Nigerian government. |
19
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(c) | Investments in affiliated companies accounted for using the equity method as of December 31, 2006 and June 30, 2007 are as follows: |
2006 | |||||||||
Ownership % |
Acquisition cost |
Net asset value |
Book value | ||||||
Korea Gas Corporation (*1) |
24.5 | 94,500 | 860,503 | 860,503 | |||||
Korea District Heating Co., Ltd. (*1) |
26.1 | 5,660 | 184,458 | 184,458 | |||||
LG powercomm Corporation (*1,2) |
43.1 | 323,470 | 382,036 | 376,831 | |||||
Korea Electric Power Industrial Development Co., Ltd. (*1) |
49.0 | 7,987 | 48,130 | 48,130 | |||||
YTN (*1) |
21.4 | 59,000 | 26,677 | 26,677 | |||||
Gansu Datang Yumen Wind Power Co., Ltd. (*1) |
40.0 | 7,163 | 5,808 | 5,808 | |||||
Salcon Power Corporation (*1) |
40.0 | 21,620 | 22,921 | 22,921 | |||||
Datang Chifang Renewable Co., Ltd (*1) |
40.0 | 18,053 | 18,053 | 18,053 | |||||
(Won) | 537,453 | 1,548,586 | 1,543,381 | ||||||
2007 | |||||||||
Ownership % |
Acquisition cost |
Net asset value |
Book value | ||||||
Korea Gas Corporation (*1) |
24.5 | 94,500 | 901,862 | 901,862 | |||||
Korea District Heating Co., Ltd. (*1) |
26.1 | 5,660 | 195,982 | 195,982 | |||||
LG powercomm Corporation (*1,2) |
43.1 | 323,470 | 385,064 | 380,603 | |||||
Korea Electric Power Industrial Development Co., Ltd. (*1) |
49.0 | 7,987 | 25,501 | 25,501 | |||||
YTN (*1) |
21.4 | 59,000 | 26,923 | 26,923 | |||||
Gansu Datang Yumen Wind Power Co., Ltd. (*1) |
40.0 | 7,163 | 6,773 | 6,773 | |||||
Salcon Power Corporation (*1) |
40.0 | 21,620 | 20,427 | 20,427 | |||||
Datang Chifang Renewable Co., Ltd (*1) |
40.0 | 18,053 | 17,253 | 17,253 | |||||
(Won) | 537,453 | 1,579,785 | 1,575,324 | ||||||
(*1) | KEPCO used unaudited financial statements of the above affiliated companies when applying the equity method of accounting. |
(*2) | As of June 30, 2007, unrealized profits of (Won)4,461 million arisen from the transaction with Powercomm Corporation were eliminated. |
20
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(d) | Changes in investments in affiliated companies under the equity method for the year ended December 31, 2006 are as follows: |
2006 | |||||||||||
Book value as of January 1, 2006 |
Equity income of affiliates |
Others (*) | Book value as of Dec 31, 2006 | ||||||||
Korea Gas Corporation |
(Won) | 819,100 | 60,649 | (19,246 | ) | 860,503 | |||||
Korea District Heating Co. |
176,173 | 8,193 | 92 | 184,458 | |||||||
LG powercomm Corporation |
400,979 | (23,510 | ) | (638 | ) | 376,831 | |||||
Korea Electric Power Industrial Development Co., Ltd. |
24,525 | 29,005 | (5,400 | ) | 48,130 | ||||||
YTN |
25,014 | 1,586 | 77 | 26,677 | |||||||
Gansu Datang Yumen Wind Power Co., Ltd. |
2,719 | | 3,089 | 5,808 | |||||||
Salcon Power Corporation |
| 4,086 | 18,835 | 22,921 | |||||||
Datang Chifang Renewable Co., Ltd |
| | 18,053 | 18,053 | |||||||
(Won) | 1,448,510 | 80,009 | 14,862 | 1,543,381 | |||||||
Changes in investments in affiliated companies under the equity method for the six-month period ended June 30, 2007 are as follows:
2007 | |||||||||||
Book value as of January 1, 2007 |
Equity income of affiliates |
Others (*) | Book value as of June 30, 2007 | ||||||||
Korea Gas Corporation |
(Won) | 860,503 | 62,203 | (20,843 | ) | 901,863 | |||||
Korea District Heating Co. |
184,458 | 11,469 | 55 | 195,982 | |||||||
LG powercomm Corporation |
376,831 | 3,772 | | 380,603 | |||||||
Korea Electric Power Industrial Development Co., Ltd. |
48,130 | 2,361 | (24,990 | ) | 25,501 | ||||||
YTN |
26,677 | 470 | (225 | ) | 26,922 | ||||||
Gansu Datang Yumen Wind Power Co., Ltd. |
5,808 | (385 | ) | 1,350 | 6,773 | ||||||
Salcon Power Corporation |
22,921 | 1,295 | (3,789 | ) | 20,427 | ||||||
Datang Chifang Renewable Co., Ltd |
18,053 | (1,045 | ) | 245 | 17,253 | ||||||
(Won) | 1,543,381 | 80,140 | (48,197 | ) | 1,575,324 | ||||||
(*) | Others are composed of acquisition (disposal) of investment, dividends and the changes in values in equity due to the capital surplus and gain (loss) on investment securities in capital adjustments. |
The Company has recorded unrealized losses of (Won)990 million and million relating to the above affiliates as of December 31, 2006 and June 30, 2007, respectively, and unrealized gains of (Won)117,870 million and (Won) million as of December 31, 2006 and June 30, 2007, respectively, which have been accounted for as capital adjustments. These capital adjustments have been recorded as unrealized losses on equity securities of affiliates within stockholders equity.
The Company has recorded unrealized gains of (Won)2,659 million and (Won)1,701 million relating to the above affiliates as of December 31, 2006 and June 30, 2007 respectively. These capital adjustments have been recorded as unrealized gains on equity securities of affiliates within stockholders equity.
21
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(7) | Loans to employees |
The Company has provided housing and tuition loans to employees as follows as of December 31, 2006 and June 30, 2007:
Won (millions) | |||||
2006 | 2007 | ||||
Short-term loans |
(Won) | 24,597 | 24,445 | ||
Long-term loans |
355,447 | 374,451 | |||
(Won) | 380,044 | 398,896 | |||
(8) | Other Non-current Assets |
Other non-current assets as of December 31, 2006 and June 30, 2007 are as follows:
Won (millions) | |||||
2006 | 2007 | ||||
Deposit |
(Won) | 166,718 | 183,350 | ||
Others |
232,541 | 265,970 | |||
(Won) | 399,259 | 449,320 | |||
(9) | Inventories |
Inventories as of December 31, 2006 and June 30, 2007 are summarized as follows:
Won (millions) | |||||
2006 | 2007 | ||||
Raw materials |
(Won) | 1,158,662 | 1,209,922 | ||
Supplies |
806,356 | 949,744 | |||
Other |
133,958 | 158,582 | |||
(Won) | 2,098,976 | 2,318,248 | |||
(10) | Other Current Assets |
Other current assets at December 31, 2006 and June 30, 2007 are summarized as follows:
Won (millions) | |||||
2006 | 2007 | ||||
Short-term loans (note 7) |
(Won) | 27,226 | 25,221 | ||
Accrued interest income |
28,289 | 31,587 | |||
Advance payments |
24,045 | 30,396 | |||
Prepaid expenses |
27,262 | 57,525 | |||
Currency Forwards (note 21) |
64 | ||||
Others |
94,444 | 111,851 | |||
(Won) | 201,330 | 256,580 | |||
22
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(11) | Capital Surplus |
Capital surplus as of December 31, 2006 and June 30, 2007 and are as follows:
Won (millions) | |||||
2006 | 2007 | ||||
Paid-in capital in excess of par value | (Won) | 835,140 | 835,140 | ||
Reserves for asset revaluation(*2) | 12,552,973 | 12,552,973 | |||
Other capital surplus(*1) | 1,129,030 | 1,126,194 | |||
(Won) | 14,517,143 | 14,514,307 | |||
(*1) | As described in note 1(u), effective January 1, 2005, the Company adopted SKAS No. 16 Income Taxes. As a result, deferred taxes are recognized on temporary differences related to the conversion right of convertible bond that is reported as a component of capital surplus. |
(*2) | 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 (Won)12,552,973 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. |
(12) | Appropriated Retained Earnings |
Appropriated retained earnings as of December 31, 2006 and June 30, 2007 are summarized as follows:
Won (millions) | |||||
2006 | 2007 | ||||
Legal reserve | (Won) | 1,603,919 | 1,603,919 | ||
Reserve for business rationalization | 31,900 | 31,900 | |||
Reserve for business expansion | 16,588,939 | 17,919,081 | |||
Reserve for investment on social overhead capital | 5,217,449 | 5,277,449 | |||
Reserve for research and human development | 270,000 | 330,000 | |||
Reserve for dividend equalization |
210,000 | 210,000 | |||
(Won) | 23,922,207 | 25,372,349 | |||
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 such reserve is required.
The reserve for the investment on social overhead capital and the reserve for research and human development are appropriated by the Company to avail itself of qualified tax credits to reduce corporate tax liabilities. These reserves are not available for cash dividends for a certain period defined in the Tax Incentive Control Law.
23
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
Until December 10, 2002 under the Special Tax Treatment Control Law, investment tax credit was allowed for certain investments. The Company was, however, required to appropriate from retained earnings the amount of tax benefits received and transfer such amount into a reserve for business rationalization. Effective December 11, 2002, the Company is no longer required to establish a reserve for business rationalization despite tax benefits received for certain investments and, consequently, the existing balance is now regarded as a voluntary reserve.
The reserve for dividend equalization, which is considered a voluntary reserve, is appropriated by the Company to reduce fluctuation of dividend rate for the purpose of stock price and credit rating stabilization.
(13) | Capital Adjustments |
Capital adjustments as of December 31, 2006 and June 30, 2007 are as follows:
Won (millions) | |||||||
2007 | 2006 | ||||||
Treasury stock | (Won) | (796,980 | ) | (791,104 | ) | ||
Gain on valuation of available- for-sale securities | 5,448 | 9,855 | |||||
Equity gain of affiliates | 117,870 | 118,353 | |||||
Equity loss of affiliates | (990 | ) | (12 | ) | |||
Overseas operations translation credit | (79,723 | ) | (70,765 | ) | |||
Gain (loss) on valuation of cash flow hedges | (4,710 | ) | (773 | ) | |||
(Won) | (759,085 | ) | (734,446 | ) | |||
The Company has shares held as treasury stock amounting to (Won) 118,293 million (5,450,062 shares) and (Won) 104,551 million (4,700,067 shares) as of December 31, 2005 and June 30, 2006, respectively, for the purpose of stock price stabilization.
(14) | Short-term borrowings |
Short-term borrowings as of December 31, 2006 and June 30, 2007 are as follows:
Lender |
Type | Annual Interest rate (%) |
Won (millions) | ||||||
2006 | 2007 | ||||||||
Local currency borrowings Woori Bank and others | General | 3.50~5.23 | (Won) | 323,081 | 553,915 | ||||
Foreign currency borrowings National Austrailia Bank and others |
Usance and Others |
5.53~5.54 | 153,639 | 24,221 | |||||
(Won) | 476,720 | 558,136 | |||||||
24
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(15) | Long-term borrowings |
Long-term borrowings as of December 31, 2006 and June 30, 2007 are as follows:
(a) | Local currency long-term borrowings |
Lender |
Type |
Annual Interest rate (%) |
Won (millions) | ||||||||
2006 | 2007 | ||||||||||
Korea Development Bank |
Industrial facility | 4.81~5.71 | (Won) | 4,720,055 | 4,921,400 | ||||||
Industrial Bank of Korea |
|||||||||||
Ministry of Commerce, Industry and Energy |
Rural area Development |
4.00 | 50,000 | 40,000 | |||||||
National Agricultural Cooperative Federation |
Rural area development |
4.00 | 50,000 | 40,000 | |||||||
Industrial facility | 4.82~5.21 | 150,000 | 140,625 | ||||||||
the Small and Medium Industry Bank |
Rural area Development |
4.00 | 22,000 | 22,000 | |||||||
Development | based rates-1.25 | 48,000 | 48,000 | ||||||||
Korea Exchange Bank |
Rural area Development |
4.00 | 110,000 | 110,000 | |||||||
Energy rationalization |
3.50 | 13,600 | 14,482 | ||||||||
Industrial facility | 5.31 | | 100,000 | ||||||||
Woori Bank |
Development | based rates-1.25 | 17,900 | 17,900 | |||||||
Korea Resources Corp. |
Development | based rates-1.25 | 6,000 | 4,000 | |||||||
Foreign Resource Development |
2.50~3.50 | 60,100 | 52,933 | ||||||||
Hana Bank |
Rural area Development |
4.00 |
|
101,500 |
|
101,500 |
| ||||
Kookmin Bank |
Rural Area Development |
4.00 | | 31,350 | |||||||
Others |
General | 6.00 | 684,572 | 683,746 | |||||||
6,033,727 | 6,327,936 | ||||||||||
Less: Current portion |
(1,434,557 | ) | (1,578,624 | ) | |||||||
(Won) | 4,599,170 | 4,749,312 | |||||||||
(b) Foreign currency long-term borrowings
Lender |
Type |
Annual |
Won (millions) | ||||||||
2006 | 2007 | ||||||||||
Japan Bank of International Cooperation | Facility | 8.28 | (Won) | 138,130 | 124,858 | ||||||
Korea National Oil Corp. | Oil | T-bond( 3 yrs.)-2.25 | 6,787 | 6,766 | |||||||
Development | |||||||||||
The Export-Import Bank of Korea | Project loans Facility |
7.27 | 36,381 | 36,364 | |||||||
US-EXIM | | 4.48 | 72,618 | 72,639 | |||||||
Others | | 0.00~5.76 | 39,399 | 43,621 | |||||||
293,315 | 284,248 | ||||||||||
Less: Current portion |
(36,428 | ) | (42,669 | ) | |||||||
(Won) | 256,887 | 241,579 | |||||||||
25
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(c) | Debentures |
Annual interest rate (%) |
Won (millions) | ||||||||
2006 | 2007 | ||||||||
Local currency debentures | |||||||||
Electricity bonds | 3.43~5.29 | (Won) | 4,675,000 | 4,925,000 | |||||
Corporate bonds | 3.54~7.17 | 3,010,010 | 2,920,010 | ||||||
7,685,010 | 7,845,010 | ||||||||
Foreign currency debentures(*) | |||||||||
FY-93 | 5.00+2x(JPY/KRW-11.03) | 325,360 | 324,380 | ||||||
FY-96 | 6.00~ 8.28 | 239,385 | 238,060 | ||||||
FY-97 | 6.75 ~ 7.05 | 429,872 | 379,726 | ||||||
FY-02 | 1.04 ~ 4.63 | 976,080 | 973,140 | ||||||
FY-03(*) | 1.33 ~ 4.75 | 676,256 | 669,532 | ||||||
FY-04 | 0.51 ~ 5.75 | 936,929 | 925,895 | ||||||
FY-05 | 3.13 ~ 5.25 | 584,440 | 589,537 | ||||||
FY-06 | 5.50 ~ 6.00 | 604,240 | 602,420 | ||||||
4,772,562 | 4,702,690 | ||||||||
12,457,572 | 12,547,700 | ||||||||
Less: Current portion |
(2,752,160 | ) | (4,054,661 | ) | |||||
Discount |
(39,844 | ) | (35,461 | ) | |||||
(Won) | 9,665,568 | 8,457,578 | |||||||
(*) | In 2003, the Company issued foreign debentures to KEPCO Cayman Company Limited of US$250 million and the right to exchange the debentures into shares of Powercomm Corporation held by the Company. KEPCO Cayman Company Limited issued foreign debentures of US$250 million under substantially similar terms and conditions as the debentures issued by the Company to KEPCO Cayman Company Limited, the details of which are as follows: |
- | Maturity date: November 26, 2008 |
- | Exchangeable upon Qualifying Public Offering (QPO): QPO means the first listing on the Korea Stock Exchange, New York Stock Exchange or National Association of Securities Dealers Automated Quotations (NASDAQ) meeting certain requirements. Powercomm Corporation is not required to complete a QPO prior to the maturity of the debentures. The Company does not guarantee the QPO of Powercomm Corporation. |
- | Shares to be exchanged: Powercomm Corporations shares or DR. |
- |
Exchangeable period: From 10th day after the listing of Powercomm Corporation to 10th day before its maturity. |
- | Exchange price: 120% of lower amount of market price on the listing day or weighted average price for 10 days after its listing. |
- | Early redemption: When certain conditions are met or after 3 years from the listing, outstanding debentures are redeemable at the guaranteed return of 2.88% (102.74% of issuance amount). |
- | Repayment at the maturity: Repayment will be made with the guaranteed return of 3.68% (109.13% of issuance amounts). |
As requested by bondholders to redeem the bond on the third year from issue date, the Company, on November 27, 2006, redeemed before maturity US$ 191.96 million of the bonds, representing 76.78% of the issued price, paying a total of US$ 197.22 million after applying the secured profit ratio of 2.88%. The paid amount was 102.74% of the issue price.
26
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(d) | Exchangeable Bonds |
Description |
Annual interest rate % |
Won (millions) | |||||||
2006 | 2007 | ||||||||
Overseas exchangeable bonds(*1) | 0.00 | (Won) | 10,642 | 1,344 | |||||
Overseas exchangeable bonds(*2) | 0.00 | 485,682 | 485,681 | ||||||
Overseas exchangeable bonds(*2) | 0.00 | 555,114 | 555,114 | ||||||
1,051,438 | 1,042,139 | ||||||||
Plus: Premium on debentures issued |
314 | 29 | |||||||
Less: Discount on debentures issued |
(80,822 | ) | (73,311 | ) | |||||
Conversion right adjustment |
(64,931 | ) | (58,206 | ) | |||||
Exchangeable bonds, net |
(Won) | 905,999 | 910,651 | ||||||
(*1) | On November 4, 2003, the Company issued overseas exchangeable bonds of JPY28,245,468,400 at a premium. During 2005, the bondholders converted JPY14,438,543,000 into 344,704 shares of common stock and 10,444,768 shares of DR (equivalent to 5,222,384 shares of common stock). During 2006, exchangeable bonds of JPY10,501,022,000 were converted into 745,309 shares of common stock and 6,607,174 shares of DR (equivalent to 3,303,587 shares of common stock). |
During 2007, exchangeable bonds of JPY869,850,000 were converted into 335,309 shares of common stock and 6,607,174 shares of DR (equivalent to 3,303,587 shares of common stock).
As of June 30, 2007, the remaining number of common stock to be converted is 48,445 shares if the conversion right is exercised. As of June 30, 2007, the details of the bonds were as follows:
- | Maturity date: November 4, 2008 |
- | Amount to be paid at maturity: JPY125,645,000 |
- |
Exchange period: From December 15, 2003 to 10th day prior to its maturity. |
- | Shares to be exchanged: Common stock of the Company or its equivalent DR |
- | Exchange price: (Won)30,000 per share converted at KRW10.621/JPY, the exchange rate at the date of issuance |
- | Put option: Bondholders had a put option could be exercised for JPY26,834,000 on November 6, 2006 which expired unexercised. |
- | Call option: The Company has a call option that it can exercise on or at any time after November 6, 2006. Notes are callable if the closing price per Common Share on the Korea Stock Exchange or the ADSs on the New York Stock Exchange in each case, for each of any 20 Trading Days in a 30 consecutive Trading period ending not more than 5 days prior to the date on which notice such redemption is given, is at least 120% of the Conversion Price or of the Conversion Price per ADS. |
- | In accordance with Article 17 Issuance of Convertible Bonds and Article 11 Calculation of Dividend for New Shares of the Articles of Incorporation of the Company, distribution of dividends on new shares resulting from conversion of exchangeable bonds is deemed to have been issued at the end of the immediately preceding fiscal year. |
(*2) | On November 21, 2006, the Company issued overseas exchangeable bonds of JPY61,345,128,000 and EUR463,320,780 with a discount value (JPY60,810,000,000 and EUR401,700,000). The Company acquired 18,900,000 treasury shares in the amount of (Won)740,949 million to redeem overseas exchangeable bonds of JPY61,345,128,000 and EUR463,320,780. As of June 30, 2007, the details of the bonds were as follows: |
- | Maturity date: November 23, 2011 |
- | Amount to be paid at maturity: JPY61,345,128,000 and EUR463,320,780 |
- |
Exchange period: From January 4, 2007 to 10th day prior to its maturity. |
- | Shares to be exchanged: Common stock of the Company or its equivalent DR |
- | Exchange price: (Won)51,000 per share converted at KRW199.8/EUR, the exchange rate at the date of issuance |
27
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
- | Put option: Bondholders have a put option that they can exercise for JPY61,132,293,000 and EUR437,612,000 on November 23, 2009. |
- | Call option: The Company has a call option that it can exercise on or at any time after November 23, 2009. Notes are callable if the closing price per Common Share on the Korea Stock Exchange or the ADSs on the New York Stock Exchange in each case, for each of any 20 Trading Days in a 30 consecutive Trading period ending not more than 5 days prior to the date on which notice such redemption is given, is at least 120% of the Conversion Price or of the Conversion Price per ADS. |
(e) Foreign currency debts, by currency, as of December 31, 2006 and June 30, 2007 are as follows:
Won (millions), US$ JPY, EUR, GBP and CNY (thousands) | |||||||||||
2006 | 2007 | ||||||||||
Foreign currency |
Won equivalent |
Foreign currency |
Won equivalent | ||||||||
Short-term |
US$ | 165,274 | 153,639 | US$ | 26,134 | (Won) | 24,221 | ||||
Long-term |
US$ | 274,958 | 255,601 | US$ | 259,632 | 240,627 | |||||
borrowings |
CNY | 317,000 | 37,714 | CNY | 358,400 | 43,621 | |||||
293,315 | 284,248 | ||||||||||
Debentures |
US$ | 4,435,270 | 4,109,640 | US$ | 4,429,919 | 4,090220 | |||||
JPY | 40,000,000 | 312,732 | JPY | 40,000,000 | 300,972 | ||||||
EUR | 250,000 | 305,560 | EUR | 250,000 | 311,498 | ||||||
GBP | 24,467 | 44,630 | GBP | | | ||||||
4,772,562 | 4,702,690 | ||||||||||
Exchangeable |
JPY | 62,340,623 | 496,324 | JPY | 61,470,773 | 487,025 | |||||
bond |
EUR | 463,321 | 555,114 | EUR | 463,321 | 555,114 | |||||
1,051,438 | 1,042,139 | ||||||||||
6,270,954 | (Won) | 6,062,531 | |||||||||
(f) | Aggregate maturities of the Companys long-term debt as of June 30, 2007 are as follows: |
Won (millions) | ||||||||||||
Year ended June 30 |
Local currency borrowings |
Foreign currency borrowings |
Domestic debentures |
Foreign debentures |
Exchangeable Bonds |
Total | ||||||
2007.7.1-2008.6.30 |
1,578,624 | 42,669 | 2,370,000 | 1,684,661 | | 5,675,954 | ||||||
2008.7.1-2009.6.30 |
1,875,307 | 42,668 | 1,635,000 | 59,835 | 1,344 | 3,614,154 | ||||||
2009.7.1-2010.6.30 |
1,701,540 | 42,522 | 2,050,000 | 1,071 | | 3,795,133 | ||||||
2010.7.1-2011.6.30 |
741,571 | 42,521 | 840,000 | 683,207 | | 2,307,299 | ||||||
2011.7.1-2012.6.30 |
318,584 | 38,969 | 830,010 | 886 | 1,040,795 | 2,229,244 | ||||||
Thereafter |
112,310 | 74,899 | 120,000 | 2,273,030 | | 2,580,239 | ||||||
6,327,936 | 284,248 | 7,845,010 | 4,702,690 | 1,042,139 | 20,202,023 | |||||||
28
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(16) | Assets and Liabilities Denominated in Foreign Currencies |
Significant assets and liabilities of the Company (excluding foreign subsidiaries) denominated in foreign currencies other than those mentioned in note 15(e) as of December 31, 2006 and June 30, 2007 are as follows:
Won (millions), US$, JPY and EUR (thousands) | ||||||||||||
2006 | 2007 | |||||||||||
Foreign currency (thousands) (*) |
Won equivalent (millions) |
Foreign currency (thousands) (*) |
Won equivalent (millions) | |||||||||
Assets: |
||||||||||||
Cash and cash equivalents |
US$ | 4,346 | (Won) | 4,040 | US$ | 31,482 | (Won) | 29,178 | ||||
RS | | | 40,824 | 930 | ||||||||
PHP | | | 12,337 | 247 | ||||||||
AUD | | | 801 | 629 | ||||||||
Short-term financial instruments |
US$ | 5,567 | 5,175 | US$ | - | | ||||||
Trade receivables |
US$ | 8,123 | 7,552 | US$ | 4,234 | 3,841 | ||||||
AUD | | | 845 | 662 | ||||||||
RS | | | 38,844 | 878 | ||||||||
Other |
US$ | 200 | 186 | US$ | 30,590 | 28,352 | ||||||
account receivables |
EUR | 50 | 61 | EUR | 95 | 119 | ||||||
Other current assets |
US$ | 385 | 358 | US$ | - | | ||||||
AUD | | | AUD | 50 | 39 | |||||||
PHP | | | PHP | 10,989 | 220 | |||||||
Other non-current |
US$ | 384 | 358 | US$ | 1,341 | 1,243 | ||||||
assets |
JPY | 14,091 | 110 | JPY | 14,428 | 108 | ||||||
EUR | 20 | 25 | EUR | 20 | 25 | |||||||
(Won) | 17,865 | (Won) | 66,471 | |||||||||
Liabilities: |
||||||||||||
Trade payables |
US$ | 248,845 | (Won) | 231,326 | US$ | 141,235 | (Won) | 115,087 | ||||
EUR | 2,035 | 2,487 | EUR | 139 | 174 | |||||||
JPY | 27,000 | 211 | JPY | - | | |||||||
AUD | | | AUD | 385 | 296 | |||||||
Other accounts payable |
US$ | 193,655 | 180,031 | US$ | 36,149 | 33,503 | ||||||
EUR | 1,076 | 1,316 | EUR | 7 | 9 | |||||||
JPY | 25,634 | 200 | JPY | - | | |||||||
CHF | | | CHF | 452 | 340 | |||||||
Other current liability |
US$ | 5,898 | 5,484 | US$ | 785 | 727 | ||||||
RS | | | RS | 16,985 | 39 | |||||||
PHP | | | PHP | 1,654 | 33 | |||||||
AUD | | | AUD | 128 | 100 | |||||||
(Won) | 421,055 | (Won) | 154,389 | |||||||||
(*) | Foreign currencies other than US$, JPY and EUR are converted into US$. |
29
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(17) | Retirement and Severance Benefits |
Changes in retirement and severance benefits for the year ended December 31, 2006 and for six-month period ended June 30, 2007 are summarized as follows:
Won (millions) | |||||||
2006 | 2007 | ||||||
Estimated severance liability at beginning of year |
(Won) | 1,255,744 | 1,527,435 | ||||
Provision for retirement and severance benefits |
313,078 | 93,955 | |||||
Increase arising from change in consolidated subsidiaries |
1,746 | | |||||
Payments |
(43,133 | ) | (57,709 | ) | |||
Estimated severance liability at end of period |
1,527,435 | 1,563,681 | |||||
Transfer to National Pension Fund |
(93 | ) | (93 | ) | |||
Deposit for severance benefit insurance |
(343,093 | ) | (315,618 | ) | |||
Net balance at end of period |
(Won) | 1,184,249 | 1,247,970 |
(18) | Liability for Decommissioning Costs |
Under the Korean Electricity Business Act (EBA) Article 94, the Company is required to record a liability for the decommissioning of nuclear facilities and disposal of radioactive wastes. In addition, under the Korean Atomic Energy Act (AEA), an entity which constructs and operates a nuclear power reactor and related facilities must obtain permission from the Korean Minister of Science and Technology (MOST).
Effective January 1, 2004, the Company adopted SKAS No. 17 and retrospectively adjusted the liability for decommissioning costs at the estimated fair value using discounted cash flows to settle the asset retirement obligations of dismantlement of the nuclear power plants, spent fuel and radioactive wastes. In addition, during 2004, the Company updated its estimates of the liability for decommissioning costs based on new engineering studies (the 2004 study) provided by third parties.
The 2004 study revised certain essential factors such as timing of cash outflows. As required by SKAS No. 17, the change in accounting included the revised factors from the 2004 study since these factors were the Companys best estimates at the time the Company elected to adopt SKAS No. 17. With the adoption of SKAS No. 17, the Company remeasured the liability for decommissioning costs and reflected the cumulative effect of such change in accounting including the effect of the change in estimate into the beginning balance of retained earnings as of January 1, 2004.
Due to the adoption of this standard, the Company remeasured the liability for decommissioning costs as of January 1, 2004 and reflected a cumulative effect of such change in accounting up to fiscal year 2003 into the beginning balance of 2004 retained earnings as follows:
Won (millions) | |||||||
As previously reported |
Difference | After adoption | |||||
Retained earnings |
(Won) | 2,925,808 | 687,362 | 3,613,170 | |||
Asset retirement costs, net |
| 1,504,173 | 1,504,173 | ||||
Liability for decommissioning costs |
5,091,070 | 556,088 | 5,647,158 | ||||
Deferred income tax liabilities |
82,621 | 260,723 | 343,344 |
As of June 30, 2007, the Company has recorded a liability of (Won)7,849,745 million as the cost of dismantling and decontaminating existing nuclear power plants, consisting of dismantling costs of nuclear plant of (Won)4,014,472 million and storage costs of spent fuel and radioactive waste of (Won)3,835,273 million. Accretion expense consists of period-to-period changes in the liability for decommissioning costs resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. This cost is included in cost of electric power in the accompanying consolidated statements of income.
30
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(19) | Receivables at Present Value |
Present value discounts on long-term loans as of December 31, 2006 and June 30, 2007 are as follows:
Won (millions) | |||||||||||
2006 | |||||||||||
Imputed Interest rate (%) |
Period | Nominal value | Discount | Present value | |||||||
Young-kwang |
7.20 | 10 years | (Won) | 3,349 | 1,618 | 1,731 | |||||
Ul-jin |
6.00 | 10 years | 8,600 | 2,841 | 5,759 | ||||||
Kori |
5.00 | 10 years | 14,880 | 4,420 | 10,460 | ||||||
Kori |
4.00 | 10 years | 15,120 | 3,941 | 11,179 | ||||||
(Won) | 41,949 | 12,820 | 29,129 | ||||||||
Won (millions) | |||||||||||
2007 | |||||||||||
Interest rate (%) | Period | Nominal value | Discount | Present value | |||||||
Young-kwang |
7.20 | 10 years | (Won) | 3,350 | 435 | 2,915 | |||||
Ul-jin |
6.00 | 10 years | 8,600 | 1,413 | 7,187 | ||||||
Kori |
4.00 | 10 years | 30,000 | 7,897 | 22,103 | ||||||
(Won) | 41,950 | 9,745 | 32,205 | ||||||||
(20) | Other Current Liabilities |
Other current liabilities as of December 31, 2006 and June 30, 2007 are as follows:
Won (millions) | |||||
2006 | 2007 | ||||
Advance received |
(Won) | 141,996 | 141,969 | ||
Withholdings |
173,515 | 159,801 | |||
Unearned revenue |
57,294 | 46,474 | |||
Others |
318,070 | 482,576 | |||
(Won) | 690,875 | 830,820 | |||
(21) | Derivative Instruments Transactions |
The Company has entered into the various swap contracts to hedge risks involving exchange rate and interest rate of foreign currency debts.
31
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(a) | Currency swap contracts as of June 30, 2007 are as follows: |
Contract Year |
Settlement Year |
Contract amounts in millions | Contract interest rate per annum | |||||||||||
Pay | Receive | Pay (%) |
Receive (%) | |||||||||||
J.P. Morgan Chase Bank & Deutsche Bank(*1) |
2002 | 2007 | JPY | 76,700 | US$ | 650 | 1.18 | 4.25 | ||||||
Barclays Bank PLC, London |
2002 | 2007 | JPY | 30,400 | US$ | 250 | 1.04 | 3M Libor+0.75 | ||||||
ABN AMRO |
2002 | 2008 | KRW | 181,500 | US$ | 150 | 5.95 | 4.63 | ||||||
J.P. Morgan Chase Bank & Deutsche Bank |
2003 | 2008 | JPY | 23,770 | US$ | 200 | 1.28 | 4.25 | ||||||
Credit Suisse First Boston |
2003 | 2013 | KRW | 177,720 | US$ | 150 | 5.12 | 4.75 | ||||||
ABN AMRO |
2004 | 2008 | KRW | 123,700 | US$ | 100 | 4.25 | 5.30 | ||||||
Deutsche Bank |
2004 | 2008 | KRW | 61,850 | US$ | 50 | 4.25 | 5.30 | ||||||
Barclays Bank PLC |
2004 | 2014 | US$ | 150 | KRW | 172,875 | 5.75 | 5.10 | ||||||
J.P. Morgan Chase Bank |
2004 | 2011 | KRW | 86,400 | US$ | 75 | Within 3 years: 4.875 After 3 years: 4.875-(10.9-JPY/KRW Spot rate) |
4.95 | ||||||
Credit Suisse First Boston |
2004 | 2011 | KRW | 86,400 | US$ | 75 | Within 3 years: 4.875 After 3 years: 4.875-(10.9-JPY/KRW Spot rate) |
4.95 | ||||||
Barclays Bank PLC, London |
2004 | 2011 | KRW | 138,251 | US$ | 120 | 4.85 | 4.875 | ||||||
BNP PARIBAS |
2004 | 2011 | KRW | 17,282 | US$ | 15 | 4.85 | 4.875 | ||||||
HANA BANK |
2004 | 2011 | KRW | 17,282 | US$ | 15 | 4.85 | 4.875 | ||||||
Credit Suisse First Boston |
2004 | 2011 | KRW | 115,210 | US$ | 100 | 4.85 | 4.875 | ||||||
Barclays Bank PLC, London |
2005 | 2012 | KRW | 155,400 | US$ | 150 | 5.59 | 5.25 | ||||||
Lehman Brothers |
2005 | 2012 | KRW | 51,800 | US$ | 50 | 5.59 | 5.25 | ||||||
Deutsche Bank |
2005 | 2012 | KRW | 51,800 | US$ | 50 | 5.59 | 5.25 | ||||||
BNP PARIBAS |
2005 | 2012 | KRW | 51,735 | US$ | 50 | 5.59 | 5.25 | ||||||
Barclays |
2006 | 2008 | KRW | 68,606 | JPY | 8,000 | 5.61 | 1.33 | ||||||
Deutsche Bank |
2006 | 2008 | KRW | 17,151 | JPY | 2,000 | 5.61 | 1.33 | ||||||
Credit Suisse First Boston |
2006 | 2016 | KRW | 94,735 | US$ | 100 | 5.26 | 6.00 | ||||||
Barclays |
2006 | 2016 | KRW | 94,735 | US$ | 100 | 5.26 | 6.00 | ||||||
Citibank |
2006 | 2016 | KRW | 94,735 | US$ | 100 | 5.24 | 6.00 | ||||||
UBS (*2) |
2006 | 2016 | KRW | 98,100 | US$ | 100 | 5.48 | 5.50 | ||||||
Credit Suisse First Boston |
2006 | 2016 | KRW | 98,100 | US$ | 100 | 5.48 | 5.50 | ||||||
Barclays |
2006 | 2016 | KRW | 71,888 | US$ | 75 | 4.81 | 5.50 | ||||||
Deutsche Bank |
2006 | 2016 | KRW | 71,888 | US$ | 75 | 4.81 | 5.50 | ||||||
Goldman Sachs |
2007 | 2008 | KRW | 54,215 | JPY | 7,000 | 4.98 | 1.33 | ||||||
JP Morgan |
2007 | 2008 | KRW | 23,234 | JPY | 3,000 | 4.98 | 1.33 |
(*1) | Under the terms of these derivative contract, if the Republic of Korea declares default on its debts, KEPCO is entitled to receive Korean government bonds instead of cash from JP Morgan Chase Bank and Deutsche Bank. Valuation for these embedded derivatives is reflected in the valuation of the currency swap. The Company pays JPY7,670 million which is 10% of the contract amount every March and September and will receive US$650 million in September 2007. |
(*2) | With the currency swap contract which has the same effect as issuing fixed rate bonds in Korean won, the Company accounted for the valuation profit and loss from the said currency swap contract as accumulated other comprehensive income after applying cash flow hedge accounting. |
32
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(b) | Interest rate swap contracts as of June 30, 2007 are as follows: |
Notional amount in millions |
Contract interest rate per annum | ||||||||
Counterparty |
Pay (%) | Receive (%) | Term | ||||||
Korea Foreign Exchange Bank |
KRW | 50,000 | 5,24(3M CD+0.21%) | 5.42 | 2007~2010 | ||||
|
KRW | 50,000 | 5,26(3M CD+0.25%) | 5,19 | 2007~2010 | ||||
JPMorgan Chase Bank |
KRW | 172,800 | 4.65 | Within 2 years: 4.875 After 2 years :
4.875- |
2005-2011 |
(c) | Valuation gains and losses on derivative contracts recorded as other income or expense for the six-month periods ended June 30, 2006 and 2007 are as follows: |
Won (millions) | |||||||
2006 | 2007 | ||||||
Currency swap |
|||||||
Gains |
(Won) | 599 | 23,511 | ||||
Losses |
(139,025 | ) | (25,224 | ) | |||
Interest rate swap |
|||||||
Gains |
1,196 | 441 | |||||
Losses |
(8,755 | ) | | ||||
Currency Forward |
|||||||
Gains |
2 | ||||||
Losses |
(29,828 | ) | |||||
Swaption |
|||||||
Gains |
194 | ||||||
Losses |
| | |||||
(Won) | (145,985 | ) | (30,904 | ) | |||
(d) | The gains (losses) on derivative qualifying as cash flow hedge of (Won) (773)million and ((Won) 4,710 million) are reflected within capital adjustment for the year ended December 31, 2006 and for the six-month periods ended June 30, 2007, respectively. |
(22) | Power Generation, Transmission and Distribution Expenses |
Power generation, transmission and distribution expenses for the six-month periods ended June 30, 2006 and 2007 are as follows:
Won (millions) | |||||
2006 | 2007 | ||||
Fuel |
(Won) | 4,431,088 | 4,854,742 | ||
Purchase of electric power |
1,004,877 | 1,151,298 | |||
Labor |
739,783 | 806,201 | |||
Depreciation and amortization |
2,664,485 | 2,376,187 | |||
Maintenance |
902,138 | 963,600 | |||
Provision for decommissioning costs |
162,498 | 174,763 | |||
Ordinary development expenses |
174,267 | 213,066 | |||
Others |
537,112 | 735,861 | |||
(Won) | 10,616,248 | 11,275,718 | |||
33
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(23) | Selling, General and Administrative Expenses |
Details of selling, general and administrative expenses for the six-month periods ended June 30, 2006 and 2007 are as follows:
Won (millions) | |||||
2006 | 2007 | ||||
Salaries |
(Won) | 259,227 | 239,650 | ||
Employee benefits |
50,505 | 44,431 | |||
Taxes and dues |
12,049 | 19,767 | |||
Rent |
12,081 | 13,451 | |||
Depreciation and amortization |
32,314 | 37,302 | |||
Maintenance |
7,228 | 4,391 | |||
Commission and consultation fees |
49,434 | 44,863 | |||
Ordinary development expenses |
46,349 | 45,162 | |||
Collection expense |
164,435 | 161,556 | |||
Promotion |
12,102 | 15,548 | |||
Bad debts |
15,287 | 6,991 | |||
Communication |
15,935 | 16,445 | |||
Insurance |
2,543 | 1,195 | |||
Rewards |
1,167 | 1,138 | |||
Others |
51,675 | 49,371 | |||
(Won) | 732,331 | 701,261 | |||
(24) | Income Taxes |
The Company is subject to a number of income taxes based on taxable at the following normal tax rates:
Taxable earnings |
Tax rate | ||
Up to (Won)100 million |
14.3 | % | |
Over (Won)100 million |
27.5 | % |
34
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
The components of income tax expense for the six-month periods ended June 30, 2006 and 2007 are summarized as follows:
Won (millions) | |||||||
2006 | 2007 | ||||||
Current income tax expense of KEPCO |
(Won) | 45,957 | 109,786 | ||||
Deferred income tax expense of KEPCO |
71,400 | 73,336 | |||||
117,357 | 183,122 | ||||||
Income taxes of subsidiaries |
391,883 | 397,371 | |||||
Income taxes |
(Won) | 509,240 | 580,493 | ||||
Effective tax rate |
(Won) | 34.89 | % | 38.35 | % | ||
(25) | Earnings Per Share |
Basic earnings per common share are calculated by dividing net income by the weighted-average number of shares of common stock outstanding for the six-periods ended June 30, 2006 and 2007 as follows:
Won (millions) | |||||
2006 | 2007 | ||||
Net income |
(Won) | 938,536 | 916,070 | ||
Weighted-average number of common shares outstanding |
636,959,868 | 621,417,135 | |||
Basic earnings per common share in Won |
(Won) | 1,473 | 1,474 | ||
Diluted earnings per share are calculated by dividing diluted net income by the weighted-average number of shares of common equivalent stock outstanding for the six-month periods ended June 30, 2006 and 2007 are calculated as follows:
Won (millions) | |||||
2006 | 2007 | ||||
Net income |
(Won) | 938,536 | 916,070 | ||
Exchangeable bond interest |
593 | 9,898 | |||
Diluted net income |
939,129 | 925,968 | |||
Weighted-average number of common shares and diluted securities outstanding |
640,457,985 | 640,365,046 | |||
Diluted earnings per share in Won |
(Won) | 1,466 | 1,446 | ||
35
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(26) | Transactions and Balances with Related Companies |
(a) | Significant transactions between the Company and related parties for the six-month periods ended June 30, 2006 and 2007 are as follows. |
Won (millions) | |||||||
Related party |
Transactions | 2006 | 2007 | ||||
Sales and other income: |
|||||||
Korea Gas Corporation |
| 740 | |||||
Korea District Heating Co. |
Sales of electricity | ||||||
and others | (Won) | 106,008 | 99,819 | ||||
LG Powercomm Corporation |
| 37,850 | 17 | ||||
Others |
| 6,539 | 2,233 | ||||
(Won) | 150,397 | 102,809 | |||||
Purchases and other expenses: |
|||||||
Korea Gas Corporation |
Purchases of LNG | (Won) | 2,437,175 | 2,516,064 | |||
Korea District Heating Co. |
Commissions for service and others |
||||||
348 | 73 | ||||||
LG Powercomm Corporation |
| 33,026 | 3,472 | ||||
Korea Electric Power Industrial Development, Ltd. |
| 81,710 | 29,388 | ||||
Others |
| 875 | | ||||
(Won) | 2,553,134 | 2,548,997 | |||||
(b) | Receivables and payables arising from related parties transactions as of December 31, 2006 and June 30, 2007 are as follows: |
Won (millions) | |||||||
Related party |
Accounts | 2006 | 2007 | ||||
Receivables: |
|||||||
Korea Gas Corporation |
Trade receivables and other accounts receivable |
(Won) | 200 | 19 | |||
Korea District Heating Co. |
| 50,141 | 12,156 | ||||
LG Powercomm Corporation |
| 1 | | ||||
Korea Electric Power Industrial Development, Ltd. |
| 429 | 445 | ||||
(Won) | 50,771 | 12,620 | |||||
Payables: |
|||||||
Korea Gas Corporation |
Trade payables and | ||||||
other accounts payable | (Won) | 521,146 | 414,377 | ||||
Korea District Heating Co. |
| | | ||||
LG Powercomm Corporation |
| 336 | 363 | ||||
Korea Electric Power Industrial Development, Ltd. |
| 7,073 | 3,103 | ||||
(Won) | 528,555 | 417,843 | |||||
36
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(c) | Short-term and long-term borrowings from related parties as of December 31, 2006 and June 30, 2007 are as follows: |
Lender |
Type | interest rate % | 2006 | 2007 | ||||||
Korea Development Bank |
Facility | 4.72~5.67 | (Won) | 4,634,375 | 4,850,000 | |||||
Korea Development Bank |
General | 5.49 | 85,680 | 71,400 | ||||||
The Export-Import Bank of Korea |
Project loan | 7.27 | 36,381 | | ||||||
Industrial Bank of Korea |
Rural area development |
4.00 | 22,000 | 22,000 | ||||||
Industrial Bank of Korea |
Borrowings | 4.00 | | 13,000 | ||||||
Industrial Bank of Korea |
Rural area development |
Libor-1.25 | 48,000 | 35,000 | ||||||
Korea Resources Corporation |
Energy rationalization |
Libor-1.25 | 6,000 | 4,000 | ||||||
Korea Resources Corporation |
Facility | 2.5~3.5 | 35,765 | |||||||
Ministry of Commerce, Industry and Energy |
Rural area development |
4.00 | 50,000 | 40,000 | ||||||
(Won) | 4,946,617 | (Won) | 5,071,165 | |||||||
(d) | Garantees provided by related companies for the Company as of June 30, 2007 are as follows: |
Won (millions), USD, JPY and GBP (thousands) | ||||||||||||||
Type |
Related party | Currency | Guaranteed amounts |
Type of borrowings |
Balance of borrowing as of June 30, 2007 | |||||||||
Payment guarantee (*) |
Korea Development Bank |
US$ | 740,771 | Foreign currency bond |
US$ | 536,417 |
(*) | To facilitate the Restructuring Plan described in note1(a), Korea Development Bank has provided a repayment guarantee to creditors of certain foreign currency debentures of the Company, which existed at the time of spin-off, but not redeemed as of June 30, 2007, as consideration for the elimination of the joint and several liability of the Company and its power generation subsidiaries. |
37
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(27) | Transactions and Balances with Consolidated Subsidiaries |
(a) | Significant transactions among KEPCO and consolidated subsidiaries for the year ended December 31, 2006 and the six-months ended June 30, 2007 are as follows. These were eliminated in consolidation: |
Won (millions) | |||||||
Consolidated subsidiaries |
Transactions | 2006 | 2007 | ||||
Sales and other income: |
|||||||
Korea Electric Power Corporation |
Sales of electricity | ||||||
and others | (Won) | 445,603 | 126,339 | ||||
Korea Hydro & Nuclear Power Co., Ltd. |
| 5,562,882 | 2,697,895 | ||||
Korea South-East Power Co., Ltd. |
| 1,975,454 | 1,067,364 | ||||
Korea Midland Power Co., Ltd. |
| 2,490,256 | 1,370,267 | ||||
Korea Western Power Co., Ltd. |
| 2,418,072 | 1,558,566 | ||||
Korea Southern Power Co., Ltd. |
| 3,309,389 | 1,819,506 | ||||
Korea East-West Power Co., Ltd. |
| 2,504,917 | 1,362,512 | ||||
Others |
Commissions for service and others |
1,139,645 | 492,784 | ||||
(Won) | 19,846,218 | 10,495,233 | |||||
Purchases and other expenses: |
|||||||
Korea Electric Power Corporation (*) |
Purchases of electricity and others |
(Won) | 18,598,155 | 9,991,268 | |||
Korea Hydro & Nuclear Power Co., Ltd. |
Commissions for service and others |
653,112 | 312,850 | ||||
Korea South-East Power Co., Ltd. |
| 106,451 | 39,799 | ||||
Korea Midland Power Co., Ltd. |
| 154,113 | 46,944 | ||||
Korea Western Power Co., Ltd. |
| 83,392 | 45,710 | ||||
Korea Southern Power Co., Ltd. |
| 84,777 | 26,103 | ||||
Korea East-West Power Co., Ltd. |
| 81,381 | 56,493 | ||||
Others |
| 10,049 | 7,186 | ||||
(Won) | 19,771,430 | 10,526,353 | |||||
(*) | KEPCO has purchased electricity from its power generation subsidiaries through Korea Power Exchange. |
38
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(b) | Receivables and payables arising from KEPCO and consolidated subsidiaries transactions as of December 31, 2006 and June 30, 2007 are as follows. These were eliminated in the consolidation: |
Won (millions) | |||||||
Consolidated subsidiaries |
Accounts | 2006 | 2007 | ||||
Receivables: |
|||||||
Korea Electric Power Corporation |
Trade receivables and others |
(Won) | 46,463 | 27,809 | |||
Korea Hydro & Nuclear Power Co., Ltd. |
| 390,592 | 374,907 | ||||
Korea South-East Power Co., Ltd. |
| 175,008 | 149,328 | ||||
Korea Midland Power Co., Ltd. |
| 200,259 | 228,767 | ||||
Korea Western Power Co., Ltd. |
| 236,559 | 224,498 | ||||
Korea Southern Power Co., Ltd. |
| 277,232 | 279,870 | ||||
Korea East-West Power Co., Ltd. |
| 227,644 | 207,963 | ||||
Others |
| 233,935 | 40,660 | ||||
(Won) | 1,787,692 | 1,533,802 | |||||
Payables: |
|||||||
Korea Electric Power Corporation (*) |
Trade payables and others |
(Won) | 1,575,494 | 1,438,359 | |||
Korea Hydro & Nuclear Power |
|||||||
Co., Ltd. |
| 50,142 | 29,529 | ||||
Korea South-East Power Co., Ltd. |
| 15,787 | 13,232 | ||||
Korea Midland Power Co., Ltd. |
| 22,271 | 4,738 | ||||
Korea Western Power Co., Ltd. |
| 7,499 | 5,720 | ||||
Korea Southern Power Co., Ltd. |
| 10,615 | 1,553 | ||||
Korea East-West Power Co., Ltd. |
| 12,745 | 5,394 | ||||
Others |
| 75,507 | 38,514 | ||||
(Won) | 1,770,060 | 1,537,039 | |||||
(*) | KEPCO has purchased electricity from its power generation subsidiaries through Korea Power Exchange. |
39
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(c) | The elimination entries of revenues and expenses among KEPCO and consolidated subsidiaries for the six-month periods ended June 30, 2007 are summarized as follows: |
Won (millions) |
Won (millions) | |||||||
Accounts |
Amount | Accounts |
Amount | |||||
Operating revenues |
(Won) | 10,096,586 | Operating expenses | (Won) | 10,081,333 | |||
Rental income |
8,519 | Rent expenses | 1,965 | |||||
Interest income |
32,578 | Interest expenses | 32,578 | |||||
Others |
5,989 | Others | 27,796 | |||||
(Won) | 10,143,672 | (Won) | 10,143,672 | |||||
(d) | The elimination entries of receivables and payables among KEPCO and consolidated subsidiaries as of June 30, 2007 are summarized as follows: |
Won (millions) |
Won (millions) | |||||||
Accounts |
Amount | Accounts |
Amount | |||||
Trade payables |
(Won) | 1,440,136 | Trade receivables | (Won) | 1,463,878 | |||
Accounts payable |
223,193 | Long-term receivables | 1,373,517 | |||||
Long-term accounts payable |
1,373,517 | Other accounts receivables | 211,547 | |||||
Contribution in aid of construction |
1,550,234 | Rights of electricity And gas utilization | 1,550,234 | |||||
Accrued expense |
12,252 | Construction-in-progress | 41,002 | |||||
Others |
42,945 | Others | 2,099 | |||||
(Won) | 4,642,277 | (Won) | 4,642,277 | |||||
(e) | 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$281,032,000 as project financing from Japan Bank of International Cooperation and others for that business. In connection with the borrowing, KEPCO Ilijan Corporations investment securities, accounted for under the equity method, and held by KEPCO International Philippines Inc., were pledged as collateral. The Company has provided Japan Bank of International Cooperation and others with guarantees to the extent not exceeding US$72,000,000 for the performance of the power generation business of KEPCO Ilijan Corporation. |
40
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(28) | Commitments and Contingencies: |
(a) | The Company is involved in legal proceedings regarding matters arising in the ordinary course of business. Related to these matters, as of June 30, 2007, the Company is engaged in 327 lawsuits as a defendant and 61 lawsuits as a plaintiff. The total amount claimed against the Company is (Won)406,108 million and the total amount claimed by the Company is (Won)43,614 million as of June 30, 2007. As of June 30, 2007, the Company has recorded a liability related to the above claims amounts to (Won)38,735 million, which has been accounted for other long-term liabilities. In the opinion of management, the ultimate results of these lawsuits will not have a material adverse effect on the Companys financial position, results of operation, or liquidity. |
(b) | Short-term Credit Facilities |
Payment guarantee and short-term credit facilities from financial institutions as of June 30, 2007 are as follows:
(i) Payment Guarantee
|
|||||
Won (millions), US$ (thousands) | |||||
Description |
Financial institution |
Credit lines | |||
Payment of import letter of credit | Korea Exchange Bank and others |
US$ | 1,219,400 | ||
(Won) | 217,100 | ||||
Payment of customs duties | Korea Exchange Bank | (Won) | 2,688 | ||
Credits | Korea Exchange Bank | (Won) | 122,300 | ||
Borrowings | Woori Bank and others | (Won) | 300,000 | ||
US$ | 80,000 | ||||
Performance bond | Seoul Guarantee Insurance Co., Ltd. and others |
||||
(Won) | 80,000 | ||||
Payment of foreign currency | Korea Exchange Bank | US$ | 415,000 | ||
(ii) Overdraft and Others
|
|||||
Won (millions), US$ (thousands) | |||||
Description |
Financial institution |
Credit lines | |||
Overdraft | National Agricultural Cooperative Federation and others |
(Won) | 700,000 | ||
Discount on promissory note | Korea Exchange Bank |
(Won) | 269,000 | ||
Commercial Paper | Korea Exchange Bank and others |
(Won) | 700,000 | ||
Trade finaning | Shinhan Bank |
US$ | 2,000 | ||
Other | Shinhan Bank and others |
(Won) | 82,000 |
(c) | The Company is provided with guarantees from Seoul Guarantee Insurance Co., Ltd. and others for performance of contract, warranty fees and bids for construction work in relation to overseas constructions. |
(d) | The Company has provided a promissory note of (Won)1,771 million to Hyundai Heavy Industry, Co., Ltd. as a guarantee for performance of contract. |
(e) | A key stipulation of the Agreed Framework signed by the United States and North Korea in October 1994 was that a US-led international consortium would construct two commercial light water reactors in North Korea in return for certain nuclear non-proliferation steps to be taken by North Korea. The Korean Peninsula Energy Development Organization (KEDO) was chartered in March 1995 as the international consortium stipulated by the Agreed Framework and signed |
41
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
an agreement with North Korea in December 1995 to supply the light water reactors. Kumho, North Korea was selected as the site for such light water reactors and KEDO designated the Company as its prime contractor to build two units of pressurized light water reactors with a total capacity of 2,000 megawatts. The Company entered into a fixed price turnkey contract with KEDO, which became effective on February 3, 2000. The contract amount was US$4,182 million subject to adjustment to cover any changes in the price level.
In November 2002, amid suspicions that North Korea was engaged in an undeclared program to enrich uranium, KEDO suspended the supply of heavy fuel oil to North Korea, which was part of the Agreed Framework. Subsequently, North Korea withdrew from the Treaty on the Non-Proliferation of Nuclear Weapons in January 2003 and resumed operations at the Yongbyon facility, a nuclear facility whose operations had been frozen under the Agreed Framework. Several diplomatic initiatives were taken to resolve these issues to no avail.
In December 2003, asserting that North Korea had not met the conditions required for the continuation of the project, KEDO suspended the construction of the project for one year, which was subsequently extended to November 30, 2005. However, the Company continued to perform maintenance for the project during 2004 and 2005. In December 2005, KEDO sent a delegation to North Korea to discuss the issues regarding the projects termination and demobilization. During the meeting, North Korea requested KEDO to withdraw all of its personnel. On January 8, 2006, KEDO completed the withdrawal of all workers from the project site.
The Executive Board of KEDO decided to terminate the light water reactor project as of May 31, 2006. KEDO notified the Company of the termination of the project and the related turnkey contract between KEDO and the Company. On December 12, 2006, the Company entered into the Termination Agreement (TA) with KEDO.
Pursuant to the terms of the TA, the Company accepts substantially all rights and obligations related to the light water reactor supplements outside of North Korea, from KEDO. In exchange, the Company waives the right to claim any expenses incurred and any probable claims by subcontractors to KEDO. As of June 30, 2007, the Company offset the existing accounts receivables from KEDO, which it surrendered according to the TA, against advance received. As a result, the Company recorded in other non-current assets the estimated fair value of assets received amounting to (Won)94,088 million for which the proceeds from disposal will be applied to existing and future obligations which was also offset existing advance received recorded in current and non-current liabilities. In addition, the Company recorded in other long-term liabilities estimated claims currently reasonably estimable to coordinated contractors amounting to (Won)20,647 million. Final settlement of ultimate gains or losses from the project is contingent upon full disposal of related assets and settlement of obligations.
(f) | The Company entered into a Power Purchase Agreement with GS EPS Co., Ltd. and other independent powe0r producers for power purchases in accordance with the Electricity Business Act. These purchase agreements require the Company to purchase minimum amounts which the Company has historically exceeded. The power purchased under these agreements amounted to (Won)692,977 million and (Won)665,004 million for the years ended June 30, 2006 and 2007 respectively. In relation to the power purchases, the Company entered into long-term purchase contracts with various suppliers and the terms of these contracts can be summarized as follows: |
Generation type |
Contract expiration term | |
Combined cycle unit |
2018~2025 | |
Hydroelectric units |
2009~2032 | |
Small hydroelectric and other units |
2007~2019 |
Under these contracts, purchase quantities are not fixed, and purchase prices are annually reset based on certain formula for each generation type.
42
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
(g) | The Company has contracted Doosan Industrial Co., Ltd. and others amounting to W3,956,695 million, US$40,950 thousand and JPY17,792,100 thousand in the aggregate as of June 30, 2007, for construction of power plant facilities and facility maintenance |
(h) | The Company has bituminous coal, anthracite Coal, oil and LNG purchase contracts with domestic and foreign suppliers including Korea Gas Corporation (a related party) as of June 30, 2007. Under these contracts, the Company must purchase an annual quantity of coal. The purchase price is determined based on market prices. In relation to coal imports, the Company entered into long-term transportation contracts with Hanjin Shipping Co., Ltd. and others as of June 30, 2007. |
Fuel type |
Contract expiration Term |
Quantity | ||
Bituminous Coal |
2007~2013 | 41,845 thousand ton/year | ||
Anthracite Coal |
2007 | Set by government | ||
Oil |
2007 | 1,941 thousand kl/year | ||
LNG |
2026 | Mutual agreement |
(i) | During 2001, the Company voluntarily suspended operations of the Gangneung hydroelectric generating plant to improve the quality of water used in generating electricity. The expenses related to the suspension of operations, including depreciation on the utility plant during 2007 and 2006 amounting to (Won)1,718 million and (Won)3,569 million, respectively, were charged to other expenses. In December 2005, a hearing was held by government officials, and attended by representatives of the Company, Gangneung residents and Korea Environment Institute (KEI). At the hearing, the Korean government ordered the conditional suspension of operations based on the KEI findings on the environmental effect of Gangneung hydroelectric generating plant. As of June 30, 2007, Gangneung hydroelectric generating plant is still under conditional suspension of operations based on the KEI findings. The Company will be able to utilize this plant in the future provided that the quality of the water improves and the residents of Gangneung consent to operations. Moreover, Korea South-East Power Co., Ltd., a subsidiary of KEPCO, has recognized provisions for litigations regarding losses on fishery rights related to Samchonpo Thermal Power Site Division amounting to (Won) 16,570 million which was reasonably estimated based upon practices of other companies in the same industry. |
(j) | In April 2005, Korea Midland Power Co., Ltd. invested in Gangwon wind power corporation amounting to (Won) 5,679 million (15% of interest) to participate in renewable energy industry. Gangwon wind power corporation entered into the loan contract for financing construction costs. The Company has agreed to pay construction costs incurred in excess of estimated costs up to (Won)1,203 million. Also, investments in Gangwon wind power (book value of (Won) 5,725 million) are restricted as collateral with Industrial Bank of Korea and BNP PARIBAS. |
(k) | The Company provides performance guarantees related to the operation of the Lebanon power generation plant amounting to US$17,113 thousand to the Lebanon Electricity Agency. |
(l) | In May 2006, the international consortium, which Korea Midland Power Co., Ltd. participated in, acts as the preferred contractor for the Cirebon private power generation industry, as ordered by Indonesia PLN. A power purchase agreement is being negotiated and summary of the agreement is as follows. |
Name of Business |
Construction and operation of Indonesia Cirebon thermal power generation | |
Plant Capacity | 660MW * 1 Plant | |
Total Construction Fee | US$736,000 thousand | |
Construction Period | 3 years from completion of resources supply |
43
Korea Electric Power Corporation
Notes to Consolidated Financial Statements, Continued
(Unaudited)
KEPCO is currently providing payment guarantee amounting to US $ 825 thousand for the above project as of June 30, 2007. Immediately after the PPA is signed, PT. Cirebon Electric Power, the Indonesian local corporation, is expected to pay performance guarantee equivalent to IDF 45 billion to PLN Indonesia. Korea Midland Power Co., Ltd. is expected to provide backup guarantee amounting to IDF 1.23 billion (equivalent to the equity ratio of 27.5%) to Mizho Bank, Indonesia.
(29) | Segment Information |
(a) | The following table provides information for each operating segment for the six-month periods ended June 30, 2006 and 2007 |
Won (million) | ||||||||||||||||
2006 | ||||||||||||||||
Electric business | Consolidation | |||||||||||||||
Transmission & distribution |
Power generation |
All other | adjustment | Consolidated | ||||||||||||
Unaffiliated revenues |
(Won) | 12,725,185 | 110,160 | 161,147 | | 12,996,492 | ||||||||||
Intersegment revenues |
127,693 | 9,329,835 | 507,348 | (9,964,876 | ) | | ||||||||||
Total revenues |
12,852,878 | 9,439,995 | 668,495 | (9,964,876 | ) | 12,996,492 | ||||||||||
Cost of |