Hyundai oil refinery co

KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements
Korea Hydro & Nuclear Power Co., Ltd. (the “Company”) was established on April 2, 2001 through a corporate split from Korea Electric Power Corporation (“KEPCO”) in accordance with the Restructuring Plan of the Electric Industry in the Republic of Korea announced by the Ministry of Commerce, Industry and Energy to develop electric power resources and generate electricity. The Company is wholly owned by KEPCO. The Company, which has 27 hydraulic generating stations and 16 nuclear power stations, has the generation capacity of 14,251 MW per annum. The details of the split from Korea Electric Power Corporation are as follows: (a) Name of splitting company : Korea Electric Power Corporation ( Listed on the New York Stock Exchange in 1994 ) (b) General business of KEPCO : Electricity generation, transmission, and distribution (c) Description of split : Split into 6 power generation subsidiaries (i) July 3, 1998 : Announcement of “the Privatization Plan of Public Corporation” (ii) January 21, 1999 : Confirmation of “the Restructuring Plan of the Electric Industry” (iii) December 8, 2000 : Resolution of “the Act of the Restructuring Plan of the Electric (iv) March 3, 2001 : The meeting of establishment of Korea Hydro & Nuclear Power : Legal registration of Korea Hydro & Nuclear Power Co., Ltd. (e) KEPCO transferred its assets and liabilities to the Company based on net book value on split date. The Company determined that book value approximated fair value on April 2, 2001. Details of transferred assets and liabilities are as follows: Difference (Paid-in capital in excess of par value) W 8,233,249 KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements, Continued
Basis of Presenting Financial Statements and Summary of Significant Accounting Policies (a) Basis of Presenting Financial Statements The accompanying financial statements have been extracted from the Company’s Korean language financial statements that were prepared using accounting principles, procedure and reporting practices generally accepted in the Republic of Korea (“Korean GAAP”). The financial statements have been translated from those issued in Korean, from the Korean language into the English language, and have been modified to allow for the formatting of the financial statements in a manner which is different from the presentation under Korean practices. In addition, certain modifications have been made in the accompanying financial statements to bring the formal presentation into conformity with practices outside of Korea, and certain information included in the Korean language statutory financial statements, which management believes is not required for a fair presentation of the Company’s financial position or results of operations, is not presented in the accompanying financial statements. Accordingly, the accompanying financial statements and their utilizations are not designed for those who are not informed about Korean accounting principles, procedures and practices and furthermore are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than Korea. The Company considers short-term financial instruments with maturities of three months or less at the acquisition date to be cash equivalents. The allowance for doubtful accounts on receivables is based on a management analysis of the portfolio quality. The changes in the allowance for doubtful accounts for the period ending December 31, 2001 are as follows: Marketable securities, which include marketable equity and debt securities held for short-term cash management purposes, are stated at fair value, with valuation gains and losses included in current earnings. Inventories are stated at the lower of cost or market value. Cost is determined using the weighted average cost method. When the net realizable value of inventory is less than recorded cost, the carrying amount is reduced to net realizable value. KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements, Continued
Basis of Presenting Financial Statements and summary of Significant Accounting Policies, Continued Investments in affiliated companies, where the Company exercises significant influence are accounted for using the equity method, whereby the Company’s initial investment is recorded at cost and the carrying amount is subsequently increased to reflect the Company’s share of income of the investee and reduced to reflect the Company’s share of losses of the investee and dividends received. Under the equity method of accounting, the Company generally does not record its shares of losses of affiliated companies when such losses would make the Company’s investment in such entity less than zero. Utility plant is stated at cost. Significant additions or improvements extending useful lives of assets or adding to its productive capacity are capitalized. Expenditures for normal maintenance and repairs are charged to expense when incurred. Depreciation is computed using the declining-balance method (except for buildings and structures which are depreciated using the straight-line method and nuclear fuel which is depreciated using units-of-production method and the straight-line method) using rates based on the following estimated useful lives of the related units of property: The Company capitalizes interest costs, discounts and other financial charges, including certain foreign exchange gains and losses. (see note 8), on borrowings associated with the manufacture, purchase, or construction of utility plant incurred prior to the completion of acquisitions, as part of the cost of assets. Intangible assets, which represent the right to use dam, dockyards and other property, are stated at cost less accumulated amortization. Amortization is computed by the straight-line method over periods which range from 4 to 40 years. Intangible assets are recorded in other assets in the accompanying balance sheet. KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements, Continued
Basis of Presenting Financial Statements and summary of Significant Accounting Policies, Continued Certain furniture and fixtures (primarily computers) acquired under capital leases and related lease obligations are recorded at the discounted present value of total non-cancelable lease payments. Total acquisition cost under capital leases is W 1,785 million as of December 31, 2001. Future minimum non-cancelable lease payments required pursuant to these capital lease agreements at December 31, 2001 are as follows: The Company reviews long-lived assets for impairment, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Employees who have been with the Company for more than one year are entitled to lump-sum payments based on current rates of benefit and length of service when they leave the Company. The Company's estimated liability under the plan which would be payable if all employees left on the balance sheet date is accrued in the accompanying balance sheet. A portion of the liability is covered by an employees’ severance pay insurance where the employees have a vested interest in the deposit with the insurance company. The deposit for severance benefit insurance is, therefore, reflected in the accompanying balance sheet as a deduction from the liability for retirement and severance benefits. KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements, Continued
Basis of Presenting Financial Statements and Summary of Significant Accounting Policies, Continued Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at the balance sheet date. As of December 31, 2001, monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at W1,326.1 to US$1, the rate of exchange permitted under the Financial Accounting Standards in the Republic of Korea. Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historical cost, are translated into Korean Won at the foreign exchange rate ruling at the date of the transaction. Realized and unrealized foreign exchange gains and losses which occur during the construction period on short-term debt and long-term debt incurred in connection with construction of utility plant are deducted from or capitalized in construction in-progress, as appropriate. Accordingly, the Company has excluded realized and unrealized foreign exchange gains of W 222 million and losses of W 5,876 million from results of operations for the period from April 2, 2001 to December 31, 2001, and charged (deducted) such amounts to (from) construction in-progress under utility plant. Realized and unrealized foreign exchange gains (losses) recognized in results of operations, excluding amortization of foreign exchange losses (gains) capitalized in (deducted from) utility plant, for the period from April 2, 2001 to December 31, 2001 are as follows: Foreign exchange transaction and translation gain, net W 3,180 Revenue is recognized when the earning process is complete and the risks and rewards of ownership have transferred to the customer, which is generally considered to have occurred upon delivery. Research and development costs are expensed as incurred. The Company incurred research and development costs of W169,405 million for the period from April 2, 2001 to December 31, 2001. KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements, Continued
Basis of Presenting Financial Statements and Summary of Significant Accounting Policies, Continued Income tax expense or benefit on earnings includes both current and deferred taxes. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the balance sheet date. Deferred tax is provided using the asset and liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A deferred tax asset is recognized only to the extent that it is probable that such deferred tax asset is recoverable in a future period. Deferred tax assets are reduced to the extent that it is not longer probable the related tax benefit will be realized. Earnings per common share is calculated by dividing net earnings by the weighted-average number of shares of common stock outstanding which were 226,310,000 shares for the period from April 2, 2001 to December 31, 2001. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent asset and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Financial Statement Translation (Unaudited)The financial statements are expressed in Korean Won and, solely for the convenience of the reader, the financial statements have been translated into United States dollars at the rate of W1,313.5 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 at December 31, 2001. The translation should not be construed as a representation that any or all of the amounts shown could be converted into dollars at this or any other rate. KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements, Continued
Cash and Cash Equivalents Cash and cash equivalents as of December 31, 2001 are summarized as follows: Inventories as of December 31, 2001 are summarized as follows: Other current assets as of December 31, 2001 are summarized as follows: KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements, Continued
Investments and Transactions with Affiliated Companies (a) Investments in affiliated company, accounted for using the equity method, as of December Korea Power Exchange Co., Ltd 14.28 W 8,768 (b) Significant transactions and related account balances which occurred in the normal course of business with affiliated companies including KEPCO and its subsidiaries as of December 31, 2001 and for the period from April 2, 2001 to December 31, 2001, are summarized as follows: Interest expense (net of amounts capitalized) (a) Utility plant as of December 31, 2001 are summarized as follows: KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements, Continued
In connection with the construction of utility plant, the Company capitalizes interest and certain foreign exchange translation gains and losses on borrowings associated with utility plant during the construction period. The details of interest and foreign exchange loss capitalized for the period from April 2, 2001 to December 31, 2001 are as follows: Utility plant is insured against fire damage up to an amount of W 8,664,013 million as of December 31, 2001. Additionally, the Company maintains insurance policies covering loss and liability arising from automobile accidents. Other assets as of December 31, 2001 are summarized as follows: Amortization on intangibles for the period from April 2, 2002 to December 31, 2001 was Other current liabilities as of December 31, 2001 are summarized as follows: KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements, Continued
(a) Long-term debt as of December 31, 2001 is summarized as follows: The Export-Import Bank of Korea 3.31~7.28 Discounts on bonds issued are amortized over the life of the bonds utilizing the effective interest rate method. KEPCO transferred certain long-term debt to the Company on the split date and concurrently entered into an agreement with KEPCO whereby the Company will make payments to KEPCO with respect to such debt. Among those long-term balances referred above, W 5,147,334 million should be paid to KEPCO and is considered as a transaction with affiliated companies (see note 7). (b) Scheduled maturities for the Company’s long-term debt as of December 31, 2001 are as KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements, Continued
Changes in retirement and severance benefits for the period from April 2, 2001 to December 31, 2001 are summarized as follows: The Company accrues for estimated decommissioning costs of nuclear facilities based on engineering studies. These costs are included in cost of electric power in the accompanying statement of earnings. As of December 31, 2001, the Company has estimated W 3,849,217 million as the cost of dismantling and decontaminating existing nuclear power plants, consisting of dismantling costs of nuclear plant of W 1,346,960 million and dismantling costs of spent fuel and radioactive waste of W 2,502,257 million. Annual additions to the reserve are in amounts such that the current costs would be fully accrued for at estimated dates of decommissioning on a straight-line basis. The Company accrued W283,518 million to the reserve for decommissioning cost for the period from April 2, 2001 to December 31, 2001. Changes in reserve for decommissioning costs for the period from April 2, 2001 to December 31, 2001 are summarized as follows: The ownership of the Company’s outstanding common stock as of December 31, 2001 is summarized as follows: KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements, Continued
Changes in stockholder’s equity for the period from April 2, 2001 to December 31, 2001 are summarized as follows: Capital surplus as of December 31, 2001 is summarized as follows: Paid-in capital in excess of par value (see note 1) Retained earnings appropriated to various restricted reserves as of December 31, 2001 are summarized as follows: Retained earnings appropriated to legal reserve are restricted in use as cash dividends under the applicable laws and regulations of the Republic of Korea. The Korean Commercial Code requires the Company to appropriate to legal reserve an amount equal to at least 10% of the cash dividend amount at the end of the year for each accounting period until the reserve equals 50% of stated capital. The legal reserve may be used to reduce a deficit or may be transferred to stated capital. KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements, Continued
(16) Appropriated retained Earnings, Continued Under the Special Tax Treatment Control Low, investment tax credits are allowed for certain investments. The Company is required to transfer the amount of tax benefits obtained from retained earnings into the reserve for business rationalization. This reserve may be either used to reduce a deficit or transferred to stated capital in connection with a free issue of shares. Under the Special Tax Treatment Control Law, the Company is allowed to make certain deductions from taxable income. The Company is, however, required to appropriate retained earnings the amount of tax benefits obtained and transfer such amount into reserves for investment in social overhead capital and research and human resource development. The Company is allowed to appropriate from retained earnings amounts necessary to establish reserves for business expansion at its own discretion. These reserves may be used for facilities expansion of the Company. The Company is involved in litigation as a defendant in 20 claims as of December 31, 2001 for injuries allegedly resulting from accidents in the normal course of operations of power plant. These claims amounted to W10,473 million as of December 31, 2001. The Company is unable to predict the possible outcome of the above claims. However, in the opinion of management, the ultimate settlement of these matters will not have a materially adverse effect on the Company’s financial position or results of operations. In accordance with paragraph 9 of Article 530 of the Commercial Law of Republic of Korea, the Company is jointly liable with KEPCO, and other electric generating subsidiaries of KEPCO, for KEPCO’s liabilities as of April 2, 2001, the date of split. As of April 2, 2001 those liabilities are as follows: KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements, Continued
The Company is subject to a number of income taxes based upon taxable income which result in a normal tax rate of approximately 30.8% for the period from April 2, 2001 to December 31, 2001. Effective January 1, 2002, the normal corporate tax rate will decrease to 29.7%. Consequently, the decrease of deferred income tax assets therefrom has been recognized as deferred income tax expense in 2001. The components of income tax expense for the period from April 2, 2001 to December 31, 2001 The provision for income taxes using normal tax rates differs from the actual provision for the period from April 2, 2001 to December 31, 2001 for the following reasons: Provision for income taxes at normal tax rate Tax effect of permanent differences, net The composition of deferred income tax assets and liabilities as of December 31, 2001 are as Reserve for investment in social overhead capital Reserve for research and human resource development KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements, Continued
On March 28, 2002, the Company declared a dividend related to income earned for the period April 2, 2001 to December 31, 2001. Details of the dividend are as follows: Dividends as a percentage of net earnings Earnings per share of common stock for the period from April 2, 2001 to December 31, 2001 are calculated as follows: Average number of shares outstanding (thousands) Beginning in 1997, Korea and other countries in the Asia Pacific region experienced a severe contraction in substantially all aspects of their economies. This situation is commonly referred to as the 1997 Asian financial crisis. In response to this situation, the Korean government and the private sector began implementing structural reforms to historical business practices. The Korean economy continues to experience difficulties, particularly in the areas of restructuring private enterprises and reforming the banking industry. The Korean government continues to apply pressure to Korean companies to restructure into more efficient and profitable firms. The banking industry is currently undergoing consolidations and uncertainty exists with regard to the continued availability of financing. The Company may be either directly or indirectly affected by the situation described above. The accompanying financial statements reflect management’s current assessment of the impact to date of the economic situation on the financial position of the Company. Actual results may differ materially from management’s current assessments. KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements, Continued
The following methods and assumptions were used to estimate the fair value of each class of significant financial instruments for which it is practicable to estimate that value: (a) Cash and cash equivalents, receivables, loans, trade notes and accounts payable The carrying amount approximates fair value because of the nature of the instruments or the short maturity of the instruments. For investments for which there are no quoted market prices, a reasonable estimate of fair value could not be made without incurring excessive costs. Additional information pertinent to the fair value of unquoted investments is provided below. The fair value of long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered for debt of the same remaining maturities. The estimated fair values of the Company’s financial instruments at December 31, 2001 are summarized as follows: It was not practicable to estimate the fair value of certain investments in companies which are not publicly traded. Additional information derived from the companies Korean GAAP financial statements audited by other auditors as of and for the year ended December 31, 2001 are summarized as follows: KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements, Continued
Reconciliation to United States Generally Accepted Accounting Principles The financial statements are prepared in accordance with Korean GAAP which differ in certain respects from accounting principles generally accepted in the United States of America (“U.S. GAAP”). The significant differences between Korean GAAP and U.S. GAAP that affect the Company’s financial statements are described below. Under U.S. GAAP, utility plant is stated at cost less accumulated depreciation in the financial statements. The revaluation of utility plant, and resulting depreciation of revalued amounts, would not have been included in the financial statements prepared in accordance with U.S. GAAP. When assets are sold, any revaluation surplus attributable to those assets under Korean GAAP would be reflected in current operations as an additional gain on sale of assets under U.S. GAAP. Special depreciation, which is recognized prior to 1994, represents an acceleration of depreciation on certain assets under Korean GAAP. The U.S. GAAP reconciliation reflects the adjustment of special depreciation to an acceptable method, based on the economic useful life of the asset. Under Korean GAAP, realized and unrealized foreign currency translation gains and losses incurred during the construction period on short-term debt and long-term debt incurred for construction of utility plant are capitalized. Under U.S. GAAP, such foreign currency translation gains and losses are included in results of operations for the current period. Under Korean GAAP, dividends are recognized in the period during which the income from which the dividend is to be declared was earned. Under U.S. GAAP, dividends are recognized in the period in which they are declared. Under Korean GAAP, when an entity establishes a wholly owned subsidiary through the transfer of its assets and liabilities, the wholly owned subsidiary records the transfer at fair value. Under U.S.GAAP, the assets and liabilities transferred to the wholly owned subsidiary would be recorded at their historical carrying amounts. However since the fair value of the Company’s net assets approximated their historical carrying amounts on the date of the split, this difference has no effect on net earnings or stockholder’s equity under U.S. GAAP. KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements, Continued
Reconciliation to United States Generally Accepted Accounting Principles. Continued In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Intangible Assets.” SFAS No. 142 requires that recognized intangible assets be amortized over their respective estimated useful lives and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Any recognized intangible asset determined to have an indefinite useful life are not amortized, but instead tested for impairment in accordance with the SFAS No. 142 until its life is determined to no longer be indefinite. The provisions of SFAS No.142 shall be applied for fiscal years beginning after December 15, 2001, to all goodwill and other intangible assets recognized in an entity’s statement of financial position at the beginning of that fiscal year, regardless of when those previously recognized assets were initially recognized, with the exception of the immediate requirement to use the purchase method of accounting for all future business combinations completed after June 30, 2001. Upon adoption of SFAS No. 142, the Company will be required to reassess the useful lives and residual values of all intangible assets and make any necessary amortization period adjustments. Management does not expect the adoption of SFAS No. 142 to have a material impact on the Company’s financial statements. In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it 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. The Company also records a corresponding asset which is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Company is required to adopt SFAS No. 143 on January 1, 2003. The Company has not determined the potential effects on the Company’s financial statements upon adoption of this Statement. In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which supersedes both SFAS No. 121, and the accounting and reporting provisions of Accounting Principles Board (“APB”) Opinion No. 30, “Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (APB Opinion No. 30), for the disposal of a segment of a business (as previously defined in that APB Opinion). SFAS No. 144 retains the fundamental provisions in SFAS No. 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant implementation issues associated with SFAS No. 121. The Company is required to adopt SFAS No. 144 no later than the fiscal year beginning after December 15, 2001. Management does not expect the adoption of SFAS No. 144 for long-lived assets held for use to have a material impact on the Company’s financial statements because the impairment assessment under SFAS No. 144 is largely unchanged from SFAS No. 121. The provisions of the Statement for assets held for sale or other disposal generally are required to be applied prospectively after the adoption date to newly initiated disposal activities. Therefore, management cannot determine the potential effects that adoption of SFAS No. 144 will have on the Company’s financial statements.
KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements, Continued
(23) Reconciliation to United States Generally Accepted Accounting Principles, Continued The effects of the significant adjustments to net income and stockholder’s equity which would be required if U.S. GAAP were to be applied instead of Korean GAAP are summarized as follows: Capitalized foreign currency translation Deferred tax effects of U.S.GAAP adjustments Earnings per share as adjusted in accordance Weighed average shares outstanding (thousands) Stockholder’s equity under Korean GAAP Deferred tax effects of U.S. GAAP adjustments KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements, Continued
(23) Reconciliation to United States Generally Accepted Accounting Principles, Continued The tax effects of temporary differences that resulted in significant portions of the deferred tax assets and liabilities at December 31, 2001, as computed under U.S. GAAP, and a description of the financial statement items that created these differences are as follows: Reserve for investment in social overhead capital Reserve for research and human resource development KOREA HYDRO & NUCLEAR POWER CO., LTD. Notes to Financial Statements, Continued
(23) Reconciliation to United States Generally Accepted Accounting Principles, Continued The condensed balance sheet in accordance with U.S. GAAP as of December 31, 2001 is summarized s follows: Gross and net utility plant under U.S. GAAP as of December 31, 2001 is summarized as follows:

Source: https://cms.khnp.co.kr/wp-content/legacy/01_us_4_notes.pdf