1999 ANNUAL REPORT
We Reshape
Ourselves
To Offer
More
Responsive and
Innovative
Service
CONTENTS
Vision Profile 1
Financial Highlights 2
Energy Business 24
Chemical Business 28
Research & Development 34
CEO Message 3
A Message from the President 6
Integated Market Networking 30
1999 Financial Reports 36
Directors & Officers 45
Marketing Company Means 8
Environmental Management 32
Corporate Data 46
V I S I O N
P R O F I L E
O u r
N e w
V i s i o n
o f
S K
i n
A
M a r k e t i n g
•••
t h e
2 1 s t
C e n t u r y ?
G l o b a l i z e d
I n n o v a t i v e
C o m p a n y.
We of SK Corporation have set ourselves a new course to leverage our corporate values on top of our integrated
energy and chemical backbone to take us to the global forefront. We want to be a company that can contribute to society. A
company whose proficient knowledge workers are respected and loved by the people in their communities. Continually enhancing customer values. Developing unprecedented technologies and innovative business models. Stepping out into the world marketplace with leading-edge products. These are examples of what we are refocusing our resources on today. All our dedicated
workers have a new mindset. They want us to be the company most admired by investors. The company most desired by employees. The brand preferred by customers. For our business partners, we will make SK the most reliable company through reciprocity.
The dream of SK in the 21st century is to become a Globalized Innovative Marketing Company.
1
FINANCIAL HIGHLIGHTS
Sales (Millions of U.S.Dollars)
Net Income (Millions of U.S.Dollars)
14
81
96
9,811
7,601
9,147
9,858
12,371
8,938
11,348
11,536
301
Total Assets (Millions of U.S.Dollars)
96
97
98 99
96
97
98 99
96
Millions of Won
97
98 99
Thousands of US Dollars
1999
1998
1999
1998
345,038
11,237,096
14,170,004
5,877,720
115,705
11,048,787
13,706,929
4,150,200
301,238
9,810,630
12,371,228
5,131,587
95,798
9,147,862
11,348,674
3,436,165
FINANCIAL
Net Income
Sales
Total Assets
Shareholders’ Equity
Won
Per Share:
Net Income
Cash Dividends
2,797
750
1,702
500
1999
1998
810
810
887
754
US Dollars
2.442
0.655
OPERATING
Refinery Crude Oil Run
(Thousands of barrels per day)
Petroleum Products Sales
(Thousands of barrels per day)
Chemicals Sales (Thousands of Metric Tons)
3,868
3,535
Number of Employees as of Year-End
4,320
4,541
N o t e U.S. dollar amounts represent translation of Korean Won for convenience only at a rate of ￦1145.40 to U.S. $1.00, the base rate on December 31, 1999.
1.409
0.414
CEO MESSAGE
C o n t i n u o u s
f o r
T r a n s f o r m a t i o n
L o n g - L a s t i n g
W e
C o n s t i t u t i o n
I n n o v a t i v e
•••
I s
a
P r e r e q u i s i t e
V i a b i l i t y.
o f
S K
t o
A r e
G r o w
M a r k e t i n g
A l t e r i n g
i n t o
a
O u r
O v e r a l l
G l o b a l i z e d
C o m p a n y.
Fiscal 1999 was a vintage year for us. Because of our corporation-wide
restructuring and profit focus. Also because of the support of our employees,
shareholders, and customers.
In the field of petroleum, where we have been the sector leader from the outset,
we contributed to the stabilization of the domestic market, which has been
undergoing deregulation. In the chemical business our cost-cutting efforts and
the rebounding of the Korean economy led to our most remarkable results in
recent years. In lubricants, coal, and exploration & production we have also produced good profits. The
profits of our subsidiaries and af filiates have also gr own, backed by our accelerating r estructuring over
the last several years.
SK Corp., never satisfied with good business outcomes, took on new challenges to weather the fastchanging climate of the global new economy . To this end, we set a new vision, new managerial goals,
and new strategies. To manifest our vision, we will carry out value-driven Globalization at a fast pace,
keeping up Technological Innovation, including digitech, and Human Enrichment by delivering to customers ample diversified products and services.
The changing environment of the globe r equires us to make many changes in our ways of thinking and
performing in our core fields. It requires new-concept growth strategies. We are vigorously resetting our
goals and strategies. First, we will achieve the highest level of competitiveness in our core fields in two
to three years.
3
Rapid globalization is wiping away demar cations between markets and integrating them into a huge
single worldwide market. We see that this gives us lots of oppor tunities. We are deeply aware that
strong competitive power in a limited region does not mean much in this burgeoning global era. In order
to heighten our competitiveness to the global for efront in our core fields, we are setting goals that
should be achieved in the 2-3-year short term: the world's lowest conversion cost, dramatic pur chasing
cost cuts, implementation of pr ograms to impr ove value for the customer, optimization of operational
efficiency in ever y stage fr om crude-oil purchasing to end-user ser vice, optimization of physical market ing networks, and diversification of market segmentation.
We have set new gr owth principles. We will multiply our intangible assets thr ough speed and flexibility
in thought and action, as well as agilely exploring new business fields for the realization of our utmost
potential.
To fluently deal with ever tougher global competition, technology advancing at incredible speed, and
the multifarious preferences of customers, our receptive knowledge workers dedicate themselves to
making the company Heavy in Intangibles, Light in Assets. Which means that corporate growth is realized by leveraging our intangible assets—technologies and competences. We will achieve this thr ough
Speed & Flexibility, Risk Taking & Hedging. Speed & Flexibility means proactive thinking and acting a step
ahead of others in the fast-changing global envir onment. Risk Taking & Hedging means facing risk, not
just turning away from it. Rigorous analysis of risk factors can create opportunities. No risk, no opportunity, as you all know.
We will foster our global presence through three major growth strategies: growth through value
enhancement, growth through unrivaled technology, and growth by exploring the world.
SK wants to thrive as a market-oriented company that can deliver plenty of value into the hands of customers. To do this we have reshuffled our marketing structure and network so that can we get closer to
our customers. We take the best advantage of our already-established massive database of customers
and drive into new marketplaces. We are expanding our e-business as part of our online customer services, OK Cashbag bonus-point service, and various other strategic marketing services. We believe that
the business exper tise and technological competences we have gleaned will fuel our drive to become a
global company with innovative solutions. We will incubate such intangible assets into tangible products
that can be commercialized by new business models. Unrivaled accomplishments fr om the melding of inhouse and outsourced R&D will be a power ful engine for successful commercialization in a short span of
time.
We know that changes in corporate cultur e and system are the prerequisites for success in such a transformation. Thus we will change many things, including policies for personnel. We never make light of
smallest challenges we come up against. All facing in the same direction, the creation of corporate value,
hand in hand we will join in our efforts to shape a new look for the company. Confronting business challenges on a global scale will not be easy. But we believe that continuous reform and dedication will carry
us through. We will make 2000 the year of our new takeoff. Thank you.
Tae-won Chey / Chairman & CEO
5
A MESSAGE FROM THE PRESIDENT
O u r
E f f o r t s
a
M a r k e t e r
•••
t o
B e c o m e
W o r l d - A c c l a i m e d
W i l l
N e v e r
I n n o v a t i v e
C e a s e.
In 1999 Korea bounced back quickly from the hard blow of the foreign
currency crisis of the previous year. Economic conditions had a favorable look,
with increased overseas and domestic demand. Our business on the whole went
on swimmingly as domestic demand for petrochemical products recovered, the
exchange rate stabilized, and the interest rate turned down.
But we of SK Corp. did not slacken our overall restructuring and kept scrutinizing
all operational pr ocesses for higher ef ficiency. W e lower ed our equity-to-debt
ratio sharply. These ef forts yielded, in fiscal 1999, revenue of about US$10 billion and net income of
US$308 million, reflecting the highest growth we had achieved since our founding.
The performance of our main business fields during 1999 was as follows. Despite rocketing oil prices,
squeezed margins in the stagnant Asia-Pacific region, and a price war in the domestic market, our petr oleum business added 0.4% to its market share in Korea over the previous year, to which our DB marketing strategy contributed. Our chemical business wr ote revenues of US$1.8 billion. Our lubricant business
created stable pr ofits based upon our ZIC motor oil line, which enabled us to remain the for midable
leader in the domestic lube market. The gr owing demand for our high-quality base oil Yubase fetched
lucrative profits. In the field of exploration & production, we made steady profits after securing equity
oil from the Marib Concession in nor thern Yemen and other oil fields. The picking up of inter national oil
prices also pushed our profits higher. In line with our long-ter mpolicy of securing stable resources and
profits, we acquired equity by joining in natural gas development in Qatar. As examples of our out-
standing R&D accomplishments in biotechnology , we sold an anti-epileptic medicine to a prestigious
pharmaceutical company in the United States and our anti-depr essant, presently undergoing clinical tri als, is to be commercialized soon.
In marketing management linked with our digital ner vous system, we pursued a distinctive appr oach to
customers with our Ok Cashbag Card and launched the Net-friendly okcashbag.com to deliver useful
information and services which will help boost our e-business. Our TSD project offers traffic updates and
infotips broadcasts to drivers free of charge with a click or two. We expect some of these new business
fields will yield profits from this fiscal year.
In the knowledge-based Net generation, SK Corp. will flexibly move to adapt to the swirl of fast-changing business cir cumstances. In the pr ocess, we ar e setting ourselves the new goal of becoming a
Globalized Innovative Marketing Company . To bring our vision to vivid reality, we will put the utmost
energy into becoming a versatile marketer. That will allow us to repay the unflagging support our shareholders and customers have shown us. Thank you.
Han-kyung Kim / President & CEO
7
Marketing
Company
•••
At SK, "marketing company" is the target of a corporation-wide reform from top to bottom.
It means that our business focus is shifting fr om the manufacturing-intensive ener gy and chemical sec tors to infor mation-rich total solutions r eadily available to customers online and of fline. Which is ulti mately delivering all-inclusive ser vices and value to customers worldwide. T o generate greater customer
C u s t o m e r s
W a n t
a
M a r k e t i n g
o f
t h e
2 1 s t
C o m p a n y
means...
w i t h
C e n t u r y
A l l - I n c l u s i v e
T o t a l
S o l u t i o n s.
value, our employees ar e teaming up for extensive and r esponsive investigation of the pr oducts most
needed by customers, r elying on our accumulated business-to-business and business-to-customer data.
This is how we will be able to evolve into a market leader in the future.
9
Marketing
Company means
happy custo
•••
Customers ar e always the main theme of a marketing company . We of SK know that cus -
tomers are the dominant power in the market and govern our day. A company which cannot win the
hearts of customers can not hope for success. That's why we ar e intensifying our marketing competence
with our mindset of putting the customer's happiness first. One of our enhanced way of marketing is
reaching customers thr ough diverse communication channels. We use our vast customer database,
including the Inter net. W e accommodate DB management, knowledge management, e-business, and
other new-concept management as tools for transfor ming ourselves into an innovative marketing com -
A
M a r k e t i n g
mers
U l t i m a t e l y
f o r
t h e
C o m p a n y
I s
H a p p i n e s s
o f
C u s t o m e r s.
pany. Already many smokestack manufacturers are going online to provide information services and thus
to add value to their har dware products. So are we of SK ar e laying down an infor mation infrastructure
to provide useful and integrated infotip updates, such as our drivers' traf fic and road map service at our
Internet portal. Through the portal we hope to deliver the most satisfying one-on-one customer solutions, and create more opportunities for us. We started bonus mileage with our Enclean Bonus Card and
cash-saving with our OK Cashbag ser vice. Our value-driven management will continue to transfor m itself
so as to put happy smiles on the faces of our customers.
11
Marketing
Company means
•••
e•business
E-business is growing with such incr edible speed that it is not an optional but an indispens -
able component of the viability of most business entities. The number of Net-buyers is gr
owing explo-
sively and still the Net generation is not yet fully fledged. SK's E-business at present is solidifying its
footing on the Internet on the strength of our vested knowledge and services rather than by jump-starting new businesses on the Internet. In the coming years we plan to add mor e unique and all-inclusive E-
A
M a r k e t i n g
B u i l d s
C o m p a n y
a
U s e r - F r i e n d l y
E - C o m m u n i t y.
solutions bearing high value as we use the Internet to strengthen our role as a global marketing company. We will read the minds of customers captured from our intricate customer database, including the
drivers who use our ser vice stations, our customers in our other various business fields, and users of
Enclean Card and of OK Cashbag. SK's value innovation strategy is to take the best advantage fr om the
opportunities brought by the digital revolution.
13
Marketing
Company means
•••
intangibles
The companies enjoying high prices in the stock markets ar ound the world all have cer tain
properties in common: rich intangible assets like technology, knowledge, capable human resources, networking, and brand identity. We of SK ar e trying to similarly leverage our intangible assets, the experi ence, cr eativity, workmanship, and marketing exper tise we have accumulated since our founding 30
years ago. We keep applying our intellectual power to our core competences to achieve our strategic
T h e
a n
C o r e
I n n o v a t i v e
S t r a t e g y
f o r
M a r k e t i n g
L e v e r a g i n g
C o m p a n y
I n t a n g i b l e
I s
A s s e t s.
goals. For the rapid commer cialization of good business ideas, we have simplified operational processes. Our knowledge workers ar e polishing their expertise in their specialties. These mental assets ar e the
growth DNA that develops capable and r esponsible workers who can per form with flexible decisionmaking. To add to their intellectual power , SK outsour ces some R&D and establishes strategic B2B
alliances with prestigious multinationals or small downstream firms.
15
Marketing
Company means
brand power
•••
A market-wise company enhances its brand power as its one-on-one contact point with cus -
tomers. Popularity with customer comes from marketing pr oficiency on top of high-quality products.
Corporate brand power is the barometer of the popularity of the pr oduct, which in tur n determines
market share. The 21st century is the century of the Net generation. The brand name that comes up
first into the minds of Net sur fers has the best chance to dominate the market. When a cer tain brand
image once takes a root in the minds of customers, a similar brand next in line finds it har d to overtake
it, unless it has winning quality and unprecedented value. W inning brand power not only deter mines
A
C o r p o r a t e
t h e
w i t h
I t s
B r a n d
C o n n e c t s
M a r k e t i n g
C o m p a n y
C u s t o m e r s.
corporate competitiveness but also influences over national competitiveness. A customer -friendly brand
image is per haps the top value for a marketing company . Therefore, smart brand management is the
instrument of market competition. Brand power means a long-lasting name favored by customers.
Accordingly, a hit pr oduct successfully commer cialized in the first place has a stronger brand power
which enjoys gr eater longevity. We breed powerful brands that can stir the most favorable response
from customers. To this end, we maximize the overall synergy of our marketing skills and services. We
aim to make ourselves the worldwide market leader in the 21st century.
17
Marketing
Company means
a globalized
•••
Our competition is not just limited to domestic rivals but includes the global leaders. We
offer greater value on the global scale. T o do so, our dedicated employees in each business field polish
their workmanship to make us the world's best. We scrutinize every possible hindrance in every process
to double-check quality, while seeking feedback from customers on whether we have managed to fulfill their hopes and expectations. W e benchmark against our top competitors. Then we spin the globe,
spot a new market, and zoom in it. On some shor es we will be strangers, but that's wher e the growth
W e
S e e k
t o
b e
t h e
P e e r l e s s
W o r l d’ s
B e s t.
W o r k m a n s h i p
company
G e t
U s
W i l l
T h e r e.
potential is, as soon as they get to know us. Because we carry multicultural solutions that can meet
multifarious preferences differing by locality. To understand people better , we ar e establishing strate gic depots in key geographical spots ar ound the world. Our Regional Strategy Headquar ters in China,
for instance. To become one of the world best companies, we surf on surging new world trends which
are taking us into the future in every corner of the earth.
19
SK Corporation is a
Globalized
Market
•••
We know it's the right time to shift fr om being a manufacturing company to being a market -
ing company. Just supplying quality pr oducts is not enough to satisfy customers. It takes a higher level of
service, too. Reading the needs of customers even before they realize them. Plus safe, eco-friendly , and
innovative solutions. These are the answers for a company like us. A customer-centered Marketing
H o w e v e r
W e
B r i g h t
D r a w,
T h e
a
V i s i o n
W h o l e
P i c t u r e
I s
G l o o m y
Innovative
ing Company
w i t h o u t
C u s t o m e r
S a t i s f a c t i o n.
Company that delivers unique service and value before others do. An Innovative Company that creates
brand-new products and business processes backed by intangible resources. A Globalized Company that
can vie with prestigious multinationals on the global for efront. Having prepared ourselves to become a
globalized innovative marketing company, we are now striding into the new century.
21
•••
•••
Value-Driven
Solutions
for
Wider
Marketscapes
Our multisided efforts to induce foreign capital, achieve overall restructuring, and improve productivi-
ty brought excellent results in fiscal 1999. Despite acute competition in the domestic market, our ongoing improvement of productivity and competitive edge helped our petroleum business keep its formidable position. In our
chemical business, even though we were hampered by oversupply in the Asia-Pacific region, growing demand
enabled a profitable year. In our lubricant business, the base oil Yubase and high-quality ZIC made lucrative profits, seizing the first market position. In the field of petroleum development, profits jumped with equity oil from
the Marib Concession in northern Yemen and other oil fields. Our Taedok Technology Institute and our R&D cen ter in the United States developed patent pharmaceuticals, including an anti-epileptic medicine which we sold to
a prestigious pharmaceutical company in the United States. We have upgraded our technological and marketing
competences. This good performance in fiscal 1999 strengthened the belief in us of our employees, shareholders,
and customers and laid a firmer footing for our pursuit of our 21st-century vision, a Globalized Marketing
Company.
23
ENERGY BUSINESS
SK Corp. is a leading marketer and a stable, economical supplier in the domestic energy resources sec tor. We have participated in developing overseas oil fields and coal mines. We have raised the bar in
city gas, lubricants, and other core businesses nationwide, in line with the government's project aiming
for a resource-rich country.
SK Corporation's energy business ranges over oilfield exploration, crude-oil importing, refining, trans porting, and retailing, as well as chemicals. SK Corp. is vertically integrated in the energy business from
upstream oil exploration and manufacturing to downstream deriva tives and marketing. This top-to-bottom integration has heightened
our operational efficiency in every business process, which in turn
has bolstered our company-wide marketing synergy.
Having recently restructured as a marketing company, we are now
focusing our efforts on innovative marketing strategies in energy
fields. We have shunted aside the old habits of conglomerates. The
“size does matter” drive, for instance. A bit belatedly from the
global point of view, so we have intensified our restructuring to a high degree to build a slimmer body
standing taller financially.
On top of our tradition of more than meeting customer expectations and desires, we are trying to cre ate new customer preferences. The knowledge accumulating in our repository will support creative
ideas and enable us to offer smarter products and pleasanter service. Our profit drive is steadfast in
every energy field. Making inroads into overseas markets, at the same time we are looking into every
nook and cranny, hoping to hit oil or find other energy resources. On land and off, SK Corp. will pur sue more opportunities to get to the global forefront.
[PETROLEUM]
In 1999, as Korea Inc. was gradually recovering from the recession in 1998,
domestic demand for petroleum products climbed 10%. In the midst of favorable developments, such
as the recovery of the depreciated Korean won and the lowering of bank interest rates, and unfavor
able developments, such as increasing oil prices due to OPEC's agreement to cut back production,
increased refinery facilities in Asia (India and Taiwan, for instance), and the growing onslaught of price
competition, SK Corp. kept up steady operation of its massive petroleum facilities while moving ahead
with structural downsizing and managerial reform.
24
-
In fiscal 1999 SK Corp. imported and refined a total of 284 million barrels of crude oil and sold 300
million barrels. At the same time, we gained new knowledge from ongoing R&D and reshuffled our
marketing network completely. These efforts lowered our costs and heightened our competitiveness,
enabling us to take a 34.1% share of the domestic marketplace, which enhanced our leadership in the
domestic sector.
Since the multinationals can now freely enter the domestic market and a price feud is raging among
domestic suppliers, oil prices are rocketing and squeezing the margin. In these challenging business
conditions, SK Corp. has maintained its large chunk of the domestic market through a campaign that
appeals to the mass audience through profit-wise performance in non-petroleum business lines. SK
Corp.'s BC Card, Enclean Bonus Card, Y2K solutions for customers, and other differentiated customersatisfaction services have captured regular customers.
Our refining facilities are setting new standards of operation as the years glide by. SK Corp. is all about
maximizing returns to shareholders, winning the admiration of both customers and competitors, and
striving to stand among the global leaders.
[EXPLORATION & PRODUCTION]
Since 1983 SK Corp. has participated in a total of
48 projects for oil exploration & production in 23 countries and now is involved in 23 pro
jects in 11 countries. In the Marib Concession of Yemen, where SK Corp.'s first com
-
-
mercial production began in November 1987, daily production averaged 116,420
barrels of crude oil in 1999. Of this total production, the company holds a
15.925% share and shipped 2.77 million barrels of equity oil in the year. The
company has a 25% share in the North Zaafarana Concession of Egypt, where
we first lifted commercial oil in November 1994. In 1999 daily production there
averaged 10,120 barrels of oil, from which we took 490,000 barrels of equity oil
over the year. In Block 8 of Peru, of which SK Corp. acquired an 8.33% share in
1996, 920,000 barrels of equity oil & gas was assigned in 1999. In CI-11 of Cote d'Ivoire
(the Ivory Coast), the company lifted 770,000 barrels of equity oil.
In 1999 SK Corp. signed an MOU with Daewoo Corporation to acquire its 8.33% share in the Libyan
NC 174, where a significant amount of crude oil was discovered in 1997 and a Sales & Purchase
Agreement between the two companies is expected to be completed in early 2000. In 2000 SK Corp.
will continue active exploration in its current projects and make every effort to increase its reserves
base through new exploration and/or production projects in its core areas.
25
[GAS]
In the 1960's SK Corp. was the first to introduce into Korea clean natural gas, a near-pollu -
tion-free and convenient energy source. Since then the company at a steady pace has added LPG pro duction, storage, and supply facilities. Now SK Corp. dominates the Korean LPG market with a 41%
share. Not counting LPG used for petrochemicals, it supplies 2.3 million tons to consumers
through SK Gas Co., its specialized subsidiary for LPG. To allow easier supply of LPG
anytime, anywhere that customers want, the company is laying the largest pipeline
network in the nation. Taking customer safety as the utmost priority, the compa ny supports safety management through periodic training of employees. It con ducts rigid safety checks of every unit and facility, also looking out for environ mental hazards. The demand for city gas (piped directly to end users) is growing
because of its convenience and environment-friendliness. Total demand reached
9 million tons (in terms of LPG) in 1999, having increased by an average of 18% per
year for the last five years. This trend is expected to continue in view of the fact that city
gas is cheaper, cleaner, and easier to use than other fuels. SK Corp. has invested in many city
gas companies which have now become safe and stable suppliers in ten major cities, including Seoul.
Our nationwide supply network of city gas now meets 26% of domestic demand. On January 13,
1999, we established the joint venture company SK Enron Co., Ltd., with Enron, a US-based company
involved in natural gas shipping and power generation. Together with SK Enron, we are co-managing
affiliates, including SK Gas, Daehan City Gas, Pusan City Gas, Kumi City Gas, Chungju City Gas, and
Pohang City Gas. Recently the company successfully acquired Dongbu Ocean City Gas, Daeil City Gas,
Bobae City Gas, Byoksan Energy, and Chungnam City Gas. These strategic alliances will sharpen our
competitive edge. In the years ahead we plan to enter the gas and power industry with LNG terminals
and private gas generation.
[COAL]
SK Corp. imported 1.7 million tons of high-quality bituminous coal from China, Australia,
and South Africa and supplied it to Korean cement makers and co-generation power plants, the com panies which chiefly use bituminous coal as their energy source.
SK Corp. has invested in two operating coal mines in Australia, the world's largest exporter of coal,
and is involved in two other exploration projects there. In 1999 we supplied 890,000 tons of bitumi
nous coal from these mines to the Korean power generation market.
26
-
[LUBRICANTS]
Lubrication products recorded US$212 million of revenue in fiscal 1999 by dint
of the success in the domestic and overseas markets of our breakthrough lube ZIC and to our increased
exports of YUBASE. The company maintained unrivaled leadership in the domestic lube market. To
overcome the limited growth potential of the Korean market, we have vigorously moved into the larger
markets in the world, selling ZIC in 15 countries and YUBASE in 30. Our ZIC brand has become an
award-winning lube in Korea. ZIC in particular stirred a rave response, which has made our name a
synonym for high-grade motor oil. We shipped 110 thousand barrels of it to 15 countries, an export
increase of 43% over the previous year. Along with it we have introduced such new services as
mileage bonus points, happy call service, a customer hot line, and technical backup to retail outlets.
These have heightened our brand power and customer satisfaction. As the domestic demand for lube
products was recovering in 1999 from the weak economic conditions of the previous year, and by
virtue of its excellent quality and our very different market approach, we sold 1.08 million barrels of
ZIC in Korea, yielding US$146 million in revenue, a 20% increase over the previous year. Overseas we
sold 110 thousand barrels of ZIC in 15 countries, 43% over the previous year. We expect that vehicles
on the world’s roads using ZIC will continue to multiply rapidly.
SK Corp. launched YUBASE in October 1995. It is a base oil of very high viscosity
index (VHVI). This high-quality base oil has a bright future in the world market
when the International Lubricant Standardization and Approval Committee
(ILSAC) GF-III comes into force for quality rating. YUBASE is now sold to 200
companies in 30 countries. Its quality is being upgraded by ongoing R&D. Its sup ply worldwide is being streamlined by steady network expansion. The largest
capacity in the world for VHVI base oil, together with high quality and low cost,
have made us highly competitive. Our quick response to the fast-changing pref erences of customers is largely responsible for the fact that our net income before income tax on base
oil rose 52% over the previous year, on sales of 1.3 million barrels.
SK Corp. is outpacing its domestic competitors in marketing competence with many technological
breakthroughs. Our strength in technology and marketing make us an active player on the world
stage. In fiscal 2000 we are trying to ship high-performance and high-value products to the countries
of the global leaders, including Japan, advanced European countries, and the United States. We are
trying to turn our knowledge-based intangible assets into high-quality, tangible products which offer
customers real advantages. We will put into place our own ever-more-effective ways to do business.
27
CHEMICAL BUSINESS
In 1972 SK Corp. helped lay the foundation for Korea's petrochemical industry by constructing the sec tor's first naphtha-cracking facilities, with an annual capacity of 100,000 tons. To cope with the precarious business climate we adopted long-term objectives and undertook heavy facility investment. In
1997 we completed facilities for greater naphtha-cracking capacity
as well as a second polyolefin plant, a second paraxylene plant, and
a styrene monomer facility.
The competitive scramble of the domestic petrochemical compa nies, which had resulted in their building excessive facilities, came
to an end in 1999. The sector rebounded and we sold a total of 3.9
million tons of chemicals, with revenues 8% over the previous year.
Our productivity improvement,and cost reduction through the
alchemy of R&D and the diversification of the market into south-east Asia and Europe allowed us to
realize a profit in 1999. Our dedicated employees maximized profits by renewing multipurpose com
-
modity lines, such as basic chemicals, intermediates, polyethylene, polypropylene, and solvents, while
keeping pace in the development of high-value specialty chemicals, such as biodegradable resins, phar maceutical intermediates, new materials, and biocides.
Meanwhile, SK Corp. continues to restructure. Non-essential business lines are being spun off, the
organization streamlined, and personnel re-deployed to create a more efficient operation. In this way,
the corporate infrastructure is being adjusted to allow the company to capably respond to changing
demand and market conditions. As we have been doing for decades, we are reinforcing core compe
-
tencies in specialty fields, hoping to make customers prefer us and competitors admire us.
[OLEFIN UNIT]
The Olefin Unit produces base olefins, including ethylene and propylene, and
intermediates, the essential feedstock for downstream petro-chemical products. Olefins are supplied to
our own chemical plants in the SK Corp. Complex and to other companies at the Ulsan Petrochemical
Complex. In 1999 our production capacity reached an annual 1.7 million tons of base olefins and inter mediates. Of the total turnover, we sold 900,000 tons to others despite the fast-changing climate in
the domestic and overseas markets. Timely supply and close interaction with customers and high-quali ty, high-value olefins are goals that always remain unchanged.
28
[AROMATIC UNIT]
In the unfavorable market conditions of oversupply and hyper-competi -
tion in 1999, out of a total turnover of 2.5 million tons of aromatics, including benzene, toluene,
xylene, paraxylene, orthoxylene, cyclohexane, and styrene monomers, SK Corp. sold 1.8 million tons to
other chemical companies. The company is constantly seeking ways to raise productivity and thereby
accommodate the needs of downstream industries and end users.
[SOLVENT UNIT]
SK Corp., the trailblazer in the domestic solvent industry,
produces 60 kinds of solvents, of which it sold 340,000 tons in 1999. The company
has a multi-purpose production system in place that can turn out a variety of dif ferent solvent offerings, in which their base materials are received from the com pany's BTX plant, large-scale refinery and various petrochemical processes. In
recent years the company has developed eco-friendly solvents, including de-aro matic solvent, isoparaffin solvent, and cyclopentane, which are worry-free in terms
of environmental hazards and industrial sanitation compared to the other solvents in
common use. We developed high-tech processes for manufacturing carbonless duplicat ing paper, paraxylene desorbent, and other high-purity fine chemicals. A plant is under con
-
struction for the commercialization of these specialty solvents. At the same time we are promoting
diverse technical alliances and exchanges with outstanding chemical makers in Korea and overseas.
This is to broaden our range of products and make them all available on a one-stop basis to our part ners, downstream industries, and end users as a virtuoso marketing company.
[POLYMER UNIT]
The Polymer Unit produces commodities of general use to consumers, such
as plastic hybridized with synthetic rubber for vehicle parts, electronic goods, communications cable,
toothpaste tubes, ball-point pens, and even contact lenses. Among all the petrochemical products
manufactured by SK Corp., these products touch the daily lives of consumers the most often.
The company started operation of its 2nd PE/PP Plant in December 1996, resulting in a specialized pro duction lines capable of turning out 700,000 tons of linear low-density polyethylene ( LLDPE), highdensity polyethylene (HDPE), and polypropylene (PP) in 1999. We are spurring our investment and R&D
in technology-intensive and high-performance polymers and other new materials. R&D successes to
date include the bio-degradable Greenpol, the breathable resin Brespol, the high-performance adhe
-
sive Polyglue, the barrier resin Notran, and the thermoplastic Plastomer, all part of our commitment to
deliver into the hands of our customers easy-to-use and eco-friendly polymer derivatives. We are
enhancing our ability in DB marketing so that updated technological and management information is
available at a finger stroke around the clock. Online and offline, we are establishing ourselves as a vir tuoso marketing company.
29
INTEGRATED MARKET NETWORKING
To integrate our market network, we take advantage of all the data we have accumulated over a long
stretch of years. That helps us to handle B2C and B2B services efficiently through our see-it-now online network. Our OK Cashbag service, for instance, lets the card user earn bonus points for his pur
-
chases in our outlets or subcontracted retailers. When his bonus points add up to a certain
stipulated amount, he is rewarded with a free coupon. We have 15,000 subcontracted
retailers, 18,500 including our service stations nationwide. From the time we
began the OK Cashbag service to the end of 1999, we signed up 9.5 million card
users. In 2000 our card users are expected to nearly reach 20 million after we
tie up with SK Telecom, which has the lion's share of subscribers in Korea.
Cyber LMC and TSD (Total Service for Drivers) are also contributing to the suc cess of our integrated marketing network. The Cyber LMC provides subscribers
with information they need in everyday life. Its accumulated subscriber data are
linked to e-commerce, making it one of the largest cyber communities and the largest
and finest content provider. In years to come we are planning to bind the cyber and the real
markets together to offer more diversified services with greater benefits. TSD provides drivers with traf fic information and other content useful in everyday life though CNS and wireless devices plus Car Car
Service. The test service first started with drivers in the Kangnam District. It aims at developing into a
CVO (Commercial Vehicle Operation) for total driver service, which will also be networked with other
services.
Our integrated market networking is centered on the Internet. E-commerce is burgeoning as the num ber of Net users grows explosively. Thus more integrated and diversified services are needed by Net
surfers looking for practical tips and seeking to purchase products through their wired or wireless
devices. We try to deliver the cyber services that will be as beneficial as possible to as many customers
as possible.
30
31
ENVIRONMENTAL MANAGEMENT
Occupational health and environmental protection have always come before profits at SK Corp.
Underscoring this commitment is the company's steady investment for clean energy development and
better environmental performance. SK Corp. realized early on that the importance of environmental
issues was continuing to grow and that environment-friendliness was becoming a preeminent consid eration. As one of the ways to fulfill this commitment, SK Ulsan complex has adopted
Environmental Management System (EMS) and acquired ISO 14001 certification success fully from the KSA-QA in 1996. Also SK Corp. laid down an Environmental Master
Plan that covers pollution prevention, product stewardship, eco-efficiency and social
responsibility.
The Environmental Master Plan and EMS achieved results that qualified SK Corp.
for the Environment-Friendly Company Certificate awarded by the Korean Ministry
of Environment in May 1996. The designation was granted again in December
1997, reaffirming the outstanding results of our environmental management efforts.
In SK Corp., 165 environmentalists are trying to accomplish immaculate environmental
management by scrutinizing all our business processes—management, operation, maintenance,
and R&D.
Also, SK Corp. is continuously adding investment in pollution prevention facilities and technologies to
reduce the environmental impact. Efforts have been made to be a model for the industry.
From 1997 to 1999 SK Corp. invested US$100 million in energy-saving and pollution prevention facili ties, which is 37.5% of SK Corp.'s total investment.
In the coming three years, US$64 million is earmarked for continual environmental improvement. Our
strict environmental management with our 3R (reduce, reuse, and recycle) campaign in 1999 improved
energy saving and operating efficiency which resulted in reduction of 1.8% in SOx emissions, 2.5% in
COD, and 5.1% in wastes than the previous year.
In line with the government's environmental management standardization project, SK Corp. is partic ipating in EPE and LCA projects that are co-managed by KAB and the Ministry of Commerce, Industry
& Energy. SK Corp. will pour our utmost efforts into further improving our environmental performance
and will fulfill our responsibility to communities.
32
[SAFETY MANAGEMENT]
Safety is a top priority in SK's management. SK Corp.'s safety program
for accident prevention covers our manufacturing plants and offices, partners and subsidiaries, subcontractors,
retailing outlets, end-users, and neighbors in the communities where we operate.
In 1993 we introduced a Safety Master Plan to bring about continuous improvement in our safety and health
performance. Since implementing the plan, SK Corp. has made substantial improvements in a number of key
areas such as toxic chemical release, and lost-time incidence rate. We have also established our own safety
standards, engineering standards, and standards specifications based on worldwide practices as well as our
know-how acquired over 30 years, to ensure safe operation. Strict adherence to these standards has eliminat ed potential problems with facilities and has helped to ensure accident-free operation.
SK Corp.'s safety structure is designed to enhance communication and promote the exchange of safety knowledge and ideas among all our operations and all levels of the company. To encourage all employees to take
more responsible care of all processes, we have joined the Korea Responsible Care Council. For the result of all
these endeavors, SK's safety management is highly rated by global reinsurers.
We have 70 staffers assigned to safety management and 200 volunteer firefighters in various processes, who
stand ready to leap into action. SK Corp. has the best record of accident-free operation among petroleum
refining and petrochemical industry in Korea. We will hammer the injury rate down below 0.5 per million work
hours. SK Corp.'s safety management guarantees employees peace of mind in an accident-free environment.
In the future greater emphasis will also be placed on retrofitting and on safety evaluations of facilities in order
to strengthen overall safety even more. We believe that safety performance is an important barometer of the
overall success of our company and will not rest until its safety performance reaches perfection.
33
RESEARCH & DEVELOPMENT
Everyone is aware that intangible assets like knowledge and technology determine the viability of a
company in the ever-changing world of business. This is felt most keenly in the explosive e-biz world.
For the past 16 years, while many have stood in awe at the incredibly fast overall changes, we have
steadily poured R&D efforts into cutting-edge technologies and products designed to with stand any challenge. These activities are focused on giving existing products distinctive
features and added value. They also help to create new, technology-driven business
lines with high growth and profit potential.
We support our researchers with state-of-the-art equipment and facilities at SK
Daeduk Institute of Technology and at the two research laboratories we estab lished in the United States as part of our effort to globalize operations and develop products for specific markets. As SK Corp. raises its own competitive stature, it
also localizes new technology, which helps to promote its competitiveness in the
regions involved. Especially, since SK Corp. today is reshaping itself as an innovative
company, more indigenous solutions will lead to a greater number and a wider range of hightech and value-added products.
SK Corp. is finding new growth opportunities in technology-led areas where the prospects for strong
profits are the brightest. To this end, we are concentrating a great effort into the life science area. In
July 1999, we licensed out the pharmaceutical technology for an anti-epileptic drug to Johnson &
Johnson. The earnings from this are expected to reach US$900 million. We have developed an antidepressant that is about to be commercialized. Encouraged by having our technological strength in
pharmaceuticals approved by Roche and other global leaders of pharmaceuticals, we have introduced
CMS (custom-manufacturing service) in fine chemicals and begun to produce pharmaceutical interme diates, including new intermediates for the treatment of AIDS. We have developed a production
process for Vitamin E and other medicinal products from acetylene, one of the by-products of petrole um refining. High-purity chemicals generated by the processing technology of SMB (simulated moving
bed) and performance chemicals including PXE are also lined up for commercialization.
34
In recognition of the growing importance of environmental protection, we are developing environmen tally sound technologies and alternative sources of energy. We have developed a production process
for ultra-low-sulfur fuel oil and have interoduced NOx reduction catalysts to the market. Another tech nological success is our global standard Q-BOD, which has been licensed out to companies in Korea
and we are well along in negotiating one in the United States. Through a national research project, we
participated in the development of an on-board reformer which is an integral part for a fuel cell vehi
-
cle. In the process of developing NIR (near infrared) technology, and anti-coking technology we have
greatly improved our processing management. In addition, our continuing R&D in our existing busi
-
nesses has turned out superior catalysts and processing innovations which have reduced our costs and
increased our productivity. We have introduced cost-cutting technologies in brand-new products
including diesel oil for heating and high-performance asphalt called Superphalt. We developed a high
performance transalkylation catalyst, which dramatically increased xylene yield, and are in the process
of licensing out the technology to refining and chemical companies at home and abroad.
Differentiated PE and PP products and the development of a dual autoclave process has strengthened
our competitive power in our polymer business. A quality upgrade for specialty polymers such as com pounds for breathable film, adhesive resins and TPV, has enabled us to be more competitive in the
polymers market. We have exerted ourselves to develop and market top-notch polymers including bar rier film, medical film, and electronic materials.
Our corporate vision is to be a major world player which helps to
create a better future for our customers and for society. To realize
this vision, SK Corp.'s R&D investments will continue unabated, as
we make every effort to develop products with high added value.
35
•••
SK
Corporation
1999
Financial
Reports
1999 FINANCIAL REPORTS
Balance Sheet 37
Statement of Income 39
Notes to Financial Statements 41
Statement of Cash Flows 40
Auditors’ Reports 44
Directors & Officers 45
Corporate Data 46
BALANCE SHEET
ASSET
CURRENT ASSETS
Cash and cash equivalents
Short-term financial instruments
Marketable securities
Trade receivables
(Allowance for doubtful accounts)
Short-term loans
(Allowance for doubtful accounts)
Other receivables
(Allowance for doubtful accounts)
Accrued income
(Allowance for doubtful accounts)
Inventories
Other current assets
Total Current Assets
NON-CURRENT ASSETS
Long-term financial instruments
Investment securities (Note 1)
Exploration and production investments
Long-term loans
(Allowance for doubtful accounts)
Long-term loans to employees
Guarantee deposits
Deposits for severance indemnities
TANGIBLE ASSETS (Note 1)
Lands
Buildings
Structures
Tanks
Machinery and equipment
Other tangible assets
Construction in-progress
(Less accumulated depreciation)
INTANGIBLE ASSETS (Note 1)
Development costs
Other intangible assets
Total Non-Current Assets
TOTAL ASSETS
Korean won (thousands)
U.S. dollars
1999
1999
67,263,183
58,290,000
135,866,980
2,106,729,659
(21,067,296)
41,927,966
(419,280)
221,901,796
(2,219,018)
11,703,058
(117,031)
670,274,805
23,891,771
3,314,026,593
58,724,623
50,890,519
118,619,679
1,839,296,018
(18,392,960)
36,605,523
(366,056)
193,733,016
(1,937,330)
10,217,442
(102,175)
585,188,410
20,858,888
2,893,335,597
39,468,572
3,604,556,618
116,224,267
143,607,310
(1,436,073)
123,556,878
52,601,455
134,298,339
34,458,331
3,146,984,999
101,470,462
125,377,431
(1,253,774)
107,872,252
45,924,092
117,250,165
1,505,786,208
365,168,455
538,099,551
355,543,475
4,140,832,969
408,406,226
385,425,127
(1,090,703,202)
1,314,637,863
318,813,039
469,791,820
310,409,879
3,615,185,061
356,562,097
336,498,277
(952,246,553)
33,941,443
600,340
10,855,977,958
29,632,830
524,132
9,477,892,403
14,170,004,551
12,371,228,000
continued;
37
Korean won (thousands)
U.S. dollars
1999
1999
CURRENT LIABILITIES
Trade payables
Short-term borrowings
Accrued income taxes
Accrued dividends
Current portion of long-term liabilities
(Discounts on bonds issued)
(Deferred conversion rights)
Accrued expenses
Other current liabilities
Total Current Liabilities
245,594,625
1,264,145,401
39,293,002
84,835,325
1,399,855,740
(8,662,925)
(6,272,147)
1,673,258,829
491,955,927
5,184,003,777
214,418,216
1,103,671,557
34,305,048
74,066,112
1,222,154,479
(7,563,231)
(5,475,945)
1,460,851,083
429,505,785
4,525,933,104
LONG-TERM LIABILITIES
Bonds payable
(Discounts on bonds issued)
Convertible bonds
(Deferred conversion rights)
Long-term borrowings
Accrued severance indemnities
(National pension fund contributions)
Deferred income tax liabilities
Total Long-term Liabilities
TOTAL LIABILITIES
2,509,290,230
(56,932,743)
170,309,610
(9,810,059)
299,237,032
159,618,900
(12,022,365)
48,590,252
3,108,280,857
8,292,284,634
2,190,754,523
(49,705,555)
148,690,073
(8,564,745)
261,251,119
139,356,469
(10,496,215)
42,422,081
2,713,707,750
7,239,640,854
579,439,320
10,041,730
505,883,814
8,767,007
1,204,337,223
117,738,137
2,451,438,812
1,051,455,581
102,792,158
2,140,246,911
94,500,000
286,900,000
82,503,929
250,480,182
420,120,446
366,789,284
(88,433,843)
45,104,785
756,375,593
157,714
5,877,719,917
(77,207,825)
39,379,068
660,359,344
137,693
5,131,587,146
14,170,004,551
12,371,228,000
SHAREHOLDERS’ EQUITY
CAPITAL STOCK
Common stock
Preferred stock
CAPITAL SURPLUS
Paid-in capital in excess of par value
Other capital surplus
Assets revaluation reserve
RETAINED EARNINGS
Legal reserve
Other reserve
Unappropriated retained earning carried
over to the subsequent period
CAPITAL ADJUSTMENTS
Treasury stock
Consideration for conversion rights
Gain on valuation of investment securities
Stock options granted
TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
38
S TAT E M E N T O F I N C O M E
Korean won (thousands)
U.S. dollars
1999
1999
11,237,096,008
9,773,176,247
1,463,919,761
9,810,630,354
8,532,544,305
1,278,086,049
671,407,340
792,512,421
586,177,178
691,908,871
115,404,155
225,875,653
93,899,788
159,003,521
49,294,850
643,477,967
100,754,457
197,202,421
81,979,909
138,819,208
43,037,236
561,793,231
784,599,338
112,651,583
21,117,492
75,810,658
93,909,569
1,088,088,640
347,901,748
685,000,295
98,351,303
18,436,784
66,187,060
81,988,448
949,963,890
303,738,212
72,663,844
111,781,543
184,445,387
63,439,710
97,591,709
161,031,419
33,621,865
33,621,865
29,353,820
29,353,820
498,725,270
153,686,805
345,038,465
435,415,811
134,177,410
301,238,401
2.797
2.495
2.442
2.178
RETAINED EARNINGS BEFORE APPROPRIATIONS
APPROPRIATIONS OF RETAINED EARNINGS
577,770,521
157,650,075
504,426,856
137,637,572
UNAPPROPRIATED RETAINED EARNINGS CARRIED
OVER TO THE SUBSEQUENT PERIOD
420,120,446
366,789,284
SALES
COST OF SALES
GROSS PROFIT
SELLING AND ADMINISTRATIVE EXPENSES
OPERATING INCOME
NON-OPERATING INCOME
Interest income
Gain on foreign currency transactions
Gain on foreign currency translation
Gain on valuation of investments under equity method
Other
Sub-total
NON-OPERATING EXPENSE
Interest expense
Loss on foreign currency transactions
Loss on foreign currency translation
Donations
Other
Sub-total
ORDINARY INCOME
EXTRAORDINARY GAINS
Gain on insurance settlement
Gain on disposition of investment assets
Sub-total
EXTRAORDINARY LOSSES
Loss on disposition of tangible assets
Sub-total
INCOME BEFORE INCOME TAXES
INCOME TAX EXPENSE
NET INCOME
BASIC EARNING PER SHARE
DILUTED EARNING PER SHARE
39
S TAT E M E N T O F C A S H F L O W S
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME
ADDITION OF EXPENSES NOT INVOLVING CASH OUTFLOWS
Depreciation
Retirement allowance
Loss on foreign currency translation
Amortization of discounts on bonds issued, etc.
Other
Sub-total
DEDUCTION OF REVENUES NOT INVOLVING CASH INFLOWS
Gain on foreign currency translation
Unrealized gain on investment securities
Gain on disposition of investment assets
Other
Sub-total
CHANGES IN ASSETS AND LIABILITIES
RESULTING FROM OPERATIONS
Decrease in trade receivables
Increase in other receivables
Increase in inventories
Decrease in trade payables
Increase in accrued expenses
Other
Sub-total
TOTAL
CASH FLOWS FROM INVESTING ACTIVITIES
CASH INFLOWS FROM INVESTING ACTIVITIES
Disposition of marketable securities
Decrease in short-term loans
Disposition of investment securities
Decrease in long-term loans
Disposition of tangible assets
Other
Sub-total
CASH OUTFLOWS FOR INVESTING ACTIVITIES
Increase in marketable securities
Increase in investment securities
Increase in long-term loans to employees
Increase in long-term financial instruments
Increase in construction in-progress
Other
Sub-total
TOTAL
CASH FLOWS FROM FINANCING ACTIVITIES
CASH INFLOWS FROM FINANCING ACTIVITIES
Issuance of debentures
Long-term borrowings
Issuance of common stock
Sub-total
CASH OUTFLOWS FOR FINANCING ACTIVITIES
Repayment of short-term borrowings
Redemption of debentures
Repayment of long-term borrowings
Payment of dividends
Other
Sub-total
TOTAL
NET DECREASE IN CASH
CASH AT BEGINNING OF YEAR
CASH AT END OF YEAR
See accompanying notes to financial statements
40
Korean won (thousands)
1999
U.S. dollars
1999
345,038,465
301,238,401
472,068,974
30,642,601
21,112,695
66,796,459
196,773,962
787,394,691
412,143,332
26,752,751
18,432,596
58,317,145
171,794,975
687,440,799
93,897,633
159,003,521
125,485,369
18,520,422
(396,906,945)
81,978,028
138,819,208
109,555,936
16,169,392
(346,522,564)
355,009,735
(86,559,762)
(117,858,450)
(251,865,535)
1,079,472,572
88,705,166
1,066,903,726
1,802,429,937
309,943,893
(75,571,645)
(102,897,197)
(219,893,081)
942,441,568
77,444,706
931,468,244
1,573,624,880
401,417,137
180,700,457
132,544,170
261,258,525
170,227,187
179,707,796
1,325,855,272
350,460,221
157,761,880
115,718,675
228,093,701
148,618,113
156,895,229
1,157,547,819
77,913,813
1,366,585,380
86,861,313
91,994,890
259,382,757
175,543,285
(2,058,281,438)
(732,426,166)
68,023,235
1,193,107,543
75,834,916
80,316,824
226,456,048
153,259,372
(1,796,997,938)
(639,450,119)
627,800,500
6,045,887
770,193,149
1,404,039,536
548,105,902
5,278,406
672,422,865
1,225,807,173
231,817,453
1,781,453,401
824,533,053
33,993,015
142
(2,871,797,064)
(1,467,757,528)
202,389,954
1,555,311,158
719,864,723
29,677,855
124
(2,507,243,814)
(1,281,436,641)
(397,753,757)
465,016,940
67,263,183
(347,261,880)
405,986,503
58,724,623
N O T E S T O F I N A N C I A L S TAT E M E N T S
[1]Summary of Significant Accounting Policies
(a) Basis of Presenting Financial Statements
The accompanying financial statements have been prepared using accounting principles and reporting practices generally accepted
in Korea. Such financial statements are an English translation of the Company’s statutory report presented in a format more familiar
to readers outside of Korea. Also, certain supplementary information included in the statutory report, but not required for a fair pre sentation of the Company’s financial position, results of operations and cash flows, is not presented in the accompanying financial
statements. In all other respects these financial statements follow accounting principles and reporting practices generally accepted in
Korea and are not intended to present the Company’s financial position, results of operations and cash flows in accordance with
accounting principles and reporting practices generally accepted in other countries and jurisdictions. Accordingly, the accompanying
financial statements are not designed for use by those who are not informed about Korean accountiprinciples and reporting prac
-
tices. The Company maintains its books and prepares its financial statements in accordance with accounting principles generally
accepted in Korea(“Korean FAS”), as amended on December 12, 1998. The year ended December 31, 1999 is the first period such
amended principles are applicable. As permitted in the first year of application, no comparable financial statements for the prior year
have been prepared and, accordingly, the accompanying financial statements only present financial information for the current year.
(b) Valuation of Investment Securities
Investments in marketable equity securities are stated at fair value. Non-marketable equity investment securities are stated at acqui sition cost determined on the moving-average method. However, if the market value or equity value of non-marketable equity
investment securities is significantly less than the cost and is not expected to recover in the foreseeable future, investment securities
are presented at market value or net equity value. Investments where the Company exercises significant influence over the investee
are stated using the equity method.
(c) Tangible Assets
Tangible assets revalued on July 1, 1998 (in accordance with the Korean Assets Revaluation Act) are stated at their then appraised
value; other assets are stated at acquisition cost. Depreciation is computed using the straight-line method over the estimated eco
-
nomic useful lives of the related assets. Expenditures which prolong the life of machinery or enhance the value of assets are capital ized as tangible assets; expenditures which maintain the efficiency of tangible asset or restore the assets to their original condition
are presented as ordinary operating expenses. Interest incurred on debt used for construction of tangible fixed assets which amount ed to ￦16,532 million during the year ended December 31, 1999, is capitalized until such construction activities are completed.
(d) Intangible Assets
Development costs resulting from new brand development are stated at cost, less amortization computed using the straight-line
method over 10 ~ 15 years, beginning in the year the related revenue is first realized. Ordinary research and development costs are
expensed as incurred.
(e) Translation of Assets and Liabilities in Foreign Currency
Monetary assets and liabilities denominated in foreign currency are translated into Korean won at the Base Rates ( ￦1,145.40 equal
to U.S.$ 1) announced by the Korean government on the balance sheet date, and gains or losses arising from foreign currency
transactions are charged or credited to current operations. For overseas affiliates accounted for under the equity method (expressed
in foreign currency), assets and liabilities are translated on the balance sheet date, shareholders’ equity is measured at the historical
exchange rate, and statement of income items are recorded at the weighted average exchange rate of the annual closing accounts
Non-monetary assets and liabilities have been translated at historical rates.
(f) Change in Accounting Policies
The Company changed its accounting policies in accordance with the recent changes in Korean FAS, effective for fiscal years begin ning on or after December 12, 1998.
Significant changes are as follows:
i) Through December 31, 1998, debt securities and equity investment securities in affiliated companies had been stated at acquisi
-
tion cost. Effective for the year ended December 31, 1999, marketable debt securities and available-for-sale investment debt securi ties are accounted for at fair value and equity securities where the Company is able to exercise significant influence over the
investee are accounted for using the equity method. Changes in the cumulative net asset value from the acquisition date through
December 31, 1998 were adjusted to beginning retained earnings and as of a capital adjustment item within stockholders’
equity(see Note 5).
continued;
41
ii) Effective January 1, 1999, revised Korean FAS requires companies to report as deferred income tax assets and liabilities the
income tax effects resulting from temporary differences between assets and liabilities recognized for financial reporting purposes
and tax purposes. Income tax effects on temporary differences resulting from accounting events affecting capital accounts are
adjusted directly to the respective capital accounts. The cumulative income tax effects arising from deferred tax assets and liabilities
as of December 31, 1998 have been adjusted to beginning retained earnings.
iii) As a result of such changes in accounting policies, net income, capital adjustments and unappropriated beginning retained earn ings increased by ￦110,030 million, ￦756,779 million, and ￦112,207 million, respectively, as of and for the year ended
December 31,1999.
[2] Uncertainties in Business Environment
The liquidity crisis which began in late 1997 in Republic of Korea and other countries in the Asia Pacific region brought about such adverse
economic effects as significant depreciation in value of the Korean won, higher domestic interest rates, reduced opportunities for refinancing
or refunding debts, and a general reduction in spending throughout the region. Assistance from the International Monetary Fund was provid ed and a series of economic initiatives intended to address the structural weaknesses in the economy was developed and implemented by the
Korean government. These initiatives include a restructuring and recapitalization of the financial sector as well as significant regulatory
reforms. The impact of this situation will continue into the foreseeable future and it is currently uncertain what the resulting effect will be on
the Company's ongoing operations and financial position. The ultimate outcome of this matter cannot presently be determined.
SUBSIDIARIES
SK Energy Sales Co., Ltd.
Capital US$319 million I Date of Establishment October 1, 1997 I SK Corp Equity 99.69%
SK Energy Sales is the largest seller of petroleum products in Korea. The fuels produced by SK Corp. that it retails include gasoline,
kerosene, heating oil, and LPG, as well as petroleum byproducts such as lubricants and asphalt. The company also sells bunker C oil
and other marine fuels to both domestic and foreign shipping companies and brokers. In 1999 the company held a 27.0% share of
the domestic market with revenues of US$5.5 billion. Its nationwide sales network of 3,800 service stations represented 31.9% of
all retail outlets in the domestic petroleum sector.
SK Energy Sales is moving proactively to cope with the opening of the domestic petroleum market to multinationals and to satisfy
the changing needs of customers. Self-service pumps and minishops are being installed at service stations. Light repairing and car
washing facilities are being attached to them and co-branding and forecourt retail business marketing promoted to diversify service
station business lines and improve profitability.
The customer-oriented Enclean Bonus Card and SK BC card services offer gifts and varied practical infotips in proportion to the
points card users accumulate. With its multifunctional space and multiple services, SK Energy Sales is transforming Korean service
stations. Another industry first is the appointment of service station presidents and the provision of greater knowhow to service
station operators through consulting services. These measures have improved the operational efficiency of the entire network.
In the future SK Energy sales will take the best advantage of SK's MS/SUPEX managerial tools to upgrade the quality of service
station facilities and marketing skills so as to creating unique value for customers and emerge as a world-class marketing company.
SK Oxichemicals Co., Ltd.
Capital US$75.9 million | Date of Establishment September 17, 1987 | SK Corp. Equity 100%
Introducing the advanced technology of the US's ARCO, SK Oxichemicals operates manufacturing lines for prophylene oxide and
styrene monomer. The company annually supplies base chemicals of 130,000 tons of prophylene oxide, 560,000 tons of styrene
monomer, 50,000 tons of prophylene glycol, and 60,000 tons of polyprophylene glycol.
SK Oxichemicals has developed value-added polymer polyol, which has heightened its competitive edge. By supplying prophylene
oxide and prophylene glycol, the company has helped raise the international competitiveness of the domestic automobile,
electronics, and other industries which had had to depend on imports for these base chemicals.
The company is seeking to expand its exports of these essential base chemicals while stabilizing their supply on the domestic
market. It is continuing to develop polyol and urethane technologies. As part of its short-term goal of becoming a world leader in
the field, the company will realize the vertical integration of the polyol derivatives production lines in the rapidly growing Chinese
market.
42
SK Enron Co., Ltd.
Capital US$44.6 million | Date of Establishment January 13, 1999 | SK Corp. Equity 50%
SK Enron was founded as part of the company-wide restructuring. To found the company, SK Corp. made investment in kind in its
subsidiary SK Gas and in five city gas companies (Daehan City Gas, Pusan City Gas, Kumi City Gas, Chungju City Gas, and Pohang
City Gas), while Enron, the prestigious US-based gas and electricity company, made an equivalent equity investment.
SK Gas, one of SK Corp.'s subsidiaries, specializes in LPG, supplying 60% of total domestic demand and maintaining a formidable
position of leadership in Korea's gas sector thanks to its distinctive marketing strategies and customer services. The five city gas
companies provide a stable supply in Korea's 10 major cities, holding a total 21% share in the city gas market.
Based on such strategic alliances, SK Enron will continue to raise its technological and managerial edge in the gas business,
especially in industrial and environmental safety and customer services. The company is actively entering private gas and power
generation while securing LNG terminals.
SK Australia Pty. Ltd.
In order to obtain equity in prospective bituminous coal mines in Australia, SK is operating three regional subsidiaries in the country:
SK Australia Proprietary Ltd., SK Australia (Togara) Proprietary Ltd., and SK Australia (Wyong) Proprietary Ltd.
SK Australia Pty. holds a 10% share of the Clarence Mine, acquired in July 1990 and a 5% share of the Carbon Mine, acquired in
January 1996. The company has a long-term contract with these coal mines that will ensure an annual supply of 1.07 million tons to
Korea power generation companies.
SK Australia (Togara) Pty. is carrying on the Togara North Project. Exploration of this field, begun in 1994, has discovered reserves of
high-quality bituminous coal estimated at 250 million tons. A feasibility survey currently under way.
The Wyong Project, which SK Australia (Wyong) Pty. has been conducting since 1996, has ascertained reserves of 1.3 billion tons of
high-quality bituminous coal. The exploration is continuing.
SK Corp. will continue to invest in overseas bituminous coal mines for a stable supply of economic coal, for which Korea must
almost entirely depend on imports.
SK Energy Asia Pte. Ltd.
Capital 4.3 million Singapore dollars | Date of Establishment September 21, 1997 | SK Corp's Equity 100%
As part its globalization strategy, SK Corp. established SK Energy Asia Pte. Ltd. (SKEA) in Singapore. In the short span of time since
its founding, the company has achieved remarkable results that have made it one of the top-ranking companies in Singapore.
SKEA recorded revenues of US$4.4 billion in fiscal 1998 from trading in crude oil and petroleum products. Each year since 1993 the
company has been honored by being selected as one of the nation's Top Ten Enterprises and by receiving the Approved Oil Trader
(AOT) certification that is given to superior oil trading companies by the Singapore government.
SK E&P Company
Date of Establishment June 13, 1997 | SK Corp's Equity 100%
SK E&P Company was established in Houston to learn from local specialists and advanced systems in this global oil center and set up
advanced information channels. SK E&P owns equity in five production blocks in Texas and Louisiana. In 1999 this equity
participation netted a daily average of 550 BOE for local sale. All profits are being reinvested in the five production blocks to boost
their value.
43
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Shareholders of SK Corporation
We have audited the accompanying non-consolidated balance sheet of SK Corporation (the “Company”) as of December 31, 1999,
and the related statement of income, retained earnings and cash flows for the year then ended (all expressed in Korean won). These
non-consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on these non-consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in Korea. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the non-consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the nonconsolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall non-consolidated financial statement presentation. We believe that our audits provide
a reasonable basis for the opinion expressed above.
In our opinion, such non-consolidated financial statements present fairly the financial position of the Company as of December 31,
1999, and the result of its operations, the appropriations of its retained earnings and its cash flows for the year and then ended, in
conformity with Financial Accounting Standards generally accepted in Korea (“Korean FAS”).
Our audit also comprehended the translation of Korean won amounts into U.S. dollar amounts and, in our opinion, such translation
has been made in conformity with the basis stated in Note 2. Such U.S. dollar amounts are presented solely for the convenience of
readers outside of Korea.
As discussed in Note 27 to the accompanying non-consolidated financial statements, the Asia Pacific region, including Korea, has
been experiencing significant economic difficulties during the second half of 1997. These economic difficulties have affected virtually
all Korean businesses in some form or another. In response to this the Korean government is implementing a series of economic
initiatives intended to address the structural weaknesses in the economy. The impact of this situation will continue into the
foreseeable future and it is currently uncertain what the resulting effect will be on the Company's ongoing operations and financial
position. The ultimate outcome of this matter cannot be determined.
As stated in Note 2 to the accompanying non-consolidated financial statements, the Company's changes in its accounting policies in
the current year were made in accordance with revised Korean FAS. As a result of such accounting changes, net income for the
current year, capital adjustments and beginning retained earnings increased by ￦110,030 million, ￦756,779 million and ￦112,207
million, respectively, as of December 31, 1999.
As discussed in Note 21 to the accompanying non-consolidated financial statements, the Company had major transactions and
related accounts balances with its related parties, as of and for the year ended December 31, 1999. Sales to and purchase from its
related parties totaled ￦5,205,195 million and ￦5,074,642 million, respectively, for the year ended December 31, 1999. Trade
receivables and trade payables related to such transactions totaled ￦1,219,567 million and ￦69,136 million, respectively, as of
December 31, 1999.
As described in Note 2 to the accompanying non-consolidated financial statements, this report, together with the accompanying
financial statements and notes thereto, is a condensed and restructured English translation of the Company's statutory report. These
non-consolidated financial statements are intended to present the Company's financial position, results of operations and cash flows
in accordance with accounting principles and reporting practices generally accepted in Korea, which may differ from those generally
accepted in other countries and jurisdictions. The standards, procedures and practices utilized in Korea to audit such nonconsolidated financial statements may differ from those generally accepted in other countries and jurisdictions.
February 25, 2000
44
DIRECTORS & OFFICERS
Tae-won (Anthony) Chey
Young-moon Choi
Jeong-joon Yu
Sang-il Lee
Chairman & CEO
Vice President
Vice President
Business Development
Vice President
Polyolefins Production Team
Han-kyung Kim
Man-won Jung
President & CEO
Vice President
Customer Service Development
Division
Jong-sik Kim
Kwang-kon Kim
Vice President
Technology Services Business
Development
Vice President
Olefins Busienss
Gun-che Lee
Executive Vice President
Business Development
Member of the BOD
Whon-bae Ahn
Yoh-taek Chung
Vice President
Administration & Industrial
Relations
Sang-rok Ahn
Sei-kwang Kim
Sang-hoon Choi
Vice President
Coal Business Dept.
Vice President
Lubricants Business
Member of the BOD
Yub-Sung Bang
Kye-dong Kang
Jong-hoon Park
Vice President
Production
Executive Vice President
Production
Vice President
Office of the Staff to the
President
Jong-soon Lee
Doo-yul Hwang
Executive Vice President
Petroleum Business
Member of the BOD
Vice President
Aromatics Business
Vice President
Transportation Team
Sam-ryong Park
Seung-ryol Yu
Vice President
Refining Operation Team
Sung-dae Cho
Vice President
DB Business Development
Team
Young-deuk Yoo
Vice President
Exploration & Production
Division
Woan-sik Kim
Han-joon Kim
Ha-il Lee
Vice President
Supply Planning & Logistics
Vice President
Petrochemical Production Team
Vice President
General Counsel International
Legal Affairs
Jae-soo Cho
Seong-kil Kang
Chang-kyu Lee
Vice President
Power & LNG Business Team
Vice President
Puchon Football Club
Vice President
Senior Vice President
Human Resources & General
Services
Sung-tae Jee
Ki-tae Hwang
Vice President
Vice President
Maintenance
Vice President
Operation
Joong-hwan Kim
Hong-sin Kang
Young-keun Lee
Yoon Kim
Senior Vice President
CFO of the BOD
Vice President
Safety Environment &
Engineering
Vice President
CIO of the Corporate Planning
Team
Yong-kuk Park
Young duk-Park
Outside Director
Vice President
Legal & Corporate
Vice President
Petroleum Business Planning
& Support
Sung-taek Chong
Vice President
Int'l Trading & Supply Division
Chul-gil Chung
Kyung-joon Chang
Vice President
Auditor
Senior Vice President
Sang-hoon Park
Gyou-bin Lee
Ho-suh Park
Vice President
Tax & Property Administration
Team
Auditor
Bo-sang Koh
Vice President
Solvent Business, Chemical
Business Planning & Support
Cheol-kew Park
Wha-sik Min
Vice President
Cyber LMC Team
Vice President
Research & Development
Dae-ki Kim
Executive Vice President
Corporate Planning & Office of
the Staff to the President
Hun-jae Cho
Senior Vice President
Petroleum Business
Development
Vice President
Utilities Team
Vice President
Advanced Polymer Business
Suk-jin Hwang
Joon-oh Kwon
Ki-haeng Cho
Outside Director
Woo-young Chung
Senior Vice President
Consumer Sales Team
Outside Director
Jook-bong Ha
Dong-woon Chung
Senior Vice President
Global Business
Heung-soo Park
Auditor
Chi-hyoung Kim
Chang-geun Kim
Vice President
Chemical Business
Byung-hyoung Lee
Vice President
Research & Development
Ho-ki Min
Gee-ju Choi
Vice President
Vice President
Safety and Environment Team
Kwan-sup Choi
Vice President
Polymer Business
45
C O R P O R AT E D ATA
HEAD OFFICE
99, Seorin-dong, Jongro-gu,
Seoul 110-110, Korea
TEL 02-2121-5114
TLX OILKOR K23654
FAX 02-2121-7001
ULSAN COMPLEX
110, Kosa-dong, Nam-gu, Ulsan,
Korea
TEL 052-270-2114
FAX 052-274-1507
DAEDUK INSTITUTE OF
THCHNOLOGY
140-1, Wonchon-dong, Yusung-gu,
Taejon, Korea
TEL 042-866-7301
FAX 042-866-7302
OVERSEAS SUBSIDIARIES
REGIONAL BUSINESS TEAM,
AMERICA
14th Fl., 110 East 55th Street,
New York, NY 10022, USA
(PHONE) 1-212-906-8143
(FAX) 1-212-906-8149
SK GROUP JAPAN CO., LTD.
9th Fl., SK Bldg. 7-4, 2-Chome,
Minao-ku, Tokyo 105-0003, Japan
(PHONE) 81-3-3591-3044
(FAX) 81-3-3591-3073
81-3-3591-7487
SK ENERGY ASIA PTE., LTD.
5 Shenton Way #34-04 UIC Bldg.,
Singapore 068808
(PHONE) 65-220-1266
(FAX) 65-221-1225
SUBSIDIARIES
SK ENERGY SALES CO.,LTD.
99, Seorin-dong, Jongro-gu,
Seoul 110-110, Korea
TEL 02-2121-1414
FAX 02-2121-1515
SK- ENRON CO.,LTD.
47th Fl., KLI63Bldg, 60, Yoido-dong,
Youngdungpo-gu, Seoul 150-763,
Korea
TEL 02-789-6777
FAX 02-789-6801
SK OXICHEMICAL CO.,LTD.
23-1, Yoido-dong, Youngdungpo-gu,
Seoul 150-763, Korea
TEL 02-3773-9400
FAX 02-784-9043
SK PHARMA CO., LTD.
948-1, Daechi-3dong, Kangnam-gu,
Seoul 150-763, Korea
TEL 02-2008-2900
FAX 02-2008-2819
REGIONAL BUSINESS TEAM, EU
2nd Fl., 7 St. James's Square,
London SW1Y 4JU, UK
(PHONE) 44-171-930-9866
(FAX) 44-171-930-9868
REGIONAL BUSINESS TEAM,
MIDDLE EAST
Level 10, Dubai World Trade Centre,
PO Box 9389, Dubai, UAE
(PHONE) 971-4-3313457
(FAX) 971-4-3313316
CUSTOM MANUFACTURING
SERVICE, SK ENERGY
& CHEMICAL INC.
22-10 RT. 208 South Fair Lawn,
NJ 07410, USA
(PHONE) 1-201-796-4288
(FAX) 1-201-796-2278
1-201-796-2310
BIO-PHARMACEUTICAL BUSINESS,
SK ENERGY & CHEMICAL INC.
140A New Dutch Lane, Fairfield,
NJ 07006, USA
(PHONE) 1-973-227-3939
(FAX) 1-973-227-4488
SK CPG INC.
22-10 RT. 208 South Fair Lawn,
NJ 07410, USA
(PHONE) 1-201-791-2522
(FAX) 1-201-791-9811
46
THREE SUBSIDIARIES:
SK AUSTRALIA PTY., LTD.
SK AUSTRALIA (TOGARA) PTY., LTD.
SK AUSTRALIA (WYONG) PTY., LTD.
Suite P, Level 14, National Mutual
Center, 44 Market Street, Sydney, NSW
2000, Australia
(PHONE) 61-2-9299-3910
(FAX) 61-2-9299-3989
SK GLOBAL BEIJING
Unit 01-12, Level 17, China World Tower
No. 1, Jian Guo Men Wai Avenue,
Beijing, China 100004
(PHONE) 86-10-6505-0011
(FAX) 86-10-6505-1900
86-10-6505-1991
SHANGHAI OFFICE,
SK GLOBAL CO., LTD.
Suite 2310, Shanghai International Trade
Center, 2200 Yanan Road,
Shanghai,China
(PHONE) 86-21-6295-0088 (831)
(FAX) 86-21-6295-0033
86-21-6295-0055
SK GLOBAL HONG KONG LTD.
16 Fl., Admiralty Centre Tower 2,
18 Harcourt Road, Hong Kong
(PHONE) 852-2821-9400
(FAX) 852-2529-2076/952-2527-8620
SK GLOBAL AMERICA
1300 Post Oak Blvd., Suite 780,
Houston, TX 77056, USA
(PHONE) 1-713-871-1184
(FAX) 1-713-871-8050
HONG KONG
PETROCHEMICAL CO., LTD.
Headquarters: Unit 1806-7, 18 Fl.,
Miramar Tower, 1-23 Kimerley Road,
Tsimshatsui, Kowloon, Hong Kong
(PHONE) 852-28024860
(FAX) 852-2824-0282
Plant: 12 Wang Lok Street, Yuen Long,
Industrial Estate, N. T., Hong Kong
(PHONE) 852-2443-1111
(FAX) 852-2443-0230
www.skcorp.com
SK Corporation B.C.Ahn,S.H.Ku Plan J.K.Yi Design Intergram•Director/Dan Ahn•Designer/G.H.Kim,B.J.Han
Photographer H.W.Rho Color Process Do Graphic Print BoSung Printing Co.,Ltd 2000.5.19
HEAD OFFICE
99, Seorin-dong, Jongro-gu,
Seoul 110-110, Korea
TEL 02-2121-5114
TLX OILKOR K23654
FAX 02-2121-7001
ULSAN COMPLEX
110, Kosa-dong, Nam-gu,
Ulsan, Korea
TEL 052-270-2114
FAX 052-274-1507