2014년 1분기 검토보고서 en

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2014년 1분기 검토보고서 en

  1. 1. HYUNDAI CARD CO., LTD. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 201 AND FOR THE THREE MONTHS MARCH 31, 2014 AND 2013 AND INDEPENDENT ACCOUNTANTS’ REVIEW REPORT HYUNDAI CARD CO., LTD., AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS , 2014, AND DECEMBER 31, 2013, THREE MONTHS ENDED 1, 2014 AND 2013, AND INDEPENDENT ACCOUNTANTS’ REVIEW REPORT AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND DECEMBER 31, 2013, AND INDEPENDENT ACCOUNTANTS’ REVIEW REPORT
  2. 2. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/kr/about for a detailed Touche Tohmatsu Limited and its member firms. Member of Deloitte Touche Tohmatsu Limited Independent Accountants’ Review Report English Translation of a Report Originally Issued in Korean To the Shareholders and Board of Directors of Hyundai Card Co., Ltd.: We have reviewed the accompanying condensed consolidated financial statements of Hyundai Card Co., Ltd. and its subsidiaries (collectively, the “Consolidated Entity condensed consolidated statements of financial position as of March 31, 201 consolidated statements of comprehensive income, condensed consolidated statements of changes in shareholders’ equity and condensed consolidated statements of cash flows for the three months ended March 31, 201 and a summary of significant accounting policies and other explanatory information. Management’s responsibility for the condensed consolidated The Consolidated Entity’s management is responsible for the preparation and fair presentation of the accompanying condensed consolidated financial statements and for such internal control as management determines is necessary to enable the preparation of condensed consolidated financial statements that are free from material misstatement, whether due to fraud or error. Independent accountants’ responsibility Our responsibility is to express a conclusion on the accompanying condens based on our reviews. We conducted our reviews in accordance with standards for review of interim financial statements in the Republic of Korea. A review is limited primarily to inquiries of company personnel and anal financial data, and this provides less assurance than an audit. We have not performed an audit do not express an audit opinion. Review conclusion Based on our reviews, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated financial statements of the respects, in accordance with Korean Int Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/kr/about for a detailed description of the legal structure of Deloitte Independent Accountants’ Review Report English Translation of a Report Originally Issued in Korean Shareholders and Board of Directors of We have reviewed the accompanying condensed consolidated financial statements of Hyundai Card Co., Ltd. and its Consolidated Entity”). The condensed consolidated financial statements consist of the of financial position as of March 31, 2014, and the related condensed consolidated statements of comprehensive income, condensed consolidated statements of changes in shareholders’ equity and condensed consolidated statements of cash flows for the three months ended March 31, 201 and a summary of significant accounting policies and other explanatory information. Management’s responsibility for the condensed consolidated financial statements ’s management is responsible for the preparation and fair presentation of the accompanying condensed consolidated financial statements and for such internal control as management determines is necessary to le the preparation of condensed consolidated financial statements that are free from material misstatement, Independent accountants’ responsibility Our responsibility is to express a conclusion on the accompanying condensed consolidated financial statements We conducted our reviews in accordance with standards for review of interim financial statements in the Republic of Korea. A review is limited primarily to inquiries of company personnel and analytical procedures applied to financial data, and this provides less assurance than an audit. We have not performed an audit Based on our reviews, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated financial statements of the Consolidated Entity are not presented fairly, in all material respects, in accordance with Korean International Financial Standards 1034, Interim Financial Reporting Deloitte Anjin LLC 9Fl., One IFC, 23, Yoido-dong, Youngdeungpo-gu, Seoul 150-876, Korea Tel: +82 (2) 6676 1000 Fax: +82 (2) 6674 2114 www.deloitteanjin.co.kr We have reviewed the accompanying condensed consolidated financial statements of Hyundai Card Co., Ltd. and its financial statements consist of the , and the related condensed consolidated statements of comprehensive income, condensed consolidated statements of changes in shareholders’ equity and condensed consolidated statements of cash flows for the three months ended March 31, 2014 and 2013, ’s management is responsible for the preparation and fair presentation of the accompanying condensed consolidated financial statements and for such internal control as management determines is necessary to le the preparation of condensed consolidated financial statements that are free from material misstatement, ed consolidated financial statements We conducted our reviews in accordance with standards for review of interim financial statements in the Republic ytical procedures applied to financial data, and this provides less assurance than an audit. We have not performed an audit, and accordingly, we Based on our reviews, nothing has come to our attention that causes us to believe that the accompanying are not presented fairly, in all material Interim Financial Reporting.
  3. 3. Others We have also audited the consolidated statement of financial position as consolidated statement of comprehensive income, consolidated statement of cash flows (not presented in the accompanying condensed consolidated financial statements), all expressed in Korean standards generally accepted in the Republic of Korea. On those consolidated financial statements unqualified opinion in our independe consolidated statement of financial position as of December 31, 2013 accompanying condensed consolidated financial statements, does not consolidated statement of financial position as of December 31, 201 May 13, 2014 This report is effective as of May 13, have occurred between the accountants’ review report date and the time the accountants’ review report is read. Such events or circumstances could significantly affect the accompanying condensed consolida and may result in modifications to the accountants’ review report. We have also audited the consolidated statement of financial position as of December 31, 20 consolidated statement of comprehensive income, consolidated statement of changes in shareholders’ equity and cash flows (not presented in the accompanying condensed consolidated financial tements), all expressed in Korean won, for the year ended December 31, 2013, in accordance with auditing standards generally accepted in the Republic of Korea. On those consolidated financial statements unqualified opinion in our independent auditors’ report dated March 12, 2014. In addition, the position as of December 31, 2013, presented for comparative purposes in the accompanying condensed consolidated financial statements, does not differ, in all material respects, with the audited consolidated statement of financial position as of December 31, 2013. Notice to Readers May 13, 2014, the review report date. Certain subsequent events or circumstances may have occurred between the accountants’ review report date and the time the accountants’ review report is read. Such events or circumstances could significantly affect the accompanying condensed consolidated financial statements and may result in modifications to the accountants’ review report. of December 31, 2013, and the related changes in shareholders’ equity and cash flows (not presented in the accompanying condensed consolidated financial , in accordance with auditing standards generally accepted in the Republic of Korea. On those consolidated financial statements, we expressed an . In addition, the restated condensed comparative purposes in the differ, in all material respects, with the audited date. Certain subsequent events or circumstances may have occurred between the accountants’ review report date and the time the accountants’ review report is read. Such ted financial statements
  4. 4. HYUNDAI CARD CO., LTD., AND ITS SUBSIDIARIES (the “Consolidated Entity”) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2014, AND DECEMBER 31, 2013, AND FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013 The accompanying financial statements, including all footnote disclosures, were prepared by, and are the responsibility of, the Consolidated Entity. Chung, Tae Young Chief Executive Officer Hyundai Card Co., Ltd.
  5. 5. HYUNDAI CARD CO., LTD., AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF MARCH 31, 2014, AND DECEMBER 31, 2013 (Unit: Korean won) March 31, 2014 December 31, 2013 ASSETS: CASH AND DEPOSITS (Notes 4, 22 and 27): Cash and cash equivalents ₩ 954,221,669,394 ₩ 965,455,273,460 Deposits 33,031,500,000 33,031,500,000 Total cash and deposits 987,253,169,394 998,486,773,460 SECURITIES (Note 27): Available-for-sale (AFS) securities 1,766,969,764 1,766,969,764 Total securities 1,766,969,764 1,766,969,764 CARD ASSETS (Notes 5, 6, 25 and 27): Card receivables, net of present value discounts and deferred origination fees 6,227,565,650,450 6,383,211,792,320 Allowance for doubtful accounts (67,929,124,910) (70,105,553,680) Cash advances 849,317,881,859 849,422,262,762 Allowance for doubtful accounts (31,328,268,539) (31,313,461,768) Card loans, net of present value discounts and deferred loan origination fees 2,769,659,675,747 2,701,390,003,560 Allowance for doubtful accounts (106,372,073,059) (103,438,269,110) Total card assets 9,640,913,741,548 9,729,166,774,084 PROPERTY AND EQUIPMENT (Note 7): Land 123,968,849,098 122,011,816,788 Buildings 79,667,649,357 79,195,772,062 Accumulated depreciation (6,812,638,069) (6,313,565,576) Vehicles 88,948,908 88,948,908 Accumulated depreciation (43,912,406) (38,353,100) Fixtures and equipment 153,799,927,441 150,980,674,674 Accumulated depreciation (103,429,751,010) (97,286,451,779) Finance lease assets 3,334,009,504 3,334,009,504 Accumulated depreciation (3,334,008,504) (3,056,175,378) Construction in progress 33,812,707,791 33,125,461,350 Total property and equipment 281,051,782,110 282,042,137,453 OTHER ASSETS: Other accounts receivable 89,968,758,351 94,513,815,009 Allowance for doubtful accounts (Note 6) (1,118,932,517) (1,030,119,271) Accrued revenue 50,368,233,100 48,131,937,107 Allowance for doubtful accounts (Note 6) (1,307,592,054) (1,323,983,992) Advanced payments 12,547,417,524 12,955,613,877 Allowance for doubtful accounts (Note 6) (651,322,306) (657,322,306) Prepaid expenses 46,094,930,089 46,967,290,940 Intangible assets (Note 8) 127,980,801,811 127,029,551,626 Derivative assets (Notes 12 and 26) 1,693,693,913 2,750,372,571 Deferred income tax assets 140,684,206,187 143,222,807,823 Guarantee deposits 29,743,550,751 34,819,962,715 Others 2,141,539,158 2,035,111,023 Total other assets 498,145,284,007 509,415,037,122 Total Assets ₩11,409,130,946,823 ₩11,520,877,691,883 (Continued)
  6. 6. HYUNDAI CARD CO., LTD., AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (CONTINUED) AS OF MARCH 31, 2014, AND DECEMBER 31, 2013 (Unit: Korean won) March 31, 2014 December 31, 2013 LIABILITIES AND SHAREHOLDERS’ EQUITY: BORROWINGS (Notes 9 and 27): Borrowings ₩ 212,500,000,000 ₩ 212,500,000,000 Bonds payable, net of discounts on bonds 6,874,107,122,851 6,978,262,324,353 Total borrowings 7,086,607,122,851 7,190,762,324,353 OTHER LIABILITIES: Accounts payable 1,023,287,121,176 1,063,762,663,494 Accrued expenses 172,359,964,083 191,925,249,569 Unearned revenue 382,525,366,879 393,154,182,657 Withholdings 128,453,914,082 134,747,372,074 Finance lease liabilities - 298,002,314 Derivative liabilities (Notes 12 and 26) 30,161,197,190 48,665,166,455 Current tax liability 41,584,283,737 33,669,310,842 Net defined benefit liability (Note 10) 5,462,877,407 3,367,411,536 Guarantee deposits received 8,077,567,928 8,076,226,724 Provisions (Notes 11 and 23) 83,805,528,372 86,321,526,532 Total other liabilities 1,875,717,820,854 1,963,987,112,197 SHAREHOLDERS’ EQUITY: Share capital 802,326,430,000 802,326,430,000 Capital surplus 57,704,443,955 57,704,443,955 Reserves (Note 21) (7,655,889,470) (5,856,733,562) Retained earnings (Notes 13 and 14) 1,594,431,018,633 1,511,954,114,940 Total shareholders’ equity 2,446,806,003,118 2,366,128,255,333 Total Liabilities and Shareholders’ Equity ₩ 11,409,130,946,823 ₩ 11,520,877,691,883 (Concluded) See accompanying notes to condensed consolidated financial statements.
  7. 7. HYUNDAI CARD CO., LTD., AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013 (Unit: Korean won) Three months ended March 31, 2014 Three months ended March 31, 2013 OPERATING REVENUE: Card income ₩ 619,891,367,493 ₩ 591,429,424,522 Interest income (Note 15) 5,106,966,569 4,841,265,972 Gain on valuation and disposal of securities 30,307,300 54,123,600 Dividends income 172,578,278 178,460,199 Reversal of provision for unused credit limits (Note 11) 653,641,276 - Other operating revenue (Note 17) 16,485,861,893 46,105,995,764 Total operating revenue 642,340,722,809 642,609,270,057 OPERATING EXPENSES: Card expenses 237,951,344,408 247,145,502,168 Interest expenses (Note 15) 76,249,562,701 79,418,053,191 General and administrative expenses (Note 18) 141,353,078,642 143,582,850,052 Securitization expenses 116,690,899 120,215,516 Bad debt expense and loss on disposal of loans (Note 6) 60,138,009,937 55,027,799,925 Transfer to provision for unused credit limits (Note 11) - 506,160,044 Other operating expenses (Note 17) 19,026,479,681 54,914,208,031 Total operating expenses 534,835,166,268 580,714,788,927 OPERATING INCOME 107,505,556,541 61,894,481,130 NON-OPERATING INCOME: Gain from sale of property and equipment and intangible assets - 78,333,200 Reversal of impairment loss for intangible assets (Note 8) 6,262,020 - Rental revenue 461,152,308 645,689,865 Miscellaneous gain 53,320,377 44,824,685 Total non-operating income 520,734,705 768,847,750 NON-OPERATING EXPENSES: Donations 174,656,675 196,373,200 Loss from sale of property and equipment and intangible assets 17,750,141 501,813,015 Total non-operation expense 192,406,816 698,186,215 INCOME BEFORE INCOME TAX 107,833,884,430 61,965,142,665 INCOME TAX EXPENSE (Note 19) 25,356,980,737 14,761,833,167 INCOME FOR THE PERIOD 82,476,903,693 47,203,309,498 (Continued)
  8. 8. HYUNDAI CARD CO., LTD., AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED) FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013 (Unit: Korean won) Three months ended March 31, 2014 Three months ended March 31, 2013 OTHER COMPREHENSIVE INCOME (LOSS) AFTER TAX FOR THE PERIOD (Note 21) Items not reclassified subsequently to profit or loss ₩ (589,117,135) ₩ (1,041,182,121) Remeasurements of net defined benefit liability (589,117,135) (1,041,182,121) Items reclassified subsequently to profit or loss (1,210,038,773) (1,874,376,829) Cash flow hedging losses (1,210,038,773) (1,874,376,829) Total other comprehensive income (loss) (1,799,155,908) (2,915,558,950) TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ₩ 80,677,747,785 ₩ 44,287,750,548 EARNINGS PER SHARE (Note 20) Basic earnings per share ₩ 514 ₩ 294 Diluted earnings per share ₩ 514 ₩ 294 (Concluded) See accompanying notes to condensed consolidated financial statements.
  9. 9. HYUNDAI CARD CO., LTD., AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013 (Unit: Korean won) Share capital Capital surplus Retained earnings Total Share premium Other capital Reserves Balance at January 1, 2013 ₩802,326,430,000 ₩ 45,399,364,539 ₩12,305,079,416 ₩ (16,504,748,278) ₩ 1,348,744,482,014 ₩ 2,192,270,607,691 Total comprehensive income Income for the period - - - - 47,203,309,498 47,203,309,498 Other comprehensive loss Remeasurements of net defined benefit liability - - - (1,041,182,121) - (1,041,182,121) Cash flow hedging losses - - - (1,874,376,829) - (1,874,376,829) Balance at March 31, 2013 ₩ 802,326,430,000 ₩ 45,399,364,539 ₩ 12,305,079,416 ₩ (19,420,307,228) ₩ 1,395,947,791,512 ₩ 2,236,558,358,239 Balance at January 1, 2014 ₩ 802,326,430,000 ₩ 45,399,364,539 ₩ 12,305,079,416 ₩ (5,856,733,562) ₩ 1,511,954,114,940 ₩ 2,366,128,255,333 Total comprehensive income Income for the period - - - - 82,476,903,693 82,476,903,693 Other comprehensive loss Remeasurements of net defined benefit liability - - - (589,117,135) - (589,117,135) Cash flow hedging losses - - - (1,210,038,773) - (1,210,038,773) Balance at March 31, 2014 ₩802,326,430,000 ₩ 45,399,364,539 ₩12,305,079,416 ₩ (7,655,889,470) ₩ 1,594,431,018,633 ₩ 2,446,806,003,118 See accompanying notes to condensed consolidated financial statements.
  10. 10. HYUNDAI CARD CO., LTD., AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013 (Unit: Korean won) Three months ended March 31, 2014 Three months ended March 31, 2013 CASH FLOWS FROM OPERATING ACTIVITIES: Cash generated from operating activities (Note 22) ₩ 204,847,780,072 ₩ 666,272,122,354 Interest received 5,383,022,132 5,025,114,919 Interest paid (71,612,832,371) (73,502,634,275) Dividend received 172,578,278 178,460,199 Income tax paid (14,334,287,563) (12,491,420,048) Net cash provided by operating activities 124,456,260,548 585,481,643,149 CASH FLOWS FROM INVESTING ACTIVITIES: Disposal of AFS securities 30,307,300 54,123,600 Disposal of property and equipment 10,000,000 101,998,553 Acquisition of property and equipment (12,918,402,475) (8,496,668,691) Acquisition of intangible assets (11,368,671,357) (4,201,123,065) Net cash used in investing activities (24,246,766,532) (12,541,669,603) CASH FLOWS FROM FINANCING ACTIVITIES: Increase in borrowings 990,000,000,000 1,220,000,000,000 Proceeds from issue of bonds payable 1,189,616,899,808 699,096,404,549 Repayment of borrowings (990,000,000,000) (1,580,000,000,000) Repayment of bonds payable (1,301,059,997,890) (824,219,997,857) Net cash used in financing activities (111,443,098,082) (485,123,593,308) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (11,233,604,066) 87,816,380,238 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD (Note 22) 965,455,273,460 791,547,295,193 CASH AND CASH EQUIVALENTS, END OF PERIOD (Note 22) ₩ 954,221,669,394 ₩ 879,363,675,431 See accompanying notes to condensed consolidated financial statements.
  11. 11. - 2 - HYUNDAI CARD CO., LTD., AND ITS SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2014, AND DECEMBER 31, 2013, AND FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013 1. REPORTING ENTITY: Hyundai Card Co., Ltd. (the “Company” or the “Parent”) is engaged in the credit card business under the Specialized Credit Financial Business Law of Korea. On September 15, 1995, the Parent acquired the credit card business of Korea Credit Circulation Co., Ltd., and on September 16, 1995, the Korean government granted permission to the Parent to engage in the credit card business. As of March 31, 2014, the Parent has approximately 6.86 million card members, 2.10 million registered merchants and 167 marketing centers, branches and posts. Its headquarters is located at 3, Uisadang-daero, Yeongdeungpo-gu, Seoul. As of March 31, 2014, the total common stock of the Parent is ₩802,326 million. The shareholders of the Parent and their respective ownerships as of March 31, 2014, and December 31, 2013, are as follows: Shareholder March 31, 2014 December 31, 2013 Number of shares % of ownership Number of shares % of ownership Hyundai Motor Co., Ltd. 59,301,937 36.96 59,301,937 36.96 Kia Motors Co., Ltd. 18,422,142 11.48 18,422,142 11.48 GE Capital Int'l Holdings 69,000,073 43.00 69,000,073 43.00 Hyundai Commercial Inc. 8,889,622 5.54 8,889,622 5.54 Others 4,851,512 3.02 4,851,512 3.02 Totals 160,465,286 100.00 160,465,286 100.00 (1) Details of the Parent’s subsidiaries as of March 31, 2014, and December 31, 2013, are as follows: Place of incorporation and operation Voting share (%) Companies Major operation March 31, 2013 December 31, 2013 End of reporting period PRIVIA 2nd SPC Asset securitization Korea 0.9 0.9 December PRIVIA 3rd SPC Asset securitization Korea 0.9 0.9 January The subsidiaries were established for the Parent’s business activity. The Parent has a power over the subsidiaries due to the fact that the Parent involves in the objectives and design of the subsidiaries and exposes to risks and rewards of them. Also, all the decision-making processes of the subsidiaries are operated on autopilot by provisions and articles of association. The Parent is considered to have an ability to use power as it has a control over the changes of provisions and articles of association. By those reasons, the Parent includes the special- purpose entities under consolidation. Meanwhile, in case the default occurs by the subsidiaries related to derivative contracts hedging risks arising from debentures issued for asset securitization, counterparties of the derivative contracts can claim for reimbursement to the Parent.
  12. 12. - 3 - 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The Consolidated Entity maintains its official accounting records in the Republic of Korean won (“won”) and prepares condensed consolidated financial statements in conformity with Korean statutory requirements and Korean International Reporting Standards (“K-IFRS”), in Korean language (Hangul). Accordingly, these condensed consolidated financial statements are intended for use by those who are informed about K-IFRS and Korean practices. Certain information included in the Korean language financial statements, but not required for a fair presentation of the Consolidated Entity’s financial position, operating results, changes in shareholders’ equity or cash flows, is not presented in the accompanying condensed consolidated financial statements. (1) Basis of Preparation The Consolidated Entity’s interim condensed consolidated financial statements for the three months ended March 31, 2014, are prepared in accordance with K-IFRS 1034, Interim Financial Reporting. It is necessary to use the annual consolidated financial statements for the year ended December 31, 2013, for the understanding of the interim consolidated financial statements. The Consolidated Entity’s accounting policies applied for the accompanying interim condensed consolidated financial statements are the same as the policies applied for the preparation of annual consolidated financial statements for the year ended December 31, 2013, except for the effects from the introduction of new and revised accounting standards or interpretations as described below. 1) Accounting standards and interpretations that were newly applied for the three months ended March 31, 2014, and changes in the Consolidated Entity’s accounting policies are as follows: K-IFRS 1032, Financial Instruments: Presentation (Revised) The amendments to K-IFRS 1032 clarify existing application issue relating to the offset of financial assets and financial liabilities requirements. The Consolidated Entity’s right of setoff must not be contingent upon any future events but enforceable anytime during the contract period in all of the circumstances — in the event of default, insolvency or bankruptcy of the entity or the counterparties, as well as in the ordinary course of business. Meanwhile, these enactments referred above do not have a significant effect on the Consolidated Entity’s consolidated financial statements and disclosures. K-IFRS 1110, 1112, and 1027, Investment Entities (Revised) The amendments introduce an exception to the principle under K-IFRS 1110 that all subsidiaries shall be consolidated and require a reporting entity that meets the definition of an investment entity not to consolidate its subsidiaries but instead to measure its subsidiaries at fair value through profit or loss (FVTPL) in its consolidated and separate financial statements. In addition, consequential amendments have been made to K- IFRS 1112 and K-IFRS 1027 to introduce new disclosure requirements for investment entities. Meanwhile, these enactments referred above do not have a significant effect on the Consolidated Entity’s consolidated financial statements and disclosures. K-IFRS 1039, Financial Instruments: Recognition and Measurement (Revised) The amendment to K-IFRS 1039 allows the continuation of hedge accounting when a derivative is novated to a clearing counterparty or entity acting in a similar capacity and certain conditions are met. Meanwhile, these enactments referred above do not have a significant effect on the Consolidated Entity’s consolidated financial statements and disclosures.
  13. 13. - 4 - K-IFRS 2121, Levies (Issued) K-IFRS 2121 defines a levy as a payment to a government for which an entity receives no specific goods or services. The interpretation requires that a liability is recognized when the obligating event occurs. The obligating event is the activity that triggers payment of the levy and is typically specified in the legislation that imposes the levy. Meanwhile, these enactments referred above do not have a significant effect on the Consolidated Entity’s consolidated financial statements and disclosures. The list above does not include some other amendments such as the amendments to K-IFRS 1036 relating to ‘Recoverable amount disclosures’. But these enactments referred above do not have a significant effect on the Consolidated Entity’s consolidated financial statements and disclosures. 2) The Consolidated Entity has not applied or adopted earlier the following new and revised K-IFRS that have been issued as of March 31, 2014, but are not yet effective: K-IFRS 1019, Employee Benefits (Revised) The amendment to K-IFRS 1019 allows the contributions that are irrelevant to the elapse of working period to be deducted from the service cost when the service is being provided, not to be distributed to the working period. The amendments to K-IFRS 1019 are effective for annual periods beginning on or after July 1, 2014. The list above does not include some other annual amendments that are newly adopted from the current year. But the enactments referred above do not have any significant effect on the Consolidated Entity’s consolidated financial statements and disclosures. 3. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY: In the application of the Consolidated Entity’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The application of the Consolidated Entity’s accounting policies and the judgments by management on sources of estimation uncertainty are the same as those of the consolidated financial statements as of December 31, 2013. 4. RESTRICTED FINANCIAL ASSETS: Restricted financial assets as of March 31, 2014, and December 31, 2013, are as follows (Unit: Korean won in millions): Type Entity March 31, 2014 December 31, 2013 Restriction Cash and deposits KB and others ₩ 19 ₩ 19 Guarantee deposits for overdraft Shinhan Bank and others 33,000 33,000 Secured deposits Mirae Asset Securities 13 13 Social enterprise fund Other assets Korea Asset Management Corporation 6,820 9,246 Escrow account ₩ 39,852 ₩ 42,278
  14. 14. - 5 - 5. CARD ASSETS: Card assets by customer as of March 31, 2014, and December 31, 2013, are as follows (Unit: Korean won in millions): March 31, 2014 Principal Deferred origination fees Present value discounts Allowance for doubtful accounts Book value Card receivables Households ₩ 5,690,526 ₩ (6,628) ₩ (5,220) ₩ (60,592) ₩ 5,618,086 Corporates 548,887 - - (7,337) 541,550 Cash advances Households 849,318 - - (31,328) 817,990 Corporates - - - - - Card loans Households 2,770,539 - (879) (106,372) 2,663,288 Corporates - - - - - Total ₩9,859,270 ₩ (6,628) ₩ (6,099) ₩(205,629) ₩9,640,914 December 31, 2013 Principal Deferred origination fees Present value discounts Allowance for doubtful accounts Book value Card receivables Households ₩ 5,870,781 ₩ (7,183) ₩ (5,287) ₩ (61,803) ₩ 5,796,508 Corporates 524,912 (11) - (8,303) 516,598 Cash advances Households 849,422 - - (31,313) 818,109 Corporates - - - - - Card loans Households 2,702,253 - (863) (103,438) 2,597,952 Corporates - - - - - Total ₩9,947,368 ₩ (7,194) ₩ (6,150) ₩(204,857) ₩9,729,167 6. ALLOWANCE FOR DOUBTFUL ACCOUNTS: Changes in the allowance for doubtful accounts for the three months ended March 31, 2014 and 2013, are as follows (Unit: Korean won in millions): Three months ended March 31, 2014 Card receivables Cash advances Card loans Other assets Total Balance at January 1, 2014 ₩ 70,105 ₩ 31,314 ₩ 103,438 ₩ 3,011 ₩ 207,868 Bad debt expenses (828) (106) (103) - (1,037) Bad debt recovered 167 239 71 - 477 Disposition and repurchase (8,922) (5,170) (10,396) - (24,488) Provision of allowance for doubtful accounts 7,407 5,051 13,362 67 25,887 Balance at March 31, 2014 ₩ 67,929 ₩ 31,328 ₩ 106,372 ₩ 3,078 ₩ 208,707
  15. 15. - 6 - Three months ended March 31, 2013 Card receivables Cash advances Card loans Other assets Total Balance at January 1, 2013 ₩ 65,652 ₩ 33,786 ₩ 81,374 ₩ 2,267 ₩ 183,079 Bad debt expenses (551) (115) (172) - (838) Bad debt recovered 172 240 78 - 490 Disposition and repurchase (8,917) (5,696) (7,919) - (22,532) Provision of allowance for doubtful accounts 6,326 4,502 11,221 572 22,621 Balance at March 31, 2013 ₩ 62,682 ₩ 32,717 ₩ 84,582 ₩ 2,839 ₩ 182,820 7. PROPERTY AND EQUIPMENT: The changes in book value of property and equipment for the three months ended March 31, 2014 and 2013, are as follows (Unit: Korean won in millions): Three months ended March 31, 2014 Beginning balance Acquisition Reclassification Disposal Depreciation Ending balance Land ₩ 122,012 ₩ 1,613 ₩ 344 ₩ - ₩ - ₩ 123,969 Buildings 72,882 374 98 - (499) 72,855 Vehicles 51 - - - (5) 46 Fixtures and equipment 53,694 2,563 429 (27) (6,289) 50,370 Finance lease assets 278 - - - (278) - Construction in progress 33,125 1,464 (777) - - 33,812 Total ₩ 282,042 ₩ 6,014 ₩ 94 ₩ (27) ₩ (7,071) ₩ 281,052 Three months ended March 31, 2013 Beginning balance Acquisition Reclassification Disposal Depreciation Ending balance Land ₩ 122,012 ₩ - ₩ - ₩ - ₩ - ₩ 122,012 Buildings 60,331 5 4 (20) (406) 59,914 Vehicles 163 - - - (29) 134 Fixtures and equipment 56,690 1,629 1,298 (505) (6,318) 52,794 Finance lease assets 1,389 - - - (278) 1,111 Construction in progress 23,798 6,862 (1,302) - - 29,358 Total ₩ 264,383 ₩ 8,496 ₩ - ₩ (525) ₩ (7,031) ₩ 265,323
  16. 16. - 7 - 8. INTANGIBLE ASSETS: The changes in intangible assets for the three months ended March 31, 2014 and 2013, are as follows (Unit: Korean won in millions): 9. BORROWINGS: (1) Borrowings as of March 31, 2014, and December 31, 2013, are as follows (Unit: Korean won in millions): Annual interest rates (%) MaturityBorrowed from March 31, 2014 December 31, 2013 Borrowings Hana bank and seven others 3.56–5.55 2014.04.21– 2016.04.01 ₩ 212,500 ₩ 212,500 ₩ 212,500 ₩ 212,500 (2) Bonds payable issued by the Consolidated Entity and outstanding as of March 31, 2014, and December 31, 2013, are as follows (Unit: Korean won in millions): Annual interest rates (%) Maturity March 31, 2014 December 31, 2013 Current portion of long-term debentures 2.94–6.75, 1M USD LIBOR+0.724 2014.04.02– 2015.03.25 ₩ 1,620,760 ₩ 1,701,413 Discounts on bonds (563) (346) Subtotal 1,620,197 1,701,067 Long-term debentures 2.77–5.68, 1M USD LIBOR+1.50 2015.05.02– 2020.10.29 5,260,013 5,284,120 Discounts on bonds (6,103) (6,925) Subtotal 5,253,910 5,277,195 Total ₩ 6,874,107 ₩ 6,978,262 The outstanding bonds payable are non-guaranteed corporate bonds, with their principals to be redeemed by installment or at maturity. Bond issuance costs are recorded as discounts on bonds payable and amortized using the effective interest rate method. Three months ended March 31, 2014 Beginning balance Acquisition Reclassification Amortization Impairment Ending balance Development cost ₩ 35,434 ₩ 364 ₩ 671 ₩ (3,346) ₩ - ₩ 33,123 Industrial property rights 36 - - (10) - 26 Others 4,505 - - (756) - 3,749 Construction in progress 65,899 4,894 (731) - - 70,062 Membership 21,156 - (141) - 6 21,021 Total ₩ 127,030 ₩ 5,258 ₩ (201) ₩ (4,112) ₩ 6 ₩ 127,981 Three months ended March 31, 2013 Beginning balance Acquisition Reclassification Amortization Impairment Ending balance Development cost ₩ 34,747 ₩ 655 ₩ 190 ₩ (2,894) ₩ - ₩ 32,698 Industrial property rights 76 - - (10) - 66 Others 7,829 - - (857) - 6,972 Construction in progress 11,041 3,546 (190) - - 14,397 Membership 20,971 - - - - 20,971 Total ₩ 74,664 ₩ 4,201 ₩ - ₩ (3,761) ₩ - ₩ 75,104
  17. 17. - 8 - 10. RETIREMENT BENEFIT PLAN: (1) Defined Contribution Plan The expense recognized in the condensed consolidation statements of comprehensive income related to postemployment benefit plan under the defined contribution plan for the three months ended March 31, 2014 and 2013, is as follows (Unit: Korean won in millions): March 31, 2014 March 31, 2013 Defined contribution plan ₩ 10 ₩ 5 (2) Defined Benefit Plan 1) General The Consolidated Entity operates a defined benefit plan that is linked to final payment. Plan assets mainly consist of deposits and expose to risk of fall in interest rate. 2) Net defined benefit obligation Changes in net defined benefit obligation for the three months ended March 31, 2014 and 2013, are as follows (Unit: Korean won in millions): Three months ended March 31, 2014 Present value of the defined benefit obligation Plan assets National Pension Fund Net defined benefit obligation Beginning balance ₩ 46,404 ₩ (43,006) ₩ (30) ₩ 3,368 Current service cost 2,167 - - 2,167 Interest expense (income) 416 (391) - 25 Return on plan assets, excluding amounts included in interest income above - 94 - 94 Actuarial gains and losses arising from changes in financial assumptions 681 - - 681 Transfer of employees between the Consolidated Entity and its related companies 93 236 - 329 Benefits paid (2,288) 1,087 - (1,201) Ending balance ₩ 47,473 ₩ (41,980) ₩ (30) ₩ 5,463
  18. 18. - 9 - Three months ended March 31, 2013 Present value of the defined benefit obligation Plan assets National Pension Fund Net defined benefit obligation Beginning balance ₩ 44,474 ₩ (33,745) ₩ (34) ₩ 10,695 Current service cost 2,391 - - 2,391 Interest expense (income) 353 (268) - 85 Return on plan assets, excluding amounts included in interest income above - 22 - 22 Actuarial gains and losses arising from changes in financial assumptions 1,351 - - 1,351 Transfer of employees between the Consolidated Entity and its related companies (520) 416 - (104) Benefits paid (623) 696 3 76 Ending balance ₩ 47,426 ₩ (32,879) ₩ (31) ₩ 14,516 11. PROVISIONS: Changes in provisions for the three months ended March 31, 2014 and 2013, are as follows (Unit: Korean won in millions): March 31, 2014 Unused commitment Point Others Total Beginning ₩ 47,497 ₩ 22,944 ₩ 15,880 ₩ 86,321 Increase (decrease) (654) 582 (2,444) (2,516) Ending ₩ 46,843 ₩ 23,526 ₩ 13,436 ₩ 83,805 March 31, 2013 Unused commitment Point Others Total Beginning ₩ 46,386 ₩ 15,509 ₩ 13,792 ₩ 75,687 Increase (decrease) 506 1,409 10,258 12,173 Ending ₩ 46,892 ₩ 16,918 ₩ 24,050 ₩ 87,860 The above amounts as of March 31, 2014, include provision for deposits in escrow account of ₩2,303 million, and provision for pending litigations of ₩11,133 million, in which provision includes deposits in escrow account of ₩4,467 million (see Note 23(5)).
  19. 19. - 10 - 12. DERIVATIVES AND HEDGE ACCOUNTING: (1) There are no derivative instruments held for trading as of March 31, 2014, and December 31, 2013. (2) Cash flow hedge The Consolidated Entity removes the volatility risk of future cash flow of a hedged item, such as borrowings or bonds, caused by changes in market interest rates or in foreign currency rates, by using derivative instruments, such as an interest rate swap or currency swap. The Consolidated Entity’s policies and strategies of cash flow hedge are the same as those as of December 31, 2013. 1) Fair value of cash flow hedge as of March 31, 2014, and December 31, 2013, are as follows (Unit: Korean won in millions): March 31, 2014 Unsettled contract amount Asset Liabilities Accumulated other comprehensi- ve income Interest rate swap ₩ 1,283,000 ₩ 1,694 ₩ 3,572 ₩ (1,427) Cross-currency swap 498,773 - 26,589 (610) Total ₩ 1,781,773 ₩ 1,694 ₩ 30,161 ₩ (2,037) December 31, 2013 Unsettled contract amount Asset Liabilities Accumulated other comprehensi- ve income Interest rate swap ₩ 1,313,000 ₩ 2,750 ₩ 2,678 ₩ 55 Cross-currency swap 703,533 - 45,987 (882) Total ₩ 2,016,533 ₩ 2,750 ₩ 48,665 ₩ (827) For transactions between local currency and foreign currencies, the unsettled contract amount of transaction is translated applying the basic foreign exchange rate at the end of reporting period to the contract amount in foreign currencies. 2) The maximum period the Consolidated Entity is exposed to the variability in future cash flows arising from derivatives designated as cash flow hedges is expected to be until March 6, 2019. Meanwhile, there is no ineffective portion recognized related to cash flow hedge for the three months ended March 31, 2014 and 2013.
  20. 20. - 11 - 13. SHARE CAPITAL: (1) Details of appropriated and expected reserves for bad loans as of March 31, 2014, and December 31, 2013, are as follows (Unit: Korean won in millions): March 31, 2014 December 31, 2013 Accumulated reserve for bad loans ₩ 659,761 ₩ 611,622 Expected (reversal of) reserve for bad loans (10,151) 48,139 ₩ 649,610 ₩ 659,761 (2) Transfer to reserve for bad loans and profit for the period in consideration of effect of changes in reserve for bad loans for the three months ended March 31, 2014 and 2013, are as follows (Unit: Korean won in millions): Three months ended March 31, 2014 Net income for the period ₩ 82,477 Reversal of reserve for bad loans (10,151) Adjusted income after reserve for bad loans 92,628 Adjusted income per share in consideration of reserve for bad loans* ₩ 577 *Unit: Korean won Three months ended March 31, 2013 Net income for the period ₩ 47,203 Reversal of reserve for bad loans (3,767) Adjusted income after reserve for bad loans 50,970 Adjusted income per share in consideration of reserve for bad loans* ₩ 318 *Unit: Korean won 14. RETAINED EARNINGS: (1) Details of retained earnings as of March 31, 2014, and December 31, 2013, are as follows (Unit: Korean won in millions): March 31, 2014 December 31, 2013 Legal reserve (*) ₩ 20,143 ₩ 20,143 Reserve for bad loans (see Note 13) 659,761 611,622 Unappropriated retained earnings 914,527 880,189 ₩ 1,594,431 ₩ 1,511,954 (*) Korean Commercial Code requires a company to appropriate at least 10% of dividends paid as legal reserve for each fiscal period, until the reserve equals 50% of paid-in capital. This reserve is not available for payment of cash dividends; however, it can be used to reduce deficit or be transferred to capital. (2) Changes in retained earnings for the three months ended March 31, 2014 and 2013, are as follows (Unit: Korean won in millions): Three months ended March 31 2014 2013 Beginning ₩ 1,511,954 ₩ 1,348,745 Net income attributable to the owners of the Consolidated Entity 82,477 47,203 Ending ₩ 1,594,431 ₩ 1,395,948
  21. 21. - 12 - 15. NET INTEREST EXPENSE Net interest income (expense) for the three months ended March 31, 2014 and 2013, is as follows (Unit: Korean won in millions): Three months ended March 31 Interest income 2014 2013 Cash and deposits ₩ 4,532 ₩ 4,367 Others 575 474 Total 5,107 4,841 Interest expense Borrowings 2,981 4,828 Bonds payable 73,262 74,540 Others 7 50 Total 76,250 79,418 Net interest expense ₩ (71,143) ₩ (74,577) 16. NET COMMISSION INCOME: Net commission income for the three months ended March 31, 2014 and 2013, is as follows (Unit: Korean won in millions): Three months ended March 31 2014 2013 Commission income Card income ₩ 378,150 ₩ 371,210 Total 378,150 371,210 Commission expense Service fee 128,320 142,204 Financial payment fee 2,608 2,898 A new credit sale handling fee 30,057 40,584 Merchants copayment fee 13 15 Overseas payment fee 10,072 15,307 Other 12,818 12,746 Total 183,888 213,754 Net commission income ₩ 194,262 ₩ 157,456 17. OTHER OPERATING REVENUE AND OTHER OPERATING EXPENSES: Other operating income and other operating expenses for the three months ended March 31, 2014 and 2013, are as follows (Unit: Korean won in millions): Three months ended March 31 Other operating revenue 2014 2013 Foreign exchange gain ₩ 2,884 ₩ 2,983 Foreign currency translation gain 1,460 - Gain on valuation of derivatives 6,300 33,415 Others 5,842 9,708 Total ₩ 16,486 ₩ 46,106 Other operating expenses Foreign exchange loss 2,281 726 Foreign currency translation loss 6,300 33,378 Others 10,445 20,810 Total ₩ 19,026 ₩ 54,914
  22. 22. - 13 - 18. GENERAL AND ADMINISTRATIVE EXPENSES: Details of general and administrative expenses for the three months ended March 31, 2014 and 2013, are as follows (Unit: Korean won in millions): Three months ended March 31 2014 2013 Salaries and wages ₩ 28,621 ₩ 29,403 Pension expenses 2,202 2,481 Employee benefits 6,815 7,969 Travel expenses 467 461 Communication expenses 5,889 5,104 Posts expenses 5,325 3,449 Rental expenses 6,106 6,163 Taxes dues 4,834 5,768 Repair and maintenance expenses 145 142 Insurance premiums 25 11 Entertainment expenses 142 204 Advertising expenses 6,080 5,746 Supply expenses 434 774 Vehicle maintenance expenses 4 3 Periodicals expenses 71 24 Publication expenses 1,872 1,650 Training expenses 1,142 835 Electronic data processing expenses 11,273 10,927 Expense for temporary staff 8,905 7,938 Professional expenses 30,775 34,562 Delivery commission 455 890 Commission expenses 6,101 5,976 Business activities expenses 689 748 Depreciation expenses 7,071 7,031 Amortization expenses 4,112 3,761 Event expenses 122 353 Conference expenses 39 96 Building administrative expenses 1,637 1,114 ₩ 141,353 ₩ 143,583 19. INCOME TAX (1) Income tax expense for the three months ended March 31, 2014 and 2013, is summarized as follows (Unit: Korean won in millions): Three months ended March 31 2014 2013 Income tax currently payable ₩ 22,249 ₩ 20,674 Changes in deferred income tax assets 2,539 (6,865) Changes in income tax expense reflected directly in shareholders’ equity 569 953 Income tax expense ₩ 25,357 ₩ 14,762
  23. 23. - 14 - (2) Income tax expenses reflected directly in shareholders’ equity for the three months ended March 31, 2014, are as follows (Unit: Korean won in millions): January 1, 2014 Increase March 31, 2014 Tax effect related to the cash flow hedging reserve gains and losses ₩ 261 ₩ 383 ₩ 644 Tax effect related to remeasurements of the net defined benefit liability 1,591 186 1,777 ₩ 1,852 ₩ 569 ₩ 2,421 (3) A reconciliation between income before income tax and income tax expense for the three months ended March 31, 2014 and 2013, is as follows (Unit: Korean won in millions): Three months ended March 31 2014 2013 Income before income tax ₩ 107,834 ₩ 61,965 Income tax payable by the statutory income tax rates* 25,634 14,534 Tax reconciliations: Non-deductible expenses - 142 Others (277) 86 Subtotal (277) 228 Income tax from continued operation ₩ 25,357 ₩ 14,762 Effective tax rates (income tax/income before income tax) 23.51% 23.82% *Tax rates: 11%, 22% and 24.2% 20. EARNINGS PER SHARE: (1) Basic earnings per share for the three months ended March 31, 2014 and 2013, are as follows (Unit: Korean won): March 31, 2014 March 31, 2013 Net income (A) ₩ 82,476,903,693 ₩ 47,203,309,498 Weighted-average number of shares (B) 160,465,286 160,465,286 Net income per share (A/B) ₩ 514 ₩ 294 (2) Diluted earnings per share As there was no discontinued operation during the three months ended March 31, 2014 and 2013, basic earnings per share are the same as basic earnings per share from continuing operations. There are no potential common stocks as of March 31, 2014 and 2013. Therefore, the diluted earnings per share are the same as basic earnings per share for the three months ended March 31, 2014 and 2013.
  24. 24. - 15 - 21. RESERVES: Changes in reserves for the three months ended March 31, 2014 and 2013, are as follows (Unit: Korean won in millions) Three months ended March 31, 2014 Beginning balance Changes Income tax effects Ending balance Reclassifi- cation of profit or loss Other changes Gain (loss) on valuation of derivatives ₩ (827) ₩ 276 ₩ (1,869) ₩ 383 ₩ (2,037) Remeasurements of the net defined benefit liability (5,030) - (775) 186 (5,619) Total ₩ (5,857) ₩ 276 ₩ (2,644) ₩ 569 ₩ (7,656) Three months ended March 31, 2013 Beginning balance Changes Income tax effects Ending balance Reclassifi- cation of profit or loss Other changes Gain (loss) on valuation of derivatives ₩ (7,485) ₩ - ₩ (2,496) ₩ 621 ₩ (9,360) Remeasurements of the net defined benefit liability (9,019) - (1,373) 332 (10,060) Total ₩ (16,504) ₩ - ₩ (3,869) ₩ 953 ₩ (19,420) 22. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS: (1) Cash and cash equivalents Cash and cash equivalents in the condensed consolidated statements of cash flows as of March 31, 2014, and December 31, 2013, are as follows (Unit: Korean won in millions): March 31, 2014 December 31, 2013 Ordinary deposits ₩ 134,978 ₩ 176,104 Current deposits 44 151 Short-term financial instruments 14,200 14,200 Other cash and cash equivalents 805,000 775,000 Total ₩ 954,222 ₩ 965,455
  25. 25. - 16 - (2) Cash generated from operations Cash generated from operations for the three months ended March 31, 2014 and 2013, is as follows (Unit: Korean won in millions): Three months ended March 31, 2014 Three months ended March 31, 2013 CASH GENERATED FROM OPERATIONS: Income for the period ₩ 82,477 ₩ 47,203 Adjustments Income tax expense 25,357 14,762 Interest income (5,107) (4,841) Interest expense 76,250 79,418 Dividend received (173) (178) Bad debt expense and loss on disposal of receivables 60,138 55,028 Retirement benefits 2,192 2,481 Depreciation 7,071 7,031 Amortization 4,112 3,761 Loss on foreign currency translation 6,300 33,378 Increase in provision for unused credit limit - 506 Loss from sale of property and equipment 18 502 Sales promotional expenses 6,234 - Increase in provision for others 805 11,667 Reversal of impairment loss of AFS securities - (54) Other operating losses 258 - Gain from sale of AFS securities (30) - Gain on valuation and trading of derivatives (6,300) (33,415) Amortization of present value discounts of card assets (6,855) (5,192) Amortization of deferred origination fees of card assets (6,377) (3,977) Reversal of provision for unused credit limit (654) - Gain from sale of property and equipment and intangible assets. - (78) Reversal of impairment loss for intangible assets (6) - Other operating gains (35) (378) Subtotal 163,198 160,421 Changes in operating assets and liabilities: Decrease in card assets 34,707 685,574 Decrease (increase) in other assets 3,315 (9,494) Net decrease in guarantee deposits 2,651 7,829 Decrease in net retirement benefit obligations (872) (29) Decrease in derivative liabilities (12,740) - Decrease in capital lease liabilities (298) (283) Decrease in other liabilities (67,590) (224,949) Subtotal (40,827) 458,648 Total ₩ 204,848 ₩ 666,272
  26. 26. - 17 - 23. CONTINGENCIES AND COMMITMENTS: Contingencies and commitments are the same as those of the consolidated financial statements as of December 31, 2013, except for the following: (1) Credit line agreement The credit line agreements as of March 31, 2014, and December 31, 2013, are as follows (Unit: Korean won in millions): Type Financial instruments March 31, 2014 December 31, 2013 Intraday overdraft limit Shinhan Bank and five others ₩ 392,600 ₩ 392,600 (2) Revolving Credit Facility As the Consolidated Entity has a revolving credit facility agreement with many financial institutions for credit line as of March 31, 2014, the Consolidated Entity made a revolving credit facility agreement for ₩980 billion with Kookmin Bank and 12 others for credit line as of March 31, 2014. (3) Guarantee The Consolidated Entity has a performance guarantee from the Seoul Guarantee Insurance Co., Ltd., amounting to ₩580 million in connection with deferred transportation payment card and others. (4) Pending lawsuits As of March 31, 2014, the Consolidated Entity is involved in 35 cases (₩131,753 millions) as a defendant and 161 cases (₩12,558 millions) as a plaintiff in the pending lawsuits. The management of the Consolidated Entity does not anticipate that these pending lawsuits referred above will have a significant effect on the Consolidated Entity’s condensed consolidated financial statements. (5) Deposit for Loss Reimbursement As of March 31, 2014, the Consolidated Entity has deposits of ₩2,303 million and ₩4,517 million of proceeds and interests, respectively, from the sale of Daewoo Engineering & Construction Co., Ltd.’s shares in an escrow account and records ₩2,303 million of provision for proceeds and ₩4,467 million of provision for interests from the litigation relating to the sale of Daewoo Engineering & Construction Co., Ltd.’s shares (see Note 11). (6) Contract of sale of receivables The Consolidated Entity entered into a contract with Hyundai Capital Services, Inc., relating to its sale of receivables on January 24, 2006. In accordance with the contract, the Consolidated Entity sells the receivables that are 60 days or more past due or written off to Hyundai Capital Services, Inc. Such sale occurs five times a month on designated cutoff dates at the amount calculated using a predetermined price pursuant to the contract. (7) Alliance The Consolidated Entity has separate agency agreements regarding its credit card business with SC Bank, Woori Bank, Korea Exchange Bank, Shinhan Bank, Citibank Korea, Hana Bank, Gwangju Bank, Jeonbuk Bank, Cheju Bank, Postal Office, Korea Computer Inc. and others. (8) License Agreement and Franchise Agreement The Consolidated Entity entered into member issuance and franchise agreements with Master Card International, Visa International and Diners Club International for credit card issuance, and pays each fees based on a fixed rate for each credit card issued.
  27. 27. - 18 - (9) Reserve for Loss Reimbursement The Consolidated Entity has the obligation to reimburse customers for fraudulent credit card activities; the Consolidated Entity records the expected losses as an accrued expense. (10)Security on the Receivables Sold Relating to Asset-Backed Securitization The Consolidated Entity continuously transfers receivables to maintain a certain level of its equity in the second series beneficiary certificates relating to the asset-backed securitization. (11)Early Redemption Rule Associated with Asset-Backed Securitization According to the agreement on the Consolidated Entity’s asset-backed securitization, in order to enhance the credit level of the asset-backed securities, several provisions are in place as trigger clauses to be used for early redemption calls, thereby limiting the risk that the investors are exposed to resulting from a change in quality of the assets in the future. In the event the asset-backed securitization of the Consolidated Entity is in violation of the applicable trigger clause, the Consolidated Entity is obliged to make early redemption for the asset-backed securities. 24. TRANSACTION WITH RELATED PARTIES: (1) Status of related parties Related parties consist of entities related to the Consolidated Entity, postemployment benefits, a key management personnel and a close member of that person’s family, an entity controlled or jointly controlled and an entity influenced significantly. Details of the related parties as of March 31, 2014, are as follows: Companies Parent company Hyundai Motor Company Other related parties GE Capital Int’l Holdings, Green air, Kia Motor Company, Kia Tigers, Busan Finance Center AMC, Samwoo, WIA Magna Powertrain, Eukor Car Carriers, Innocean, Iljin Bearing, Jongro Academy, Chunbuk Hyundai motors FC, Jongro Eclass, Kefico, Korea Credit Bureau, Hankook Economy News, Haevichi Country Club, Haevichi Hotel & Resort, Hyundai Construction, Hyundai construction human resource development center, Hyundai Glovis, Hyundai Dymos, Hyundai City Corporation, Hyundai Life, Hyundai Rotem, Hyundai Materials, Hyundai Metia, Hyundai Mobis, Hyundai BNG Steel, Hyundai farm land & development, Hyundai Engineering & Steel Industries, Hyundai C&I, Hyundai IHL, Hyundai energy, Hyundai engineering, Hyundai NGV, Hyundai MSEAT, Hyundai MnSoft, Hyundai AMCO, Hyundai Auto Ever Systems, Hyundai Wistco, Hyundai Wia, Hyundai Steel Company, Hyundai Architects & Engineers Associates, Hyundai Auto Electronics Company Ltd, Hyundai Kefico, Hyundai Capital, Hyundai Commercial, Hyundai Powertech, Hyundai Fastech, Hyundai Hysco, HK Savings Bank and HMC Investment Securities
  28. 28. - 19 - (2) Outstanding transactions with the related parties for the three months ended March 31, 2014 and 2013, are as follows (Unit: Korean won in millions): Three months ended March 31, 2014 Revenues Expenses Others Card revenue Rental revenue Others Card expense General and administrative expense Others Purchase of property and equipment Purchase of intangible assets Disposal of assets Parent company Hyundai Motor Company ₩ 28,365 ₩ - ₩ - ₩ - ₩ 45 ₩ 33 ₩ - ₩ - ₩ - Other related parties Kia Motor Company 10,312 - - - 6 12 - - - Hyundai Mobis 263 - - - - - - - - Hyundai Construction 54 - - - - - 554 - - Hyundai Glovis 108 - - - - - - - - Hyundai Capital 18 125 5,449 2,850 933 5,913 - - 100,850 Others 3,857 253 250 36 10,853 4,640 - 3,530 - Totals ₩ 42,977 ₩ 378 ₩ 5,699 ₩ 2,886 ₩ 11,837 ₩10,598 ₩ 554 ₩ 3,530 ₩ 100,850 Three months ended March 31, 2013 Revenues Expenses Others Card revenue Rental revenue Others Card expense General and administrative expense Others Purchase of property and equipment Purchase of intangible assets Disposal of assets Parent company Hyundai Motor Company ₩ 37,022 ₩ - ₩ - ₩ - ₩ 71 ₩ 40 ₩ - ₩ - ₩ - Other related parties Kia Motor Company 17,602 11 - 3 5 14 - - - Hyundai Mobis 249 - - - - - - - - Hyundai Construction 52 - - - - - 2,003 - - Hyundai Glovis 112 - - - - - - - - Hyundai Capital 14 - 9,352 13,151 1,031 8,396 664 - 93,767 HMC Investment Securities - - - - 3 - - - - Others 2,930 62 227 30 8,406 4,979 3,131 308 - Totals ₩ 57,981 ₩ 73 ₩ 9,579 ₩13,184 ₩ 9,516 ₩13,429 ₩ 5,798 ₩ 308 ₩ 93,767
  29. 29. - 20 - (3) Receivables and payables (except for borrowings) from the transactions with the related parties as of March 31, 2014, and December 31, 2013, are as follows (Unit: Korean won in millions): March 31, 2014 Receivables Payables Card assets Others Accounts Payable Others Parent Company Hyundai Motor Company ₩ 46,944 ₩ 2,128 ₩ 46,783 ₩ - Other related parties Kia Motor Company 16,521 173 15,779 - Hyundai Movis 2,126 - 543 - Hyundai Construction 1,238 - - - Hyundai Glovis 1,627 - 26 - Hyundai Wia 3,939 - - - Hyundai Steel Company 2,019 - - - Hyundai BNG Steel 463 - - - Hyundai Hysco 257 - 5,704 - Hyundai Capital 118,252 1,291 3,439 565 HMC Investment Securities 625 - - - Others 16,616 27,372 5,991 526 Totals ₩ 210,627 ₩ 30,964 ₩ 78,265 ₩ 1,091 December 31, 2013 Receivables Payables Card assets Others Accounts Payable Others Parent Company Hyundai Motor Company ₩ 55,849 ₩ 2,128 ₩ 44,986 ₩ 23 Other related parties Kia Motor Company 22,733 173 12,902 - Hyundai Movis 2,598 - 630 - Hyundai Construction 4,746 - - - Hyundai Glovis 1,391 - 1,021 - Hyundai Wia 5,634 - - - Hyundai Steel Company 2,327 - - - Hyundai BNG Steel 487 - - - Hyundai Hysco 1,295 - 5,217 - Hyundai Capital 81,951 1,424 2,813 260 HMC Investment Securities 705 - - - Others 16,271 14,936 23,634 526 Totals ₩ 195,987 ₩ 18,661 ₩ 91,203 ₩ 809 (4) Granting of credit with the related parties. Granting of credit with the related parties as of March 31, 2014, is as follows (Unit: Korean won in millions): Grantor Grantee Method Credit limit Period Hyundai Card Hyundai Capital Services, Inc. Call loan 300,000 2013.11.01–2014.10.31 Hyundai Capital Services, Inc. Hyundai Card Call loan 300,000 2013.11.01–2014.10.31 Call loan is granted only in case that any grantee demands credit line and there is residual fund, and the credit line currently is not being used.
  30. 30. - 21 - (5) Compensation for key executives Compensation for key management for the three months ended March 31, 2014 and 2013, consists of the following (Unit: Korean won in millions): Three months ended March 31 2014 2013 Short-term employee benefit ₩ 2,289 ₩ 1,693 Retirement benefit 479 498 Total ₩ 2,768 ₩ 2,191 (6) There were no borrowing transactions with the related parties for the three months ended March 31, 2014 and 2013. (7) There were no lending transactions with the related parties for the three months ended March 31, 2014 and 2013. (8) As of March 31, 2014, there are no payment guarantees and collaterals that Consolidated Entity has provided for the related parties to finance, and no payment guarantees and collaterals that the Consolidated Entity has been provided from the related parties. 25. TRANSFERS OF FINANCIAL ASSETS: The Consolidated Entity transferred its card assets to special-purpose companies (“SPCs”) for asset securitization and SPCs issued Asset-Backed Securities (“ABSs”). The ABSs are collateralized by card assets as underlying assets. All of the transferred financial assets do not qualify for derecognition under K- IFRS 1039 because the Parent has retained substantially all the risks and rewards of ownership of the transferred assets. Therefore, the Parent continues to recognize the transferred financial assets in the separate financial statements. The details of ABSs and underlying assets as of March 31, 2014, and December 31, 2013, are as follows (Unit: Korean won in millions): As of March 31, 2014 Maturity Carrying amount Fair value Underlying asset Senior tranche Underlying asset Senior tranche Net position PRIVIA 2nd SPC 2014.04.22 ₩1,232,207 ₩ 71,253 ₩ 1,256,755 ₩ 71,281 ₩ 1,185,474 PRIVIA 3rd SPC 2015.07.20 1,222,787 427,520 1,249,226 427,195 822,031 Discounts on bonds - (1,207) - - - ₩ 2,454,994 ₩ 497,566 ₩2,505,981 ₩ 498,476 ₩ 2,007,505 As of December 31, 2013 Maturity Carrying amount Fair value Underlying asset Senior tranche Underlying asset Senior tranche Net position PRIVIA 2nd SPC 2014.04.22 ₩1,276,283 ₩ 281,413 ₩ 1,302,516 ₩ 281,359 ₩ 1,021,157 PRIVIA 3rd SPC 2015.07.20 1,271,604 430,240 1,299,795 421,467 878,328 Discounts on bonds - (1,579) - - - ₩ 2,547,887 ₩ 710,074 ₩ 2,602,311 ₩ 702,826 ₩ 1,899,485
  31. 31. - 22 - 26. NETTING ON FINANCIAL ASSETS AND LIABILITIES Derivative assets and derivative liabilities recognized by the Consolidated Entity can be set off in accordance with the future events described in derivative master netting agreements. The effects of netting agreements as of March 31, 2014, and December 31, 2013, are as follows (Unit: Korean won in millions): March 31, 2014 Net amounts of financial assets and liabilities presented in the consolidated statement of financial position Gross amounts of recognized financial assets and liabilities Gross amounts of recognized financial assets and liabilities to be set off Non-offsetting amount Financial instruments Cash collateral receivedClassification Net amounts Financial Assets Derivative assets ₩ 1,694 ₩ - ₩ 1,694 ₩ 1,035 ₩ - ₩ 659 Financial Liabilities Derivative liabilities ₩ 30,161 ₩ - ₩ 30,161 ₩ 1,035 ₩ - ₩ 29,126 December 31, 2013 Net amounts of financial assets and liabilities presented in the consolidated statement of financial position Gross amounts of recognized financial assets and liabilities Gross amounts of recognized financial assets and liabilities to be set off Non-offsetting amount Financial instruments Cash collateral receivedClassification Net amounts Financial Assets Derivative assets ₩ 2,750 ₩ - ₩ 2,750 ₩ 1,213 ₩ - ₩ 1,537 Financial Liabilities Derivative liabilities ₩ 48,665 ₩ - ₩ 48,665 ₩ 1,213 ₩ - ₩ 47,452
  32. 32. - 23 - 27. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (1) The fair value of financial assets and financial liabilities as of March 31, 2014, and December 31, 2013, is summarized as follows (Unit: Korean won in millions): March 31, 2014 December 31, 2013 Book value Fair value Book value Fair value Assets: Financial assets Cash and deposits ₩ 987,253 ₩ 987,253 ₩ 998,487 ₩ 998,487 Investment financial assets 1,767 1,767 1,767 1,767 Card assets 9,640,914 10,111,595 9,729,167 10,210,591 Other assets 169,348 169,481 177,862 177,974 Total ₩10,799,282 ₩11,270,096 ₩ 10,907,283 ₩11,388,819 Liabilities: Financial liabilities Borrowings ₩ 212,500 ₩ 212,696 ₩ 212,500 ₩ 212,624 Bonds payable 6,874,107 7,043,104 6,978,262 7,136,256 Other liabilities 1,349,959 1,349,960 1,439,604 1,439,598 Total ₩ 8,436,566 ₩ 8,605,760 ₩ 8,630,366 ₩ 8,788,478 The Consolidated Entity’s valuation techniques and relevant policies with regard to the fair value are the same as those used for previous period. (2) Fair value hierarchy All financial instruments at fair value are categorized into three fair value hierarchy levels. The method of categorizing fair value hierarchy levels is the same as the one used for previous period. The table below provides the Consolidated Entity’s financial assets and financial liabilities recorded at fair value in the condensed consolidated statements of financial position as of March 31, 2014, and December 31, 2013 (Unit: Korean won in millions): March 31, 2014 Book value Fair value Level 1 Level 2 Level 3 Financial assets Derivatives assets ₩ 1,694 ₩ 1,694 ₩ - ₩ 1,694 ₩ - Financial liabilities Derivatives liabilities ₩ 30,161 ₩ 30,161 ₩ - ₩ 30,161 ₩ - December 31, 2013 Book value Fair value Level 1 Level 2 Level 3 Financial assets Derivatives assets ₩ 2,750 ₩ 2,750 ₩ - ₩ 2,750 ₩ - Financial liabilities Derivatives liabilities ₩ 48,665 ₩ 48,665 ₩ - ₩ 48,665 ₩ -
  33. 33. - 24 - The table below provides the Consolidated Entity’s financial assets and financial liabilities that are carried at cost since the fair values of the financial instruments are not readily determinable in the condensed consolidated statements of financial position as of March 31, 2014, and December 31, 2013 (Unit: Korean won in millions): March 31, 2014 December 31,2013 Investment financial assets AFS securities(*) ₩ 1,767 ₩ 1,767 (*) AFS securities are unlisted equity securities and recorded as carried at cost since they do not have quoted prices in an active market and the fair values are not measured with reliability. (3) The Consolidated Entity recognizes the transfers on the date of the event of change in circumstances that caused the transfers. (4) Valuation techniques and inputs used in measuring financial assets and financial liabilities categorized within Level 2 - Derivative assets and derivative liabilities Derivative assets and derivative liabilities consist of currency swaps and interest rate swaps. Fair value of a currency swap is measured using reporting period-end’s forward exchange rate whose term is the same as residual period to maturity of the currency swap. In case that the forward exchange rate whose term is matched to the residual period to maturity is not disclosed in the market, the forward exchange rate is assumed by interpolating using announced forward exchange rates by terms. Discount rate used in measuring fair value of a currency swap is a yield curve deducted by announced interest rate in the market. Discount rate and forward interest rate used in measuring fair value of an interest rate swap is determined based on a yield curve deducted by announced rates in the market as of reporting period-end. The fair value of an interest rate swap is measured by discounting future cash flows assumed using the forward interest rate above. The inputs measuring a currency swap and an interest rate swap are deducted by observable forward exchange rates and yield curves in the market as of reporting period-end. Therefore, the Consolidated Entity classifies a currency swap and an interest rate swap as Level 2 in fair value hierarchy. (5) There are no significant changes in business environment or economic environment that affect fair values of financial assets and financial liabilities held by the Consolidated Entity as of March 31, 2014. 28. FINANCIAL RISK MANAGEMENT The Consolidated Entity is exposed to credit risk, liquidity risk and market risk (exchange and rate risk). In order to manage these factors, the Consolidated Entity operates risk management policies and programs that monitor closely and respond to each of the risk factors. The Consolidated Entity uses derivatives to manage market risks. There was no significant change in the Consolidated Entity's risk management division and policies after December 31, 2013.

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