Audit Report: Hyundai Capital 1Q2011

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Hyundai Capital Audit report 1Q 2011

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Audit Report: Hyundai Capital 1Q2011

  1. 1. Hyundai Capital Services, Inc. andSubsidiariesInterim Consolidated Financial StatementsMarch 31, 2011 and 2010
  2. 2. Hyundai Capital Services, Inc. and SubsidiariesIndexMarch 31, 2011Report on Review of Interim Financial Statements .......................................................................... 1-2Interim Consolidated Financial StatementsInterim Consolidated Statements of Financial Position .......................................................................... 3-5Interim Consolidated Statements of Comprehensive Income ................................................................ 6-8Interim Consolidated Statements of Changes in Shareholders’ Equity .............................................. 9-10Interim Consolidated Statements of Cash Flows .................................................................................... 11Notes to the Interim Consolidated Financial Statements .................................................................. 12-66
  3. 3. Report on Review of Interim Financial StatementsTo the Shareholders and Board of Directors ofHyundai Capital Services, Inc.Reviewed Financial StatementsWe have reviewed the accompanying interim consolidated financial statements of HyundaiCapital Services, Inc. and subsidiaries. These financial statements consist of consolidatedstatements of financial position of the Company and subsidiaries as of March 31, 2011 andDecember 31, 2010, and the related consolidated statements of comprehensive income,changes in equity and cash flows for the three-month periods ended March 31, 2011 and2010, and a summary of significant accounting policies and other explanatory notes,expressed in Korean won.Managements Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidatedfinancial statements in accordance with the International Financial Reporting Standards asadopted by the Republic of Korea (Korean IFRS) 1034, Interim Financial Reporting, and forsuch internal control as management determines is necessary to enable the preparation ofconsolidated financial statements that are free from material misstatement, whether due tofraud or error.Auditors ResponsibilityOur responsibility is to issue a report on these consolidated financial statements based on ourreviews.We conducted our reviews in accordance with the quarterly and semi-annual review standardsestablished by the Securities and Futures Commission of the Republic of Korea. A review ofinterim financial information consists of making inquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other review procedures. Areview is substantially less in scope than an audit conducted in accordance with auditingstandards generally accepted in the Republic of Korea and consequently does not enable usto obtain assurance that we would become aware of all significant matters that might beidentified in an audit. Accordingly, we do not express an audit opinion. 1
  4. 4. ConclusionBased on our reviews, nothing has come to our attention that causes us to believe theaccompanying interim consolidated financial statements do not present fairly, in all materialrespects, in accordance with the Korean IFRS 1034, Interim Financial Reporting.Emphasis of MatterWithout qualifying our opinion, as mentioned in Note 2, we draw attention to the fact thatthese consolidated financial statements are prepared in accordance with Korean IFRS and theinterpretations which are effective as of this report date. Therefore, there may be changes inthe Korean IFRS and related interpretations adopted in the preparation of these consolidatedfinancial statements when Company prepares its first full Korean IFRS financial statements.Review standards and their application in practice vary among countries. The procedures andpractices used in the Republic of Korea to review such consolidated financial statements maydiffer from those generally accepted and applied in other countries. Accordingly, this report isfor use by those who are informed about Korean review standards and their application inpracticeSeoul, KoreaMay 29, 2011 This report is effective as of May 29, 2011, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying consolidated interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any. 2
  5. 5. Hyundai Capital Services, Inc. and SubsidiariesInterim Consolidated Statements of Financial PositionMarch 31, 2011 and December 31, 2010(In millions of Korean won) 2011 2010 Assets Cash and deposits Cash and cash equivalents (Note 25) ₩ 1,293,915 ₩ 1,224,866 Deposits (Note 4) 22 25 1,293,937 1,224,891 Securities (Note 5) Available-for-sale securities 21,679 20,577 Equity method investments 50,734 48,483 72,413 69,060 Loans receivable (Notes 6 and 7) 10,901,990 10,434,141 Allowances for doubtful accounts (242,475) (215,703) 10,659,515 10,218,438 Installment financial assets (Notes 6 and 7) Auto installment financing receivables 5,036,661 5,023,945 Allowances for doubtful accounts (26,234) (27,489) Durable goods installment financing receivables 4,505 6,801 Allowances for doubtful accounts (188) (633) Mortgage installment financing receivables 35,890 40,025 Allowances for doubtful accounts (270) (403) Machinery installment financing receivables 8,765 14,653 Allowances for doubtful accounts (78) (117) 5,059,051 5,056,782 Lease receivables (Notes 6 and 7) Finance lease receivables (Note 9) 1,950,937 1,796,750 Allowances for doubtful accounts (19,952) (19,273) Cancelled lease receivables 2,986 2,719 Allowances for doubtful accounts (2,351) (1,758) 1,931,620 1,778,438 Leased assets (Note 10) Operating leased assets 1,210,334 1,282,845 Cancelled leased assets 3,788 3,192 1,214,122 1,286,037 3
  6. 6. Hyundai Capital Services, Inc. and SubsidiariesInterim Consolidated Statements of Financial PositionMarch 31, 2011 and December 31, 2010(In millions of Korean won) 2011 2010 Property and equipment (Note 11) 247,587 242,369 Other assets Intangible assets (Note 12) 56,147 52,612 Non-trade receivables 42,343 40,833 Allowances for doubtful accounts (995) (964) Accrued revenues 115,813 115,278 Allowances for doubtful accounts (3,853) (3,472) Advance payments 94,760 99,842 Allowances for doubtful accounts (1,294) (3,212) Prepaid expenses 33,885 18,186 Leasehold deposits 32,608 31,954 Derivative assets (Note 18) 484,708 521,530 854,122 872,587 Total assets ₩ 21,332,367 ₩ 20,748,602Liabilities and Shareholders’ EquityBorrowings Borrowings (Note 13) ₩ 2,385,360 ₩ 2,646,945 Debentures (Note 14) 14,998,955 14,396,741 17,384,315 17,043,686Other liabilities Non-trade payables 383,880 362,539 Accrued expenses 122,977 110,225 Unearned revenue 64,592 69,338 Withholdings 29,679 21,939 Defined benefit liability (Note 15) 10,395 11,687 Leasehold deposits received 751,192 746,532 Deferred income tax liabilities (Note 16) 76,454 2,617 Provisions (Note 17) 47,611 46,624 Derivative liabilities (Note 18) 121,299 96,568 1,608,079 1,468,069 Total liabilities 18,992,394 18,511,755Commitments and contingencies (Note 26) 4
  7. 7. Hyundai Capital Services, Inc. and SubsidiariesInterim Consolidated Statements of Financial PositionMarch 31, 2011 and December 31, 2010(In millions of Korean won) 2011 2010Shareholders equity Common stock (Notes 1 and 19) 496,537 496,537 Capital surplus Paid-in capital in excess of par value 369,339 369,339 Other capital surplus 38,200 38,200 407,539 407,539 Accumulated other comprehensive income and expenses (Note 24) Gain on valuation of available-for-sale 547 512 securities Accumulated comprehensive income of equity 126 24 method investees Loss on valuation of derivatives (5,603) (67,924) Cumulative effect of overseas operation (167) 17 translation (5,097) (67,371) Retained earnings (Note 19) 1,440,865 1,400,013 Non-controlling interests 129 129 Total shareholders equity 2,339,973 2,236,847 Total liabilities and shareholders equity ₩ 21,332,367 ₩ 20,748,602 The accompanying notes are an integral part of these interim consolidated financial statements. 5
  8. 8. Hyundai Capital Services, Inc. and SubsidiariesInterim Consolidated Statements of Comprehensive IncomeThree-Month Periods ended March 31, 2011 and 2010(In millions of Korean won, except per share amounts) 2011 2010 Operating revenue Interest income Interest on bank deposits ₩ 9,088 ₩ 6,354 Other interest income 130 339 9,218 6,693 Gain on valuation and disposal of securities Gain on disposal of available-for-sale securities 1,604 778 Reversal of impairment loss on available-for-sale - 1,078 securities 1,604 1,856 Income on loans 381,019 320,084 Income on installment financial receivables 114,594 129,571 Income on leased assets 222,517 214,261 Gain on foreign transactions Gain on foreign exchanges translation 146,543 240,355 Gain on foreign currency transactions 2,021 7,294 148,564 247,649 Dividend income 3,238 3,512 Other operating income Gain on valuation of derivatives 32,672 7,263 Gain on derivatives transactions 715 12,517 Others 24,676 15,415 58,063 35,195 Total operating revenue 938,817 958,821 Operating expenses Interest expenses 239,921 220,036 Lease expenses 131,570 149,551 Bad debts expense (Note 7) 59,716 6,849 Loss on foreign transactions Loss on foreign exchanges translation 32,676 3,329 Loss on foreign currency transactions 715 11,758 33,391 15,087 General and administrative expenses (Note 22) 133,186 102,793 6
  9. 9. Hyundai Capital Services, Inc. and SubsidiariesInterim Consolidated Statements of Comprehensive IncomeThree-Month Periods ended March 31, 2011 and 2010(In millions of Korean won, except per share amounts) 2011 2010 Other operating expenses Loss on valuation of derivatives ₩ 146,548 ₩ 243,001 Loss on derivatives transactions 2,028 9,140 Others 10,474 15,419 159,050 267,560 Total operating expenses 756,834 761,876 Operating income 181,983 196,945 Non-operating income Gain on equity method valuation (Note 5) 2,885 4,524 2,885 4,524 Non-operating expenses Loss on equity method valuation (Note 5) 30 243 Donations 109 44 139 287 Income before income taxes 184,729 201,182 Income tax expense (Note 16) 39,605 46,376 Net income ₩ 145,124 ₩ 154,806 Net income attributable to: Owners of the parent 145,124 154,806 Non-controlling interests - - 145,124 154,806 Other comprehensive income, net of income taxes (Note 24) Gain on valuation of available-for-sale financial 35 292 securities Other comprehensive income of equity method 15 102 investees Gain (Loss) on valuation of derivatives 62,321 (3,410) Effect of overseas operation translation (184) - 62,274 (3,103) Total comprehensive income ₩ 207,398 ₩ 151,703 7
  10. 10. Hyundai Capital Services, Inc. and SubsidiariesInterim Consolidated Statements of Comprehensive IncomeThree-Month Periods ended March 31, 2011 and 2010(In millions of Korean won, except per share amounts) 2011 2010 Total comprehensive income attributable to: Owners of the parent ₩ 207,398 ₩ 151,703 Non-controlling interests - - ₩ 207,398 ₩ 151,703 Earnings per share attributable to the ordinary equity holders of the company (Note 23) Basic earnings per share ₩ 1,461 ₩ 1,559 The accompanying notes are an integral part of these interim consolidated financial statements. 8
  11. 11. Hyundai Capital Services, Inc. and Subsidiaries Interim Consolidated Statements of Changes in Shareholders’ Equity Three-Month Periods ended March 31, 2011 and 2010 Accumulated Total(In millions of Korean won) other attributable Non- comprehensive Capital Capital income and Retained to owners of controlling stock surplus expenses earnings the parent interests Total equityBalances as of January 1, 2010 ₩ 496,537 ₩ 407,539 ₩ (5,470) ₩ 1,318,186 ₩ 2,216,792 ₩ 129 ₩ 2,216,921Total comprehensive incomeNet income - - - 154,806 154,806 - 154,806Other comprehensive income Gain on valuation of available- - - 292 - 292 - 292 for-sale securities Other comprehensive income of - - 15 - 15 - 15 equity method investees Loss on valuation of derivatives - - (3,410) - (3,410) - (3,410) Total other comprehensive - - (3,103) - (3,103) - (3,103) incomeTotal comprehensive income - - (3,103) 154,806 151,703 - 151,703Transactions with ownersLiquidation of special purpose - - - - - (10) (10) entityTransfer from dividends payable - - - 2 2 - 2Dividends - - - (203,580) (203,580) - (203,580)Others - - - (6) (6) - (6)Total transactions with owners - - - (203,584) (203,584) (10) (203,594)Balances as of March 31, 2010 ₩ 496,537 ₩ 407,539 ₩ (8,573) ₩ 1,269,408 ₩ 2,164,911 ₩ 119 ₩ 2,165,030 9
  12. 12. Hyundai Capital Services, Inc. and Subsidiaries Interim Consolidated Statements of Changes in Shareholders’ Equity Three-Month Periods ended March 31, 2011 and 2010 Accumulated Total(In millions of Korean won) other attributable Non- comprehensive Capital Capital income and Retained to owners of controlling stock surplus expenses earnings the parent interests Total equityBalances as of January 1, 2011 ₩ 496,537 ₩ 407,539 ₩ (67,371) ₩ 1,400,013 ₩ 2,236,718 ₩ 129 ₩ 2,236,847Total comprehensive incomeNet income - - - 145,124 145,124 - 145,124Other comprehensive income Gain on valuation of available- - - 35 - 35 - 35 for-sale securities Other comprehensive income of - - 102 - 102 - 102 equity method investees Gain on valuation of derivatives - - 62,321 - 62,321 - 62,321 Effect of overseas operation - - (184) - (184) - (184) translation Total other comprehensive - - 62,274 - 62,274 - 62,274 incomeTotal comprehensive income - - 62,274 - 207,398 - 207,398Transactions with ownersDividends - - - (104,272) (104,272) - (104,272)Balances as of March 31, 2011 ₩ 496,537 ₩ 407,539 ₩ (5,097) ₩ 1,440,865 ₩ 2,339,844 ₩ 129 ₩ 2,339,973 The accompanying notes are an integral part of these interim consolidated financial statements. 10
  13. 13. Hyundai Capital Services, Inc. and SubsidiariesInterim Consolidated Statements of Cash FlowsThree-Month Periods ended March 31, 2011 and 2010(In millions of Korean won) 2011 2010 Cash flows from operating activities Cash generated from operations (Note 25) ₩ (81,391) ₩ 490,812 Interest received 9,088 6,471 Interest paid (230,624) (206,567) Dividends received 3,238 3,512 Income taxes paid (36,590) (21,735) (336,279) 272,493 Cash flows from investing activities Decrease in deposits 3 1,913 Decrease in leasehold deposits 107 401 Dividends from equity method investments 707 - Acquisition of land (1,853) - Acquisition of building (4,785) - Acquisition of vehicles (78) - Acquisition of fixtures and furniture (5,820) (620) Acquisition of other tangible assets (231) - Increase in construction in progress (941) (1,856) Acquisition of intangible assets (2,142) (128) Increase in leasehold deposits (629) - Liquidation of special purpose entity - (10) (15,662) (300) Cash flows from financing activities Proceeds from borrowings 750,000 985,000 Repayments of borrowings (1,010,000) (1,028,538) Issuance of debentures 1,499,996 1,262,425 Repayments of debentures (773,671) (1,483,241) Payments of dividends (45,151) - 421,174 (264,354) Exchange losses on cash and cash equivalents (184) - Net increase in cash and cash equivalents 69,049 7,839 Cash and cash equivalents (Note 25) Beginning of period 1,224,866 990,835 End of period ₩ 1,293,915 ₩ 998,674 The accompanying notes are an integral part of these interim consolidated financial statements. 11
  14. 14. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2011 and 2010, and December 31, 20101. General information Hyundai Capital Services, Inc. was established on December 22, 1993, to engage in installment financing, facilities lease and new technology financing. The Company changed its trade name from Hyundai Auto Finance Co., Ltd. to Hyundai Financial Services Co. on April 21, 1995, and changed its trade name once again to Hyundai Capital Services, Inc. on December 30, 1998. In accordance with the Monopoly Regulation and Fair Trade Act, the Company is incorporated into Hyundai Motor Company Group. As of March 31, 2011, the Company’s operations are headquartered in Yeouido, Seoul. Its major shareholders are Hyundai Motor Company and GE International Holdings Corporation with 56.47% and 43.30% ownership, respectively.2. Summary of Significant Accounting Policies The consolidated financial statements have been prepared and presented which included the accounts of Hyundai Capital Services, Inc. (the “Company”), as the parent company according to Korean IFRS 1027, and Autopia Thirty-third trust and SPC and other subsidiaries(collectively the “Group”), while HK Mutual Saving Bank and three other entities are accounted for using the equity method. Subsidiaries as of March 31, 2011 and December 31, 2010, are as follows. The Company has the substantial power over the subsidiaries established as special purpose entities for asset securitization even though its ownership interests over the subsidiaries do not exceed 50%. 2011 2010 Special Autopia Thirty-third trust and SPC Autopia Thirty-third trust and SPC Purpose Autopia Thirty-fourth trust and SPC Autopia Thirty-fourth trust and SPC Entities Autopia Thirty-fifth trust and SPC Autopia Thirty-fifth trust and SPC Autopia Thirty-sixth trust and SPC Autopia Thirty-sixth trust and SPC Autopia Thirty-seventh trust and SPC Autopia Thirty-seventh trust and SPC Autopia Thirty-eighth trust and SPC Autopia Thirty-eighth trust and SPC Autopia Thirty-ninth trust and SPC Autopia Thirty-ninth trust and SPC Autopia Fortieth trust and SPC Autopia Fortieth trust and SPC Autopia Forty-first trust and SPC Autopia Forty-first trust and SPC Autopia Forty-second trust and SPC Autopia Forty-second trust and SPC Autopia Forty-third trust and SPC Autopia Forty-third trust and SPC Autopia Forty-fourth trust and SPC Autopia Forty-fourth trust and SPC Autopia Forty-fifth trust and SPC Autopia Forty-fifth trust and SPC Stock Hyundai Capital Europe GmbH Hyundai Capital Europe GmbH Company The Group financial statements are prepared in the Korean language (Hangul) in conformity with International Financial Reporting Standards as adopted by the Republic of Korea (“Korean IFRS”). The Group’s Korean IFRS transition date is January 1, 2010, and the adoption date is January 1, 2011. 12
  15. 15. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2011 and 2010, and December 31, 2010 The interim consolidated financial statements are stated at historical cost unless otherwise stated in the notes. The reconciliations and descriptions of the effect of the transition from the consolidated financial statements of the Group prepared in accordance with accounting principles generally accepted in the Republic of Korea (“K-GAAP”) before the adoption date to Korean IFRS on the Group’s equity as of January 1, 2010, March 31, 2010, and December 31, 2010, its comprehensive income and cash flows for the three-month period ended March 31, 2010 and year ended December 31, 2010, are provided in Note 3. The interim consolidated financial statements for the three-month periods ended March 31, 2011 and 2010, have been prepared in accordance with Korean IFRS 1034. Because these interim consolidated financial statements are a part of financial statements prepared by Korean IFRS as of December 31, 2011, these are subject to Korean IFRS 1101, ‘First-time Adoption of Korean IFRS’. These interim consolidated financial statements have been prepared in accordance with the Korean IFRS standards and interpretations issued and effective at the reporting date. The Korean IFRS standards and interpretations that will be applicable at December 31, 2011, including those that will be applicable on an optional basis, are not known with certainty at the time of preparing these interim consolidated financial statements. The following is a summary of significant accounting policies followed by the Group in the preparation of its consolidated financial statements. These policies have been consistently applied to all the periods presented, unless otherwise stated.2.1 Consolidation a. Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The Group uses the acquisition method to account for business combinations. The consideration transferred is measured as the fair values of the assets transferred, equity interests issued and liabilities incurred or assumed at the acquisition date. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by- acquisition basis, the Group recognizes any non-controlling interest in the acquiree at the non- controlling interest’s proportionate share of the acquiree’s net assets. 13
  16. 16. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2011 and 2010, and December 31, 2010 The excess of the consideration transferred and the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the statement of comprehensive income. Inter-company transactions, balances and unrealized gains on transactions between Group companies are eliminated. b. Special purpose entities The Group established several SPEs for the purpose of asset-backed securitization, but owns none of the shares directly or indirectly. The Group consolidates the SPEs when the risks, rewards and substance of the relationship indicated that the Group consolidates the SPEs. SPEs controlled by the Group are created with conditions that impose strict limits on the decision-making power over the operations therefore the Group obtains all benefits from the SPEs’ operation and net assets, and that the Group may be exposed to risks incident to the activities of the SPEs or the Group retains the majority of the residual or ownership risks related to the SPEs’ assets. c. Transactions with non-controlling interests The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. d. Associates and joint ventures Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognized at cost. The Group’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss. The group’s share of its associates’ post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate. 14
  17. 17. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2011 and 2010, and December 31, 2010 Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.2.2 Foreign currency translation a. Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Korean won, which is the Group’s functional currency. b. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except when deferred in other comprehensive income as qualifying cash flow hedges.2.3 Critical accounting estimates and assumptions Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. a. Allowance for doubtful accounts The Group presents the allowance for doubtful accounts calculated based on the best estimates that are necessary to reflect the impairment incurred at each reporting date. Allowance for doubtful accounts is recognized as individual and collective units to consider financial circumstances of customers, net realizable value, credit quality, size of portfolio, concentrativeness, economic factors and etc. According to the change of these factors, the allowance for doubtful accounts will be changed in a future period. 15
  18. 18. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2011 and 2010, and December 31, 2010 b. Fair value of financial instruments Fair value of financial assets and liabilities is based on quoted market prices, exchange-broker prices of financial instruments traded in an active market. If there is no quoted price for a financial instrument, the Group establishes fair value by using valuation techniques and advanced self- valuation techniques. Valuation techniques include Discount Cash Flow method using variables observable in market, comparison method with similar instruments that have observable market transactions, and option pricing model. For more complicated financial instruments, the Group uses advanced self-valuation techniques. Parts of or all the variables used in this valuation technique may not be observable in market, or may be derived from quoted prices and market ratio, or may be measured based on specific assumption. At initial recognition if the difference between the fair value of valuation technique and transaction price occurs, then the transaction price as the best estimate of fair value is recognized as fair value. This fair value difference presents in profit immediately on any available observable market data according to individual factors and changes of environment.2.4 Revenue recognition The Group recognizes capital lent to customers as loan receivables, when installment payments or deferred payments on services and goods are made. While installment financial capital paid by the Group to manufacturers or sellers on behalf of customers is recognized as installment financial assets. Financial lease receivables classified as financial leases are recognized as lease receivables. The expected future cash flows from loan receivables, installment financial assets and lease receivables (“Financial receivables”) described above are amortized under the effective interest method over the period of the financial receivables being used by customers.2.5 Statements of Cash flows The Group prepares statements of cash flows using indirect method.2.6 Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. 16
  19. 19. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2011 and 2010, and December 31, 20102.7 Financial assets a. Classification The Group classifies its financial assets as financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets. Management determines the classification of its financial assets at initial recognition. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorized as held for trading unless they are designated as hedges. Meanwhile, the Group has no financial asset at fair value through profit or loss other than financial assets held for trading. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. b. Recognition and measurement Regular purchases and sales of financial assets are recognized on the trade-date (the date on which the Group commits to purchase or sell the asset). Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in the income statement. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables, and held-to-maturity investments are subsequently carried at amortized cost using the effective interest method. Changes in the fair value of financial assets at fair value through profit or loss are recognized in income statement as profit and loss. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognized in equity are transferred to in the income statement as gain or loss on disposal of securities. Interest on available-for-sale securities calculated using the effective interest method is recognized in the income statement as part of interest income. Dividends on available-for sale equity instruments are recognized in the income statement as dividend income when the Group’s right to receive payments is established. 17
  20. 20. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2011 and 2010, and December 31, 2010 c. Derecognition of financial assets A financial asset is derecognized only if the contractual rights on cash flow of the financial asset terminate or all the risks and rewards of ownership of the financial asset are substantially transferred. The Group can transfer an asset in statement of financial position but retains parts of or all the risks and rewards of ownership of the transferred asset substantially. To the extent that a transfer of a financial asset retains rights and obligations, the Group accounts both asset and liability at the same time. After the Group transfers a financial asset and still retains control, it shall continue to recognize the asset to the extent of its continuing involvement in the asset. d. Impairment of financial assets (1) Assets carried at amortized cost The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset is impaired. Impairment losses are incurred only if there is objective evidence of impairment and that loss event has an impact on the estimated future cash flows of the financial asset. The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the reversal of the previously recognized impairment loss is recognized in the income statement. (2) Available-for-sale financial assets The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. For equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the difference between carrying amount and current fair value is recognized in profit or loss. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available for sale are not be reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed.2.8 Deferral of Loan Origination Fee and Loan Origination Cost Loan origination fee, which is a processing fee in relation to the loan origination process such as upfront fee, is deferred and deducted from the loan account, adjusted over the life of the loan based on the effective interest rate method. Loan origination cost, which relates to activities performed by 18
  21. 21. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2011 and 2010, and December 31, 2010 the lender such as soliciting potential borrowers, is deferred and added to the loan account, adjusted over the life of the loan based on the effective interest rate method when the future economic benefit in connection with the cost incurred can be identified on a per loan basis.2.9 Allowance for Financial Receivables a. Calculation of allowance for doubtful accounts The Group recognizes the impairment of financial receivables as an allowance for doubtful accounts. It is based on the impairment estimates made through impairment assessment of financial receivables carried at amortized cost. Allowance for doubtful accounts consists of impairments related to individually material financial receivables and allowances of collective assessment for impairment incurred in homogeneous assets. Individually material financial receivables undertake the individual assessment of the difference between the assets’ carrying amount and the present value of estimated future cash flows. Unimpaired assets in the result of individual assessment and individually immaterial assets undertake the collective assessment classified by asset groups that have analogous risk attributes. The Group uses statistical model in the collective assessment based on the expected probability of default, periodic collect amounts, loss-given default based on the past losses, loss emergency period, and management’s decision about the current economy and credit circumstances. The material factors used at statistical model for the collective assessment are evaluated to compare with actual data regularly. The amount of impairment loss is reflected in allowance for doubtful accounts as profit or loss. b. Write-off policy The Group writes off the doubtful receivables when the assets are deemed unrecoverable. This decision considers the information about significant changes of financial position such that a borrower or an obligor is in default, or the amount recoverable from security is not enough. Write-off decision of standard small loan is generally made based on the delinquent status of loan.2.10 Leases a. Classification The Group classifies leases based on the extent to which risks and rewards incidental to ownership of a leased asset lie with the lessor or the lessee. The lease arrangement classified as a financial lease is ①the lease transfers ownership of the asset to the lessee by the end of the lease term, ②the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised, ③the lease term is for the major part of the economic life of the asset even if title is not 19
  22. 22. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2011 and 2010, and December 31, 2010 transferred, ④at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset, and ⑤the leased assets are of such a specialized nature that only the lessee can use them without major modifications. Minimum lease payments include that part of the residual value that is guaranteed by the lessee, by a party related to the lessee or by a third party unrelated to the Group that is financially capable of discharging the obligations under the guarantee. b. Finance leases Where the Group has substantially all the risks and rewards of ownership, leases of property, plant and equipment are classified as finance lease. An amount equal to the net investment in the lease is presented as a receivable. Expenses that are incurred with regard to the lease contract made but not executed at the date of the statement of financial position are accounted for as prepaid leased assets and are reclassified as finance lease receivables at the inception of the lease. Lease receivables include amounts such as commissions, legal fees and internal costs that are incremental and directly attributable to negotiating and arranging a lease. Each lease payment is allocated between principal and finance income. Financial income is recognized on an uncollected part of net investment using the effective interest method. c. Operating leases The property on operating leases is stated at acquisition cost, net of accumulated depreciation. Expenditures that are incurred for the lease contract made but not executed at the date of the statement of financial position are accounted for as prepaid leased assets and are reclassified as operating leased assets at the inception of the lease term. Rentals from operating lease other than any guaranteed residual value are reported as revenues on a straight-line basis over the lease term. Initial direct costs incurred during the period of preparing the lease contract are recognized as operating leased assets and are amortized over the lease term in proportion to the recognition of income on leased assets.2.11 Property and equipment Property and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. 20
  23. 23. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2011 and 2010, and December 31, 2010 Depreciation method and estimated useful lives used by the Group are as follows: Depreciation Method Useful life Buildings Straight-line 40 years Structures Straight-line 40 years Fixtures and furniture Straight-line 4 years Vehicles Straight-line 4 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within Other operating income(expenses) in the income statement.2.12 Intangible assets Intangible assets are stated at cost, which includes acquisition cost and directly related costs required to prepare the asset for its intended use. Intangible assets are stated net of accumulated amortization calculated based on using the following amortization method and estimated useful lives: Amortization Method Useful life Development costs Straight-line 5 years Rights of trademark Straight-line 5 years Other intangible assets Straight-line 5 years2.13 Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets that are subject to amortization suffered impairment are reviewed for possible reversal of the impairment at each reporting date.2.14 Pension obligations The Group operates a defined benefit plan. The liability recognized in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets, together with adjustments for unrecognized past-service costs. The defined benefit obligation is calculated 21
  24. 24. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2011 and 2010, and December 31, 2010 annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in profits or losses in the period in which they arise.2.15 Provisions and Contingent Liabilities When there is a probability that an outflow of economic benefits will occur due to a present obligation resulting from a present legal or as a result of past events, and whose amount is reasonably estimable, a corresponding amount of provision is recognized in the financial statements. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are the best estimate of the expenditure required to settle the present obligation that consider the risks and uncertainties inevitably surround many events and circumstances at the reporting date. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation. A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future events, or a present obligation that arises from past events but is not certain to occur, or cannot be reliably estimated, a disclosure regarding the contingent liability is made in the notes to the financial statements.2.16 Derivative financial instruments Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: (a) Hedges of the fair value of recognized assets or liabilities or a firm commitment (fair value hedge); (b) Hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge); The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at 22
  25. 25. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2011 and 2010, and December 31, 2010 hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. a. Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortized to profit or loss over the period to maturity. b. Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in profits or losses. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to profits or losses.2.17 Current and deferred income tax Interim period income tax expense is calculated by applying to an interim period’s pre-tax income the tax rate that would be applicable to expected total annual earnings. Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax assets and liabilities are not accounted for if they arise from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted by the date of the statement of financial position and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except for deferred income tax liability where the timing of the reversal of the 23
  26. 26. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2011 and 2010, and December 31, 2010 temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.2.18 Earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Group by the weighted average number of ordinary shares in issue during the period excluding ordinary shares purchased by the Group and held as treasury shares. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. Only dilutive potential ordinary shares are dilutive, they are added to the number of ordinary shares outstanding in the calculation of diluted earnings per share.2.19 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, is responsible for allocating resources and assessing performance of the operating segments.3. Transition to Korean IFRS The interim consolidated financial statements as of March 31, 2011, are prepared according to Korean IFRS at the adoption date of January 1, 2011. The statements of financial position as of December 31, 2010 and as of March 31, 2010, which were prepared previously under K-GAAP are restated in accordance with Korean IFRS 1101, “First-time adoption of Korean IFRS”, for the comparative purposes at the transition date of January 1, 2010. a. Exemptions of Korean IFRS 1101 elected by the Group The Group has elected to apply the following optional exemptions from full retrospective application. (1) Business combination The Group has not retrospectively applied Korean IFRS 1103 (Business combination) to the business combinations that took place prior to the transition date. 24
  27. 27. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2011 and 2010, and December 31, 2010 (2) Deemed cost of property and equipment The Group has elected to use carrying amount of property and equipment under K-GAAP as deemed cost at the date of transition to Korean IFRS. b. Explanation on the reconciliation of K-GAAP and Korean IFRS Major reconciliations of the transition between K-GAAP and Korean IFRS are as follows: (1) Impairment of financial assets (allowance for financial assets) Under K-GAAP, allowances for financial receivables are calculated based on the long-term average expected loss. In case the allowance calculated based on the expected loss is smaller than the allowance calculated in accordance to the guidelines provided in the Act on the Specialized Credit Financial Business, the Group recognizes an allowance in accordance to the guidelines provided in the Act on the Specialized Credit Financial Business. Under Korean IFRS, impairment losses are recognized where there is evidence that impairment occurred. Allowance for financial receivables is measured individually for assets that are individually significant and on a collective basis for portfolios with similar risk characteristics. (2) Provision for unused loan commitment Under K-GAAP, provision for unused loan commitment is not recognised. Under Korean IFRS, the expected losses of unused loan commitment are recognized as provision for unused credit lines. (3) Accrued revenue for overdue receivables Under K-GAAP, accrued revenue for receivables which are overdue is not recognized. Under Korean IFRS, accrued revenue for receivables which are overdue but not impaired is recognized and the incurred losses of the accrued revenue are recognized as allowance. (4) Measurement of financial assets carried at amortized cost Under K-GAAP, non-marketable loan and receivables are measured at nominal value if the difference between nominal value and discounted value is not substantial. Under K-IFRS, loan and receivables are initially measured at fair value and subsequently carried at amortized cost using the effective interest method. (5) Recognition of unused compensated absences According to K-GAAP, unused compensated absences given to employees are recognized as liabilities at the end of the reporting period only when the right to be paid has been established. Under K-IFRS, the Group recognizes liabilities when an employee has provided service in exchange for compensated absences. 25
  28. 28. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2011 and 2010, and December 31, 2010 (6) Depreciation method for property and equipment Under K-GAAP, depreciation method for certain property and equipment was declining-balance method. Under K-IFRS, the Group uses the straight-line method to reflect properly the matching of the future economic benefits. (7) Retirement benefit obligations Under K-GAAP, the Group recognizes the amount which would be payable assuming all eligible employees and directors were to terminate their employment as of the statement of financial position date as accrued severance benefits represent. Under K-IFRS, the Group recognizes the estimated amount using the projected unit credit method which is on an actuarial basis as the defined benefit obligation. (8) Reclassification of memberships as intangible assets Under K-GAAP, memberships are classified as investments. Under K-IFRS, the Group reclassifies memberships held for operating purposes as an intangible asset with an infinite useful life. (9) Consolidation Under K-GAAP, Autopia Thirty-third SPC, trust and other subsidiaries were previously excluded from consolidation in accordance with Article 1.3, Clause 1 of Enforcement Decree of the Act on External Audit of Stock Companies. Under K-IFRS, they are consolidated (Note 2). (10) Income tax effects The Group recognized changes in deferred tax representing the impact of deferred taxes on the adjustments for the transition to Korean IFRS. c. Effects on the consolidated financial position and comprehensive income 26
  29. 29. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2011 and 2010, and December 31, 2010 (1) Reconciliation of financial position as of January 1, 2010(in millions of Korean won) Shareholders’ Assets Liabilities equityK-GAAP ₩ 15,854,426 ₩ 13,698,696 ₩ 2,155,730Conversion effects to Korean IFRS Allowance for doubtful accounts 220,443 - 220,443 Provision for unused loan commitments - 26,416 (26,416) Accrued revenues 21,259 - 21,259 Measurement of amortized cost (6,395) - (6,395) Recognition of unused compensated - 2,267 (2,267) absences Depreciation 11,748 - 11,748 Retirement benefit obligations - 91 (91) Others (3,945) 3,335 (7,280) Scope of consolidation 2,903,721 2,998,859 (95,138) Deferred income taxes - 54,672 (54,672) Total effect of transition 3,146,831 3,085,640 61,191Korean IFRS ₩ 19,001,257 ₩ 16,784,336 ₩ 2,216,921 (2) Reconciliation of financial position and results of operations as of and for the three-month period ended March 31, 2010(in millions of Korean won) Total Assets Liabilities Total equity comprehensive Net Income incomeK-GAAP ₩16,004,974 ₩13,892,302 ₩ 2,112,672 ₩ 160,520 ₩ 169,022Conversion effects to Korean IFRS Allowance for doubtful 221,648 - 221,648 1,205 1,205 accounts Provision for unused loan - 29,664 (29,664) (3,248) (3,248) commitments Accrued revenues 19,165 - 19,165 (2,094) (2,094) Measurement of (3,703) - (3,703) 2,692 2,692 amortized cost Recognition of unused - 3,071 (3,071) (804) (804) compensated absences Depreciation 1,005 - 1,005 (10,742) (10,742) Retirement benefit 698 - 698 708 708 obligations Others 5,268 5,207 61 6,872 1,464 Scope of consolidation 2,494,892 2,591,935 (97,043) (2,786) (2,777) Deferred income taxes - 56,738 (56,738) (620) (620) Total effect of transition 2,738,973 2,686,615 52,358 (8,817) (14,216)Korean IFRS ₩18,743,947 ₩16,578,917 ₩ 2,165,030 ₩ 151,703 ₩ 154,806 27
  30. 30. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2011 and 2010, and December 31, 2010 (3) Reconciliation of financial position and results of operations as of and for the year ended December 31, 2010(in millions of Korean won) Total Assets Liabilities Total equity comprehensive Net Income incomeK-GAAP ₩17,931,200 ₩15,727,686 ₩ 2,203,514 ₩ 454,942 ₩ 511,545Conversion effects to Korean IFRS Allowance for doubtful 208,187 - 208,187 (12,256) (12,256) accounts Provision for unused loan - 46,624 (46,624) (20,208) (20,208) commitments Accrued revenues 22,471 - 22,471 1,212 1,212 Measurement of 2,443 - 2,443 8,838 8,838 amortized cost Recognition of unused - 2,524 (2,524) (257) (257) compensated absences Depreciation 1,113 - 1,113 (10,636) (10,636) Retirement benefit - 3,823 (3,823) (2,299) (2,299) obligations Others 39,865 39,926 (61) 8,645 8,645 Scope of consolidation 2,543,323 2,604,768 (61,445) (15,673) (10,375) Deferred income taxes - 86,404 (86,404) 14,776 14,776 Total effect of transition 2,817,402 2,784,069 33,333 (27,858) (22,560)Korean IFRS ₩20,748,602 ₩18,511,755 ₩ 2,236,847 ₩ 427,084 ₩ 488,985 d. Adjustments of cash flows in 2010 According to Korean IFRS, cash flows of the related income (expenses) and assets (liabilities) are adjusted to separately disclose the cash flows from interest received, interest paid and cash payments of income taxes that were not presented separately under K-GAAP. And the effects of the change in exchange rate on cash and cash equivalents held or due in a foreign currency are presented separately from cash flows from operating, investing and financing activities. There are no such significant differences between cash flows under Korean IFRS and K-GAAP. e. Adjustments of operating income and expenses The Group reclassified certain non-operating income and expenses under K-GAAP to other operating income and expenses according to Korean IFRS. 28
  31. 31. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2011 and 2010, and December 31, 2010 Adjustments for the three-month periods ended March 31, 2011 and 2010, are as follows: (in millions of Korean won) Type 2011 2010 Other operating income ₩ 6,928 ₩ 7,355 Other operating expenses ₩ 2,574 ₩ 6,4244. Restricted Financial Instruments Restricted financial instruments as of March 31, 2011 and December 31, 2010, are as follows: (in millions of Korean won) Amount Type Entities 2011 2010 Restriction Kookmin Bank Maintaining deposits for Deposits and 5 others ₩ 22 ₩ 25 opening account5. Securities Securities as of March 31, 2011 and December 31, 2010, are as follows: (in millions of Korean won) Type 2011 2010 Available-for-sale securities Marketable equity securities ₩ 7,040 ₩ 7,318 Equity securities Unlisted equity securities 10,084 9,887 17,124 17,205 Government and Debt securities public bonds 4,555 3,372 Sub-total 21,679 20,577 Equity method investments 50,734 48,483 ₩ 72,413 ₩ 69,060 Available-for-sale securities Available-for-sale securities as of March 31, 2011 and December 31, 2010, are as follows: 29
  32. 32. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2011 and 2010, and December 31, 2010 (1) Marketable equity securities (in millions of Korean won) Book value Number of Ownership Acquisition 2011 2010 shares (%) costMarketable equity securities NICE Information Service 136,593 2.25 ₩ 3,312 ₩ 4,016 ₩ 4,221 NICE Holdings 49,162 1.42 3,491 3,024 3,097Unlisted equity securities Hyundai Finance 1 1,700,000 9.29 9,888 10,084 9,887 Corp. ₩ 16,691 ₩ 17,124 ₩ 17,205 1 The fair value for Hyundai Finance Corp. was valued as the average of valuation prices provided by two external appraisers, KIS Pricing Inc. and Korea Asset Pricing, using the discounted cash flow model. The five-year financial statements, projected based on past performance, were used in measuring the fair value assuming that the operational structure will remain as is for the next five years. Operating income and expenses were estimated based on the past performance, business plan and expected market conditions. (2) Debt securities (in millions of Korean won) Book value Interest Acquisition Issuer rate (%) cost 2011 2010Government and Metropolitan Rapid public bonds Transit and others 2.50 ₩ 4,295 ₩ 4,555 ₩ 3,372 Equity method investments Equity method investments as of March 31, 2011 and December 31, 2010, are as follows: (in millions of Korean won) 2011 Number of Ownership Acquisition Net asset Book value shares (%) cost valueHK Mutual Saving Bank 1 4,990,438 20.00 ₩ 45,719 ₩ 33,429 ₩ 45,677 1HI Network, Inc. 13,332 19.99 76 1,215 508 1Korea Credit Bureau 140,000 7.00 3,800 2,447 3,484Hyundai Capital Germany GmbH 600,200 30.01 1,065 954 1,065 ₩ 50,660 ₩ 38,045 ₩ 50,734 30
  33. 33. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2011 and 2010, and December 31, 2010 (in millions of Korean won) 2010 Number of Ownership Acquisition Net asset Book value shares (%) cost value HK Mutual Saving Bank 1 4,990,438 20.00 ₩ 45,719 ₩ 30,601 ₩ 42,849 1 HI Network, Inc. 13,332 19.99 76 1,055 1,055 1 Korea Credit Bureau 140,000 7.00 3,800 2,477 3,514 Hyundai Capital Germany GmbH 600,200 30.01 1,065 908 1,065 ₩ 50,660 ₩ 35,041 ₩ 48,483 1 The Company’s shareholdings in HK Mutual Saving Bank, HI Network, Inc. and Korea Credit Bureau are less than 20%. However, the Company is able to significantly influence such as involvement in the financial and operating processes, and thus the equity method is applied. Valuations of equity method investments for the three-month periods ended March 31, 2011 and 2010, are as follows: (in millions of Korean won) 2011 Changes in accumulated Beginning Gain (loss) Ending Acquisition other Dividends Balance on valuation comprehensive Balance lossHK Mutual Saving Bank ₩ 42,849 ₩ - ₩ 2,725 ₩ 103 ₩ - ₩ 45,677HI Network, Inc. 1,055 - 160 - (707) 508Korea Credit Bureau 3,514 - (30) - - 3,484Hyundai Capital Germany GmbH 1,065 - - - - 1,065 ₩ 48,483 ₩ - ₩ 2,855 ₩ 103 ₩ (707) ₩ 50,734 2010 Changes in accumulated Beginning Gain (loss) Ending Acquisition other Dividends Balance on valuation comprehensive Balance lossHK Mutual Saving Bank ₩ 35,799 ₩ - ₩ 3,063 ₩ 19 ₩ - ₩ 38,881HI Network, Inc. - 76 1,461 - (1,227) 310Korea Credit Bureau 3,191 - (243) - - 2,948Hyundai Capital Germany GmbH 1,065 - - - - 1,065 ₩ 40,055 ₩ 76 ₩ 4,281 ₩ 19 ₩ (1,227) ₩ 43,204 31
  34. 34. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2011 and 2010, and December 31, 2010 The difference between the acquired amounts of equity method investments and their corresponding net asset value as of March 31, 2011 and December 31, 2010, follows: (in millions of Korean won) 2011 2010 HK Mutual Saving Bank ₩ 12,248 ₩ 12,248 Korea Credit Bureau 1,037 1,037 ₩ 13,285 ₩ 13,285 Summary of financial information of investees as of March 31, 2011 and December 31, 2010, follows: (in millions of Korean won) 2011 Operating Net income Fiscal year end Assets Liabilities revenue (loss)HK Mutual Saving 1 June 30 ₩ 2,487,736 ₩ 2,320,593 ₩ 88,477 ₩ 13,626 BankHI Network, Inc. December 31 8,641 2,567 5,075 798Korea Credit Bureau December 31 42,029 7,066 6,876 (423)Hyundai Capital December 31 3,286 108 132 12 Germany GmbH 1 Although HK Mutual Savings Bank’s fiscal year is from July 2010 to June 2011, the asset and liability amounts are as of March 31, 2011, and its operating revenue and net income amounts are from January 1, 2011 to March 31, 2011. 2010 Operating Net income Fiscal year end Assets Liabilities revenue (loss)HK Mutual Saving 1 June 30 ₩ 2,439,109 ₩ 2,286,106 ₩ 73,134 ₩ 15,313 BankHI Network, Inc. December 31 8,734 3,458 4,634 1,008Korea Credit Bureau December 31 45,301 9,914 3,714 (3,751)Hyundai Capital December 31 3,145 117 - - Germany GmbH 1 Although HK Mutual Savings Bank’s fiscal year is from July 2009 to June 2010, the asset and liability amounts are as of December 31, 2010, and its operating revenue and net income amounts are from January 1, 2010 to March 31, 2010. 6. Financial receivables Financial receivables as of March 31, 2011 and December 31, 2010, are as follows: 32

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