Your SlideShare is downloading. ×
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Audit Report: Hyundai Capital 2011 (English)

546

Published on

Audit Report , Hyundai Capital, 2011

Audit Report , Hyundai Capital, 2011

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
546
On Slideshare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
8
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Hyundai Capital Services, Inc. andSubsidiariesConsolidated Financial StatementsDecember 31, 2011 and 2010
  • 2. Hyundai Capital Services, Inc. and SubsidiariesIndexDecember 31, 2011 and 2010Report of Independent Auditors ......................................................................................................... 1-2Consolidated Financial StatementsConsolidated Statements of Financial Position...................................................................................... 3-5Consolidated Statements of Comprehensive Income............................................................................ 6-8Consolidated Statements of Changes in Shareholders’ Equity .......................................................... 9-10Consolidated Statements of Cash Flows ................................................................................................ 11Notes to the Consolidated Financial Statements .............................................................................. 12-73
  • 3. Report of Independent AuditorsTo the Shareholders and Board of Directors ofHyundai Capital Services, Inc.We have audited the accompanying consolidated statements of financial position of HyundaiCapital Services, Inc.(the “Company”) and its subsidiaries as of December 31, 2011 and 2010,and January 1, 2010, and the related statements of comprehensive income, changes inshareholders’ equity and cash flows for the years ended December 31, 2011 and 2010,expressed in Korean won. These financial statements are the responsibility of the Companysmanagement. Our responsibility is to express an opinion on these financial statements basedon our audits.We conducted our audits in accordance with auditing standards generally accepted in theRepublic of Korea. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basisfor our opinion.In our opinion, the consolidated financial statements, referred to above, present fairly, in allmaterial respects, the financial position of Hyundai Capital Services, Inc. and its subsidiariesas of December 31, 2011 and 2010, and January 1, 2010, and their financial performance andcash flows for the years ended December 31, 2011 and 2010, in conformity with InternationalFinancial Reporting Standards as adopted by the Republic of Korea (“Korean-IFRS”).Auditing standards and their application in practice vary among countries. The procedures andpractices used in the Republic of Korea to audit such financial statements may differ fromthose generally accepted and applied in other countries. Accordingly, this report is for use bythose who are informed about Korean auditing standards and their application in practice.Seoul, KoreaFebruary 24, 2012 1
  • 4. This report is effective as of February 24, 2012, the audit report date. Certain subsequentevents or circumstances, which may occur between the audit report date and the time ofreading this report, could have a material impact on the accompanying consolidatedfinancial statements and notes thereto. Accordingly, the readers of the audit report shouldunderstand that there is a possibility that the above audit report may have to be revised toreflect the impact of such subsequent events or circumstances, if any. 2
  • 5. Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Financial PositionDecember 31, 2011 and 2010, and January 1, 2010(In millions of Korean won) December 31, December 31, January 1, 2011 2010 2010 Assets Cash and deposits Cash and cash equivalents (Note 25) 1,455,432 1,224,866 990,836 Deposits (Note 4) 10 25 1,938 1,455,442 1,224,891 992,774 Securities (Note 5) Available-for-sale securities 18,452 20,577 15,867 Equity method investments 51,768 48,483 40,055 70,220 69,060 55,922 Loans receivable (Notes 6 and 7) 11,129,247 10,434,141 8,862,145 Allowances for doubtful accounts (281,184) (215,703) (175,933) 10,848,063 10,218,438 8,686,212 Installment financial assets (Notes 6 and 7) Auto installment financing receivables 5,030,541 5,023,945 4,668,702 Allowances for doubtful accounts (36,748) (27,489) (31,368) Durable goods installment financing receivables 1,422 6,801 16,297 Allowances for doubtful accounts (141) (633) (292) Mortgage installment financing receivables 25,679 40,025 70,191 Allowances for doubtful accounts (1,204) (403) (463) Machinery installment financing receivables 1,682 14,653 44,229 Allowances for doubtful accounts (37) (117) (394) 5,021,194 5,056,782 4,766,902 Lease receivables (Notes 6 and 7) Finance lease receivables (Note 9) 2,278,383 1,777,477 1,253,352 Cancelled lease receivables 211 961 452 2,278,594 1,778,438 1,253,804 Leased assets (Note 10) Operating leased assets 1,119,309 1,282,845 1,406,453 Cancelled leased assets 3,769 3,192 3,036 1,123,078 1,286,037 1,409,489 3
  • 6. Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Financial PositionDecember 31, 2011 and 2010, and January 1, 2010(In millions of Korean won) December 31, December 31, January 1, 2011 2010 2010 Property and equipment (Note 11) 265,433 242,369 238,683 Other assets Intangible assets (Note 12) 65,117 52,612 38,934 Non-trade receivables 87,895 76,569 83,961 Allowances for doubtful accounts (2,913) (4,176) (3,207) Accrued revenues 128,351 115,278 102,730 Allowances for doubtful accounts (14,371) (3,472) (3,790) Advance payments 55,013 64,106 44,225 Prepaid expenses 26,434 18,186 25,575 Leasehold deposits 35,929 31,954 30,474 Derivative assets (Note 18) 475,431 521,530 1,278,570 856,886 872,587 1,597,472 Total assets 21,918,910 20,748,602 ₩ 19,001,258Liabilities and Shareholders’ EquityBorrowings Borrowings (Note 13) 2,250,000 2,646,945 2,452,978 Debentures (Note 14) 15,522,368 14,396,741 13,034,855 17,772,368 17,043,686 15,487,833Other liabilities Non-trade payables 345,089 362,539 281,652 Accrued expenses 135,083 110,225 108,746 Unearned revenue 61,095 69,338 68,899 Withholdings 24,140 21,939 20,446 Defined benefit liability (Note 15) 20,362 11,687 9,242 Leasehold deposits received 787,858 746,532 663,195 Deferred income tax liabilities (Note 16) 47,884 2,617 39,734 Provisions (Note 17) 10,446 46,624 26,416 Derivative liabilities (Note 18) 58,096 96,568 78,174 1,490,053 1,468,069 1,296,504 Total liabilities 19,262,421 18,511,755 16,784,337 4
  • 7. Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Financial PositionDecember 31, 2011 and 2010, and January 1, 2010(In millions of Korean won) December 31, December 31, January 1, 2011 2010 2010Shareholders equity Common stock (Notes 1 and 19) 496,537 496,537 496,537 Capital surplus Paid-in capital in excess of par value 369,339 369,339 369,339 Other capital surplus 38,200 38,200 38,200 407,539 407,539 407,539 Accumulated other comprehensive income and expenses (Note 24) Gain(Loss) on valuation of available-for-sale (388) 512 (1,835) securities Accumulated comprehensive income of equity 47 24 (69) method investees Loss on valuation of derivatives (50,156) (67,924) (3,566) Cumulative effect of overseas operation (343) 17 - translation (50,840) (67,371) (5,470) Retained earnings (Note 19) 1,803,144 1,400,013 1,318,186 Non-controlling interests 109 129 129 Total shareholders equity 2,656,489 2,236,847 2,216,921 Total liabilities and shareholders equity 21,918,910 20,748,602 19,001,258 The accompanying notes are an integral part of these consolidated financial statements. 5
  • 8. Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Comprehensive IncomeYears Ended December 31, 2011 and 2010(In millions of Korean won, except per share amounts) 2011 2010Operating revenue Interest income (Note 20) Interest on bank deposits 41,991 25,755 Other interest income 385 1,208 42,376 26,963 Gain on valuation and disposal of securities Gain on disposal of available-for- 4,169 5,122 sale securities Reversal of impairment loss on - 1,078 available-for-sale securities 4,169 6,200 Income on loans (Notes 20 and 21) 1,548,557 1,387,421 Income on installment financial 436,247 492,202 receivables (Notes 20 and 21) Income on leases (Notes 20 and 21) 871,572 875,137 Gain on disposal of loans 72,040 14,857 Gain on foreign transactions Gain on foreign exchanges translation 21,235 188,938 Gain on foreign currency transactions 46,301 29,696 67,536 218,634 Dividend income 5,990 6,742 Other operating income Gain on valuation of derivatives 134,197 92,630 Gain on derivatives transactions 3,887 73,964 Others 144,908 79,485 282,992 246,079 Total operating revenue 3,331,479 3,274,235 6
  • 9. Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Comprehensive IncomeYears Ended December 31, 2011 and 2010(In millions of Korean won, except per share amounts) 2011 2010Operating expenses Interest expenses (Note 20) 956,039 890,180 Lease expenses (Note 21) 505,187 557,288 Bad debts expense (Note 7) 354,220 145,478 Loss on foreign transactions Loss on foreign exchange translation 134,211 92,639 Loss on foreign currency transactions 3,887 65,401 138,098 158,040 General and administrative expenses 603,367 585,953 (Note 22) Other operating expenses Loss on valuation of derivatives 21,229 188,949 Loss on derivatives transactions 46,326 37,721 Others 47,590 80,880 115,145 307,550 Total operating expenses 2,672,056 2,644,489 Operating income 659,423 629,746Non-operating income Gain on equity method valuation 3,968 9,663 (Note 5) 3,968 9,663Non-operating expenses Loss on equity method valuation - 197 - 197 Income before income taxes 663,391 639,212Income tax expense (Note 16) 155,987 150,227 Net income 507,404 488,985Net income attributable to: Owners of the parent 507,404 488,985 Non-controlling interests - - 507,404 488,985 7
  • 10. Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Comprehensive IncomeYears Ended December 31, 2011 and 2010(In millions of Korean won, except per share amounts) 2011 2010 Other comprehensive income, net of income taxes (Note 24) Gain(Loss) on valuation of available- (900) 2,347 for-sale financial securities Other comprehensive income of 23 93 equity method investees(Note 5) Gain (Loss) on valuation of 17,768 (64,359) derivatives Effect of overseas operation (360) 18 translation 16,531 (61,901) Total comprehensive income 523,935 427,084 Total comprehensive income attributable to: Owners of the parent 523,935 427,084 Non-controlling interests - - 523,935 427,084 Earnings per share attributable to the ordinary equity holders of the company (Note 23) Basic earnings per 5,109 4,924 share Diluted earnings per 5,109 4,924 share The accompanying notes are an integral part of these consolidated financial statements. 8
  • 11. Hyundai Capital Services, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders’ Equity Years Ended December 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 - - - 488,985 488,985 - 488,985Other comprehensive income Gain on valuation of available- - - 2,347 - 2,347 - 2,347 for-sale securities Other comprehensive income of - - 93 - 93 - 93 equity method investees Loss on valuation of derivatives - - (64,359) - (64,359) - (64,359) Effect of overseas operation - - 18 - 18 - 18 translationTotal comprehensive income - - (61,901) 488,985 427,084 - 427,084Transactions with ownersYear-end dividends - - - (203,580) (203,580) - (203,580)Transfer from dividends payable - - - 2 2 - 2Interim dividends - - - (203,580) (203,580) - (203,580)Total transactions with owners - - - (407,158) (407,158) - (407,158)Balances as of December 31,2010 496,537 407,539 (67,371) 1,400,013 2,236,718 129 2,236,847 9
  • 12. Hyundai Capital Services, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders’ Equity Years Ended December 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 - - - 507,404 507,404 - 507,404Other comprehensive income Loss on valuation of available- - - (900) - (900) - (900) for-sale securities Other comprehensive income of - - 23 - 23 - 23 equity method investees Gain on valuation of derivatives - - 17,768 - 17,768 - 17,768 Effect of overseas operation - - (360) - (360) - (360) translationTotal comprehensive income - - 16,531 507,404 523,935 - 523,935Transactions with ownersYear-end Dividends - - - (104,273) (104,273) - (104,273)Liquidation of special purpose entity - - - - - (20) (20)Total transactions with owners - - - (104,273) (104,273) (20) (104,293)Balances as of December 31,2011 496,537 407,539 (50,840) 1,803,144 2,656,380 109 2,656,489 The accompanying notes are an integral part of these consolidated financial statements. 10
  • 13. Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Cash FlowsYears Ended December 31, 2011 and 2010(In millions of Korean won) 2011 2010 Cash flows from operating activities Cash generated from operations (Note 25) 630,961 (498,303) Interest received 37,090 23,479 Interest paid (864,563) (829,726) Dividends received 5,990 6,742 Income taxes paid (154,724) (169,620) (345,246) (1,467,428) Cash flows from investing activities Decrease in deposits 16 1,913 Dividends from equity method investments 707 1,227 Acquisition of land (3,581) (3,065) Acquisition of building (8,549) (2,968) Acquisition of structures (379) (172) Disposal of vehicles 37 11 Acquisition of vehicles (328) (224) Disposal of fixtures and furniture 626 58 Acquisition of fixtures and furniture (37,712) (19,412) Acquisition of other tangible assets (801) (114) Increase in construction in progress (8,079) (13,812) Disposal of intangible assets 71 29 Acquisition of intangible assets (8,152) (4,860) Decrease in leasehold deposits 4,012 5,665 Increase in leasehold deposits (7,609) (6,481) Establish of special purpose entity 20 10 Liquidation of special purpose entity (40) (10) (69,741) (42,205) Cash flows from financing activities Proceeds from borrowings 2,990,000 3,895,650 Repayments of borrowings (3,390,650) (3,645,849) Issuance of debentures 5,119,021 5,802,014 Repayments of debentures (3,968,170) (3,900,992) Payments of dividends (104,273) (407,158) 645,928 1,743,665 Exchange losses on cash and cash equivalents (15) (19) Increase(decrease) in other cash and cash equivalents (360) 17 Net increase in cash and cash equivalents 230,566 234,030 Cash and cash equivalents Beginning of period 1,224,866 990,836 End of period 1,455,432 1,224,866 The accompanying notes are an integral part of these consolidated financial statements. 11
  • 14. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010 1. General Information Hyundai Capital Services, Inc. (the “Company”) 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 31, 1998. In accordance with the Monopoly Regulation and Fair Trade Act, the Company is incorporated into the Hyundai Motor Company Group. As of December 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., as the parent company according to Korean IFRS 1027, and Autopia Thirty-fifth SPC(trust) 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 December 31, 2011 and 2010, and January 1, 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%. Ratio of Location ownership December 31, 2011 December 31, 2010 January 1, 2010Special Autopia Thirty-fifth SPC(trust) Autopia Thirty-third SPC(trust) Autopia Thirty- second SPC(trust)Purpose Korea 0.9% Autopia Thirty-sixth SPC(trust) Autopia Thirty-fourth SPC(trust) Autopia Thirty-third SPC(trust) 1Entities Autopia Thirty-seventh SPC(trust) Autopia Thirty-fifth SPC(trust) Autopia Thirty-fourth SPC(trust) Autopia Thirty-ninth SPC(trust) Autopia Thirty-sixth SPC(trust) Autopia Thirty-fifth SPC(trust) Autopia Fortieth SPC(trust) Autopia Thirty-seventh SPC(trust) Autopia Thirty-sixth SPC(trust) Autopia Forty-second SPC(trust) Autopia Thirty-eighth SPC(trust) Autopia Thirty-seventh SPC(trust) Autopia Forty-third SPC(trust) Autopia Thirty-ninth SPC(trust) Autopia Thirty-eighth SPC(trust) Autopia Forty-fourth SPC(trust) Autopia Fortieth SPC(trust) Autopia Thirty-ninth SPC(trust) Autopia Forty-fifth SPC(trust) Autopia Forty-first SPC(trust) Autopia Fortieth SPC(trust) Autopia Forty-sixth SPC(trust) Autopia Forty-second SPC(trust) Autopia Forty-first SPC(trust) Autopia Forty-seventh SPC(trust) Autopia Forty-third SPC(trust) Autopia Forty-second SPC(trust) Autopia Forty-fourth SPC(trust) Autopia Forty-third SPC(trust) Autopia Forty-fifth SPC(trust) Stock 2 Germany 100% Hyundai Capital Europe GmbH Hyundai Capital Europe GmbHCompany 1 Autopia Thirty-third, Thirty-fourth, Thirty-eighth and Forty-first SPC(trust) have been liquidated during the 2011, and Autopia Forty sixth and Forty-seventh SPC(trust) have been established during 2011. ² It holds 100% shares of Hyundai Capital Services Limited Liability Company established during 2011. 12
  • 15. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 The Group maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul) in conformity with the International Financial Reporting Standards as adopted by the Republic of Korea (“Korean-IFRS”). The accompanying consolidated financial statements have been condensed, restructured and translated into English from the Korean language financial statements. The Group’s financial statements for the annual period beginning on January 1, 2011, have been prepared in accordance with Korean-IFRS. These are the standards, subsequent amendments and related interpretations issued by the International Accounting Standards Board ("IASB") that have been adopted by the Republic of Korea. The consolidated financial statements of the Group were prepared in accordance with Korean- IFRS and are subject to Korean-IFRS1101, ‘First-time Adoption of Korean-IFRS’. The transition date, according to Korean-IFRS1101, from the previous accounting principles generally accepted in the Republic of Korea (“Previous K-GAAP”) to Korean-IFRS is January 1, 2010. Reconciliations and descriptions of the effect of the transition from Previous K-GAAP to Korean-IFRS on the Group’s equity, comprehensive income and cash flows are described in Note 3. The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3. New standards, amendments and interpretations issued but not effective for the financial year beginning January 1, 2011, and not early adopted by the Group are as follows: - Amendments to Korean-IFRS1101, Hyperinflation and Removal of Fixed Dates for first-time adopters(announced in December, 2010) As an exception to retrospective application requirements, this amendment to Korean-IFRS1101 allows a prospective application of derecognition of financial assets for transactions occurring on or after the date of transition to Korean-IFRS, instead of fixed date (January 1, 2004). Accordingly, the Group is not required to restate and recognize those assets or liabilities that were derecognized as a result of a transaction that occurred before the dated of transition to Korean- IFRS. This amendment will be effective for the Group as of January 1, 2012. The Group expects that the application of this amendment would not have material impact on its consolidated financial statements. - Amendments to Korean-IFRS1012, Income Taxes According to the amendments to Korean-IFRS1012, Income Taxes, for the investment property that is measured using the fair value model, the measurement of deferred tax liability and deferred 13
  • 16. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 tax asset should reflect the tax consequences of recovering the carrying amount of the investment property entirely through sale, unless evidences support otherwise. This amendment will be effective for the Group as of January 1, 2012. The Group expects that the application of this amendment would not have material impact on its consolidated financial statements. - Amendments to Korean-IFRS1019, Employee Benefits According to the amendments to Korean-IFRS1019, Employee Benefits, the corridor method is no longer permitted. Therefore, actuarial gains and losses on the defined benefit obligation are recognized immediately under other comprehensive income. The amendment requires to recognize immediately all past service costs. And the amendment replaces the interest cost on the defined benefit obligation, and the expected return on plan assets with a net interest cost based on the net defined benefit asset or liability and the discount rate measured at the beginning of the year. This amendment will be effective for the Group as of January 1, 2013. The Group is assessing the impact of application of the amended Korean-IFRS1019 on its consolidated financial statements. - Amendments to Korean-IFRS1107, Financial Instruments: Disclosures According to the amendment, an entity should provide the required disclosures of nature, carrying amount, risk and rewards associated with all transferred financial instruments that are not derecognized from an entity’s financial statements. In addition, an entity is required to disclose additional information related to transferred and derecognized financial instruments for any continuing involvement in transferred assets. This amendment will be effective for the Group as of January 1, 2012. The Group is assessing the impact of application of the amended Korean- IFRS1107 on its consolidated financial statements. - Enactment of Korean-IFRS1113, Fair value measurement Korean-IFRS1113, Fair value measurement, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across Korean-IFRS. Korean-IFRS1101 does not extend the use of fair value accounting but provides guidance on how it should be applied where its use is already required or permitted by other standards within Korean-IFRS. This amendment will be effective for the Group as of January 1, 2013, and the Group expects that it would not have a material impact on the Group. 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. Certain accounts of the prior period financial statements were reclassified to conform with the December 31, 2011 financial statement presentation. These reclassifications have no impact on the previously reported net income or shareholders’ equity. 14
  • 17. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 20102.1 Consolidation a. Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Company 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 Company controls another entity. The Group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control. De-facto control may arise in circumstances where the size of the Group’s voting rights relative to the size and dispersion of holdings of other shareholders give the Group the power to govern the financial and operating policies and others. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are de-consolidated 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. 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. Intercompany 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 15
  • 18. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 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. 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. 16
  • 19. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 20102.3 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 considering the financial circumstances of customers, net realizable value, credit quality, size of portfolio, concentrativeness, economic factors and others. According to the change in these factors, the allowance for doubtful accounts will be changed in a future period. 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 the 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 loans receivable, 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. 17
  • 20. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 The expected future cash flows from loans receivable, 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 and other short- term highly liquid investments with original maturities of three months or less.2.7 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. 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- 18
  • 21. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables 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 gain or loss. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognized in equity are transferred to 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. 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. If the Group transfers substantially all the risks and rewards of ownership of the financial asset, the Group shall derecognise the financial asset and recognise separately as assets or liabilities any rights and obligations created or retained in the transfer. If the Group retains substantially all the risks and rewards of ownership of the financial asset, the Group shall continue to recognise the financial 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 19
  • 22. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 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 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 Allowances for financial receivables a. Calculation of allowances for doubtful accounts The Group recognizes the impairment of receivables as an allowance for doubtful accounts. It is based on the impairment estimates made through impairment assessment of 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 receivables undertake the individual assessment of the difference between the assets’ carrying amount and the present value of estimated future cash flows. Unimpaired assets from individual assessments 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 in 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. 20
  • 23. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 20102.10 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 where: 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 the title is not 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, or 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 on an uncollected part of net investment shall be allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. If a lease agreement is cancelled in the middle of lease term, the Group reclassifies the amount of financial lease receivables into cancelled leased receivables, while the amount of financial lease receivables not yet due is reclassified as cancelled leased assets. 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 21
  • 24. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 operating leased assets and are amortized over the lease term in proportion to the recognition of income on leased assets. If a lease agreement is cancelled in the middle of lease term, the balance of operating leased assets is substituted for cancelled leased assets. The cancelled leased assets are depreciated over its residual useful life, but are mostly disposed of in the month of cancellation.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. 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 3-4 years Vehicles Straight-line 4 years Other tangible assets Straight-line 5 years Work of art classified under other tangible assets are not amortized due to their indefinite useful life in nature. 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 years 22
  • 25. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 Memberships classified under other intangible assets are not amortized over their indefinite useful life.2.13 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 Financial Liabilities (a) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss are financial instruments held for trading. Financial liabilities are classified as financial liabilities at fair value through profit or loss when incurred principally for the purpose of repurchasing it in the near term. Derivatives or embedded derivatives are also categorized as this category unless they are designated as hedges. (b) Financial liabilities carried at amortized cost The Group classifies non-derivative financial liabilities, except for financial liabilities at fair value through profit or loss and financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition, as financial liabilities carried at amortized cost and as ‘trade payables’, ‘borrowings’, and ‘other financial liabilities’ in the statement of financial position. In case when a transfer of a financial asset does not qualify for derecognition, the transferred asset is continuously recognized as asset and the consideration received is recognized as financial liabilities.2.15 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 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. 23
  • 26. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in profits or losses in the period in which they arise.2.16 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.2.17 Derivative financial instruments The Group has applied hedging policies using derivatives to deal with the risk of changes in foreign currency exchange rates and interest rates arising from liabilities. The Group has contracted currency swap and interest swap derivative financial instruments to deal with the risk of changes in foreign currency exchange rates arising from foreign currency liabilities and the risk of changes in interest rates arising from floating-rate liabilities. 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 applies cash flow hedge, which are hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction. 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 to apply hedging accounting. The Group also documents its assessment, both at 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. 24
  • 27. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 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. The cumulative gain or loss that was reported in equity is recognized when the hedged items affect profits and 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.2.18 Current and deferred income tax The tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the statement of financial position date in the countries where the Group operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. 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 recognized if they arise from 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 statement of financial position date 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, associates and joint ventures except for deferred income tax liability where the timing of the reversal of the 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 25
  • 28. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.2.19 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.2.20 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.2.21 Dividend Distribution Dividend distribution to the Company’s shareholders is recognized as a liability in the financial statements in the period in which the dividends are approved by the Company’s shareholders.2.22 Approval of Issuance of the Financial Statements The issuance of the December 31, 2011 financial statements of the Group was approved by the Board of Directors on January 31, 2012.3. Transition to Korean-IFRS The Groups transition date to Korean-IFRS is January 1, 2010, and adoption date is January 1, 2011. In preparing consolidated financial statements in accordance with Korean-IFRS 1101 ‘First-time Adoption of Korean International Financial Reporting Standards’, the Group has applied the mandatory exceptions and certain optional exemptions allowed by Korean-IFRS. 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 26
  • 29. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 The Group has not retrospectively applied Korean-IFRS 1103 ‘Business combination’ to the business combinations that took place prior to the transition date. (2) Deemed cost of property and equipment The Group has elected to use the carrying amount of property and equipment under Previous K- GAAP as deemed cost at the date of transition to Korean-IFRS. b. Explanation on the reconciliation of Previous K-GAAP and Korean-IFRS Major reconciliations of the transition between Previous K-GAAP and Korean-IFRS are as follows: (1) Impairment of financial assets (allowance for financial assets) Under Previous K-GAAP, allowances for financial receivables (loans receivable, installment financial assets and lease 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 Previous 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 Previous K-GAAP, accrued revenue for receivables which are overdue is not recognized. Under Korean-IFRS, accrued revenue for past due and impaired receivables and the interests on impaired receivable are recognized using expected cash flow after impairments. (4) Measurement of financial assets carried at amortized cost Under Previous 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 Korean-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 27
  • 30. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 According to Previous 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 Korean-IFRS, the Group recognizes liabilities when an employee has provided service in exchange for compensated absences. (6) Depreciation method for property and equipment Under Previous K-GAAP, depreciation method for certain property and equipment was the declining-balance method. Under Korean-IFRS, the Group uses the straight-line method to reflect properly the matching of the future economic benefits. (7) Retirement benefit obligations Under Previous 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. Under Korean-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 Previous K-GAAP, memberships are classified as investments. Under Korean-IFRS, the Group reclassifies memberships held for operating purposes as an intangible asset with an infinite useful life. (9) Consolidation Under Previous K-GAAP, Autopia Thirty-fifth 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 Korean-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. 28
  • 31. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010 c. Effects on the consolidated assets, liabilities and equity, total comprehensive income and net income (1) Reconciliation of assets, liabilities and equity as of January 1, 2010 (in millions of Korean won) Shareholders’ Assets Liabilities equity Previous K-GAAP 15,854,426 13,698,696 2,155,730 Conversion 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 61,191 Korean-IFRS 19,001,257 16,784,336 2,216,921 (2) Reconciliation of assets, liabilities and equity as of December 31, 2010 and total comprehensive income and net income for the year ended December 31, 2010(in millions of Korean won) Total Shareholders’ Assets Liabilities comprehensive Net income equity incomePrevious K-GAAP 17,931,200 15,727,686 2,203,514 454,942 511,545Conversion effects to Korean-IFRS Allowance for doubtful accounts 208,187 - 208,187 (12,256) (12,256) Provision for unused loan commitments - 46,624 (46,624) (20,208) (20,208) Accrued revenues 22,771 - 22,771 1,512 1,512 Measurement of amortized cost 2,168 150 2,018 8,413 8,413 Recognition of unused compensated absences - 2,524 (2,524) (257) (257) Depreciation 1,113 - 1,113 (10,635) (10,635) Retirement benefit obligations - 3,823 (3,823) (3,732) (3,732) Others (131) 476 (607) 6,673 6,673 Scope of consolidation 2,585,543 2,655,916 (70,373) 24,765 30,063 Deferred income taxes (2,249) 74,556 (76,805) (22,133) (22,133) 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 29
  • 32. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010 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 Previous 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 other significant differences between cash flows under Korean-IFRS and Previous K-GAAP. e. Adjustments of operating income and expenses The Group reclassified certain non-operating income and expenses under Previous K-GAAP to other operating income and expenses according to Korean-IFRS. Adjustments are as follows: (in millions of Korean won) Type 2011 2010 Other operating income 29,300 26,749 Other operating expenses 20,267 20,199 4. Restricted Financial Instruments Restricted financial instruments are as follows: Amount December December January 1, Type Entities Restriction 31, 2011 31, 2010 2010 Hana Bank Maintaining deposits for and Nonghyup 10 25 25 checking accountDeposits SC Bank - - 1,913 Guarantee for interest expense of debentures 10 25 1,938 30
  • 33. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 20105. Securities Securities are as follows: (in millions of Korean won) December 31, December 31, January 1, Type 2011 2010 2010 Available-for-sale securities Marketable equity securities 5,687 7,318 3,951 Equity securities Unlisted equity securities 10,526 9,887 8,802 16,213 17,205 12,753 Government and Debt securities public bonds 2,239 3,372 3,114 Sub-total 18,452 20,577 15,867 Equity method investments 51,768 48,483 40,055 70,220 69,060 55,922 Available-for-sale securities Available-for-sale securities are as follows: (1) Equity securities (in millions of Korean won) Book value December December January Number of Ownership Acquisition shares (%) cost 31, 2011 31, 2010 1, 2010 Marketable equity securities Korea Information Service 1 - - - - - 3,951 NICE Information Service 1 136,593 2.25 3,312 3,190 4,221 - 1 NICE Holdings 49,162 1.42 3,491 2,497 3,097 - Unlisted equity securities Hyundai Finance Corp. 2 1,700,000 9.29 9,888 10,426 9,887 8,726 HI Network, Inc. (Common stock) - - - - - 59 HI Network, Inc. (Preferred stock) - - - - - 17 Korean Egloan, Inc. 4,000 3.12 100 100 - - 16,791 16,213 17,205 12,753 1 Korea Information Service was divided into NICE Information Service and NICE Holdings. In this transaction, the Group recognized gain on disposal of available-for-sale securities amounting to 1,550 million. ²The 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 31
  • 34. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 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 December December January Interest Acquisition Issuer rate (%) cost 31, 2011 31, 2010 1, 2010Government and Metropolitan Rapid public bonds Transit and others 2.50 2,118 2,239 3,372 3,114 Equity method investments Equity method investments are as follows: (in millions of Korean won) December 31, 2011 Number of Ownership Acquisition Net asset Book value shares (%) cost valueHK Mutual Saving Bank 1 4,990,438 20.00 45,719 33,487 45,735 1HI Network, Inc. 13,332 19.99 76 1,003 1,003 1Korea Credit Bureau 140,000 7.00 3,800 2,928 3,965Hyundai Capital 2 600,200 30.01 1,065 1,065 1,065 Germany GmbH 50,660 38,483 51,768 (in millions of Korean won) December 31, 2010 Number of Ownership Acquisition Net asset Book value shares (%) cost valueHK Mutual Saving Bank 1 4,990,438 20.00 45,719 30,601 42,849 1HI Network, Inc. 13,332 19.99 76 1,055 1,055 1Korea Credit Bureau 140,000 7.00 3,800 2,477 3,514Hyundai Capital 2 600,200 30.01 1,065 908 1,065 Germany GmbH 50,660 35,041 48,483 (in millions of Korean won) January 1, 2010 Number of Ownership Acquisition Net asset Book value shares (%) cost valueHK Mutual Saving Bank 1 4,990,438 20.00 45,719 23,551 35,799 1Korea Credit Bureau 140,000 7.00 3,800 2,154 3,191Hyundai Capital Germany GmbH 2 600,200 30.01 1,065 1,065 1,065 50,584 26,770 40,055 32
  • 35. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010 1 The Group’s shareholdings in HK Mutual Saving Bank, HI Network, Inc. and Korea Credit Bureau are less than 20%. However, the Group is able to significantly influence such involvement in the financial and operating processes, and thus the equity method is applied. 2 The Group’s shareholdings are more than 20%. However, equity method is not applied due to insignificant fluctuation of equity. Valuations of equity method investments are as follows: (in millions of Korean won) 2011 Changes in accumulated Beginning Gain (loss) Ending Acquisition other Dividends Balance on valuation comprehensive Balance incomeHK Mutual Saving Bank 42,849 - 2,863 23 - 45,735HI Network, Inc. 1,055 - 654 - (706) 1,003Korea Credit Bureau 3,514 - 451 - - 3,965Hyundai Capital Germany GmbH 1,065 - - - - 1,065 48,483 - 3,968 23 (706) 51,768 (in millions of Korean won) 2010 Changes in accumulated Beginning Gain (loss) Ending Acquisition other Dividends Balance on valuation comprehensive Balance incomeHK Mutual Saving Bank 35,799 - 6,937 113 - 42,849HI Network, Inc ¹ - 76 2,206 - (1,227) 1,055Korea Credit Bureau 3,191 - 323 - - 3,514Hyundai Capital Germany GmbH 1,065 - - - - 1,065 40,055 76 9,466 113 (1,227) 48,483 ¹The Group reclassified available-for-sale securities into equity method investments after transition date. 33
  • 36. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010 The difference between the acquired amounts of equity method investments and their corresponding net asset value are as follows: (in millions of Korean won) December 31, December 31, January 1, 2011 2010 2010 HK Mutual Saving Bank 12,248 12,248 12,248 Korea Credit Bureau 1,037 1,037 1,037 13,285 13,285 13,285 Summary of financial information of investees are as follows: (in millions of Korean won) 2011 Operating Assets Liabilities Net income revenueHK Mutual Saving Bank 1 2,593,289 2,425,855 372,233 14,313HI Network, Inc. 8,560 3,544 21,835 3,314Korea Credit Bureau 51,484 9,650 40,535 6,380Hyundai Capital Germany 3,889 341 1,171 503 GmbH 1 HK Mutual Saving Bank is a corporation with fiscal year ending on June 30. But its assets and liabilities above are as of December 31, 2011, and the results of its operations are for the year ended December 31, 2011. (in millions of Korean won) 2010 Operating Net income Assets Liabilities revenue (loss)HK Mutual Saving Bank 1 2,439,109 2,286,106 332,117 34,683HI Network, Inc. 8,734 3,458 20,706 4,733Korea Credit Bureau 45,301 9,914 33,190 4,338Hyundai Capital 3,145 117 540 43 Germany GmbH 1 HK Mutual Saving Bank is a corporation with fiscal year ending on June 30. But its assets and liabilities above are as of December 31, 2010, and the results of its operations are for the year ended December 31, 2010. 34
  • 37. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010 6. Financial Receivables Financial receivables are as follows: (in millions of Korean won) December 31, 2011 Deferred loan origination fees and Allowance Present value Principal costs for doubtful Book value discounts (Initial direct costs accounts for lease assets)Loan receivables Loans 11,239,870 (108,782) (1,841) (281,184) 10,848,063Installment financial assets Auto 5,109,299 (78,757) - (36,748) 4,993,794 Durable goods 1,419 3 - (141) 1,281 Mortgage 25,620 60 - (1,204) 24,476 Machinery 1,674 - 6 (37) 1,643 5,138,012 (78,694) 6 (38,130) 5,021,194Lease receivables Finance lease 2,300,204 (703) - (21,118) 2,278,383 receivables Cancelled lease 4,656 - - (4,445) 211 receivables 2,304,860 (703) - (25,563) 2,278,594 18,682,742 (188,179) (1,835) (344,877) 18,147,851 (in millions of Korean won) December 31, 2010 Deferred loan origination fees and Allowance Present value Principal costs for doubtful Book value discounts (Initial direct costs accounts for lease assets)Loan receivables Loans 10,545,431 (110,263) (1,027) (215,703) 10,218,438Installment financial assets Auto 5,123,219 (99,271) (3) (27,489) 4,996,456 Durable goods 6,762 39 - (633) 6,168 Mortgage 39,915 111 - (404) 39,622 Machinery 14,595 - 58 (117) 14,536 5,184,491 (99,121) 55 (28,643) 5,056,782Lease receivables Finance lease 1,797,372 (622) - (19,273) 1,777,477 receivables Cancelled lease 2,719 - - (1,758) 961 receivables 1,800,091 (622) - (21,031) 1,778,438 17,530,013 (210,006) (972) (265,377) 17,053,658 35
  • 38. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010 (in millions of Korean won) January 1, 2010 Deferred loan origination fees and Allowance Present value Principal costs for doubtful Book value discounts (Initial direct costs accounts for lease assets)Loan receivables Loans 8,977,097 (113,437) (1,514) (175,934) 8,686,212Installment financial assets Auto 4,766,715 (97,945) (67) (31,368) 4,637,335 Durable goods 16,159 138 - (292) 16,005 Mortgage 69,952 239 - (463) 69,728 Machinery 43,906 - 322 (394) 43,834 4,896,732 (97,568) 255 (32,517) 4,766,902Lease receivables Finance lease 1,265,203 (410) - (11,441) 1,253,352 receivables Cancelled lease 1,541 - - (1,089) 452 receivables 1,266,744 (410) - (12,530) 1,253,804 15,140,573 (211,415) (1,259) (220,981) 14,706,918 7. Allowance for Doubtful Accounts Changes in allowance for doubtful accounts for the years ended December 31, 2011 and 2010, are as follows: (in millions of Korean won) 2011 Loan Installment Lease Type Other assets Total receivables financial assets receivables Beginning balance 215,703 28,643 21,031 7,648 273,025 Amounts written off (331,061) (30,839) (1,049) (5,683) (368,632) Recoveries of amounts 90,411 11,842 282 8,225 110,760 previously written off Discount unwind (6,702) (326) (159) - (7,187) Additional(reversed) 312,833 28,810 5,458 7,094 354,195 allowance Ending balance 281,184 38,130 25,563 17,284 362,161 (in millions of Korean won) 2010 Loan Installment Lease Type Other assets Total receivables financial assets receivables Beginning balance 175,934 32,517 12,529 6,997 227,977 Amounts written off (191,927) (28,888) (332) (3,728) (224,875) Recoveries of amounts 104,982 15,861 366 8,673 129,882 previously written off Unwinding of discount (4,972) (411) (54) - (5,437) 36
  • 39. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010Additional(reversed) 131,686 9,564 8,522 (4,294) 145,478 allowanceEnding balance 215,703 28,643 21,031 7,648 273,025 8. Financial Instruments a. Fair value of financial instruments The fair values of financial instruments are as follows: (in millions of Korean won) December 31, 2011 December 31, 2010 January 1, 2010 Type Book Fair Book Fair Book Fair value value value value value value Assets Financial assets Cash and deposits 1,455,442 1,455,442 1,224,891 1,224,891 992,774 992,774 Available-for-sale 18,452 18,452 20,577 20,577 15,867 15,867 securities Loans receivable 10,848,063 11,124,599 10,218,438 10,571,397 8,686,212 9,037,365 Installment financial 5,021,194 5,145,837 5,056,782 5,218,322 4,766,902 4,960,643 assets Derivative assets 475,431 475,431 521,530 521,530 1,278,570 1,278,570 Non-trade receivables 84,983 84,983 72,393 72,393 80,754 80,754 Accrued revenues 113,980 113,980 111,806 111,806 98,939 98,939 Leasehold deposits 35,929 35,847 31,955 31,821 30,473 30,653 18,053,474 18,454,571 17,258,372 17,772,737 15,950,491 16,495,565 Liabilities Financial liabilities Borrowings 2,250,000 2,257,918 2,646,945 2,652,759 2,452,978 2,458,590 Debentures 15,522,368 15,886,881 14,396,741 14,795,749 13,034,854 13,929,019 Derivative liabilities 58,096 58,096 96,568 96,568 78,174 78,174 1 Non-trade payables 249,236 249,236 240,414 240,414 210,615 210,615 Accrued expenses 135,083 135,083 110,225 109,943 108,746 108,746 1 Withholdings 11,567 11,567 10,791 10,791 11,407 11,407 Leasehold deposits 663,195 670,409 received 787,858 794,247 746,531 763,718 19,014,208 19,393,028 18,248,215 18,669,942 16,559,969 17,466,960 1 Excluding taxes. 37
  • 40. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 b. Fair value hierarchy The fair value hierarchy of financial assets and liabilities carried at fair value are as follows:(in millions of Korean won) December 31, 2011 1 Book Fair Fair value hierarchy Type value value level 1 level 2 level 3Financial assets Available-for-sale 18,452 18,452 5,687 2,239 10,526 securities Derivative assets 475,431 475,431 - 475,431 - 493,883 493,883 5,687 477,670 10,526Financial liabilities Derivative liabilities 58,096 58,096 - 58,096 - 1 The levels of fair value hierarchy have been defined as follows: Level 1: Quoted prices in active markets for identical assets or liabilities. Listed stocks and derivatives Level 2: Inputs for the asset or liability included within valuation techniques that are observable market data. Most bonds issued in Korean won and foreign currency, general unlisted derivatives like swap, forward, option Level 3: Inputs for the asset or the liability that are not based on observable market data. Unlisted stocks, complicated structured bonds, complicated unlisted derivatives and others.(in millions of Korean won) December 31, 2010 1 Book Fair Fair value hierarchy Type value value level 1 level 2 level 3Financial assets Available-for-sale 20,577 20,577 7,318 3,372 9,887 securities Derivative assets 521,530 521,530 - 521,530 - 542,107 542,107 7,318 524,902 9,887Financial liabilities Derivative liabilities 96,568 96,568 - 96,568 - 38
  • 41. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010(in millions of Korean won) January 1, 2010 1 Book Fair Fair value hierarchy Type value value level 1 level 2 level 3Financial assets Available-for-sale 15,867 15,867 3,951 3,114 8,802 securities Derivative assets 1,278,570 1,278,570 - 1,278,570 - 1,294,437 1,294,437 3,951 1,281,684 8,802Financial liabilities Derivative liabilities 78,174 78,174 - 78,174 - c. Changes in financial instruments of level 3 The changes in financial instruments of level 3 for the years ended December 31, 2011 and 2010, are as follows: (in millions of Korean won) Available-for-sale securities Type 2011 2010 Beginning balance 9,887 8,802 Acquisition 100 - Gain on valuation 539 1,161 (Other comprehensive income) Replacement - (76) Ending balance 10,526 9,887 d. Financial instruments by categories The book value of financial instruments by categories are as follows:(in millions of Korean won) December 31, 2011 Financial Available-for- Hedging assets at fair Loans and Type sale financial derivative Total value through receivables assets instruments profit or lossFinancial assets Cash and deposits - 1,455,442 - - 1,455,442 Available-for- sale - - 18,452 - 18,452 securities Loans receivable - 10,848,063 - - 10,848,063 Installment - 5,021,194 - - 5,021,194 financial assets Derivative assets 53 - - 475,378 475,431 Non-trade - 84,983 - - 84,983 receivables Accrued revenues - 113,980 - - 113,980 39
  • 42. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 Leasehold - 35,929 - - 35,929 deposits 53 17,559,591 18,452 475,378 18,053,474(in millions of Korean won) December 31, 2010 Financial Available-for- Hedging assets at fair Loans and Type sale financial derivative Total value through receivables assets instruments profit or lossFinancial assets Cash and deposits - 1,224,891 - - 1,224,891 Available-for- sale - - 20,577 - 20,577 securities Loans receivable - 10,218,438 - - 10,218,438 Installment - 5,056,782 - - 5,056,782 financial assets Derivative assets 72 - - 521,458 521,530 Non-trade - 72,393 - - 72,393 receivables Accrued revenues - 111,806 - - 111,806 Leasehold - 31,955 - - 31,955 deposits 72 16,716,265 20,577 521,458 17,258,372(in millions of Korean won) January 1, 2010 Financial Available-for- Hedging assets at fair Loans and Type sale financial derivative Total value through receivables assets instruments profit or lossFinancial assets Cash and deposits - 992,774 - - 992,774 Available-for- sale - - 15,867 - 15,867 securities Loans receivable - 8,686,212 - - 8,686,212 Installment - 4,766,902 - - 4,766,902 financial assets Derivative assets 72,506 - - 1,206,064 1,278,570 Non-trade - 80,754 - - 80,754 receivables Accrued revenues - 98,939 - - 98,939 Leasehold - 30,473 - - 30,473 deposits 72,506 14,656,054 15,867 1,206,064 15,950,491 40
  • 43. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010(in millions of Korean won) December 31, 2011 Financial liabilities Hedging derivative Type Total at amortized cost instrumentsFinancial liabilities Borrowings 2,250,000 - 2,250,000 Debentures 15,522,368 - 15,522,368 Derivative - 58,096 58,096 liabilities Non-trade payables 249,236 - 249,236 Accrued expenses 135,083 - 135,083 Withholdings 11,567 - 11,567 Leasehold deposits received 787,858 - 787,858 18,956,112 58,096 19,014,208(in millions of Korean won) December 31, 2010 Financial liabilities Hedging derivative Type Total at amortized cost instrumentsFinancial liabilities Borrowings 2,646,945 - 2,646,945 Debentures 14,396,741 - 14,396,741 Derivative - 96,568 96,568 liabilities Non-trade payables 240,414 - 240,414 Accrued expenses 110,225 - 110,225 Withholdings 10,791 - 10,791 Leasehold deposits received 746,531 - 746,531 18,151,647 96,568 18,248,215(in millions of Korean won) January 1, 2010 Financial liabilities Hedging derivative Type Total at amortized cost instrumentsFinancial liabilities Borrowings 2,452,978 - 2,452,978 Debentures 13,034,854 - 13,034,854 Derivative - 78,174 78,174 liabilities Non-trade payables 210,615 - 210,615 Accrued expenses 108,746 - 108,746 Withholdings 11,407 - 11,407 Leasehold deposits received 663,195 - 663,195 16,481,795 78,174 16,559,969 41
  • 44. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010 9. Finance Lease Receivables a. Total lease investments and present value of minimum lease receipts Details of total lease investments and present value of minimum lease receipts are as follows: (in millions of Korean won) December 31, 2011 December 31, 2010 January 1, 2010 Type Present value of Present value of Present value of Total lease Total lease Total lease minimum lease minimum lease minimum lease investments investments investments receipts receipts receiptsLess than 1 year 984,475 808,521 765,722 633,321 549,958 454,0011 to 5 years 1,610,089 1,475,991 1,272,610 1,149,144 893,871 797,404Over 5 years 77 76 - - - - 2,594,641 2,284,588 2,038,332 1,782,465 1,443,829 1,251,405 b. Unearned interest income Details of unearned interest income as of December 31, 2011 and December 31, 2010, are as follows: (in millions of Korean won) December 31, December 31, January 1, Type 2011 2010 2010 Total lease investments 2,594,641 2,038,332 1,443,829 Net lease investments Minimum lease receipts 2,284,588 1,782,465 1,251,405 (present value) Unguaranteed residual value 14,913 14,285 13,388 (present value) sub-total 2,299,501 1,796,750 1,264,793 Unearned interest income 295,140 241,582 179,036 10. Leased Assets All operating leased assets consist of vehicles and the details are as follows: (in millions of Korean won) December 31, 2011 Accumulated Acquisition cost Book value depreciation Operating leased assets 1,749,697 (630,388) 1,119,309 Cancelled leased assets 5,995 (2,226) 3,769 1,755,692 (632,614) 1,123,078 42
  • 45. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010(in millions of Korean won) December 31, 2010 Accumulated Acquisition cost Book value depreciationOperating leased assets 1,991,961 (709,116) 1,282,845Cancelled leased assets 3,234 (42) 3,192 1,995,195 (709,158) 1,286,037(in millions of Korean won) January 1, 2010 Accumulated Acquisition cost Book value depreciationOperating leased assets 2,112,300 (705,847) 1,406,453Cancelled leased assets 3,211 (175) 3,036 2,115,511 (706,022) 1,409,489 Future minimum lease receipts under operating lease are as follows: (in millions of Korean won) December 31, December 31, January 1, Type 2011 2010 2010 Less than 1 year 403,735 423,307 501,195 1 to 5 years 345,238 414,181 430,194 Over 5 years 4 - - 748,977 837,488 931,38911. Property and Equipment a. Details of property and equipment Property and equipment consist of: (in millions of Korean won) December 31, 2011 Type Acquisition Accumulated Book value cost depreciation Land 105,425 - 105,425 Buildings 120,855 (22,916) 97,939 Structures 2,844 (286) 2,558 Vehicles 1,743 (982) 761 Fixture and furniture 154,771 (101,001) 53,770 Others 2,001 (7) 1,994 Construction in 2,986 - 2,986 progress 390,625 (125,192) 265,433 43
  • 46. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010 (in millions of Korean won) December 31, 2010 Type Acquisition Accumulated Book value cost depreciation Land 101,844 - 101,844 Buildings 112,305 (19,762) 92,543 Structures 2,466 (220) 2,246 Vehicles 1,608 (770) 838 Fixture and furniture 116,971 (81,650) 35,321 Others 1,200 - 1,200 Construction in 8,377 - 8,377 progress 344,771 (102,402) 242,369 (in millions of Korean won) January 1, 2010 Type Acquisition Accumulated Book value cost depreciation Land 98,778 - 98,778 Buildings 109,337 (16,963) 92,374 Structures 2,295 (161) 2,134 Vehicles 1,412 (452) 960 Fixture and furniture 108,272 (75,991) 32,281 Others 1,086 - 1,086 Construction in 11,070 - 11,070 progress 332,250 (93,567) 238,683 b. Changes in property and equipment Changes in property and equipment for the years ended December 31, 2011 and 2010, are as follows:(in millions of Korean won) 2011 Beginning Ending Type Acquisition Replacement Disposal Depreciation balance balanceLand 101,844 3,581 - - - 105,425Buildings 92,543 8,549 - - (3,153) 97,939Structures 2,246 379 - - (67) 2,558Vehicles 838 328 - (30) (375) 761Fixture and 35,321 37,712 688 (597) (19,354) 53,770 furnitureOthers 1,200 801 - - (7) 1,994Construction in 8,377 8,079 (13,470) - - 2,986 progress 242,369 59,429 (12,782) (627) (22,956) 265,433 44
  • 47. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010(in millions of Korean won) 2010 Beginning Ending Type Acquisition Replacement Disposal Depreciation balance balanceLand 98,778 3,066 - - - 101,844Buildings 92,374 2,968 - - (2,799) 92,543Structures 2,134 171 - - (59) 2,246Vehicles 960 223 - - (345) 838Fixture and 32,281 19,412 353 (109) (16,616) 35,321 furnitureOthers 1,086 114 - - - 1,200Construction in 11,070 13,811 (16,504) - - 8,377 progress 238,683 39,765 (16,151) (109) (19,819) 242,369 As of December 31, 2011, the Company carries comprehensive asset insurance for its buildings for up to ₩215,210 million (December 31, 2010: ₩209,783 million, January 1, 2010: ₩184,307 million). Comprehensive movable property insurance for fixture and furniture covers up to ₩20,195 million (December 31, 2010: ₩18,812 million, January 1, 2010: ₩21,315 million). Other leased office buildings and vehicles are covered with liability and general insurance. 12. Intangible Assets a. Details of Intangible assets Intangible assets consist of: (in millions of Korean won) December 31, 2011 Type Acquisition Accumulated Book cost depreciation value Development costs 71,254 (42,619) 28,635 Rights of trademark 69 (39) 30 Other intangible assets 53,296 (16,844) 36,452 124,619 (59,502) 65,117 (in millions of Korean won) December 31, 2010 Type Acquisition Accumulated Book cost depreciation value Development costs 56,142 (36,138) 20,004 Rights of trademark 69 (25) 44 Other intangible assets 47,545 (14,981) 32,564 103,756 (51,144) 52,612 45
  • 48. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010(in millions of Korean won) January 1, 2010 Type Acquisition Accumulated Book cost depreciation valueDevelopment costs 38,613 (30,922) 7,691Rights of trademark 69 (12) 57Other intangible assets 44,368 (13,182) 31,186 83,050 (44,116) 38,934 b. Changes in intangible assets Changes in intangible assets for the years ended December 31, 2011 and 2010, are as follows: (in millions of Korean won) 2011 1 Type Beginning balance Increase Disposal Amortization Ending balance Development costs 20,004 15,162 (50) (6,481) 28,635 Rights of trademark 44 - - (14) 30 Other intangible assets 32,564 5,772 (21) (1,863) 36,452 52,612 20,934 (71) (8,358) 65,117 1 Inclusive of transfer from construction in progress (in millions of Korean won) 2010 1 Type Beginning balance Increase Disposal Amortization Ending balance Development costs 7,691 17,529 - (5,216) 20,004 Rights of trademark 57 - - (13) 44 Other intangible assets 31,186 3,205 (28) (1,799) 32,564 38,934 20,734 (28) (7,028) 52,612 13. Borrowings Borrowings consist of: (in millions of Korean won) Annual December 31, December 31, January 1, Types Lender interest rate (%) 2011 2010 2010 Borrowings in won SK Securities Commercial paper 3.75 ~ 5.11 750,000 1,410,000 971,300 and 7 others Kookmin Bank General loans 4.16 ~ 5.98 1,500,000 1,170,000 910,000 and 12 others 2,250,000 2,580,000 1,881,300 46
  • 49. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010 Borrowings in foreign currency General loans - - - 56,945 326,678 Securitized borrowings Commercial paper - - - 10,000 245,000 2,250,000 2,646,945 2,452,978 Securitized borrowings are issued based on loans receivable and installment financial assets. 14. Debentures Debentures issued by the Group and outstanding are as follows: (in millions of Korean won) Annual interest December 31, 2011 December 31, 2010 January 1, 2010 Type rates Securitized Securitized Securitized (%) Debenture Total Debenture Total Debenture Total debenture debenture debentureShort-term debenture Debenture 3.92 ~ 5.04 100,000 - 100,000 659,397 - 659,397 155,000 - 155,000 Less: Discount (29) - (29) (259) - (259) (23) - (23) on debentures 99,971 - 99,971 659,138 - 659,138 154,977 - 154,977Current portion of debenture Debenture 2.44 ~ 8.76 4,030,429 996,073 5,026,502 2,428,128 956,425 3,384,553 3,594,431 562,832 4,157,263 Less: Discount on debentures (1,191) (228) (1,419) (5,849) (314) (6,163) (1,952) (177) (2,129) 4,029,238 995,845 5,025,083 2,422,279 956,111 3,378,390 3,592,479 562,655 4,155,134Long-term debenture Debenture 2.44 ~ 8.76 8,665,456 1,761,283 10,426,739 8,401,694 1,980,229 10,381,923 6,464,582 2,282,377 8,746,959 Less: Discount on debentures (21,169) (8,256) (29,425) (15,726) (6,984) (22,710) (17,799) (4,416) (22,215) 8,644,287 1,753,027 10,397,314 8,385,968 1,973,245 10,359,213 6,446,783 2,277,961 8,724,744 12,773,496 2,748,872 15,522,368 11,467,385 2,929,356 14,396,741 10,194,239 2,840,616 13,034,855 Securitized debentures are issued based on loans receivable and installment financial assets. 47
  • 50. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 201015. Defined Benefit Liability a. The amounts of defined benefit plans recognized in the statements of financial position are as follows: (in millions of Korean won) Type December 31, December 31, January 1, 2011 2010 2010 Present value of funded obligations 49,709 38,732 37,337 Fair value of plan assets¹ (29,347) (27,045) (28,095) Defined benefit liability 20,362 11,687 9,242 ¹ As of December 31, 2011, contribution to the National Pension Fund of 45 million is included ( December 31, 2010 : 51 million, January1, 2010: 76 million.) b. Changes in present value of defined benefit obligations for the years ended December 31, 2011 and 2010: (in millions of Korean won) Type 2011 2010 Beginning balance 38,732 37,337 Current service cost 9,800 8,260 Interest cost 1,860 2,006 Actuarial losses 5,699 5,453 Transfer of severance benefits from 2,263 1,729 related parties Transfer of severance benefits to related (2,941) (1,883) parties Benefits paid (5,704) (14,170) Ending balance 49,709 38,732 c. Changes in the fair value of plan assets for the years ended December 31, 2011 and 2010: (in millions of Korean won) Type 2011 2010 Beginning balance 27,045 28,095 Contributions by plan participants 3,500 - Expected return on plan assets 1,075 1,325 Actuarial (losses)/gains 98 (157) Transfer of severance benefits from 1,527 1,255 related parties Transfer of severance benefits to (1,661) (1,104) related parties 48
  • 51. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 Benefits paid (2,237) (2,369) Ending balance 29,347 27,045 d. Details of the amounts recognized in the income statement for the years ended December 31, 2011 and 2010: (in millions of Korean won) Type 2011 2010 Current service cost 9,800 8,260 Interest cost 1,860 2,006 Expected return on plan assets (1,075) (1,325) Actuarial losses 5,601 4,375 16,186 13,316 e. Actual return on plan assets for the years ended December 31, 2011 and 2010: (in millions of Korean won) Type 2011 2010 Actual return on plan assets 1,173 1,168 f. Details of plan assets consist of : (in millions of Korean won) December 31, 2011 December 31, 2010 January 1, 2010 Type Amount Ratio(%) Amount Ratio(%) Amount Ratio(%) Cash 179 0.61 96 0.36 - - Deposits 11,576 39.45 12,053 44.56 28,095 100.00 Interest rate guaranteed - - 17,592 59.94 14,896 55.08 asset for 1-year 29,347 100.00 27,045 100.00 28,095 100.00 g. Actuarial assumptions Actuarial assumptions required to recognize defined benefit liability are as follows: Type December 31, December 31, January 1, 2011 2010 2010 Discount rate 4.21% 4.90% 5.90% Expected return on plan assets 4.15% 4.20% 4.73% Future salary increases 5.60% 5.39% 5.31% Assumptions regarding future mortality experience are set based on actuarial advice published by Korea Insurance Development Institute. 49
  • 52. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 h. Adjustments for the differences Adjustments for the differences between initial assumptions and actual figures as of December 31, 2011 and 2010, are as follows : (in millions of Korean won) Type 2011 2010 Defined benefit obligations 3,271 2,013 Plan assets 98 (157)16. Income Tax a. Income tax expense for the years ended December 31, 2011 and 2010, consists of: (in millions of Korean won) Type 2011 2010 Current tax 124,239 170,855 Changes in deferred tax assets(liabilities) 45,267 (37,117) Deferred tax credited directly to equity (13,519) 16,489 Income tax 155,987 150,227 b. Deferred tax credited directly to equity (in millions of Korean won) Type 2011 2010 Loss(Gain) on valuation of available-for- 218 (663) sale financial securities Accumulated comprehensive income of - (20) equity method investees Loss(Gain) on valuation of derivatives (13,737) 17,172 (13,519) 16,489 c. Reconciliation between income before income tax and income tax expense (in millions of Korean won) Type 2011 2010 Profit before tax 663,391 639,211 Current tax 160,493 154,664 Adjustments: Income not subject to tax 881 (89) Expenses not deductible for tax 23,877 362 purposes Changes in tax reconciliation of the - 1,237 previous year 50
  • 53. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010 Additional tax payments(refunds) (18,884) 4,051 Others (SPC consolidation, others) (10,380) (9,998) Income tax 155,987 150,227 Effective tax rate 23.5% 23.5% (Income tax over net income before tax) d. Changes in temporary differences and deferred assets (liabilities) (in millions of Korean won) 2011 Temporary differences Deferred assets (liabilities) Type Beginning Changes Ending Beginning EndingAllowances for doubtful 173,184 (173,184) - 41,911 - accountsDerivatives (264,264) 50,049 (214,215) (59,235) (51,840)Deferred fees (154,491) (1,564) (156,055) (33,988) (37,765)Initial direct costs for (82,713) (16,979) (99,692) (18,197) (24,126) lease assetsGain on foreign 227,514 (53,258) 174,256 51,246 42,170 exchanges translationNon-trade payables 69,374 (44,112) 25,262 16,789 6,113Depreciation 375 68,781 69,156 83 16,736Present value discounts (120) 114 (6) (26) (2)Others 18,959 (5,596) 13,363 3,668 3,411Consolidation effects (37,951) 2,173 (35,778) (4,868) (2,581) (50,133) (173,576) (223,709) (2,617) (47,884)(in millions of Korean won) 2010 Temporary differences Deferred assets (liabilities) Type Beginning Changes Ending Beginning EndingAllowances for doubtful 142,605 30,579 173,184 34,510 41,911 accountsDerivatives (995,442) 731,178 (264,264) (232,117) (59,235)Deferred fees (124,557) (29,934) (154,491) (27,403) (33,988)Initial direct costs for (65,709) (17,004) (82,713) (14,456) (18,197) lease assetsGain on foreign 836,404 (608,890) 227,514 194,862 51,246 exchanges translationNon-trade payables 80,201 (10,827) 69,374 19,409 16,789Depreciation 176 199 375 39 83Present value discounts (280) 160 (120) (62) (26)Others 38,224 (19,265) 18,959 8,820 3,668Consolidation effects (82,880) 44,929 (37,951) (23,336) (4,868) (171,258) 121,125 (50,133) (39,734) (2,617) 51
  • 54. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 e. Realization of the deferred tax assets and basic judgment Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Group’s ability to generate taxable income within the period during which the temporary differences reverse, the outlook of the Korean economic environment, and the overall future industry outlook. Management periodically considers these factors in reaching its conclusion and recognized the deferred income tax asset based on future realization. As of December 31, 2011, the Group recognizes deferred income tax assets excluding certain temporary differences which may not be realized. The amount above may change if the estimation of future taxable income changes.17. Provisions for Unused Loan Commitments The Group has loan commitments. Changes in provisions for unused loan commitments for the years ended December 31, 2011 and 2010, are as follows: (in millions of Korean won) Type 2011 2010 Beginning balance 46,624 26,416 Additional (Reversal) (36,178) 20,208 Ending balance 10,446 46,62418. Derivative Financial Instruments and Hedge Accounting a. Trading derivatives Trading derivatives are as follows:(in millions of Korean won) December 31, 2011 December 31, 2010 January 1, 2010 Type Notional Notional Notional principal Assets Liabilities principal Assets Liabilities principal Assets Liabilities amounts1 amounts1 amounts1Forward foreign 398 53 - 578 72 - 127,969 27,552 - exchangeCurrency swaps - - - - - - 126,282 44,954 - 398 53 - 578 72 - 254,251 72,506 - 1 Notional principal amounts are the amounts of foreign currency contracts for the Korean won against foreign currency transaction, and the amount of foreign currency purchase contracts for the foreign currency against the foreign currency transaction translated in the exchange rate as of December 31, 2011 and 2010, and January 1, 2010. The Group recognized gain on trading derivatives of 6 million during the year ended December 31, 2011 (2010 : 555 million). 52
  • 55. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 b. Derivatives designated as cash flow hedges Derivatives designated as cash flow hedges are as follows:(in millions of Korean won) December 31, 2011 December 31, 2010 January 1, 2010 Type Notional Notional Notional principal Assets Liabilities principal Assets Liabilities principal Assets Liabilities amounts amounts amountsInterest rate swaps 360,000 12 1,331 280,000 9 2,073 1,185,000 - 11,926Currency swaps 7,081,241 475,366 56,765 6,616,568 521,449 94,495 6,699,386 1,206,064 66,248 7,441,241 475,378 58,096 6,896,568 521,458 96,568 7,884,386 1,206,064 78,174 The maximum period the Company is exposed to the variability in future cash flows arising from derivatives designated as cash flow hedges, is expected to be until August 18, 2016. There is no ineffective portion recognized related to cash flow hedge for the years ended December 31, 2011 and 2010.19. Shareholders’ Equity a. Capital stock The Company is authorized to issue 500,000,000 shares. As of December 31, 2011, the Company has 99,307,435 shares issued and outstanding with a par value of 5,000 per share. b. Legal reserve The Korean Commercial Law requires the Company to appropriate, as a legal reserve, an amount equal to a minimum of 10% of annual cash dividends declared, until the reserve equals 50% of its issued capital stock. This reserve is not available for the payment of cash dividends, but may be transferred to capital stock or used to reduce accumulated deficit, if any. c. Discretionary reserve The Company appropriates a reserve in accordance with Electronic Financial Transactions Act and a reserve for business rationalization in accordance with Restriction of Special Taxation Act. d. Legal reserve and discretionary reserve Legal reserve and discretionary reserve are as follows: (in millions of Korean won) December 31 December 31, January 1, Type 2011 2010 2010 Legal reserve Revenue reserve 79,699 48,914 28,556 53
  • 56. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 Reserve for electronic financial 100 100 100 Discretionary transactions reserve Reserve for business rationalization 74 74 74 174 174 174 Unappropriated retained earnings (Expected reserve for bad loans December 31, 2011: 270,220 million 1,723,271 1,350,925 1,289,456 December 31, 2010: 208,187 million January 1, 2010: - million) 1,803,144 1,400,013 1,318,186 e. Reserve for bad loans If allowances for doubtful accounts do not meet the minimum amount calculated in accordance with allowance reserve standards of Regulation on Supervision under Article 11 of the Specialized Credit Financial Business Law, the Group appropriates a reserve for bad loans in an amount more than the difference between the allowance and the requirement. (1) Appropriated and expected reserves for bad loans as of December 31, 2011 and 2010, are as follows: (in millions of Korean won) Type 2011 2010 Appropriated reserve for bad loans - - Expected reserve for bad loans 270,220 208,187 270,220 208,187 (2) Transfer to reserve for bad loans and net income in consideration of effect of changes in reserve for bad loans for the year ended December 31, 2011, are as follows: (in millions of Korean won) Type Amounts Net income 507,404 1 Transfer to reserve for bad loans (62,033) Net income in consideration of changes in reserve for 2 445,371 bad loans Net income per share in consideration of changes in 4,485 reserve for bad loans (In won) 1 The amount transferred to reserve for bad loans was the difference between the balance of reserve for bad loans as of December 31, 2011, and the balance as of December 31, 2010. 2 Net income in consideration of changes in reserve for bad loans is not accordance with K-IFRS, and the amount is the sum of the transfer to reserve for bad loans before income tax and net income. 54
  • 57. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 f. Dividends The Group does not plan to declare dividends for fiscal year of 2011, and dividends for fiscal year of 2010 are as follows : (in millions of Korean won) Type Amounts Number of shares eligible for 99,307,435 dividends Interim Par value for share (won) 5,000 dividends Dividends rate 41.00% Dividends 203,580 Number of shares eligible for 99,307,435 dividends Year-end Par value for share (won) 5,000 dividends Dividends rate 21.00% Dividends 104,273 Total dividends 307,853 Net income 488,986 Dividends payout ratio (Dividends/ Net income) 62.96%20. Net Interest Income Net interest income for the years ended December 31, 2011 and 2010, is as follows: (in millions of Korean won) Type 2011 2010 Interest income Cash and deposits 41,991 25,755 Loans receivable 1,497,749 1,342,333 Installment financial assets 429,931 485,241 1 Lease receivables 216,551 175,901 Other² 385 1,207 2,186,607 2,030,437 Interest expenses Borrowings 103,222 102,918 Debentures 804,002 743,545 Other² 48,815 43,717 956,039 890,180 Net interest income 1,230,568 1,140,257 1 Includes amortization of present value discount for lease guarantee. ²Amortization of present value discount using the effective interest method. 55
  • 58. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 201021. Net Commission Income Net commission income for the years ended December 31, 2011 and 2010, is as follows: (in millions of Korean won) Type 2011 2010 Commission income Loans receivable 50,808 45,089 Installment financial assets 6,316 6,961 Lease receivables 121,879 83,504 179,003 135,554 Commission expenses Lease expenses 13,521 10,017 Net Commission Income 165,482 125,53722. General and Administrative Expenses General and administrative expenses for the years ended December 31, 2011 and 2010, are as follows: (in millions of Korean won) Type 2011 2010 Payroll 154,968 141,156 Severance benefits 16,139 13,318 Fringe benefits 33,285 31,884 Depreciation 22,957 19,819 Advertising 52,957 78,514 Travel and transportation 4,658 4,000 Communication 13,145 12,396 Water, lighting and heating 9,104 8,557 Outsourcing service 47,281 31,941 commission Commission 17,613 16,940 Sales commission 69,357 77,780 Amortization 8,359 7,028 Outsourcing service charges 68,479 65,408 Rent 34,699 32,693 Other expenses 50,366 44,519 603,367 585,953 56
  • 59. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 201023. Earnings Per Share a. Basic earnings per share Basic earnings per share attributable to common stock for the years ended December 31, 2011 and 2010, is as follows: Type 2011 2010 (1) Net income attributable to common stock 507,403,611,674 488,985,560,819 (In won) (2) Weighted average of number of outstanding 99,307,435 99,307,435 common shares (3) Basic earnings per share (In won) (1)÷(2) 5,109 4,924 b. Diluted earnings per share As there was no discontinued operation during the years ended December 31, 2011 and 2010, basic earnings per share is the same as basic earnings per share from continuing operations. There are no potential common stocks as of December 31, 2011 and 2010. Therefore, the diluted earnings per share is the same as basic earnings per share for years ended December 31, 2011 and 2010.24. Other Comprehensive Income Other comprehensive income for the years ended December 31, 2011 and 2010, consists of: (in millions of Korean won) 2011 Changes Reclassifi- Income Beginning Ending Type cation of Other tax balance balance profit or changes effects loss Gain(Loss) on valuation of available-for-sale 512 - (1,118) 218 (388) financial assets Accumulated comprehensive expense of equity 24 - 23 - 47 method investees Loss on valuation of derivatives (67,925) 2,942 28,563 (13,737) (50,157) Gain on exchange differences of foreign 17 - (360) - (343) operations (67,372) 2,942 27,108 (13,519) (50,841) (in millions of Korean won) 2010 Type Beginning Changes Income Ending 57
  • 60. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 balance Reclassifi- tax balance cation of Other effects profit or changes loss Gain(Loss) on valuation of available-for-sale (1,835) - 3,010 (663) 512 financial assets Accumulated comprehensive expense of equity (69) - 113 (20) 24 method investees Loss on valuation of derivatives (3,566) 2,995 (84,526) 17,172 (67,925) Gain on exchange differences of foreign - - 17 - 17 operations (5,470) 2,995 (81,386) 16,489 (67,372)25. Cash Flow Statement a. Cash and cash equivalents Cash and cash equivalents in cash flow statements consisting of cash in hand, deposits and short- term money-market instruments are as follows: (in millions of Korean won) Type December 31, December 31, January 1, 2011 2010 2010 Cash 4 4 7 Ordinary deposits 135,706 182,321 235,167 Current deposits 1,923 3,241 1,343 Short-term financial 1,317,800 1,039,300 754,319 instruments 1,455,433 1,224,866 990,836 b. Cash generated from operations Cash generated from operations for the years ended December 31, 2011 and 2010 are as follows:(in millions of Korean won) Type 2011 2010Net income 507,404 488,985Adjustments Net interest expenses 913,663 863,216 Income tax 155,988 150,226 Gain on disposal of available-for-sale financial (1,589) (3,367) assets Gain on loans receivable (40,806) (53,334) Gain on installment financing (93,230) (99,316) 58
  • 61. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 Gain on leased assets (1,234) (846) Gain on foreign exchange translations (21,235) (188,938) Dividends (5,990) (6,742) Gain on valuation of derivatives (134,197) (92,630) Other operating income (36,214) (14,681) Gain on equity method valuation (3,968) (9,466) Lease expenses 361,521 486,184 Bad debts expense 354,220 145,478 Loss on foreign exchange translations 134,211 92,639 Severance benefits 16,186 13,316 Depreciation 22,956 19,819 Amortization of intangible assets 8,358 7,028 Loss on valuation of derivatives 21,229 188,949 Other operating expenses 17 33,741 1,649,886 1,531,276Changes in operating assets and liabilities Decrease in available-for-sale financial 2,597 1,591 assets (Increase) in loans receivable (1,025,499) (1,760,261) Decrease(Increase) in installment financing 15,641 (316,647) receivables (Increase) in finance lease receivables (736,817) (712,184) Decrease in canceled leased receivables 7,382 5,330 (Increase) in operating leased assets (195,802) (337,235) Decrease in canceled leased assets 220,857 147,679 Decrease in deferred loan origination fees and costs 105,653 145,856 (Increase) in present value discounts (38,912) (42,840) Increase in allowance for bad debts 110,759 129,883 Decrease(Increase) in non-trade receivables (17,010) 7,388 Increase in accrued revenues (8,167) (10,273) Decrease (increase) in advance payments 9,093 (23,606) Decrease (increase) in prepaid expenses (8,248) 7,389 Decrease(Increase) in derivative assets (13,769) 79,832 Increase (decrease) in non-trade payables 13,035 81,062 (Decrease) in accrued expenses (241) (787) Increase(decrease) in unearned revenue (8,244) 439 Increase in withholdings 2,201 1,493 Increase in leasehold deposits received 32,896 83,789 Payment of severance benefits (5,704) (14,115) Decrease(increase) in plan assets (1,130) 2,219 Transfer of severance benefits to related parties (678) 1,081 Increase in derivative liabilities 13,778 4,353 (1,526,329) (2,518,564) 630,961 (498,303) 59
  • 62. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 c. Investing and financing activities not affecting cash flows Significant investing and financing activities not affecting cash flows for the years ended December 31, 2011 and 2010 are as follows: (in millions of Korean won) Type 2011 2010 Write-off of financial receivables 368,632 224,875 Transferred from construction in progress to 13,451 15,875 intangible assets Transferred to legal reserve 30,785 20,35826. Commitments and Contingencies a. Credit Line Agreement Details of credit line agreements of the Group are as follows: (in millions of Korean won) December December Type Financial institutions 31, 2011 31, 2010 Limit of overdraft Shinhan Bank and 2 other banks 41,500 51,500 Limit of daily loan SC Jeil Bank and 2 other banks 45,000 49,400 Limit of purchasing - - 10,000 commercial paper Limit of credit line (SPC) - - 61,200 86,500 172,100 b. Credit Facility Agreement The Group has revolving credit facility agreements with several financial institutions. Details of credit facility agreements are as follows: (in millions of Korean won) Financial institutions December 31, 2011 December 31, 2010 1 Euro currency for Euro currency for GE Capital Corporation USD 1 billion USD 1 billion Mizuho Corporate Bank, Seoul Branch 65,000 65,000 JPMorgan, Seoul Branch 80,000 34,000 2 Citibank, Seoul 50,000 50,000 Standard Chartered, Seoul Branch 50,000 50,000 Societe Generale, Seoul Branch 55,000 - Bank of China, Seoul Branch 30,000 - DBS Bank, Seoul Branch 50,000 - Credit Agricole, Seoul 26,000 - RBS, Seoul 110,000 - 60
  • 63. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 ING Bank, Seoul 100,000 - KDB Bank 30,000 - Kyobo Life Insurance Co., Ltd 50,000 - CITIBANK, N.A. USD 200 million - The Bank of TOKYO MITSUBISHI UFJ., USD 200 million - Ltd 1 GE Capital Corporation (the “GECC”) and Hyundai Motor Company entered into a support agreement which includes the provision of debt-to-equity swap for the unredeemed amount and the put/call option of the converted stocks. Comprehensive limit including overdraft of ₩ 10 billion. 2 There has been no usage of the above credit facility agreements as of December 31, 2011 and December 31, 2010. c. Guarantees Details of guarantees involving third parties are as follows: (in millions of Korean won) December December Guarantor Details 31, 2011 31, 2010 Hyundai Motor Joint liabilities on finance lease 1 216 3,092 Company receivables Joint liabilities on machinery Hyundai Wia installment financing receivables 1 1,674 14,730 Seoul Guarantee Guarantee for debt collection deposit, 186,062 204,560 Insurance Co., Ltd. others 1 The amounts represent the guaranteed balances as of December 31, 2011 and 2010, as defined under the joint liability agreement. The Group carries residual value guarantee insurance with Hyundai Marine & Fire Insurance Co., Ltd. against loss in case unredeemed mortgage loans exceed recoverable amount from the collateral of the loans. The receivables balance carried insurance and residual value guaranteed by the insurance are as follows: (in millions of Korean won) Type December 31, 2011 December 31, 2010 Receivables balance 865,834 1,102,921 The amount of residual value guaranteed by 284,470 369,321 insurance d. Pending significant litigations Details of pending significant litigations involving the Group as of December 31, 2011, are as follows: 61
  • 64. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 (in millions of Korean won) Type Number of litigations Amount of litigations Plaintiff 4 1,082 Defendant 5 157 In addition, the Group has filed lawsuits against a number of debtors to collect receivables. As of report date, the outcome of these cases cannot be reasonably determined and no adjustments are reflected on the consolidated financial statements of the Group as of December 31, 2011.27. Related Party Transactions a. Relationships between parents and subsidiaries The parent company is Hyundai Motor Company. Related parties include associates, joint ventures, post-employment benefit plans, members of key management personnel and entities which the Group controls directly or indirectly, has joint control or significant influence over them. b. Transaction between related parties Significant transactions, which occurred in the normal course of business with related companies for the years ended December 31, 2011 and 2010, are as follows: (in millions of Korean won) 2011 2010 Purchases Disposal Purchases Disposal Parent Company Hyundai Motor Company 905,992 - 839,417 - Others Kia Motors Corp. 220,001 - 289,834 - Hyundai Autoever Corp. 6,471 - 7,251 - Hyundai Glovis Co.,Ltd. - 63,800 - 30,321 Hyundai Card Co., Ltd. 147,915 - 70,612 - Hyundai Commercial 27,586 - 10,658 - 401,973 63,800 378,355 30,321 1,307,965 63,800 1,217,772 30,321 Revenues and expenses arising from transactions with related parties for the years ended December 31, 2011 and 2010, and receivables and payables as of December 31, 2011 and December 31, 2010, are as follows: (in millions of Korean won) December 31, 2011 December 31, 2010 Receivables Payables Receivables Payables Parent Company Hyundai Motor Company 3,924 7,279 5,188 9,662 62
  • 65. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010Others Kia Motors Corp. 19,431 17,867 422 10,643 Hyundai Card Co., Ltd. 1,165 137,262 1,681 106,061 Hyundai Commercial 46 4,268 24 2,346 Other related parties 12,844 - 27,315 10 33,486 159,397 29,442 119,060 37,410 166,676 34,630 128,722 (in millions of Korean won) 2011 2010 Revenues Expenses Revenues ExpensesParent Company Hyundai Motor Company 15,803 2,453 27,616 2,073Others Kia Motors Corp. - 5,090 1,794 626 Hyundai Card Co., Ltd. 26,914 15,600 21,428 18,053 Hyundai Commercial 1,075 922 772 759 Other related parties 15,881 33,353 3,177 41,510 43,870 54,965 27,171 60,948 59,673 57,418 54,787 63,021 The Group has been provided with a credit facility by GECC (Note 26). c. Key management compensation Compensation for key management for the years ended December 31, 2011 and 2010, consists of: (in millions of Korean won) Type 2011 2010 Short-term employee benefits 10,786 7,021 Severance benefits 2,553 1,203 The key management above consists of directors (including nonpermanent directors), who have significant authority and responsibilities for planning, operating and controlling the Group. 63
  • 66. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010 28. Financial Risk Management The Group is exposed to credit risk, liquidity risk and market risk (exchange and rate risk). In order to manage these factors, the Group operates risk management policies and programs that monitor closely and respond to each of the risk factors. The Group uses derivatives to manage specific risks. 28.1 Credit risk a. Exposure to credit risk Exposures to credit risk are as follows: (in millions of Korean won) Type December 31, December 31, January 1, 2011 2010 2010 Cash and deposits 1,455,438 1,224,887 992,767 Available-for-sale securities 2,239 3,372 3,114 Loans receivable 10,848,063 10,218,438 8,686,212 Installment financial assets 5,021,194 5,056,782 4,766,902 Lease receivables 2,278,594 1,778,438 1,253,804 Non-trade receivables 84,983 72,393 80,754 Accrued revenue 113,980 111,806 98,939 Leasehold deposits 35,929 31,955 30,473 Derivative assets 475,431 521,530 1,278,570 Unused loan commitments 1,062,198 1,071,419 635,461 21,378,049 20,091,020 17,826,996 b. Credit quality of financial assets Credit quality of financial assets exposed to credit risk are as follows: (in millions of Korean won) December 31, 2011 December 31, 2010 January 1, 2010 Type Normal Past due Impaired Normal Past due Impaired Normal Past due ImpairedCash and deposits 1,455,438 - - 1,224,887 - - 992,767 - -Available-for- sale 2,239 - - 3,372 - - 3,114 - - securitiesFinancial receivables Loans receivable 10,231,927 525,603 90,532 9,638,971 499,519 79,948 8,145,096 461,750 79,366 Installment 4,884,452 133,172 3,570 4,881,495 168,567 6,720 4,534,141 225,884 6,877 financial assets Lease receivables 2,235,881 38,633 4,080 1,724,271 51,037 3,130 1,216,064 36,756 984 17,352,260 697,408 98,182 16,244,737 719,123 89,798 13,895,301 724,390 87,227Non-trade 84,983 - - 72,393 - - 80,754 - - receivablesAccrued revenue 113,980 - - 111,806 - - 98,939 - -Leasehold deposits 35,929 - - 31,955 - - 30,473 - - 64
  • 67. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010Derivative assets 475,431 - - 521,530 - - 1,278,570 - -Unused loan 1,062,198 - - 1,071,419 - - 635,461 - - commitments 20,582,458 697,408 98,182 19,282,099 719,123 89,798 17,015,379 724,390 87,227 (1) Financial receivables neither past due nor impaired Credit quality according to internal credit rating of financial receivables which are neither past due nor impaired are as follows: (in millions of Korean won) December 31, 2011 Type Gross amount Allowance Book value First-rate 2,451,862 (1,654) 2,450,208 Second-rate 5,018,855 (7,250) 5,011,605 Third-rate 6,201,583 (32,518) 6,169,065 Fourth-rate 495,853 (7,126) 488,727 Fifth-rate 713,174 (21,651) 691,523 Sixth-rate 83,792 (13,834) 69,958 No rating 2,561,475 (90,301) 2,471,174 17,526,594 (174,334) 17,352,260 (in millions of Korean won) December 31, 2010 Type Gross amount Allowance Book value First-rate 1,398,614 (598) 1,398,016 Second-rate 4,973,898 (7,823) 4,966,075 Third-rate 6,200,694 (32,099) 6,168,595 Fourth-rate 1,002,305 (16,129) 986,176 Fifth-rate 986,277 (32,442) 953,835 Sixth-rate 485,733 (51,885) 433,848 No rating 1,360,428 (22,236) 1,338,192 16,407,949 (163,212) 16,244,737 (in millions of Korean won) January 1, 2010 Type Gross amount Allowance Book value First-rate 2,995,272 (4,538) 2,990,734 Second-rate 3,045,099 (9,804) 3,035,295 Third-rate 2,388,224 (13,126) 2,375,098 Fourth-rate 1,953,147 (22,306) 1,930,841 Fifth-rate 471,802 (8,173) 463,629 Sixth-rate 799,876 (27,892) 771,984 No rating 2,359,268 (31,548) 2,327,720 65
  • 68. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 14,012,688 (117,387) 13,895,301 The Group classifies financial receivables into six internal credit rating based on the rating criteria and the characteristic of receivables. The internal credit rating is assessed based on the expected probability of default in the previous month. Meanwhile, some financial receivables are not given credit rating for reason of lacking in research data such as information on new loan accounts of the current month or requiring additional management. (2) Financial receivables past due but not impaired Financial receivables past due but not impaired as of are as follows:(in millions of Korean won) December 31, 2011 Less than Between Between Types Total 1 month 1 ~ 2 months 2~3 monthsLoans receivable 429,678 82,150 49,813 561,641Installment financial assets 126,482 11,124 4,379 141,985Lease receivables 34,481 3,727 1,530 39,738 590,641 97,001 55,722 743,364 Allowance (21,391) (9,466) (15,099) (45,956) Book value 569,250 87,535 40,623 697,408 (in millions of Korean won) December 31, 2010 Less than Between Between Types Total 1 month 1 ~ 2 months 2~3 monthsLoans receivable 426,165 62,167 35,782 524,114Installment financial assets 158,040 10,620 3,179 171,839Lease receivables 47,422 2,978 1,877 52,277 631,627 75,765 40,838 748,230 Allowance (14,104) (5,427) (9,576) (29,107) Book value 617,523 70,338 31,262 719,123 (in millions of Korean won) January 1, 2010 Less than Between Between Types Total 1 month 1 ~ 2 months 2~3 monthsLoans receivable 407,590 51,268 25,930 484,788Installment financial assets 208,622 17,736 4,927 231,285Lease receivables 34,286 2,593 982 37,861 650,498 71,597 31,839 753,934 Allowance (18,765) (6,017) (4,762) (29,544) 66
  • 69. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010 Book value 631,733 65,580 27,077 724,390 (3) Impaired financial receivables (in millions of Korean won) December 31, 2011 Type Gross amount Allowance Book valueLoans receivable 194,964 (104,432) 90,532Installment financial assets 12,109 (8,539) 3,570Lease receivables 15,695 (11,615) 4,080 222,768 (124,586) 98,182 (in millions of Korean won) December 31, 2010 Type Gross amount Allowance Book valueLoans receivable 138,877 (58,929) 79,948Installment financial assets 12,623 (5,903) 6,720Lease receivables 11,355 (8,225) 3,130 162,855 (73,057) 89,798 (in millions of Korean won) January 1, 2010 Type Gross amount Allowance Book valueLoans receivable 139,809 (60,443) 79,366Installment financial assets 15,389 (8,512) 6,877Lease receivables 6,077 (5,093) 984 161,275 (74,048) 87,227 (4) Credit quality of other assets Credit quality according to external credit rating of other assets, excluding financial receivables, which are neither past due nor impaired are as follows: (in millions of Korean won) December 31, December 31, January 1, 1 Cash and deposits 2011 2010 2010 AAA 769,485 767,370 645,270 AA+ 175,139 11,384 16,857 AA 90,000 140,000 110,000 AA- 100,000 95,000 80,000 A+ 190,000 150,000 30,000 A 100,000 - 50,000 A- - 20,000 20,039 67
  • 70. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 No rating 30,814 41,133 40,598 1,455,438 1,224,887 992,764 1 The average external credit rating of three domestic credit rating agencies is used. (in millions of Korean won) December 31, December 31, January 1, 2 Derivative assets 2011 2010 2010 AA - 19,326 14,252 AA- 20,216 94,114 247,567 A+ 275,467 267,156 597,466 A 150,554 123,027 281,680 A- 29,194 - - BBB+ - 17,907 131,905 BBB - - 5,700 475,431 521,530 1,278,570 2 Derivative assets are classified based on S&P credit rating. (in millions of Korean won) Unused loan December 31, December 31, January 1, commitments 2011 2010 2010 First-rate 27,828 7,590 42 Second-rate 15,757 5,783 1,097 Third-rate 782,238 633,715 428,845 Fourth-rate 163,369 246,446 117,527 Fifth-rate 31,548 87,848 46,162 Sixth-rate 2,764 21,789 6,048 No rating 38,694 68,248 35,740 1,062,198 1,071,419 635,461 c. Assets pledges as collateral The assets pledged as collateral for financial receivables are as follows: (in millions of Korean won) December 31, 2011 Unimpaired Type Impaired Total Delinquent Non-delinquent Total financial 98,182 697,408 17,352,260 18,147,850 receivables Collateralized assets Collateralized 46,084 314,978 4,562,891 4,923,953 vehicles Collateralized real 1,293 5,578 122,428 129,299 68
  • 71. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010 estate 47,377 320,556 4,685,319 5,053,252 (in millions of Korean won) December 31, 2010 Unimpaired Type Impaired Total Delinquent Non-delinquent Total financial 89,798 719,123 16,244,737 17,053,658 receivables Collateralized assets Collateralized 25,580 335,495 4,576,957 4,938,032 vehicles Collateralized 328 2,739 127,734 130,801 real estate 25,908 338,234 4,704,691 5,068,833 (in millions of Korean won) January 1, 2010 Unimpaired Type Impaired Total Delinquent Non-delinquent Total financial 87,227 724,390 13,895,301 14,706,918 receivables Collateralized assets Collateralized 24,015 342,834 4,041,776 4,408,625 vehicles Collateralized 136 1,389 60,713 62,238 real estate Collateralized - - 2 2 other assets 24,151 344,223 4,102,491 4,470,865 d. Credit risk concentration Credit risk concentration of financial receivables by debtors are as follows: (in millions of Korean won) December 31, 2011 Type Including allowance Ratio Allowance Book valueIndividual 15,625,565 84.5% (308,056) 15,317,509Corporate Finance 43,581 0.2% (484) 43,097 Manufacturing 881,447 4.8% (11,473) 869,974 Service 847,200 4.6% (9,693) 837,507 Public 7,545 0.0% (35) 7,510 Others 1,087,388 5.9% (15,135) 1,072,253 2,867,161 15.5% (36,820) 2,830,341 69
  • 72. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010 18,492,726 100.0% (344,876) 18,147,850(in millions of Korean won) December 31, 2010 Type Including allowance Ratio Allowance Book value Individual 14,902,141 86.0% (236,824) 14,665,317 Corporate Finance 38,098 0.2% (296) 37,802 Manufacturing 737,970 4.3% (10,444) 727,526 Service 721,722 4.2% (6,854) 714,868 Public 6,270 0.1% (54) 6,216 Others 912,833 5.2% (10,904) 901,929 2,416,893 14.0% (28,552) 2,388,341 17,319,034 100.0% (265,376) 17,053,658(in millions of Korean won) January 1, 2010 Type Including allowance Ratio Allowance Book value Individual 13,036,416 87.2% (197,359) 12,839,057 Corporate Finance 29,513 0.2% (260) 29,253 Manufacturing 613,349 4.1% (7,351) 605,998 Service 545,776 3.7% (6,466) 539,310 Public 4,034 0.1% (18) 4,016 Others 698,810 4.7% (9,526) 689,284 1,891,482 12.8% (23,621) 1,867,861 14,927,898 100.0% (220,980) 14,706,918 28.2 Liquidity risk Cash flows of financial liabilities based on remaining contractual maturities are as follows: (in millions of Korean won) December 31, 2011 Immediate Up to 3 3 months to Over 5 Type 1 to 5 years Total payment months 1 year yearsBorrowings - 673,265 665,329 1,005,538 - 2,344,132Debentures - 1,690,963 4,034,987 10,540,078 1,018,160 17,284,188Other liabilities 4,729 290,381 188,498 625,188 2 1,108,798Net settlement derivative - 61 (264) (1,175) - (1,378) liabilities 70
  • 73. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010Gross settlement derivative liabilities Cash inflow - (19,064) (499,630) (1,767,979) - (2,286,673) Cash outflow - 21,679 534,412 1,834,948 - 2,391,039 4,729 2,657,285 4,923,332 12,236,598 1,018,162 20,840,106 (in millions of Korean won) December 31, 2010 Immediate Up to 3 3 months to Over 5 Type 1 to 5 years Total payment months 1 year yearsBorrowings - 1,024,716 1,130,162 557,869 - 2,712,747Debentures - 958,326 3,728,696 10,882,286 408,872 15,978,180Other liabilities 4,545 351,093 162,139 548,020 - 1,065,797Net settlement derivative - 1,353 1,211 (68) - 2,496 liabilitiesGross settlement derivative liabilities Cash inflow - (10,023) (400,276) (1,565,978) - (1,976,277) Cash outflow - 12,849 427,425 1,644,488 - 2,084,762 4,545 2,338,314 5,049,357 12,066,617 408,872 19,867,705 The above amounts including the principal and future interest payments are contractual undiscounted cash flows and are not equal to the amounts in the statement of financial position based on the discounted cash flows. The unused agreement of limited loan products amounts to a maximum of 1,062,198 million as of December 31, 2011 (2010: 1,071,419 million). The unused loan agreement above may have to be paid immediately on customers’ request. 28.3 Market risk a. Interest rate risk The Group manages the interest rate risk through Value at Risk(VaR), Earning at Risk(EaR) measurement and Interest Rate Gap Analysis that analyze the maturity between the interest revenue-generating assets and the interest-bearing liabilities. VaR is calculated using the standard framework of the Bank for International Settlements(BIS). The VaR model uses the proxy of modified duration per expiration interval proposed by the BIS and expected interest rate volatility of expiration interval by reason of interest rate fluctuation of 100bp. 71
  • 74. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 The interest rate risk using VaR are as follows: (in millions of Korean won) Type December 31, December 31, January 1, 2011 2010 2010 Interest rate VaR 111,625 78,614 52,510 VaR is a commonly used market risk measurement techniques but has some limitations. VaR estimates the expected loss under the specific reliability based on the historical changes in the market data. However, the past changes in market cannot reflect all conditions and environments that may occur in the future. Therefore, in the process of calculating, the timing and size of the actual loss may vary according to changes in assumptions. b. Foreign exchange risk The Group holds fianancial instruments and borrowings that are denominated in foreign currencies and is exposed to foreign exchange risk arising from various currency exposures. The Group undertakes hedging strategies with hedge accounting being applied to manage these foreign exchange risks. Foreign exchange position exposures of the Group are as follows: (in millions of Korean won) Currency December 31, December 31, January 1, 2011 2010 2010 Cash and deposits USD 11 14 24 EUR 2,246 721 43 RUB 833 1 25 Others 60 37 30 3,150 773 122 Borrowings and Debentures USD 4,253,083 3,802,165 3,366,191 EUR 978,635 991,408 1,133,981 MYR 475,478 497,145 291,393 JPY 519,806 514,125 1,187,051 CHF 796,816 426,304 - Others 57,423 150,671 13,063 7,081,241 6,381,818 5,991,679 The Group’s exposure to foreign exchange risk is hedged by derivatives. Therefore, foreign exchange risk of the Group is not significant. 72
  • 75. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 201028.4 Capital risk management The objective of the Group’s capital management is to maintain sound capital structure. The Group uses the adjusted capital adequacy ratio under the Supervision of Specialized Credit Financial Business Law as a capital management indicator. This ratio is calculated as adjusted total assets divided by adjusted equity. Adjusted capital adequacy ratios of the Group are as follows: (in millions of Korean won) Type December 31, December 31, January 1, 2011 2010 2010 Adjusted total assets (1) 20,164,623 19,295,545 18,114,010 Adjusted equity (2) 2,621,593 2,243,382 2,262,984 Adjusted capital adequacy ratio (2)÷(1) 13.00% 11.63% 12.49% The above adjusted capital adequacy ratio is calculated according to Supervision of Specialized Credit Financial Business Law. 73

×