Audit Report: Hyundai Commercial 1Q12 (English)

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Audit Report: Hyundai Commercial 1Q12 (English)

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Audit Report: Hyundai Commercial 1Q12 (English)

  1. 1. Hyundai Commercial, Inc. andSubsidiariesInterim Consolidated Financial StatementsMarch 31, 2012
  2. 2. Hyundai Commercial, Inc. and SubsidiariesIndexMarch 31, 2012Report on Review of Interim Financial Statements ..........................................................................1-2Interim Consolidated Financial StatementsInterim Consolidated Statements of Financial Position .........................................................................3-5Interim Consolidated Statements of Comprehensive Income................................................................6-7Interim Consolidated Statements of Changes in Equity ....................................................................... 8-9Interim Consolidated Statements of Cash Flows ....................................................................................10Notes to the Interim Consolidated Financial Statements...................................................................11-32
  3. 3. Report on Review of Interim Financial StatementsTo the Shareholders and Board of Directors ofHyundai Commercial, Inc.Reviewed Financial StatementsWe have reviewed the accompanying interim consolidated financial statements of HyundaiCommercial, Inc. (the Company) and its subsidiaries. These financial statements consist ofconsolidated statement of financial position of the Company and its subsidiaries as of March31, 2012, and the related consolidated statements of comprehensive income, changes inequity and cash flows for the three-month periods ended March 31, 2012 and 2011, and asummary of significant accounting policies and other explanatory notes, expressed in Koreanwon.Managements Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these interimconsolidated financial statements in accordance with the International Financial ReportingStandards as adopted by the Republic of Korea (Korean IFRS) 1034, Interim FinancialReporting, and for such internal control as management determines is necessary to enablethe preparation of interim consolidated financial statements that are free from materialmisstatement, whether due to fraud or error.Auditors ResponsibilityOur responsibility is to issue a report on these interim consolidated financial statements basedon our reviews.We conducted our reviews in accordance with the quarterly and semi-annual reviewstandards established by the Securities and Futures Commission of the Republic of Korea. Areview of interim financial information consists of making inquiries, primarily of personsresponsible for financial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted in accordance withauditing standards generally accepted in the Republic of Korea and consequently does notenable us to obtain assurance that we would become aware of all significant matters thatmight be identified in an audit. Accordingly, we do not express an audit opinion. 1
  4. 4. ConclusionBased on our reviews, nothing has come to our attention that causes us to believe theaccompanying interim consolidated financial statements do not present fairly, in all materialrespects, in accordance with the Korean IFRS 1034, Interim Financial Reporting.OthersWe audited the consolidated statement of financial position as of December 31, 2011, and therelated statements of comprehensive income, changes in equity and cash flows for the yearended December 31, 2011, in accordance with auditing standards generally accepted in theRepublic of Korea and expressed an unqualified opinion on those statements dated March 14,2012. The statement of financial position as of December 31, 2011, presented herein forcomparative purposes, is consistent, in all material respects, with the above audited statementof financial position as of December 31, 2011.Review standards and their application in practice vary among countries. The procedures andpractices used in the Republic of Korea to review such interim consolidated financialstatements may differ from those generally accepted and applied in other countries.Accordingly, this report is for use by those who are informed about Korean review standardsand their application in practice.Seoul, KoreaMay 23, 2012 This report is effective as of May 23, 2012, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying interim consolidated financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any. 2
  5. 5. Hyundai Commercial, Inc. and SubsidiariesInterim Consolidated Statements of Financial PositionMarch 31, 2012 and December 31, 2011(In Korean won) March 31, December 31, 2012 2011 Assets Cash and deposits Cash and cash equivalents (Note 20) 314,495,886,665 276,009,118,714 Deposits 9,000,000 9,000,000 314,504,886,665 276,018,118,714 Securities (Note 3) Available-for-sale securities 25,249,021,460 26,848,232,720 Equity method investment 262,577,811,893 147,539,965,125 287,826,833,353 174,388,197,845 Loans receivable (Notes 4, 5, 6 and 7) Factoring 205,850,000 575,109,250 Allowance for doubtful accounts (2,851,640) (3,163,206) Loans 2,507,457,406,246 2,408,864,450,819 Allowance for doubtful accounts (18,450,441,678) (18,165,997,032) 2,489,209,962,928 2,391,270,399,831 Installment financial assets (Notes 4, 5, 6 and 7) Auto installment financing receivables 379,370,074,249 402,435,731,643 Allowance for doubtful accounts (2,411,441,310) (2,700,210,858) Durable goods installment financing receivables 55,443,932,968 68,855,356,831 Allowance for doubtful accounts (382,174,541) (475,143,590) 432,020,391,366 468,115,734,026 Lease receivables (Note 8) 91,046,771,590 84,053,398,124 Property and equipment (Note 9) Vehicles 113,102,040 114,731,133 Fixtures and furniture 2,212,202,385 2,382,936,140 Others 410,999,664 410,999,664 2,736,304,089 2,908,666,937 3
  6. 6. Hyundai Commercial, Inc. and SubsidiariesInterim Consolidated Statements of Financial PositionMarch 31, 2012 and December 31, 2011(In Korean won) March 31, December 31, 2012 2011 Other assets Intangible assets (Note 10) ₩ 2,854,014,129 ₩ 3,072,304,012 Non-trade receivables 26,232,243,316 29,912,441,707 Allowance for doubtful accounts (174,314,124) (218,049,341) Accrued revenues 15,671,378,095 18,075,550,289 Allowance for doubtful accounts (107,191,099) (112,338,978) Advance payments 430,437,762 635,365,367 Prepaid expenses 3,000,797,719 3,383,242,667 Leasehold deposits 10,739,617,155 9,963,176,364 Derivative assets (Note 16) 1,380,604,087 1,369,008,885 Others 3,885,995,860 3,885,995,860 63,913,582,900 69,966,696,832 Total assets ₩3,681,258,732,891 ₩3,466,721,212,309Liabilities and EquityBorrowings Borrowings (Note 11) ₩ 730,475,846,697 ₩ 725,523,723,026 Debentures (Note 12) 2,141,877,642,380 1,937,737,884,950 Securitized debts (Note 13) 359,435,856,941 359,361,741,945 3,231,789,346,018 3,022,623,349,921Other liabilities Non-trade payables 8,382,323,422 7,907,799,257 Accrued expenses 22,932,992,519 26,857,795,596 Unearned revenue 4,331,133,491 4,869,902,233 Advances 237,543,296 231,248,416 Withholdings 6,506,859,101 3,073,415,790 Accrued income taxes 17,386,439,595 14,047,411,098 Defined benefit liability (Note 14) 2,029,044,421 2,232,465,895 Leasehold deposits received 19,778,332,355 16,493,405,207 Deferred income tax liabilities 17,538,855,085 16,336,206,889 Derivative liabilities (Note 16) 2,659,351,141 2,691,394,681 101,782,874,426 94,741,045,062 Total liabilities 3,333,572,220,444 3,117,364,394,983 4
  7. 7. Hyundai Commercial, Inc. and SubsidiariesInterim Consolidated Statements of Financial PositionMarch 31, 2012 and December 31, 2011(In Korean won) March 31, December 31, 2012 2011Equity Common stock (Notes 1 and 17) 100,000,000,000 100,000,000,000 Preferred stock 25,000,000,000 25,000,000,000 125,000,000,000 125,000,000,000 Capital surplus(Note 17) Paid-in capital in excess of par value 74,608,059,537 74,608,059,537 Accumulated other comprehensive income and expenses (Note 19) Loss on valuation of derivatives (370,498,677) (1,082,947,513) Gain on valuation of available-for-sale 4,680,225,305 6,047,837,848 securities Accumulated comprehensive income of equity 6,759,493,025 (1,702,584,378) method investee 11,069,219,653 3,262,305,957 Retained earnings (Note 17) 136,989,413,257 146,466,631,832 Non-controlling interests 19,820,000 19,820,000 Total equity 347,686,512,447 349,356,817,326 Total liabilities and equity ₩3,681,258,732,891 ₩3,466,721,212,309 The accompanying notes are an integral part of these interim consolidated financial statements. 5
  8. 8. Hyundai Commercial, Inc. and Subsidiaries Interim Consolidated Statements of Comprehensive Income Three-Month Periods ended March 31, 2012 and 2011 (In Korean won) March 31, March 31, 2012 2011Operating revenue Interest income ₩ 2,771,651,435 ₩ 1,107,200,116 Income on loans 65,135,535,375 53,859,750,805 Income on installment financial receivables 12,063,627,224 16,074,074,823 Income on leases 1,677,877,761 1,243,380,418 Gain on disposal of loans 763,113,842 463,061,126 Gain on foreign exchange translations 852,500,000 3,011,500,000 Dividend income 250,000,000 300,000,000 Other operating income 206,267,242 338,313,775 Total operating revenue 83,720,572,879 76,397,281,063Operating expenses Interest expenses 39,515,390,596 33,981,587,383 Bad debts expense (Note 5) 4,808,806,861 5,142,117,843 Loss on disposal of loans 615,486,495 137,878,224 Loss on foreign currency transactions - 1,616 General and administrative expenses (Note 18) 14,285,714,760 13,786,786,878 Other operating expenses Loss on valuation of derivatives 903,755,000 3,011,500,000 Others 673,845,682 425,457,887 1,577,600,682 3,436,957,887 Total operating expenses 60,802,999,394 56,485,329,831 Operating income 22,917,573,485 19,911,951,232 6
  9. 9. Hyundai Commercial, Inc. and Subsidiaries Interim Consolidated Statements of Comprehensive Income Three-Month Periods ended March 31, 2012 and 2011(In Korean won) March 31, March 31, 2012 2011 Non-operating income Gain on equity method valuation ₩ 10,849,056,508 ₩ 4,102,292,172 (Note 3) Non-operating expenses Other non-operating expenses 8,582,824,000 - Income before income taxes 25,183,805,993 24,014,243,404 Income tax expense (Note 15) 4,676,477,761 6,609,095,951 Net income ₩ 20,507,328,232 ₩ 17,405,147,453 Net income attributable to: Owners of the parent 20,507,328,232 17,405,147,453 Non-controlling interests - - 20,507,328,232 17,405,147,453 Other comprehensive income, net of income taxes (Note 19) Gain on valuation of derivatives 712,448,836 872,054,497 Gain(Loss) on valuation of available-for- (1,367,612,543) 5,067,118,496 sale financial securities Other comprehensive income of equity 8,462,077,403 (18,802,707) method investee 7,806,913,696 5,920,370,286 Total comprehensive income ₩ 28,314,241,928 ₩ 23,325,517,739 Total comprehensive income attributable to: Owners of the parent 28,314,241,928 23,325,517,739 Non-controlling interests - - 28,314,241,928 23,325,517,739 The accompanying notes are an integral part of these interim consolidated financial statements. 7
  10. 10. Hyundai Commercial, Inc. and Subsidiaries Interim Consolidated Statements of Changes in Equity Three-Month Periods ended March 31, 2012 and 2011 Accumulated Total(In Korean won) other attributable to Non- comprehensive Capital income and Retained owners of the controlling Capital stock surplus expenses earnings parent interests Total equityBalances as of January 1, 2011 100,000,000,000 - (862,281,456) 81,470,127,594 180,607,846,138 9,910,000 180,617,756,138Total comprehensive incomeNet income - - - 17,405,147,453 17,405,147,453 - 17,405,147,453Other comprehensive income Gain on valuation of derivatives - - 872,054,497 - 872,054,497 - 872,054,497 Gain on valuation of available-for- - - 5,067,118,496 - 5,067,118,496 - 5,067,118,496 sale securities Other comprehensive income of - - (18,802,707) - (18,802,707) - (18,802,707) equity method investeeTotal comprehensive income - - 5,920,370,286 17,405,147,453 23,325,517,739 - 23,325,517,739Transactions with ownersEstablishment of special purpose - - - - - 9,910,000 9,910,000 entityDividends - - - (10,000,000,000) (10,000,000,000) - (10,000,000,000)Total transactions with owners - - - (10,000,000,000) (10,000,000,000) 9,910,000 (9,990,090,000)Balances as of March 31, 2011 100,000,000,000 - 5,058,088,830 88,875,275,047 193,933,363,877 9,910,000 193,953,183,877 8
  11. 11. Hyundai Commercial, Inc. and Subsidiaries Interim Consolidated Statements of Changes in Equity Three-Month Periods ended March 31, 2012 and 2011 Accumulated(In Korean won) other Total attributable Non- comprehensive income and Retained to owners of the controlling Capital stock Capital surplus expenses earnings parent interests Total equityBalances as of January 1, 2012 125,000,000,000 74,608,059,537 3,262,305,957 146,466,631,832 349,336,997,326 19,820,000 180,617,756,138Total comprehensive incomeNet income - - - 20,507,328,232 20,507,328,232 - 20,507,328,232Other comprehensive income Gain on valuation of derivatives - - 712,448,836 - 712,448,836 - 712,448,836 Loss on valuation of available-for- - - (1,367,612,543) - (1,367,612,543) - (1,367,612,543) sale securities Other comprehensive income of - - 8,462,077,403 - 8,462,077,403 - 8,462,077,403 equity method investeeTotal comprehensive income - - 7,806,913,696 20,507,328,232 28,314,241,928 - 28,314,241,928Transactions with ownersDividends - - - (30,000,000,000) (30,000,000,000) - (30,000,000,000)Changes in retained earnings of - - - 15,453,193 15,453,193 - 15,453,193 equity method investeeTotal transactions with owners - - - (29,984,546,807) (29,984,546,807) - (29,984,546,807)Balances as of March 31, 2012 125,000,000,000 74,608,059,537 11,069,219,653 136,989,413,257 347,666,692,447 19,820,000 347,686,512,447 The accompanying notes are an integral part of these interim consolidated financial statements. 9
  12. 12. Hyundai Commercial, Inc. and Subsidiaries Interim Consolidated Statements of Cash Flows Three-Month Periods ended March 31, 2012 and 2011 (In Korean won) March 31, 2012 March 31, 2011Cash flows from operating activitiesCash generated from operations (Note 20) (10,167,972,302) (145,532,068,736)Interest received 2,508,291,569 1,035,936,694Interest paid (37,272,790,705) (32,053,228,259)Dividends received 250,000,000 300,000,000Income taxes paid - (4,642,871,180)Net cash used in operations (44,682,471,438) (180,892,231,481)Cash flows from investing activitiesAcquisition of equity method investment (95,644,380,000) -Disposal of vehicles 63,107,858 -Acquisition of vehicles (76,172,300) (79,715,188)Acquisition of fixtures and furniture (57,306,040) (60,417,632)Acquisition of intangible assets (57,690,600) (43,725,000)Increase in leasehold deposits (685,649,000) (189,000,000)Net cash used in investing activities (96,458,090,082) (372,857,820)Cash flows from financing activitiesProceeds from borrowings 285,790,000,000 305,726,462,099Repayments of borrowings (280,837,876,329) (312,138,441,529)Issuance of debentures 289,675,205,800 169,535,450,000Repayments of debentures (85,000,000,000) (82,000,000,000)Issuance of securitized debts - 199,456,325,601Cash inflows of transactions with subsidiaries - 9,910,000Payments of dividends (30,000,000,000) (10,000,000,000)Net cash provided by financing activities 179,627,329,471 270,589,706,171Net increase in cash and cash equivalents 38,486,767,951 89,324,616,870Cash and cash equivalents Beginning of period 276,009,118,714 99,938,403,013 End of period 314,495,886,665 189,263,019,883 The accompanying notes are an integral part of these interim consolidated financial statements. 10
  13. 13. Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 20111. General Information Hyundai Commercial, Inc. (the Company) was established on March 27, 2007, by taking over all the assets, liabilities, rights and obligations related with the loans of the industrial product division of Hyundai Capital Services, Inc. and its installment financing and lease financing division. It is engaged in installment financing, and leasing of facilities. The Company’s operations are headquartered in Yeouido, Seoul. Its shareholders are as follows: Shareholders Ownership Hyundai Motor Company 50.00% Myung-yi Chung 33.33% Tae-young Chung 16.67% Total 100.00%2. Summary of Significant Accounting Policies The consolidated financial statements have been prepared and presented which included the accounts of Hyundai Commercial, Inc., as the parent company according to the Korean IFRS 1027, and Commercial Auto First trust and SPC and another subsidiary(collectively the “Group”), while Hyundai Card Co., Ltd. and Green cross life insurance are accounted for under the equity method. Subsidiaries as of March 31, 2012 and December 31, 2011, 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%. March 31, 2012 December 31, 2011 Special Commercial Auto First Trust and SPC Commercial Auto First Trust and SPC Purpose Commercial Auto Second Trust and SPC Commercial Auto Second Trust and SPC Entities The Group’s interim consolidated financial statements for the three-month period ended March 31, 2012, have been prepared in accordance Korean IFRS 1034, ‘Interim Financial Reporting’. These interim consolidated financial statements have been prepared in accordance with the Korean IFRS standards and interpretations issued and effective or issued and early adopted as of March 31, 2012. New standards, amendments and interpretations issued but not effective for the financial year beginning January 1, 2012, and not early adopted by the Group are as follows: - 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 11
  14. 14. Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 2011 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. - 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 interim consolidated financial statements. These policies have been consistently applied to all the periods presented, unless otherwise stated. Interim period income tax expense is calculated by applying estimated average annual effective tax rate to the interim period’s pre-tax income.3. Securities Securities as of March 31, 2012 and December 31, 2011, are as follows: (in thousands of Korean won) Type March 31, 2012 December 31, 2011 Available-for-sale securities Marketable equity securities 16,250,000 18,200,000 Equity securities Unlisted equity securities 3,199,476 3,083,604 Sub-total 19,449,476 21,283,604 Debt securities 5,799,545 5,564,629 Sub-total 25,249,021 26,848,233 Equity method investment 262,577,812 147,539,965 287,826,833 174,388,198 12
  15. 15. Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 2011 Available-for-sale securities Available-for-sale securities as of March 31, 2012 and December 31, 2011, are as follows: (in thousands of Korean won) Book value Number of Ownership Acquisition March 31, December shares (%) cost 2012 31, 2011Marketable equity securities JNK Heaters Co., Ltd. 1,000,000 12.5 10,126,881 16,250,000 18,200,000Unlisted equity securities 1 Leehan Corp. 136,000 12.3 3,199,762 3,198,856 3,082,984 Isung Eng,. Corp. 62 620 620 620Debt securities 2 Leehan Corp. - - 5,469,801 5,799,545 5,564,629 1,136,062 18,797,064 25,249,021 26,848,233 1 The fair value of the securities for Leehan Corp. was valued as the valuation price provided by an external appraiser, Korea Asset Pricing. The external appraisers valuated the fair value as the average of valuation prices using the discounted cash flow model and the imputed market value model. 2 Those debt securities are the convertible bond issued by Leehan Corp. during the year, and the fair value of the convertible bond for Leehan Corp. was valued as the valuation price provided by an external appraiser, Korea Asset Pricing. The differences between the fair value of convertible bond and the book value of normal bond by effective interest rate recognized in the gain or loss on valuation of debt securities and the fluctuation of conversion right and advanced redemption right recognized in the gain or loss on embedded derivatives. Equity method investments Equity method investments as of March 31, 2012 and December 31, 2011, are as follows: (in thousands of Korean won) March 31, 2012 Number of Ownership Acquisition Net asset Book value shares (%) cost valueHyundai Card Co., Ltd. 1 8,889,622 5.54 113,820,162 115,044,378 151,971,127Green Cross Life 2 7,357,260 37.43 95,644,380 62,152,804 110,606,685 InsuranceTotal 209,464,542 177,197,182 262,577,812 (in thousands of Korean won) December 31, 2011 Number of Ownership Acquisition Net asset Book value shares (%) cost valueHyundai Card Co., Ltd. 1 8,889,622 5.54 113,820,162 110,613,215 147,539,965 1 The Company’s shareholdings in Hyundai Card Co., Ltd. are less than 20%. However, the Company is able to participate in the management and significantly influence the financial and operating processes. Thus, the equity method is applied. 13
  16. 16. Hyundai Commercial, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011 2 The Group acquired the equity securities of Green Cross Life Insurance during the current period. Valuations of equity method investment for the three-month periods ended March 31, 2012 and 2011, are as follows: (in thousands of Korean won) March 31, 2012 Changes in accumulated Changes in Beginning Gain on Ending Acquisition other retained Balance valuation Balance comprehensive earnings income(*)Hyundai Card Co., 147,539,965 - 4,154,800 276,362 - 151,971,127 Ltd.Green Cross Life - 95,644,380 6,694,257 8,252,595 15,453 110,606,685 Insurance Co,. Ltd.Total 147,539,965 95,644,380 10,849,057 8,528,957 15,453 262,577,812 (*) Changes in accumulated other comprehensive income is the amount before income taxes. (in thousands of Korean won) March 31, 2011 Changes in accumulated other Beginning Balance Gain on valuation Ending Balance comprehensive income(*)Hyundai Card Co., 133,160,973 4,102,292 (24,106) 137,239,159 Ltd. The difference between the acquired amounts of equity method investment and its corresponding net asset value as of March 31, 2012 and December 31, 2011, follows: (in thousands of Korean won) March 31, 2012 December 31, 2011 Hyundai Card Co., Ltd. 36,926,750 36,926,750 Green Cross Life Insurance Co,. Ltd. 48,453,881 - Total 85,380,631 36,926,750 The assets and liabilities as of March 31, 2012 and December 31, 2011, and revenue and income for the three-month periods ended March 31, 2012 and 2011, follow : 14
  17. 17. Hyundai Commercial, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011 (in thousands of Korean won) March 31, 2012 Year end Operating Assets Liabilities Net income revenue Hyundai Card December 31 10,872,759,798 8,796,080,584 615,422,079 74,997,698 Co., Ltd. Green Cross Life March 31 3,437,590,803 3,271,552,038 347,600,863 9,420,826 Iinsurance Co,. Ltd. Green Cross Life Insurance Co,. Ltd.’s fiscal year is from April 1, 2011 to March 31, 2012, the asset and liability amounts are as of March 31, 2012, and its operating revenue and net income amounts are from January 1, 2012 to March 31, 2012. The regarded acquisition date is February 29, 2012, and the investee recognized its net income 17,883,442 thousand after regarded acquisition date. (in thousands of Korean won) December 31, 2011 Year end Operating Assets Liabilities Net income revenue Hyundai Card December 31 10,851,933,716 8,855,250,685 2,407,597,301 238,647,582 Co., Ltd. 4. Financial Receivables Financial receivables as of March 31, 2012 and December 31, 2011, are as follows: (in thousands of Korean won) March 31, 2012 Deferred loan origination fees and Present Allowance Principal costs value for doubtful Book value (Initial direct costs discounts accounts for lease assets)Loan receivables Factoring 205,850 - - (2,852) 202,998 receivables Loans 2,483,927,021 23,685,648 (155,262) (18,450,442) 2,489,006,965 2,484,132,871 23,685,648 (155,262) (18,453,294) 2,489,209,963Installment financial assets Auto 379,432,881 (62,807) - (2,411,441) 376,958,633 Durable goods 55,904,285 (460,352) - (382,175) 55,061,758 435,337,166 (523,159) - (2,793,616) 432,020,391Lease receivables Finance lease 91,734,334 (16,096) - (671,466) 91,046,772 receivables 3,011,204,371 23,146,393 (155,262) (21,918,376) 3,012,277,126 15
  18. 18. Hyundai Commercial, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011 (in thousands of Korean won) December 31, 2011 Deferred loan origination fees and Present Allowance Principal costs value for doubtful Book value (Initial direct costs discounts accounts for lease assets)Loan receivables Factoring 575,109 - - (3,163) 571,946 Loans 2,390,384,894 18,629,791 (150,234) (18,165,997) 2,390,698,454 2,390,960,003 18,629,791 (150,234) (18,169,160) 2,391,270,400Installment financial assets Auto 402,751,465 (315,733) - (2,700,211) 399,735,521 Durable goods 69,532,615 (677,259) - (475,143) 68,380,213 472,284,080 (992,992) - (3,175,354) 468,115,734Lease receivables Finance lease 84,693,337 (19,542) - (620,397) 84,053,398 receivables 2,947,937,420 17,617,257 (150,234) (21,964,911) 2,943,439,532 5. Allowance for Doubtful Accounts Changes in allowance for doubtful accounts for the nine-month periods ended March 31, 2012 and 2011, are as follows: (in thousands of Korean won) March 31, 2012 Loan Installment Lease Type Other assets Total receivables financial assets receivables Beginning balance 18,169,160 3,175,354 620,397 330,388 22,295,299 Amounts written off (1,613,880) (61,379) - - (1,675,259) Recoveries of amounts (2,993,634) (179,420) - - (3,173,054) previously written off Unwinding of discount (49,660) (6,252) - - (55,912) Additional(reversed) 4,941,308 (134,687) 51,069 (48,883) 4,808,807 allowance Ending balance 18,453,294 2,793,616 671,466 281,505 22,199,881 (in thousands of Korean won) March 31, 2011 Loan Installment Lease Type Other assets Total receivables financial assets receivables Beginning balance 12,795,689 3,609,027 214,613 372,974 16,992,303 Amounts written off (520,382) (108,512) - - (628,894) Recoveries of amounts (1,646,955) (269,466) (6,811) - (1,923,232) previously written off Unwinding of discount (25,690) (3,048) (108) - (28,846) Additional allowance 4,038,536 924,960 145,923 32,699 5,142,118 Ending balance 14,641,198 4,152,961 353,617 405,673 19,553,449 16
  19. 19. Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 20116. Financial Instruments The fair values of financial instruments as of March 31, 2012 and December 31, 2011, are as follows: (in thousands of Korean won) March 31, 2012 December 31, 2011 Type Book Fair Book Fair value value value valueFinancial assets Cash and deposits 314,504,887 314,504,887 276,018,119 276,018,119 Available-for-sale 25,249,021 25,249,021 26,848,233 26,848,233 securities Loans receivable 2,489,209,963 2,501,074,948 2,391,270,400 2,398,975,565 Installment financial 432,020,391 433,307,489 468,115,734 473,294,235 assets Derivative assets 1,380,604 1,380,604 1,369,009 1,369,009 Non-trade 26,057,929 26,057,929 29,694,392 29,694,392receivables Accrued revenues 15,564,187 15,564,187 17,963,211 17,963,211 Leasehold deposits 10,739,617 10,677,518 9,963,176 9,861,028 3,314,726,599 3,327,816,583 3,221,242,274 3,234,023,792Financial liabilities Borrowings 730,475,847 736,188,566 725,523,723 730,010,502 Debentures 2,141,877,642 2,191,177,733 1,937,737,885 1,983,599,328 Securitized debts 359,435,857 367,047,260 359,361,742 367,266,231 Derivative liabilities 2,659,351 2,659,351 2,691,395 2,691,395 Non-trade payables 8,382,323 8,382,323 7,907,799 7,907,799 Accrued expenses 22,932,993 22,932,993 26,857,796 26,857,796 1 Withholdings 4,300,068 4,300,068 2,731,628 2,731,628 Leasehold deposits 19,778,332 20,036,119 16,493,405 16,677,090 received 3,289,842,413 3,352,724,413 3,079,305,373 3,137,741,769 1 Excluding taxes. The fair value hierarchy of financial assets and liabilities carried at fair value as of March 31, 2012 and December 31, 2011, are as follows:(in thousands of Korean won) March, 31 2012 1 Book Fair Fair value hierarchy Type value value level 1 level 2 level 3Financial assets at fair value Available-for-sale 25,249,021 25,249,021 16,250,000 - 8,999,021 securities 17
  20. 20. Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 2011 Derivative assets 1,380,604 1,380,604 - 1,380,604 - 26,629,625 26,629,625 16,250,000 1,380,604 8,999,021Financial liabilities at fair value Derivative liabilities 2,659,351 2,659,351 - 2,659,351 - 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 thousands of Korean won) December 31, 2011 Book Fair Fair value hierarchy(*) Type value value level 1 level 2 level 3Financial assets at fair value Available-for-sale 26,848,233 26,848,233 18,200,000 - 8,648,233 securities Derivative assets 1,369,009 1,369,009 - 1,369,009 - 28,217,242 28,217,242 18,200,000 1,369,009 8,648,233Financial liabilities at fair value Derivative liabilities 2,691,395 2,691,395 - 2,691,395 - The changes in financial instruments of level 3 for the three-month periods ended March 31, 2012 and the year ended December 31, 2011, are as follows: (in thousands of Korean won) Available-for-sale securities Type March 31, 2012 December 31, 2011 Beginning balance 8,648,233 17,657,945 Acquisition - 8,670,183 Gains on interest 205,027 72,492 Gains on valuation 145,761 (1,579,387) (Other comprehensive income) Disposal - (4,655,000) 1 Reclassification - (11,518,000) Ending balance 8,999,021 8,648,233 1 The fair value hierarchy of the available-for-sale securities has been reclassified from level 3 to level 1 as JNK Heaters Co., Ltd. was listed during the prior period. 18
  21. 21. Hyundai Commercial, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011 The book value of financial instruments by categories as of March 31, 2012 and December 31, 2011, are as follows: (in thousands of Korean won) March 31, 2012 Financial Available-for- Hedging assets at fair Loans and Type sale financial derivative Total value through receivables assets instruments profit or loss Financial assets Cash and deposits - 314,504,887 - - 314,504,887 Available-for- sale - - 25,249,021 - 25,249,021 securities Loans receivable - 2,489,209,963 - - 2,489,209,963 Installment - 432,020,391 - - 432,020,391 financial assets Derivative assets 450,538 - - 930,066 1,380,604 Non-trade - 26,057,929 - - 26,057,929 receivables Accrued revenues - 15,564,187 - - 15,564,187 Leasehold - 10,739,617 - - 10,739,617 deposits 450,538 3,288,096,974 25,249,021 930,066 3,314,726,599 (in thousands 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 loss Financial assets Cash and deposits - 276,018,119 - - 276,018,119 Available-for- sale - - 26,848,233 - 26,848,233 securities Loans receivable - 2,391,270,400 - - 2,391,270,400 Installment - 468,115,734 - - 468,115,734 financial assets Derivative assets 501,793 - - 867,216 1,369,009 Non-trade - 29,694,392 - - 29,694,392 receivables Accrued revenues - 17,963,211 - - 17,963,211 Leasehold - 9,963,176 - - 9,963,176 deposits 501,793 3,193,025,032 26,848,233 867,216 3,221,242,274 (in thousands of Korean won) March 31, 2012 December 31, 2011 Financial Hedging Financial Hedging Type liabilities at derivative Total liabilities at derivative Total amortized cost instruments amortized cost instrumentsFinancial liabilities Borrowings 730,475,847 - 730,475,847 725,523,723 - 725,523,723 19
  22. 22. Hyundai Commercial, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011Debentures 2,141,877,642 - 2,141,877,642 1,937,737,885 - 1,937,737,885Securitized debts 359,435,857 359,435,857 359,361,742 - 359,361,742Derivative - 2,659,351 2,659,351 - 2,691,395 2,691,395 liabilitiesNon-trade 8,382,323 - 8,382,323 7,907,799 - 7,907,799 payablesAccrued expenses 22,932,993 - 22,932,993 26,857,796 - 26,857,796Withholdings 4,300,068 - 4,300,068 2,731,628 - 2,731,628Leasehold deposits 19,778,332 - 19,778,332 16,493,405 - 16,493,405 received 3,287,183,062 2,659,351 3,289,842,413 3,076,613,978 2,691,395 3,079,305,373 7. Derecognition of financial assets The Group issued senior and subordinated asset-backed securities based on loans and installment financial assets, and subsidiaries, such as Commercial Auto First trust and SPC, issued securitized debts based on senior beneficiary certificates. Meanwhile, the Group is involved in ongoing securitized financial instruments through credit reinforcement such as acquisitions of subordinated beneficiary certificates. Details of transferred financial assets not derecognized as of March 31, 2012 and December 31, 2011, are as follows: (in thousands of Korean won) Type March 31, 2012 December 31, 2011 Book value of assets Loan receivable 559,377,227 466,479,102 Installment financial assets 78,580,393 97,302,634 Sub total 637,957,620 563,781,736 Book value of related liabilities 359,435,857 359,361,742 Liabilities having right of resource on transferred assets : Fair value of assets 640,858,040 566,361,232 Fair value of related liabilities 366,483,117 367,266,231 Net position 274,374,923 199,095,001 8. Finance Lease Receivables Details of total lease investments and present value of minimum lease receipts as of March 31, 2012 and December 31, 2011, are as follows: (in thousands of Korean won) Type March 31, 2012 December 31, 2011 20
  23. 23. Hyundai Commercial, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011 Present value of Present value of Total lease Total lease minimum lease minimum lease investments investments receipts receipts Less than 1 year 38,661,720 33,528,707 38,319,151 33,136,156 1 to 5 years 62,242,818 58,189,530 55,204,893 51,537,639 100,904,538 91,718,237 93,524,044 84,673,795 Details of unearned interest income as of March 31, 2012 and December 31, 2011, are as follows: (in thousands of Korean won) Type March 31, 2012 December 31, 2011 Total lease investments 100,904,538 93,524,044 Net lease investments Minimum lease receipts 91,718,237 84,673,795 (present value) Unguaranteed residual value - - (present value) 91,718,237 84,673,795 Unearned interest income 9,186,301 8,850,249 9. Property and Equipment Property and equipment as of March 31, 2012 and December 31, 2011, consist of: (in thousands of Korean won) March 31, 2012 December 31, 2011 Type Acquisition Accumulated Acquisition Accumulated Book value Book value cost depreciation cost depreciation Vehicles 235,097 (121,995) 113,102 238,639 (123,908) 114,731 Fixture and 7,122,896 (4,910,694) 2,212,202 7,065,590 (4,682,654) 2,382,936 furniture Others 411,000 - 411,000 411,000 - 411,000 7,768,993 (5,032,689) 2,736,304 7,715,229 (4,806,562) 2,908,667 Changes in property and equipment for the three-month periods ended March 31, 2012 and 2011, are as follows:(in thousands of Korean won) March 31, 2012 Type Beginning balance Acquisition Disposal Depreciation Ending balanceVehicles 114,731 76,172 (61,447) (16,354) 113,102Fixture and 2,382,936 57,306 - (228,040) 2,212,202 furnitureOthers 411,000 - - - 411,000 2,908,667 133,478 (61,447) (244,394) 2,736,304 21
  24. 24. Hyundai Commercial, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011(in thousands of Korean won) December 31, 2011 Type Beginning balance Acquisition Disposal Depreciation Ending balanceVehicles 119,066 79,715 - (15,372) 183,409Fixture and 1,986,277 60,418 - (345,126) 1,701,569 furnitureOthers 411,000 - - - 411,000 2,516,343 140,133 - (360,498) 2,295,978 10. Intangible Assets Intangible assets as of March 31, 2012 and December 31, 2011, consist of: (in thousands of Korean won) March 31, 2012 December 31, 2011 Type Acquisition Accumulated Book Acquisition Accumulated Book cost depreciation value cost depreciation value Software 5,663,954 (4,497,313) 1,166,641 5,637,719 (4,331,112) 1,306,607 Other intangible 2,210,587 (523,214) 1,687,373 2,179,131 (413,434) 1,765,697 assets 7,874,541 (5,020,527) 2,854,014 7,816,850 (4,744,546) 3,072,304 Changes in intangible assets for the three-month periods ended March 31, 2012 and 2011, are as follows: (in thousands of Korean won) March 31, 2012 1 Type Beginning balance Increase Amortization Ending balance Software 1,306,607 26,235 (166,201) 1,166,641 Other intangible assets 1,765,697 31,456 (109,780) 1,687,373 3,072,304 57,691 (275,981) 2,854,014 1 Inclusive of transfer from advance payments. (in thousands of Korean won) March 31, 2011 1 Type Beginning balance Increase Amortization Ending balance Software 1,632,196 43,725 (310,920) 1,365,001 Other intangible assets 849,207 899,800 (60,784) 1,688,223 2,481,403 943,525 (371,704) 3,053,224 22
  25. 25. Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 201111. Borrowings Borrowings as of March 31, 2012 and December 31, 2011, consist of:(in thousands of Korean won) Annual Types Lender March 31, 2012 December 31, 2011 interest rate (%)Borrowings in won SK Securities Commercial paper 3.65 ~ 4.27 130,000,000 140,000,000 and 3 others Woori Bank and General loans 3.71 ~ 6.19 600,475,847 585,523,723 9 others 730,475,847 725,523,72312. Debentures Debentures issued by the Group and outstanding as of March 31, 2012 and December 31, 2011, are as follows:(in thousands of Korean won) Annual March 31, 2012 December 31, 2011 Type interest rates (%) Par value Issue price Par value Issue priceCurrent portion of debenture Debenture 3.78 ~ 6.70 700,000,000 700,000,000 635,000,000 635,000,000 Less: Discount on (261,394) (253,677) debentures 700,000,000 699,738,606 635,000,000 634,746,323Non-current portion of debenture Debenture 3.93 ~ 8.00 1,443,861,000 1,443,861,000 1,304,713,500 1,304,713,500 Less: Discount on (1,721,964) (1,721,938) debentures 1,443,861,000 1,442,139,036 1,304,713,500 1,302,991,562 2,143,861,000 2,141,877,642 1,939,713,500 1,937,737,88513. Securitized debts The amounts of securitized debts which are secured by loans and installment financial assets in accordance with Asset Backed Securitization Act, as of March 31, 2012 and December 31, 2011, are as follows:(in thousands of Korean won) Annual March 31, 2012 December 31, 2011 Type interest rates (%) Par value Issue price Par value Issue priceCurrent portion of securitized debts Debenture 4.12 ~ 4.26 50,000,000 50,000,000 50,000,000 50,000,000 Less: Discount on (40,399) (62,214) securitized debts 23
  26. 26. Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 2011 49,959,601 49,937,786Non-current portion of securitized debts Debenture 4.76 ~ 5.43 310,000,000 310,000,000 310,000,000 310,000,000 Less: Discount on (523,744) (576,044) securitized debts 309,476,256 309,423,956 360,000,000 359,435,857 360,000,000 359,361,74214. Defined Benefit Liability Details of the amounts recognized in the income statements for the three-month periods ended March 31, 2012 and 2011: (in thousands of Korean won) Type March 31, 2012 March 31, 2011 Current service cost 489,409 403,489 Interest cost 75,736 62,598 Expected return on plan assets (50,448) (37,882) Past service cost (21,263) - 493,434 428,205 The amounts of defined benefit plans recognized in the statements of financial position as of March 31, 2012 and December 31, 2011, are as follows: (in thousands of Korean won) Type March 31, 2012 December 31, 2011 Present value of funded obligations 7,447,382 7,596,812 Fair value of plan assets (5,418,338) (5,364,346) Defined benefit liability 2,029,044 2,232,46615. Income Tax The Group recognized income tax based on estimation of weighted average annual tax rate annual fiscal year. Expected weighted average annual tax rate for March 31, 2012, is 18.5% (March 31, 2011 : 27.5%).16. Derivative Financial Instruments and Hedge Accounting The Group has the convertible bond issued by Leehan Corp., and recognized the difference between the acquisition cost of convertible bond and the fair value of normal bond as derivative assets. The amount recognized as derivative assets as of March 31, 2012, is 450,538 thousand (December 31, 2011 : 501,793 thousand), while the net losses from derivative asset for the three-month period ended March 31, 2012, is 51,255 thousand. (March 31, 2011 : Nil) 24
  27. 27. Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 2011 Derivatives designated as cash flow hedges as of March 31, 2012 and December 31, 2011, are as follows:(in thousands of Korean won) March 31, 2012 December 31, 2011 Accumulated Accumulated other other Type comprehensi comprehensi Assets Liabilities Assets Liabilities ve income ve income and and expenses expensesInterest rate swaps 282,643 - 214,243 - 241,837 (899,733)Currency swaps 647,423 2,659,351 (584,742) 867,216 2,449,558 (183,215) 930,066 2,659,351 (370,499) 867,216 2,691,395 (1,082,948) The amount recognized as other comprehensive income, representing the effective portion related to cash flow hedge, is 712,449 thousand as of March 31, 2012, and the reclassified amount from other comprehensive income to profit or loss is 186,921 thousand. There is no ineffective portion recognized related to cash flow hedge for the three-months periods ended March 31, 2012 and 2011.17. Equity The Company is authorized to issue 80,000,000 shares (par value of per share : 5,000). As of March 31, 2012 and December 31, 2011, the number of common stock and preferred stock, and paid in capital are as follows : (in thousands of Korean won, except number of shares) Type March 31, December 31, 2012 2011 Number of shares 20,000,000 20,000,000 Common Capital stock 100,000,000 100,000,000 stock Additional paid-in capital - 100,000,000 100,000,000 Number of shares 5,000,000 5,000,000 Preferred Capital stock 25,000,000 25,000,000 stock Additional paid in capital 74,608,060 74,608,060 99,608,060 99,608,060 Total 199,608,060 199,608,060 The convertible preferred stocks have been issued at 20,000 per share(par value 5,000 per share) are non-cumulative, non-participating, nominative, non-permanent preferred stock without voting right, and will be converted into common stock after seven years from issue date. Legal reserve and discretionary reserve as of March 31, 2012 and December 31, 2011, are as follows: 25
  28. 28. Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 2011 (in millions of Korean won) March 31, December 31, Type 2012 2011 Legal reserve Revenue reserve 4,000,000 1,000,000 Reserve for electronic financial Discretionary 100,000 100,000 transactions reserve Reserve for bad loans 3,357,192 - Unappropriated retained earnings (Expected reserve for bad loans 129,532,221 145,366,632 March 31, 2012: 9,918,236 thousand, December 31, 2011: 3,357,192 thousand) 136,989,413 146,466,632 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 Article 11, the Group appropriates a reserve for bad loans in an amount more than the difference between the allowance and the requirement. The reserve for bad loans is attributed to discretionary reserve for retained earnings. If the existing reserve for bad loans exceeds the reserve for bad loans to be reserved, the excess amounts are to be reversed. And if undisposed deficit exists, the reserve for bad loans is reserved after undisposed deficit is disposed of. Appropriated and expected reserves for bad loans as of March 31, 2012 and December 31, 2011, are as follows: (in thousands of Korean won) Type March 31, 2012 December 31, 2011 Appropriated reserve for bad loans 3,357,192 - Expected reserve for bad loans 9,918,236 3,357,192 13,275,428 3,357,192 Transfer to reserve for bad loans and net income in consideration of effect of changes in reserve for bad loan for the three-month periods ended March 31, 2012 and 2011, are as follows: (in thousands of Korean won) Type March 31, 2012 March 31, 2011 Net income 20,507,328 17,405,147 1 Transfer to reserve for bad loans (9,918,236) (386,438) Net income in consideration of changes in reserve for 2 10,589,092 17,018,709 bad loans Net income per share in consideration of changes in 3 529 851 reserve for bad loans (In won) 26
  29. 29. Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 2011 1 Transfer to reserve for bad loans are subtracted from balance of reserve for bad loans in 2011 to balance in 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. 3 Net income per share in consideration of changes is calculated by subtracting the transfer to reserve for bad loans from the net income for common stock. The 30 billion of dividends for fiscal year ended December 31, 2011, were paid in March 2012 (2011 : 10 billion). (in thousands of Korean won) Type December 31, 2011 December 31, 2010 Common stock 24,000,000 10,000,000 Preferred stock 6,000,000 - Total 30,000,000 10,000,00018. General and Administrative Expenses General and administrative expenses for the three-month periods ended March 31, 2012 and 2011, are as follows:(in thousands of Korean won) March 31, 2012 March 31, 2011Payroll 3,627,700 4,420,861Severance benefits 493,395 440,880Fringe benefits 1,415,100 1,208,312Outsourcing service charges 987,431 753,024Sales promotions 3,285,944 3,280,980Commission 1,205,021 776,937Outsourcing service commission 501,123 422,413Depreciation 244,394 360,498Amortization 275,980 371,704Taxes and dues 494,678 330,542Electronic expenses 392,101 225,485Rent 255,933 220,846Maintenance expenses on building 269,775 212,515Travel and transportation 188,824 142,948Education 132,070 158,690Communication 142,061 125,161Other expenses 374,185 334,991 14,285,715 13,786,787 27
  30. 30. Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 201119. Other Comprehensive Income Other comprehensive income for the three-month periods ended March 31, 2012 and 2011, consist of: (in thousands of Korean won) March 31, 2012 Changes Beginning Reclassifi- Income Ending Type Other balance cation of tax effects balance changes profit or loss Loss on valuation of derivatives (1,082,948) 186,921 752,985 (227,457) (370,499) Gain on valuation of available-for-sale 6,047,838 - (1,804,238) 436,625 4,680,225 financial assets Accumulated comprehensive expense of equity (1,702,584) - 8,528,957 (66,880) 6,759,493 method investee 3,262,306 186,921 7,477,704 142,288 11,069,219 (in thousands of Korean won) March 31, 2011 Changes Beginning Reclassifi- Income Ending Type cation of Other balance tax effects balance profit or changes lossLoss on valuation of derivatives (1,662,559) 501,024 678,857 (307,827) (790,505)Gain on valuation of available-for-sale 2,180,057 6,415,186 (1,348,068) 7,247,175 financial assets -Accumulated comprehensive expense of equity (1,379,779) (24,105) 5,303 (1,398,581) - method investee (862,281) 501,024 7,069,938 (1,650,592) 5,058,08920. Supplemental Cash Flow Information Cash and cash equivalents in cash flow statements as of March 31, 2012 and December 31, 2011, consist of follows: (in thousands of Korean won) Type March 31, 2012 December 31, 2011 Cash 2,000 2,000 Ordinary deposits 8,947,682 6,005,235 Short-term financial instruments 305,546,205 270,001,884 28
  31. 31. Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 2011 314,495,887 276,009,119 Cash generated from operations for the three-month periods ended March 31, 2012 and 2011, are as follows:(in thousands of Korean won) March 31, 2012 March 31, 2011Net income 20,507,328 17,405,147Adjustments Net interest expenses 36,743,739 32,874,387 Dividends (250,000) (300,000) Income tax 4,676,478 6,609,096 Gain on loans receivable 12,148,934 8,184,588 Gain on installment financing 1,070,003 (990,016) Gain on leased assets (5,981) (7,541) Gain on foreign currency translation (852,500) (3,011,500) Gain on equity method valuation (10,849,057) (4,102,292) Gain on disposal of property and equipment (1,660) - Bad debts expense 4,808,807 5,142,118 Severance benefits 493,434 428,205 Depreciation 244,394 360,498 Amortization of intangible assets 275,981 371,704 Loss on valuation of derivatives 903,755 3,011,500 49,406,327 48,570,747Changes in operating assets and liabilities (Increase) in loans receivable (98,004,667) (209,450,834) Decrease in installment financing receivables 36,598,032 13,844,229 (Increase) in finance lease receivables (7,040,997) (9,356,084) (Increase) in deferred loan origination fees and (18,810,993) (11,132,062) costs Increase(decrease) in present value discounts (468,150) 35,586 Increase(decrease) in allowance for bad debts 332,367 (1,952,078) Decrease in non-trade receivables 3,680,198 242,458 Decrease(increase) in accrued revenues 2,371,714 (1,489,753) Decrease(increase) in advance payments 204,928 (641,177) Decrease in prepaid expenses 382,445 2,916,989 Increase in non-trade payables 474,524 5,976,566 (Decrease) in accrued expenses (5,543,701) (3,901,377) (Decrease) in unearned revenue (538,769) (171,522) Increase in advance receipts 6,295 124,518 Increase in withholdings 3,433,443 372,267 Payment of severance benefits (23,775) (118,002) Decrease(increase) in plan assets 2,920 (56,789) Transfer of severance benefits from related parties 90,489 208,597 Transfer of severance benefits to related parties (766,489) - 29

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