현대커머설 연결영문보고서 Fy2013_2_q_송부용
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현대커머설 연결영문보고서 Fy2013_2_q_송부용 현대커머설 연결영문보고서 Fy2013_2_q_송부용 Document Transcript

  • Hyundai Commercial, Inc. and Subsidiaries Condensed Consolidated Interim Financial Statements (Unaudited) June 30, 2013 (With Independent Auditors’ Review Report Thereon)
  • Contents Page Independent Auditors’ Review Report 1 Condensed Consolidated Interim Statements of Financial Position 3 Condensed Consolidated Interim Statements of Comprehensive Income 5 Condensed Consolidated Interim Statements of Changes in Equity 7 Condensed Consolidated Interim Statements of Cash Flows 8 Notes to the Condensed Consolidated Interim Financial Statements 9
  • KPMG Samjong Accounting Corp. 10th Floor, Gangnam Finance Center, 737 Yeoksam-dong, Gangnam-ku, Seoul 135-984, Republic of Korea Tel +82 (2) 2112 0100 Fax +82 (2) 2112 0101 www.kr.kpmg.com Independent Auditors’ Review Report Based on a report originally issued in Korean The Board of Directors and Shareholders Hyundai Commercial, Inc.: Reviewed Financial Statements We have reviewed the accompanying condensed consolidated interim financial statements of Hyundai Commercial, Inc. and its subsidiaries (the “Group”), which comprise the condensed consolidated interim statement of financial position as of June 30, 2013, the condensed consolidated interim statements of comprehensive income for the three-month and six-month periods ended June 30, 2013, changes in equity and cash flows for the six-month period ended June 30, 2013, and notes, comprising a summary of significant accounting policies and other explanatory information. Management’s Responsibility Management is responsible for the preparation and fair presentation of these condensed consolidated interim financial statements in accordance with Korean International Financial Reporting Standards (“K- IFRS”) No. 1034, ‘Interim Financial Reporting’, and for such internal control as management determines is necessary to enable the preparation of condensed consolidated interim financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Review Responsibility Our responsibility is to issue a report on these condensed consolidated interim financial statements based on our review. We conducted our review in accordance with the Review Standards for Quarterly & Semiannual Financial Statements established by the Securities and Futures Commission of the Republic of Korea. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the Republic of Korea and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements referred to above are not prepared, in all material respects, in accordance with K-IFRS No. 1034, ‘Interim Financial Reporting’.
  • ABCD 2 Other Matters The condensed consolidated interim statements of comprehensive income for the three-month and six- month periods ended June 30, 2012, and changes in equity and cash flows for the six-month period ended June 30, 2012, presented for comparative purposes, were reviewed by Samil Accounting Corp. and their review report thereon, dated August 24, 2012, expressed that nothing had come to their attention that caused them to believe that the condensed consolidated interim financial statements as of and for the three-month and six-month periods ended June 30, 2012 were not prepared, in all material respects, in accordance with K-IFRS. However, as discussed in note 3 to the condensed consolidated interim financial statements, the Group adopted the amendment to K-IFRS No.1001, ‘Presentation of Financial Statements.’ The Group applied this change in accounting policies retrospectively, and accordingly restated the comparative information of the statement of comprehensive income for the three-month and six-month periods ended June 30, 2012. The condensed consolidated statement of financial position of the Group as of December 31, 2012, and the related condensed consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, which are not accompanying this report, were audited by Samil Accounting Corp. in accordance with auditing standards generally accepted in the Republic of Korea and their report thereon, dated March 19, 2013, expressed an unqualified opinion. The accompanying condensed consolidated statement of financial position of the Group as of December 31, 2012, presented for comparative purposes, is not different from that audited by Samil Accounting Corp. in all material respects, except for the effects of changes in accounting policies discussed in note 3 to the condensed consolidated interim financial statements. We have not performed a review, audit or any other attestation on the accompanying condensed consolidated statement of financial position of the Group as of December 31, 2012 and the condensed consolidated statements of comprehensive income for the three-month and six-month periods ended June 30, 2012, including changes in accounting policies described in note 3, and accordingly it is not included in the scope of our review. The procedures and practices utilized in the Republic of Korea to review such condensed consolidated interim financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying condensed consolidated interim financial statements are for use by those knowledgeable about Korean review standards and their application in practice. KPMG Samjong Accounting Corp. Seoul, Korea August 13, 2013 This report is effective as of August 13, 2013, 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 condensed consolidated interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that the above report has not been updated to reflect the impact of such subsequent events or circumstances, if any.
  • Hyundai Commercial, Inc. and Subsidiaries Condensed Consolidated Interim Statements of Financial Position As of June 30, 2013 and December 31, 2012 (Unaudited) 3 (In Korean won) Notes June 30, 2013 December 31, 2012 (Restated) Assets Cash and due from bank 9 Cash and cash equivalents 24 W 273,745,376,758 282,825,795,422 Due from banks 4 9,000,000 9,000,000 273,754,376,758 282,834,795,422 Securities Available-for-sale securities 5,9 32,516,374,857 26,984,327,193 Investments in associates 6 270,217,753,192 285,401,945,483 302,734,128,049 312,386,272,676 Loans receivables 7,8,9,10 Factoring 8,681,252,164 108,000,000 Allowance for doubtful accounts (39,576,385) (270,108) Loans 3,044,748,986,485 2,800,613,129,940 Allowance for doubtful accounts (18,001,447,993) (19,258,899,976) 3,035,389,214,271 2,781,461,959,856 Installment financial assets 7,8,9,10 Auto installment financial receivables 309,764,946,982 333,721,265,726 Allowance for doubtful accounts (1,665,400,668) (2,351,089,917) Durable goods installment financing receivables 20,458,119,719 25,624,608,935 Allowance for doubtful accounts (139,509,992) (176,228,378) 328,418,156,041 356,818,556,366 Lease receivables 7,8,9 Financial lease receivables 11 171,420,676,546 132,356,464,281 Allowance for doubtful accounts (1,325,751,259) (1,026,910,813) 170,094,925,287 131,329,553,468 Property and equipments 12 Vehicles 47,608,687 69,799,497 Fixtures and furniture 2,999,398,514 2,701,927,277 Others 410,999,664 410,999,664 3,458,006,865 3,182,726,438 Other assets 8 Intangible assets 13 3,288,607,358 3,453,010,248 Account receivables 9 10,789,711,878 15,919,893,264 Allowance for doubtful accounts (56,837,754) (106,582,840) Accrued revenues 9 16,873,640,031 16,979,241,639 Allowance for doubtful accounts (104,999,910) (120,891,875) Advanced payments 3,544,493,285 1,157,855,722 Prepaid expenses 4,724,419,829 3,258,141,295 Leasehold deposits 9 2,394,837,720 11,083,913,915 Derivative assets 9,18 1,350,947,214 137,774,538 Other investment assets 3,885,995,860 3,885,995,860 46,690,815,511 55,648,351,766 Total assets W 4,160,539,622,782 3,923,662,215,992 See accompanying notes to the condensed consolidated interim financial statements.
  • Hyundai Commercial, Inc. and Subsidiaries Condensed Consolidated Interim Statements of Financial Position, Continued As of June 30, 2013 and December 31, 2012 (Unaudited) 4 (In Korean won) Notes June 30, 2013 December 31, 2012 (Restated) Liabilities Borrowings and debt securities issued Borrowings 9,14 W 620,550,420,573 723,883,961,368 Debentures 9,15 2,755,522,146,646 2,428,295,638,414 Securitized debts 9,10,16 309,747,458,173 309,637,147,861 3,685,820,025,392 3,461,816,747,643 Other liabilities Account payables 9 14,596,795,043 15,199,624,950 Accrued expenses 9 22,258,343,662 27,995,752,026 Unearned revenue 5,749,233,128 4,660,074,481 Advances 547,453,698 245,291,834 Deposits 9 8,396,783,147 3,470,180,556 Defined benefit liabilities 17 3,155,290,968 2,056,215,563 Leasehold deposits received 9 43,030,690,737 33,014,098,305 Current income tax liabilities 7,810,151,271 9,539,343,812 Deferred income tax liabilities 21,738,923,964 20,052,096,124 Derivative liabilities 9,18 3,692,968,234 7,505,990,273 130,976,633,852 123,738,667,924 Total liabilities 3,816,796,659,244 3,585,555,415,567 Equity Capital stock 1,19 Common stock 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 Paid-in capital in excess of par value 19 74,608,059,537 74,608,059,537 Accumulated other comprehensive income (loss) 23 Unrealized loss on valuation of derivatives (1,325,511,724) (1,914,821,981) Unrealized gain (loss) on valuation of available-for- sale securities (855,456,347) 713,160,297 Accumulated comprehensive income (loss) of equity method investee (3,683,508,350) 3,811,298,060 Remeasurement of defined benefit plans 3 (1,695,131,536) (1,670,150,616) (7,559,607,957) 939,485,760 Retained earnings Legal reserve 20 7,100,000,000 4,000,000,000 Voluntary reserve 15,389,637,505 3,457,191,901 Unappropriated retained earnings 3 129,185,054,453 130,082,243,227 (Appropriated regulatory reserve for credit losses - (W15,289,637,505) and (W3,357,191,901), respectively) (Estimated provision (reversal) of regulatory reserve for credit losses - (W3,686,307,413) and (W11,932,445,604), respectively) 151,674,691,958 137,539,435,128 Total equity attributable to owners of the Controlling Company 343,723,143,538 338,086,980,425 Non-controlling interests 19,820,000 19,820,000 Total equity 343,742,963,538 338,106,800,425 Total liabilities and equity W 4,160,539,622,782 3,923,662,215,992 See accompanying notes to the condensed consolidated interim financial statements.
  • Hyundai Commercial, Inc. and Subsidiaries Condensed Consolidated Interim Statements of Comprehensive Income For the three-month and six-month periods ended June 30, 2013 and 2012 (Unaudited) 5 2013 2012 (In Korean won) Notes Three-month period ended Six-month period ended Three-month period ended (Restated) Six-month period ended (Restated) Operating revenue Interest income W 2,064,041,914 4,606,179,440 2,800,734,685 5,572,386,120 Income on loans 70,586,691,375 140,846,471,172 68,177,970,017 133,313,505,392 Income on installment financial receivables 7,520,885,531 15,458,572,550 10,977,195,309 23,040,822,533 Income on leases 2,799,986,412 5,156,132,989 1,896,785,538 3,574,663,299 Gain on disposal of loans 856,701,261 2,247,850,595 966,463,198 1,729,577,040 Dividend income - 200,000,000 - 250,000,000 Gain on valuation of derivatives 2,068,132,660 4,248,740,550 658,301,020 27,500,000 Other operating income 430,540,156 720,978,619 236,675,753 361,801,923 86,326,979,309 173,484,925,915 85,714,125,520 167,870,256,307 Operating expenses Interest expense 39,383,394,192 79,013,119,505 41,035,492,920 80,550,883,516 Bad debt expense 8 5,237,966,381 12,903,454,267 3,889,005,153 8,697,812,014 Loss on disposal of loans 1,692,170,707 3,285,647,453 464,015,511 1,079,502,006 Loss on foreign transactions 2,068,000,000 4,323,000,000 880,000,000 27,500,000 General and administrative expenses 21 14,707,543,146 33,070,234,790 15,581,238,326 29,866,953,086 Loss on valuation of derivatives - - - 272,953,980 Other operating expenses 1,601,990,759 3,265,449,572 964,526,684 1,519,109,243 64,691,065,185 135,860,905,587 62,814,278,594 122,014,713,845 Operating income 21,635,914,124 37,624,020,328 22,899,846,926 45,855,542,462 Non-operating income 3 Gain on equity method valuation 6 2,000,627,221 4,615,645,017 - 5,856,423,741 Gain on disposal of property and equipment 31,356,144 41,633,144 - 1,660,733 Miscellaneous income 172,508,740 339,083,815 158,227,384 237,707,723 2,204,492,105 4,996,361,976 158,227,384 6,095,792,197 Non-operating expenses 3 Loss on equity method valuation 6 6,396,994,962 12,312,128,413 12,975,036,702 7,982,403,935 Loss on disposal of property and equipment - - 87,386,150 87,386,150 Contribution - 1,000,000 - - Miscellaneous losses 107,853,847 203,212,853 129,051,625 248,314,748 Other non-operating expenses - - - 8,582,824,000 6,504,848,809 12,516,341,266 13,191,474,477 16,900,928,833 Profit before income taxes 17,335,557,420 30,104,041,038 9,866,599,833 35,050,405,826 Income tax expenses 22 5,829,382,043 9,968,784,208 5,714,613,323 10,391,091,084 Profit for the period 20,24 W 11,506,175,377 20,135,256,830 4,151,986,510 24,659,314,742 (Profit adjusted by regulatory reserve for credit losses amounted to W9,284,759,522 and W4,387,676,326 for the three-month, and W16,448,949,417 and W14,976,768,169 for the six-month periods ended June 30, 2013 and 2012) Profit attributable to: Owners of the Controlling Company W 11,506,175,377 20,135,256,830 4,151,986,510 24,659,314,742 Non-controlling interests - - - - Profit for the period W 11,506,175,377 20,135,256,830 4,151,986,510 24,659,314,742 See accompanying notes to the condensed consolidated interim financial statements.
  • Hyundai Commercial, Inc. and Subsidiaries Condensed Consolidated Interim Statements of Comprehensive Income, Continued For the three-month and six-month periods ended June 30, 2013 and 2012 (Unaudited) 6 2013 2012 (In Korean won) Notes Three-month period ended Six-month period ended Three-month period ended (Restated) Six-month period ended (Restated) Other comprehensive income (loss), net of Income taxes 3,23 Items that are or may be reclassified to profit or loss subsequently W (12,335,865,805) (8,474,112,797) (9,673,612,466) (1,866,698,770) Items that will not be reclassified to profit or loss 212,688,748 (24,980,920) - - (12,123,177,057) (8,499,093,717) (9,673,612,466) (1,866,698,770) Total comprehensive income (loss) for the period W (617,001,680) 11,636,163,113 (5,521,625,956) 22,792,615,972 Total comprehensive income (loss) attributable to: Owners of the Controlling Company W (617,001,680) 11,636,163,113 (5,521,625,956) 22,792,615,972 Non-controlling interests - - - - Total comprehensive income (loss) for the period W (617,001,680) 11,636,163,113 (5,521,625,956) 22,792,615,972 See accompanying notes to the condensed consolidated interim financial statements.
  • Hyundai Commercial, Inc. and Subsidiaries Condensed Consolidated Interim Statements of Changes in Equity For the six-month periods ended June 30, 2013 and 2012 (Unaudited) 7 (In Korean won) Capital stock Capital surplus Accumulated other comprehensive income (loss) Retained earnings Total attributable to owners of the Controlling Company Non-controlling interests Total equity Balance as of January 1, 2012 W 125,000,000,000 74,608,059,537 3,262,305,957 146,466,631,832 349,336,997,326 19,820,000 349,356,817,326 Changes in accounting policy - - (940,586,101) 940,586,101 - - - Balance as of January 1, 2012 (Restated) 125,000,000,000 74,608,059,537 2,321,719,856 147,407,217,933 349,336,997,326 19,820,000 349,356,817,326 Total comprehensive income (loss) Profit for the period - - - 24,659,314,742 24,659,314,742 - 24,659,314,742 Other comprehensive income (loss) Net unrealized gain on valuation of derivatives - - 467,720,979 - 467,720,979 - 467,720,979 Net unrealized loss on valuation of available-for- sale securities - - (4,104,904,072) - (4,104,904,072) - (4,104,904,072) Other comprehensive income of equity method investees - - 1,770,484,323 148,895,651 1,919,379,974 - 1,919,379,974 Total comprehensive income (loss) for the period - - (1,866,698,770) 24,808,210,393 22,941,511,623 - 22,941,511,623 Transactions with owners Dividends paid - - - (30,000,000,000) (30,000,000,000) - (30,000,000,000) Balance as of June 30, 2012 W 125,000,000,000 74,608,059,537 455,021,086 142,215,428,326 342,278,508,949 19,820,000 342,298,328,949 Balance as of January 1, 2013 W 125,000,000,000 74,608,059,537 2,609,636,376 135,869,284,512 338,086,980,425 19,820,000 338,106,800,425 Changes in accounting policy - - (1,670,150,616) 1,670,150,616 - - - Balance as of January 1, 2013 (Restated) 125,000,000,000 74,608,059,537 939,485,760 137,539,435,128 338,086,980,425 19,820,000 338,106,800,425 Total comprehensive income (loss) Profit for the period - - - 20,135,256,830 20,135,256,830 - 20,135,256,830 Other comprehensive income (loss) Net unrealized gain on valuation of derivatives - - 589,310,257 - 589,310,257 - 589,310,257 Net unrealized loss on valuation of available-for- sale securities - - (1,568,616,644) - (1,568,616,644) - (1,568,616,644) Other comprehensive loss of equity method Investees - - (7,494,806,410) - (7,494,806,410) - (7,494,806,410) Remeasurement of defined benefit plans - - (24,980,920) - (24,980,920) - (24,980,920) Total comprehensive income (loss) for the period - - (8,499,093,717) 20,135,256,830 11,636,163,113 - 11,636,163,113 Transactions with owners Dividends paid - - - (6,000,000,000) (6,000,000,000) - (6,000,000,000) Balance as of June 30, 2013 W 125,000,000,000 74,608,059,537 (7,559,607,957) 151,674,691,958 343,723,143,538 19,820,000 343,742,963,538 See accompanying notes to the condensed consolidated interim financial statements.
  • Hyundai Commercial, Inc. and Subsidiaries Condensed Consolidated Interim Statements of Cash Flows For the six-month periods ended June 30, 2013 and 2012 (Unaudited) 8 (In Korean won) Notes 2013 2012 Cash flows from operating activities Cash used in operations 24 W (138,312,164,112) (101,510,726,025) Interest received 4,007,100,691 4,842,900,556 Interest paid (75,991,189,715) (77,670,773,925) Dividend received 200,000,000 250,000,000 Income taxes paid (9,820,966,030) (14,172,117,385) Net cash used in operating activities (219,917,219,166) (188,260,716,779) Cash flows from investing activities Proceeds from sale of available-for-sale securities 2,087,507,420 - Acquisition of available-for-sale securities (9,208,371,617) - Acquisition of investments in associates - (98,969,780,000) Proceeds from disposal of vehicles 33,890,000 63,107,858 Acquisition of vehicles - (76,172,300) Proceeds from disposal of fixtures and furniture 10,502,000 - Acquisition of fixtures and furniture (877,776,698) (766,713,486) Acquisition of intangible assets (107,615,973) (279,514,400) Increase in advanced payments (2,699,484,858) - Decrease in leasehold deposits 8,861,621,928 5,000,000 Increase in leasehold deposits (232,289,437) (908,722,500) Net cash used in investing activities (2,132,017,235) (100,932,794,828) Cash flows from financing activities Proceeds from borrowings 550,140,000,000 345,790,000,000 Repayments of borrowings (653,473,540,795) (361,722,161,249) Issuance of debentures 657,979,358,532 619,356,099,400 Repayments of debentures (335,677,000,000) (245,000,000,000) Payments of dividends (6,000,000,000) (30,000,000,000) Net cash provided by financing activities 212,968,817,737 328,423,938,151 Net cash increase (decrease) in cash and cash equivalents (9,080,418,664) 39,230,426,544 Cash and cash equivalents at beginning of period 24 282,825,795,422 276,009,118,714 Cash and cash equivalents at end of period 24 W 273,745,376,758 315,239,545,258 See accompanying notes to the condensed consolidated interim financial statements.
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 9 1. Reporting Entity Hyundai Commercial, Inc., the controlling company, and its subsidiaries (collectively, the “Group”) included in consolidation are summarized as below. (a) Controlling Company Hyundai Commercial, Inc. (the “Controlling 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 Group’s operations are headquartered in Yeouido, Seoul. The common shareholders of the Group’s as of June 30, 2013 were as follows: Number of shares Percentage of ownership (%) Hyundai Motor Company 10,000,000 50.00 Myung-yi Chung 6,667,000 33.33 Tae-young Chung 3,333,000 16.67 20,000,000 100.00 (b) The Group’s subsidiaries Subsidiaries as of June 30, 2013 and December 31, 2012 were as follows. The Group 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%. June 30, 2013 December 31, 2012 Special Purpose Entities Commercial Auto First SPC (trust) Commercial Auto First SPC (trust) Commercial Auto Second SPC (trust) Commercial Auto Second SPC (trust) 2. Basis of Preparation (a) Statement of compliance These condensed consolidated interim financial statements were prepared in accordance with K-IFRS No. 1034, Interim Financial Reporting as part of the period covered by the Group’s K-IFRS consolidated annual financial statements. Selected explanatory notes are included to explain events and transactions that are significant to understanding of the changes in financial position and performance of the Group since the last annual consolidated financial statements as of and for the year ended December 31, 2012. (b) Use of estimates and judgements The preparation of the condensed consolidated interim financial statements in conformity with K-IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 10 3. Significant Accounting Policies (a) Changes in accounting policies Except as described below, the accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in the consolidated financial statements as of and for the year ended December 31, 2012. The following changes in accounting policies are also expected to be reflected in the Group’s consolidated financial statements as of and for the year ended December 31, 2013. 1) New standards and interpretations i) Amendments to K-IFRS No. 1001 Presentation of Financial Statements The Group applies the amendments from annual periods beginning at January 1, 2013. The amendments require presenting items in other comprehensive income on the basis of whether they are potentially reclassifiable to profit or loss in subsequent periods. ii) Enactment of K-IFRS No. 1110 Consolidated Financial Statements The Group applies the standard from annual periods beginning on January 1, 2013. The standard outlines the requirements for the preparation and presentation of consolidated financial statements, requiring the Group to consolidate entities it controls. An investor is considered to have control over an investee when it has exposure or rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. iii) Enactment of K-IFRS No. 1112 Disclosure of Interests in Other Entities The Group applies the standard from annual periods beginning on January 1, 2013. The standard requires a wide range of disclosures about an entity's interests in subsidiaries, joint arrangements, associates and unconsolidated 'structured entities'. The standard requires the disclosure of information that enables users of financial statements to evaluate the nature, and risks associated with its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows. iv) Amendments to K-IFRS No. 1019 Employee Benefits The Group applies the amendments from annual periods beginning on January 1, 2013. The amendments require recognition of actuarial gains and losses immediately in other comprehensive income, and to calculate expected returns on plan assets based on the rate used to discount the defined benefit obligation. v) Enactment of K-IFRS No. 1113 Fair Value Measurement The Group applies the standard from annual periods beginning on January 1, 2013. The standard provides a single framework for measuring fair value and requires disclosures about fair value measurements.
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 11 3. Significant Accounting Policies, Continued (a) Changes in accounting policies, continued 2) Effects of changes in accounting policies i) Amendments to K-IFRS No. 1001 Presentation of Financial Statements The Group applied the amendments to K-IFRS No. 1001 Presentation of Financial Statements from the annual periods beginning at January 1, 2013. The Group applied the changes of accounting policy retrospectively and restated its comparative financial statements. The following table summarizes the financial effects on the statement of comprehensive income for the three-month and six-month periods ended June 30, 2012. June 30, 2012 As previously reported Amendments (*) As restated Three-month period ended Six-month period ended Three-month period ended Six-month period ended Three-month period ended Six-month period ended Operating income W 22,841,637 45,759,210 58,210 96,332 22,899,847 45,855,542 Profit for the period 4,151,987 24,659,315 - - 4,151,987 24,659,315 Earnings per share (won) 208 1,233 - - 208 1,233 (*) The following items were classified as operating income before applying the amendments to K- IFRS No. 1001 Presentation of Financial Statements. After the amendments, they were excluded from operating income. June 30, 2012 Three-month period ended Six-month period ended Non-operating income Gain on disposal of property and equipment W - 1,661 Miscellaneous income 158,227 237,708 Non-operating expenses Loss on disposal of property and equipment 87,386 87,386 Miscellaneous losses 129,051 248,315 ii) Amendments to K-IFRS No. 1019 Employee Benefits The amendments to K-IFRS No. 1019 Employee Benefits are applied retrospectively, and the Group reclassified accumulated actuarial gains and losses into other comprehensive income accordingly. The following table summarizes the financial effects on the condensed consolidated statement of financial position as of December 31, 2012. The Group applied the changes of accounting policy retrospectively and restated its comparative financial statements. December 31, 2012 As previously reported Amendments As restated Accumulated other comprehensive income W 2,609,636 (1,670,150) 939,486 Retained earnings 135,869,285 1,670,150 137,539,435
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 12 3. Significant Accounting Policies, Continued (a) Changes in accounting policies, continued 3) New standards and interpretations not yet adopted The following new standards, interpretations and amendments to existing standards have been published and are mandatory for the Group for annual periods beginning after January 1, 2013, and the Group has not early adopted them. The financial impact of the adoption of these amendments is currently under assessment. K-IFRS No. 1032 Financial Instruments: Presentation The amendments address inconsistencies in current practice when applying the offsetting criteria in K-IFRS No. 1032 Financial Instrument: Presentation. The amendments clarify the meaning of a legally enforceable right of set-off and that some gross settlement systems may be considered equivalent to net settlement. The amendments are effective for annual periods beginning on or after January 1, 2014 and are required to be applied retrospectively. (b) Consolidation i) Subsidiaries The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. If a subsidiary of the Group uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in preparing the consolidated financial statements. ii) Intra-group transactions Intra-group balances and transactions, and any unrealized income and expenses arising from intra- group transactions, are eliminated in preparing the consolidated financial statements. Intra-group losses are recognized as expense if intra-group losses indicate an impairment that requires recognition in the consolidated financial statements. iii) Non-controlling interests Non-controlling interests in a subsidiary are accounted for separately from the parent’s ownership interests in a subsidiary. Each component of net profit or loss and other comprehensive income is attributed to the owners of the parent and non-controlling interest holders, even when the allocation reduces the non-controlling interest balance below zero. iv) Changes in ownership interests in a subsidiary Changes in ownership interests in a subsidiary that do not result in a loss of control, such as the subsequent purchase or sale by a parent of a subsidiary’s equity instruments, are accounted for as equity transactions in capital adjustments. Adjustments to non-controlling interests are based on a proportionate amount of net asset of the subsidiary. No adjustments are made to goodwill and no gain or loss is recognized in profit or loss. The difference between the consideration and the adjustments made to non-controlling interest is recognized directly in equity attributable to the owners of the Group.
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 13 3. Significant Accounting Policies, Continued (c) Associates An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but not have control or joint control over these policies. Significant influence is generally presumed to exist when the Group holds 20% or more, but less than 50%, of the voting rights. Under the equity method, an investment in an associate is initially recognized in the consolidated statements of financial position at cost and adjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of the associate. When the Group’s share of losses of an associate exceeds the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. If an associate uses accounting policies different from those of the Group for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in applying the equity method. When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term investments, is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has to make payments on behalf of the investee for further losses. (d) Cash and cash equivalents The Group considers cash on hand, call deposits, and highly liquid financial assets which are subject to insignificant risk of changes in their fair values to be cash and cash equivalents. (e) Non-derivative financial assets Non-derivative financial assets are classified into the following measurement categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets, all of which are initially recognized on the date at which the Group becomes a party to the contractual provisions of the instrument. A financial asset is measured initially at its fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition. i) Financial assets at fair value through profit or loss Financial assets are classified as at fair value through profit or loss when the financial asset is either held for trading or is designated at fair value through profit or loss. Financial assets at fair value through profit or loss are measured at fair value upon initial recognition and changes therein are recognized in profit or loss. Upon initial recognition, attributable transaction costs are recognized in profit or loss as incurred.
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 14 3. Significant Accounting Policies, Continued (e) Non-derivative financial assets, continued ii) Held-to-maturity investments If the non-derivative assets have a fixed maturity with fixed or determinable payments, and the Group has the positive intent and ability to hold them until maturity, then such financial assets are classified as held-to-maturity. Subsequent to initial recognition, held-to-maturity financial assets are measured at amortized cost using the effective interest rate method. iii) Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method. iv) Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as financial assets at fair value through profit or loss, held-to- maturity investments or loans and receivables. Subsequent to initial recognition, they are measured at fair value, with changes in fair value, net of any tax effect, recorded in other comprehensive income in equity. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives those are linked to and must be settled by delivery of such unquoted equity instruments are measured at cost. v) Derecognition of financial assets The Group de-recognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows of the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. If the Group retains substantially all the risks and rewards of ownership of the transferred financial assets, the Group continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received. vi) Offsetting between financial assets and financial liabilities Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Group currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously. (f) Derivative financial instruments Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below. 1) Hedge accounting The Group holds various derivative financial instruments, such as currency swaps and interest rate swaps, etc., to hedge its foreign currency and interest rate risk exposures. On initial designation of the hedge, the Group formally documents the relationship between the hedging instruments and hedged items, including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship.
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 15 3. Significant Accounting Policies, Continued (f) Derivative financial instruments, continued i) Fair value hedge Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss. The gain or loss from remeasuring the hedging instrument at fair value for a derivative hedging instrument and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the consolidated statement of comprehensive income. The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, or if the hedge no longer meets the criteria for hedge accounting. Any adjustment arising from gain or loss on the hedged item attributable to the hedged risk is amortized to profit or loss from the date the hedge accounting is discontinued. ii) Cash flow hedge When a derivative is designated to hedge the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income, net of tax, and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss. 2) Embedded derivative instruments Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria has been met: (a) the economic characteristics and risks of the host contract and the embedded derivatives are not clearly and closely related to a separate instrument with the same terms as the embedded derivative that would meet the definition of a derivative, and (b) the hybrid (combined) instrument is not measured at fair value through profit or loss. Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss. 3) Other derivative instruments Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 16 3. Significant Accounting Policies, Continued (g) Impairment of financial assets A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized. Objective evidence that a financial asset is impaired includes, but not limited to, the following events: i) Assets carried at amortized cost An impairment loss in respect of assets carried at amortized cost measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate and is recognized in profit or loss. Interest on the impaired asset continues to be recognized through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. ii) Available-for-sale financial assets When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available-for-sale are not 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, with the amount of the reversal recognized in profit or loss. (h) Revenue recognition The Group recognizes capital lent to customers as loans receivables. Installment financial capital paid by the Group to manufacturers or sellers on behalf of customers is recognized as installment financial assets. Financial lease receivables classified as financial leases are recognized as lease receivables. The expected future cash flows from loans receivables, installment financial assets and lease receivables (“financial receivables”) described above are amortized under the effective interest method over the period of the financial receivables being used by customers. (i) Deferral of loan origination fee and loan origination cost Loan origination fee, which is 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.
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 17 3. Significant Accounting Policies, Continued (j) Allowance for financial receivables i) Calculation of allowance 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 account consists of impairments related to individually material financial receivables and 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 emergence period, and management’s decision about the current economy and credit circumstance. 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. ii) 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. (k) Leases i) Classification The Group classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the lessee assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases. The lease arrangement classified as a finance lease is where: ① the lease transfers ownership of the asset to the lessee by the end of the lease term, the lessee has the option to purchase the② 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, ③ the lease term is for the major part of the economic life of the asset even if the title is not transferred, ④ at 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 ⑤ the 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 obligation under the guarantee.
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 18 3. Significant Accounting Policies, Continued (k) Leases, continued ii) Finance leases Where the Group has substantially all the risks and rewards of ownership, lease of property, 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 classified 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 negotiation 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. (l) Property and equipment Property and equipment are initially measured at cost and after initial recognition, are carried at cost less accumulated depreciation and accumulated impairment losses. The cost of property and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. The cost of replacing a part of an item of property or equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced cost is derecognized. The cost of the day to day servicing of property and equipment are recognized in profit or loss as incurred. Property and equipment are depreciated on a straight-line basis over the estimated useful lives, which most closely reflect the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives for the current and comparative years are as follows: Descriptions Depreciation method Useful lives Vehicles Straight-line 4 years Fixtures and furniture Straight-line 4 years Works 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 carry amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount, and recognized within other operating income (expenses) in the consolidated statement of comprehensive income.
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 19 3. Significant Accounting Policies, Continued (m) Intangible assets Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses. Amortization of intangible assets is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. Descriptions Amortization method Useful lives Development Straight-line 5 years Software Straight-line 4 years Other intangible assets Straight-line 5 years i) Research and development Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred. ii) Subsequent expenditures Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred. (n) 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 the 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 viewed for possible reversal of the impairment at each reporting date. (o) Non-derivative financial liabilities The Group classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities. The Group recognizes financial liabilities in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the financial liability. i) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the acquisition are recognized in profit or loss as incurred.
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 20 3. Significant Accounting Policies, Continued (o) Non-derivative financial liabilities, continued ii) Other financial liabilities Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method. The Group derecognizes a financial liability from the consolidated statement of financial position when it is extinguished (i.e., when the obligation specified in the contract is discharged, cancelled or expires). (p) Pension obligations The Group operates a defined benefit plan. A defined benefit plan is a post-employment benefit plan other than a defined contribution 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 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. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in other comprehensive income or loss in the period in which they arise. (q) 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 consolidated financial statements. 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 expenditure expected to be required to settle the obligation. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed. 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 consolidated financial statements.
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 21 3. Significant Accounting Policies, Continued (r) Foreign 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. 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 statement of comprehensive income, except when deferred in other comprehensive income as qualifying cash flow hedges. (s) Equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects. Preference share capital is classified as equity if it is non-redeemable, or redeemable only at the Group’s option, and any dividends are discretionary. Dividends thereon are recognized as distributions within equity upon approval by the Group’s shareholders. (t) Income tax Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income. i) Current income tax Current income tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit. ii) Deferred income tax 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.
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 22 3. Significant Accounting Policies, Continued (t) Income tax, continued The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to 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 taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. 4. Restricted Financial Instruments Restricted financial instruments as of June 30, 2013 and December 31, 2012 were as follows: Type Depository June 30, 2013 December 31, 2012 Restriction Due from banks Kookmin Bank and 2 others W 9,000 9,000 Guarantee deposit for account opening 5. Available-for-sale Securities Balances as of available-for-sale securities as of June 30, 2013 and December 31, 2012 were as follows: June 30, 2013 December 31, 2012 Equity securities Marketable equity securities W 8,210,000 10,650,000 Unlisted equity securities 5,824,021 5,607,645 Beneficiary certificates 7,150,131 - 21,184,152 16,257,645 Debt securities 11,332,223 10,726,682 W 32,516,375 26,984,327
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 23 5. Available-for-sale Securities, Continued Details of available-for-sale securities as of June 30, 2013 and December 31, 2012 were as follows: Book value Number of shares Ownership (%) Acquisition cost June 30, 2013 December 31, 2012 Marketable equity securities JNK Heaters Co., Ltd. 1,000,000 12.50 W 10,126,881 8,210,000 10,650,000 Unlisted equity securities Leehan Corp. (*1) 136,000 12.30 3,199,762 3,521,312 3,304,936 Anyang KDC Project Corp. 389,999 15.00 2,293,275 2,293,275 2,293,275 Anyang KDC Asset Management Corp. 1,499 15.00 8,814 8,814 8,814 Isung Eng, Corp. 24 - 620 620 620 5,502,471 5,824,021 5,607,645 Beneficiary certificates Hanjoo New Credit private special asset investment trust - 73.70 7,120,864 7,150,131 - Debt securities Leehan Corp. (*2) - - 5,469,801 7,332,223 6,726,682 Commercial Auto Third SPC - - 4,000,000 4,000,000 4,000,000 9,469,801 11,332,223 10,726,682 W 32,220,017 32,516,375 26,984,327 (*1) The fair value of the securities of Leehan Corp. is the valuation price provided by an external appraiser, Korea Asset Pricing. The external appraiser valuated the fair value as the average of valuation prices using the discounted cash flow model and the imputed market value model. (*2) The debt security is a convertible bond issued by Leehan Corp. The fair value of the convertible bond is provided by an external appraiser, Korea Asset Pricing. The difference between the fair value and book value of the convertible bond is amortized using the effective interest rate method and is recognized as a gain or loss on valuation of debt securities. The fluctuation of in the fair value of the conversion right and the advanced redemption right is recognized in the gain or loss on embedded derivatives.
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 24 6. Investments in Associates Details of investments in associates as of June 30, 2013 and December 31, 2012 were as follows: Number of shares Ownership (%) Acquisition cost Net asset value Book value June 30, 2013 Hyundai Card Co., Ltd. (*) 8,889,622 5.54 W 113,820,162 126,105,513 163,031,164 Hyundai Life Insurance Co., Ltd. 10,685,620 39.07 138,913,060 83,088,468 107,186,589 W 252,733,222 209,193,981 270,217,753 December 31, 2012 Hyundai Card Co., Ltd. (*) 8,889,622 5.54 W 113,820,162 121,460,539 158,386,190 Hyundai Life Insurance Co., Ltd. 10,685,620 39.07 138,913,060 102,391,658 127,015,755 W 252,733,222 223,852,197 285,401,945 (*) The Group’s shareholdings are less than 20%. However, the Group is able to significantly exert influence through its involvement in the financial and operating processes, and thus the equity method is applied. Details of valuation of equity method investment and other changes as of June 30, 2013 and December 31, 2012 were as follows: Beginning balance Acquisition Gain (loss) on valuation Changes in accumulated other comprehen- sive income (*) Changes in retained earning Ending balance June 30, 2013 Hyundai Card Co., Ltd. W 158,386,190 - 4,615,645 29,329 - 163,031,164 Hyundai Life Insurance Co., Ltd. 127,015,755 - (12,312,128) (7,517,038) - 107,186,589 W 285,401,945 - (7,696,483) (7,487,709) - 270,217,753 December 31, 2012 Hyundai Card Co., Ltd. W 147,539,965 - 10,609,150 237,075 - 158,386,190 Hyundai Life Insurance Co., Ltd. - 138,913,060 (18,716,249) 5,334,179 1,484,765 127,015,755 W 147,539,965 138,913,060 (8,107,099) 5,571,254 1,484,765 285,401,945 (*) Tax effects are not deducted.
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 25 6. Investments in Associates, Continued Condensed financial statements of associates as of June 30, 2013 and December 31, 2012 were as follows: Closing month Assets Liabilities Operating revenue Profit (loss) for the period June 30, 2013 Hyundai Card Co., Ltd. December W 10,769,615,707 8,493,303,266 1,307,474,500 83,316,343 Hyundai Life Insurance Co., Ltd. March 3,943,244,446 3,730,602,119 497,318,652 (17,606,775) December 31, 2012 Hyundai Card Co., Ltd. December W 11,252,488,244 9,060,021,557 2,524,941,896 191,504,230 Hyundai Life Insurance Co., Ltd. (*) March 3,824,606,629 3,562,563,039 885,330,384 (6,045,704) (*) Hyundai Life Insurance Co. Ltd. is a corporation with fiscal year ending on March 31. However, its assets and liabilities presented above are as of December 31, 2012, and the results of its operations are for the nine-month period ended December 31, 2012. The deemed acquisition date was February 29, 2012.
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 26 7. Financial Receivables Details of financial receivables as of June 30, 2013 and December 31, 2012 were as follows: Principal Deferred loan origination fees and costs Present value discount Allowance for doubtful accounts Book value June 30, 2013 Loans receivables Factoring receivables W 8,681,252 - - (39,576) 8,641,676 Loans 3,002,635,539 42,351,312 (237,865) (18,001,448) 3,026,747,538 3,011,316,791 42,351,312 (237,865) (18,041,024) 3,035,389,214 Installment financial assets Auto 306,282,676 3,482,271 - (1,665,401) 308,099,546 Durable goods 20,691,118 (232,998) - (139,510) 20,318,610 326,973,794 3,249,273 - (1,804,911) 328,418,156 Lease receivables Financial lease receivables 171,320,283 100,393 - (1,325,751) 170,094,925 W 3,509,610,868 45,700,978 (237,865) (21,171,686) 3,533,902,295 December 31, 2012 Loans receivables Factoring receivables W 108,000 - - (270) 107,730 Loans 2,764,943,740 35,870,003 (200,613) (19,258,900) 2,781,354,230 2,765,051,740 35,870,003 (200,613) (19,259,170) 2,781,461,960 Installment financial assets Auto 331,018,925 2,702,341 - (2,351,090) 331,370,176 Durable goods 25,765,456 (140,848) - (176,228) 25,448,380 356,784,381 2,561,493 - (2,527,318) 356,818,556 Lease receivables Financial lease receivables 132,355,777 687 - (1,026,911) 131,329,553 W 3,254,191,898 38,432,183 (200,613) (22,813,399) 3,269,610,069
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 27 8. Allowance for Doubtful Accounts Changes in allowance for doubtful accounts for the six-month period ended June 30, 2013 and for the year ended December 31, 2012 were as follows: Loans receivables Installment financial assets Lease receivables Other assets Total June 30, 2013 Beginning balance W 19,259,170 2,527,318 1,026,911 227,475 23,040,874 Amounts written off (4,368,807) (267,432) (137,513) - (4,773,752) Recoveries of amounts previously written off 324,430 3,538 - - 327,968 Disposal of receivables (8,697,852) (1,318,218) (955) - (10,017,025) Unwinding of discount (136,084) (11,911) - - (147,995) Additional (reversed) allowance 11,660,167 871,616 437,308 (65,637)) 12,903,454 Ending balance W 18,041,024 1,804,911 1,325,751 161,838 21,333,524 December 31, 2012 Beginning balance W 18,169,160 3,175,354 620,397 330,388 22,295,299 Amounts written off (4,168,839) (396,392) - - (4,565,231) Recoveries of amounts previously written off 772,833 86,527 - - 859,360 Disposal of receivables (14,903,755) (1,921,390) (34,163) - (16,859,308) Unwinding of discount (226,349) (28,019) - - (254,368) Additional (reversed) allowance 19,616,120 1,611,238 440,677 (102,913) 21,565,122 Ending balance W 19,259,170 2,527,318 1,026,911 227,475 23,040,874
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 28 9. Fair Value of Financial Instruments Fair value is the amount at which the asset could be exchanged or the liabilities could be settled in a transaction between knowledgeable and willing independent parties. The best estimated fair value is the published price quotation in an active market. The Group believes that valuation technique applied to the financial instruments is adequate and fair value of financial instruments is reasonable, but if the Group use another valuation technique or assumptions, such fair value might be changed. Also, as fair value measurement of financial instruments uses variable valuation techniques and assumptions, comparing fair value with those recognized by other financial institutions might be difficult. Fair values of financial instruments as of June 30, 2013 and December 31, 2012 were as follows: June 30, 2013 December 31, 2012 Book value Fair value Book value Fair value Financial assets Cash and due from banks W 273,754,377 273,754,377 282,834,795 282,834,795 Available-for-sale securities 32,516,375 32,516,375 26,984,327 26,984,327 Loans receivables 3,035,389,214 3,098,500,805 2,781,461,960 2,775,937,581 Installment financial assets 328,418,156 327,552,265 356,818,556 357,631,944 Lease receivables 170,094,925 170,164,643 131,329,553 132,353,718 Derivative assets 1,350,947 1,350,947 137,775 137,775 Account receivables 10,732,874 10,732,874 15,813,310 15,813,310 Accrued revenues 16,768,640 16,768,640 16,858,350 16,858,350 Leasehold deposits 2,394,838 2,148,219 11,083,914 11,201,215 W 3,871,420,346 3,933,489,145 3,623,322,540 3,619,753,015 Financial liabilities Borrowings W 620,550,421 628,750,152 723,883,961 730,188,793 Debentures 2,755,522,147 2,788,678,160 2,428,295,638 2,494,275,095 Securitized debts 309,747,458 317,890,362 309,637,148 319,737,569 Derivative liabilities 3,692,968 3,692,968 7,505,990 7,505,990 Account payables 14,596,795 14,596,795 15,199,625 15,199,625 Accrued expenses 22,258,344 22,258,344 27,995,752 27,995,752 Withholdings (*) 7,955,022 7,955,022 3,045,893 3,045,893 Leasehold deposits 43,030,691 43,590,888 33,014,098 33,618,900 W 3,777,353,846 3,827,412,691 3,548,578,105 3,631,567,617 (*) Excluding taxes and dues
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 29 9. Fair Value of Financial Instruments, Continued The levels of fair value hierarchy have been defined as follows: - Level 1: Quoted prices in active markets for identical assets or liabilities. For example, listed stocks and derivatives. - Level 2: Inputs for the asset or liability included within valuation techniques that are observable market data. For example, most bonds issued in Korean won and foreign currency, general unlisted derivatives like swap, forward, option. - Level 3: Inputs for the asset or liability that is not based on observable market data. For example, unlisted stocks, complicated structured bonds, complicated unlisted derivatives and others. The fair value hierarchy of financial instruments as of June 30, 2013 and December 31, 2012 were as follows: Fair value hierarchy Book value Fair value Level 1 Level 2 Level 3 June 30, 2013 Financial assets Available-for-sale securities W 32,516,375 32,516,375 8,210,000 - 24,306,375 Derivative assets 1,350,947 1,350,947 - 1,350,947 - W 33,867,322 33,867,322 8,210,000 1,350,947 24,306,375 Financial liabilities Derivative liabilities W 3,692,968 3,692,968 - 3,692,968 - December 31, 2012 Financial assets Available-for-sale securities W 26,984,327 26,984,327 10,650,000 - 16,334,327 Derivative assets 137,775 137,775 - 137,775 - W 27,122,102 27,122,102 10,650,000 137,775 16,334,327 Financial liabilities Derivative liabilities W 7,505,990 7,505,990 - 7,505,990 -
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 30 9. Fair Value of Financial Instruments, Continued The changes in financial instruments of level 3 for the six-month period ended June 30, 2013 and for the year ended December 31, 2012 were as follows: Available-for-sale securities June 30, 2013 December 31, 2012 Beginning balance W 16,334,327 8,648,233 Acquisition 7,120,864 6,302,089 Interest income 480,599 871,838 Gains on valuation (other comprehensive income) 370,585 512,167 Ending balance W 24,306,375 16,334,327 The book values of financial instruments by categories as of June 30, 2013 and December 31, 2012 were as follows: Financial assets at fair value through profit or loss Available-for- sale financial assets Loans and receivables Hedging derivative instruments Total June 30, 2013 Financial assets Cash and due from banks W - - 273,754,377 - 273,754,377 Available-for-sale securities - 32,516,375 - - 32,516,375 Loans receivable - - 3,035,389,214 - 3,035,389,214 Installment financial assets - - 328,418,156 - 328,418,156 Financial lease receivables - - 170,094,925 - 170,094,925 Derivative assets 163 - - 1,350,784 1,350,947 Account receivables - - 10,732,874 - 10,732,874 Accrued revenues - - 16,768,640 - 16,768,640 Leasehold deposits - - 2,394,838 - 2,394,838 W 163 32,516,375 3,837,553,024 1,350,784 3,871,420,346 December 31, 2012 Financial assets Cash and due from banks W - - 282,834,795 - 282,834,795 Available-for-sale securities - 26,984,327 - - 26,984,327 Loans receivable - - 2,781,461,960 - 2,781,461,960 Installment financial assets - - 356,818,556 - 356,818,556 Financial lease receivables - - 131,329,553 - 131,329,553 Derivative assets 74,422 - - 63,353 137,775 Account receivables - - 15,813,310 - 15,813,310 Accrued revenues - - 16,858,350 - 16,858,350 Leasehold deposits - - 11,083,914 - 11,083,914 W 74,422 26,984,327 3,596,200,438 63,353 3,623,322,540
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 31 9. Fair Value of Financial Instruments, Continued Financial liabilities at amortized cost Hedging derivative instruments Total June 30, 2013 Financial liabilities Borrowings W 620,550,421 - 620,550,421 Debentures 2,755,522,147 - 2,755,522,147 Securitized debts 309,747,458 - 309,747,458 Derivative liabilities - 3,692,968 3,692,968 Account payables 14,596,795 - 14,596,795 Accrued expenses 22,258,344 - 22,258,344 Withholdings (*) 7,955,022 - 7,955,022 Leasehold deposits received 43,030,691 - 43,030,691 W 3,773,660,878 3,692,968 3,777,353,846 December 31, 2012 Financial liabilities Borrowings W 723,883,961 - 723,883,961 Debentures 2,428,295,638 - 2,428,295,638 Securitized debts 309,637,148 - 309,637,148 Derivative liabilities - 7,505,990 7,505,990 Account payables 15,199,625 - 15,199,625 Accrued expenses 27,995,752 - 27,995,752 Withholdings (*) 3,045,893 - 3,045,893 Leasehold deposits received 33,014,098 - 33,014,098 W 3,541,072,115 7,505,990 3,548,578,105 (*) Excluding taxes and dues
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 32 10. Transfer of Financial Assets (a) Financial assets that are not entirely derecognized The Group issued senior and subordinated securitized debts based on loans and instalment receivables which were securitized. The securitized debts have recourse only to the transferred assets. Details of financial assets transferred but not entirely derecognized as of June 30, 2013 and December 31, 2012 were as follows: June 30, 2013 December 31, 2012 Book value of assets Loans receivables W 585,636,132 539,978,100 Installment financial assets 18,025,087 35,652,795 Sub total 603,661,219 575,630,895 Book value of related liabilities W 309,747,458 309,637,148 Liabilities having right of resource on transferred assets: Fair value of assets W 615,790,199 574,639,694 Fair value of related liabilities (317,890,362) (319,737,569) Net position W 297,899,837 254,902,125 (b) Financial assets that are entirely derecognized The Group derecognized loans receivables from the consolidated financial statements by transferring them for W101,598,233 thousand to Commercial Auto Third SPC (Trustee Bank: Citibank Korea, Inc.) on December 18, 2012. Gains related to the transaction amounted to W2,450,829 thousand. The Group has continuing involvement in the transferred asset after taking over debt securities issued by Commercial Auto Third SPC. Details of continuing involvement were as follows: Book value of continuing involvement Maximum exposure to loss Available-for-sale securities Acquisition on debt securities W 3,990,812 3,990,812
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 33 11. Financial Lease Receivables Details of total lease investments and present value of minimum lease payment as of June 30, 2013 and December 31, 2012 were as follows: June 30, 2013 December 31, 2012 Total lease investments Present value of minimum lease payment Total lease investments Present value of minimum lease payment Less than 1 year W 73,654,230 65,451,695 55,614,516 48,968,100 1 to 5 years 112,216,884 105,968,982 88,188,405 83,388,364 W 185,871,114 171,420,677 143,802,921 132,356,464 Details of unearned interest income as of June 30, 2013 and December 31, 2012 were as follows: June 30, 2013 December 31, 2012 Total lease investments W 185,871,114 143,802,921 Net lease investments Minimum lease payment (present value) 171,420,677 132,356,464 Unguaranteed residual value (present value) - - 171,420,677 132,356,464 Unearned interest income 14,450,437 11,446,457 12. Property and Equipment Details of property and equipment as of June 30, 2013 and December 31, 2012 were as follows: Acquisition cost Accumulated depreciation Book value June 30, 2013 Vehicles W 113,471 (65,863) 47,608 Fixtures and furniture 8,672,568 (5,673,169) 2,999,399 Others 411,000 - 411,000 W 9,197,039 (5,739,032) 3,458,007 December 31, 2012 Vehicles W 235,097 (165,298) 69,799 Fixtures and furniture 7,965,357 (5,263,430) 2,701,927 Others 411,000 - 411,000 W 8,611,454 (5,428,728) 3,182,726
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 34 12. Property and Equipment, Continued Changes in property and equipment for the six-month period ended June 30, 2013 and for the year ended December 31, 2012 were as follows: Beginning balance Acquisition Disposal Depreciation Ending balance June 30, 2013 Vehicles W 69,799 - (2,534) (19,657) 47,608 Fixtures and furniture 2,701,927 877,777 (225) (580,080) 2,999,399 Others 411,000 - - - 411,000 W 3,182,726 877,777 (2,759) (599,737) 3,458,007 December 31, 2012 Vehicles W 114,731 76,172 (61,447) (59,657) 69,799 Fixtures and furniture 2,382,936 1,418,127 (114,015) (985,121) 2,701,927 Others 411,000 - - - 411,000 W 2,908,667 1,494,299 (175,462) (1,044,778) 3,182,726 As of June 30, 2013, the Group maintained comprehensive property insurance with Hyundai Marine and Fire Insurance for its fixtures and furniture, and other tangible assets for up to W4,008,254 thousand (W4,008,254 thousand as of December 31, 2012), vehicle insurance for its vehicles, and group accident insurance, travel insurance and business damage insurance for its employees. Also, the Group maintained comprehensive property insurance with Hyundai Marine and Fire Insurance for its machine tool installment financial assets and lease assets for up to W171,751,658 thousand (W92,452,845 thousand as of December 31, 2012).
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 35 13. Intangible Assets Details of intangible assets as of June 30, 2013 and December 31, 2012 were as follows: Acquisition cost Accumulated depreciation Book value June 30, 2013 Development costs W 3,197,494 (1,165,674) 2,031,820 Software 6,529,747 (5,272,963) 1,256,784 Others 25,851 (25,848) 3 W 9,753,092 (6,464,485) 3,288,607 December 31, 2012 Development costs W 2,847,793 (869,745) 1,978,048 Software 6,422,131 (4,947,389) 1,474,742 Others 25,851 (25,631) 220 W 9,295,775 (5,842,765) 3,453,010 Changes in intangible assets for the six-month period ended June 30, 2013 and for the year ended December 31, 2012 were as follows: Beginning balance Increase (*) Amortization Ending balance June 30, 2013 Development costs W 1,978,048 349,701 (295,929) 2,031,820 Software 1,474,742 107,616 (325,574) 1,256,784 Others 220 - (217) 3 W 3,453,010 457,317 (621,720) 3,288,607 December 31, 2012 Development costs W 1,763,019 694,513 (479,484) 1,978,048 Software 1,306,607 784,411 (616,276) 1,474,742 Others 2,678 - (2,458) 220 W 3,072,304 1,478,924 (1,098,218) 3,453,010 (*) Includes transfer from advanced payments
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 36 14. Borrowings Details of borrowings as of June 30, 2013 and December 31, 2012 were as follows: Lender Annual interest rate (%) June 30, 2013 December 31, 2012 Borrowings in Korean won Commercial paper SK Securities and 2 others 2.73 ~ 4.17 W 90,000,000 210,000,000 General loan Woori Bank and 8 others 2.98 ~ 5.80 530,550,421 513,883,961 W 620,550,421 723,883,961 15. Debentures Details of debentures issued by the Group as of June 30, 2013 and December 31, 2012 were as follows: Annual interest rate (%) Par value Issue price June 30, 2013 Current portion of debenture Debenture 2.73 ~ 5.49 W 713,233,500 713,233,500 Discount on debentures - (195,859) 713,233,500 713,037,641 Non-current portion of debenture Debenture 2.74 ~ 8.00 2,044,282,000 2,044,282,000 Discount on debentures - (1,797,494) 2,044,282,000 2,042,484,506 W 2,757,515,500 2,755,522,147 December 31, 2012 Current portion of debenture Debenture 3.05 ~ 6.00 W 847,488,500 847,488,500 Discount on debentures - (313,409) 847,488,500 847,175,091 Non-current portion of debenture Debenture 3.10 ~ 8.00 1,582,704,000 1,582,704,000 Discount on debentures - (1,583,452) 1,582,704,000 1,581,120,548 W 2,430,192,500 2,428,295,639
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 37 16. 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 June 30, 2013 and December 31, 2012 were as follows: Annual interest rate (%) Par value Issue price June 30, 2013 Current portion of securitized debts Securitized debts 4.76 ~ 5.12 W 130,000,000 130,000,000 Discount on securitized debts - (62,191) 130,000,000 129,937,809 Non-current portion of securitized debts Securitized debts 4.86 ~ 5.43 180,000,000 180,000,000 Discount on securitized debts - (190,351) 180,000,000 179,809,649 W 310,000,000 309,747,458 December 31, 2012 Current portion of securitized debts Securitized debts 4.78 ~ 4.92 W 50,000,000 50,000,000 Discount on securitized debts - (33,017) 50,000,000 49,966,983 Non-current portion of securitized debts Securitized debts 4.76 ~ 5.43 260,000,000 260,000,000 Discount on securitized debts - (329,835) 260,000,000 259,670,165 W 310,000,000 309,637,148 17. Defined Benefit Liability Details of defined benefit liability as of June 30, 2013 and December 31, 2012 were as follows: June 30, 2013 December 31, 2012 Present value of defined benefit obligation W 11,728,730 10,602,378 Fair value of plan assets (8,573,439) (8,546,162) Defined benefit liability W 3,155,291 2,056,216
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 38 17. Defined Benefit Liability, Continued Changes in present value of defined benefit obligations for the six-month period ended June 30, 2013 and for the year ended December 31, 2012 were as follows: June 30, 2013 December 31, 2012 Beginning balance W 10,602,378 7,596,812 Current service cost 1,237,399 2,065,107 Interest cost 170,359 312,346 Actuarial losses 30,072 966,673 Transfer of severance benefits from related parties 521,046 1,301,233 Transfer of severance benefits to related parties (442,749) (1,230,543) Benefits paid (389,775) (409,250) Ending balance W 11,728,730 10,602,378 Changes in the fair value of plan assets for the six-month period ended June 30, 2013 and for the year ended December 31, 2012 were as follows: June 30, 2013 December 31, 2012 Beginning balance W 8,546,162 5,364,346 Expected return on plan assets 140,124 220,433 Remeasurement gains (losses) (2,884) 4,187 Transfer of severance benefits from related parties 409,468 600,148 Transfer of severance benefits to related parties (129,656) (294,075) Contributions by plan participants - 3,000,000 Benefits paid (389,775) (348,877) Ending balance W 8,573,439 8,546,162 Gains and losses related to defined benefit plans for the six-month periods ended June 30, 2013 and 2012 were as follows: June 30, 2013 June 30, 2012 Current service cost W 1,237,399 978,819 Past service cost - 245,559 Interest cost 170,359 151,472 Expected return on plan assets (140,124) (100,897) W 1,267,634 1,274,953
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 39 18. Derivative Financial Instruments and Hedge Accounting The Group acquired the convertible bonds issued by Leehan Corp. in 2011, and recorded the difference between the acquisition cost of convertible bond and the fair value of bond without convertible right as derivative assets. The Group recognized derivative assets of W163 thousand and W74,423 thousand as of June 30, 2013 and December 31, 2012, respectively. Net losses on the derivative assets were W74,260 thousand and W272,954 thousand for the six-month periods ended June 30, 2013 and 2012, respectively. A cash flow hedge is used by the Group to reduce the exposure from changes in interest rate and exchange rate of the cash flows of foreign currency debentures. Interest rate swaps and currency swaps are used. Derivatives designated as cash flow hedges as of June 30, 2013 and December 31, 2012 were as follows: Assets Liabilities Other comprehensive income (loss) June 30, 2013 Interest rate swaps W 232,864 1,541,193 (1,573,139) Currency swaps 1,117,920 2,151,775 247,627 W 1,350,784 3,692,968 (1,325,512) December 31, 2012 Interest rate swaps W 63,352 2,084,383 (1,531,844) Currency swaps - 5,421,607 (382,978) W 63,352 7,505,990 (1,914,822) For the six-month period ended June 30, 2013, the amount recognized as other comprehensive income, representing the effective portion related to cash flow hedge, is W589,310 thousand, and the reclassified amount from other comprehensive income to profit or loss is W4,323,000 thousand (before tax). There is no amount recognized as profit or loss related to cash flow hedge, representing the ineffective portion, for the six-month period ended June 30, 2013.
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 40 19. Equity The Controlling Company is authorized to issue 80,000,000 shares (par value at W5,000). Details of capital stock as of June 30, 2013 were as follows: Common stock Preferred stock (*) Total Number of issued shares outstanding 20,000,000 5,000,000 25,000,000 Capital stock W 100,000,000 25,000,000 125,000,000 Paid-in-capital in excess of par value - 74,608,060 74,608,060 (*) The convertible preferred stocks are non-cumulative, non-participating, nominative, non-permanent preferred stocks without voting right. The stocks will be converted to common stock after 7 years from issue date. 20. Retained Earnings Details of retained earnings as of June 30, 2013 and December 31, 2012 were as follows: June 30, 2013 December 31, 2012 Legal reserve Revenue reserve W 7,100,000 4,000,000 Voluntary reserve Reserve for loan losses 15,289,638 3,357,192 Reserve for electronic financial transactions 100,000 100,000 15,389,638 3,457,192 Unappropriated retained earnings 129,185,054 130,082,243 (Expected regulatory reserve for credit losses June 30, 2013: W3,686,307 thousand, December 31, 2012: W11,932,446 thousand) W 151,674,692 137,539,435 Appropriated and expected regulatory reserve for credit losses as of June 30, 2013 and December 31, 2012 were as follows: June 30, 2013 December 31, 2012 Appropriated regulatory reserve for credit losses W 15,289,638 3,357,192 Expected regulatory reserve for credit losses 3,686,307 11,932,446 W 18,975,945 15,289,638
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 41 20. Retained Earnings, Continued Profit adjusted for estimated regulatory reserve for credit losses for the six-month periods ended June 30, 2013 and 2012 were as follows: June 30, 2013 June 30, 2012 Three-month period ended Six-month period ended Three-month period ended Six-month period ended Profit for the period W 11,506,175 20,135,257 4,151,987 24,659,315 Estimated provision of regulatory reserve for credit losses 2,221,416 3,686,307 (235,690) 9,682,546 Profit adjusted by regulatory reserve for credit losses 9,284,759 16,448,950 4,387,677 14,976,769 Earnings per share adjusted by estimated regulatory reserve for credit losses (won) 464 822 219 749 The dividends for the year ended December 31, 2012 were paid in March 2013, and details of dividend for the fiscal year 2012 and 2011 were as follows: December 31, 2012 December 31, 2011 Interim dividends Common stock W 25,000,000 - Annual dividends Common stock - 24,000,000 Preferred stock 6,000,000 6,000,000 W 31,000,000 30,000,000
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 42 21. General and Administrative Expenses Details of general and administrative expenses for the three-month and six-month periods ended June 30, 2013 and 2012 were as follows: June 30, 2013 June 30, 2012 Three-month period ended Six-month period ended Three-month period ended Six-month period ended Wages and salaries W 5,214,625 10,656,500 4,568,093 8,195,793 Retirement benefits 633,817 1,267,634 781,519 1,274,914 Employee welfare 1,562,465 3,324,643 1,312,506 2,727,606 Outsourcing service charges 1,150,537 2,157,572 992,298 1,979,729 Sales commission 1,037,391 5,108,074 3,602,914 6,888,858 Commission 885,385 1,950,448 606,483 1,811,504 Outsourcing service commission 640,862 1,709,083 732,547 1,233,670 Depreciation 312,564 599,737 258,027 502,421 Amortization 312,179 621,720 255,995 531,975 Taxes and dues 486,005 1,058,145 443,323 938,001 Electronic data processing expenses 621,542 1,210,522 357,298 749,399 Rent 799,395 1,434,039 372,536 628,469 Administrative expenses for building 18,404 37,630 278,182 547,957 Travel expenses 224,628 435,906 187,139 375,963 Training expenses 136,087 227,190 150,203 282,273 Communication 166,586 326,368 128,639 270,700 Others 505,071 945,024 553,536 927,721 W 14,707,543 33,070,235 15,581,238 29,866,953 22. Income Tax Expenses Income tax expense is calculated based on the current tax expense with prior year adjustments, deferred tax expense from changes in temporary differences, and other adjustments. The effective tax rate for the six-month periods ended June 30, 2013 and 2012 were 33.1% and 29.7%, respectively. The Group did not recognize deferred income tax assets of W9,754,849 thousand and W4,956,191 thousand as of June 30, 2013 and December 31, 2012, respectively, related to temporary differences in investments in associates which may not be realized.
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 43 23. Other Comprehensive Income (loss) Details of other comprehensive income and loss for the six-month periods ended June 30, 2013 and 2012 were as follows: Changes Beginning balance Reclassification of profit or loss Other changes Income tax effects Ending balance June 30, 2013 Items that are or may be reclassified subsequently to profit or loss Unrealized loss on valuation of derivatives W (1,914,822) 4,323,000 (3,545,546) (188,144) (1,325,512) Unrealized gain (loss) on valuation of available-for- sale financial assets 713,160 - (2,069,415) 500,799 (855,456) Accumulated comprehensive income (loss) of equity method investees 3,811,298 - (7,487,709) (7,097) (3,683,508) 2,609,636 4,323,000 (13,102,670) 305,558 (5,864,476) Items that will not be reclassified to profit or loss Remeasurement of defined benefit plans (1,670,151) - (32,956) 7,975 (1,695,132) W 939,485 4,323,000 (13,135,626) 313,533 (7,559,608) June 30, 2012 Items that are or may be reclassified subsequently to profit or loss Unrealized loss on valuation of derivatives W (1,082,948) 373,842 243,204 (149,325) (615,227) Unrealized gain on valuation of available-for-sale financial assets 6,047,838 - (5,415,441) 1,310,537 1,942,934 Accumulated comprehensive income (loss) of equity method investees (1,702,584) - 1,818,209 (47,725) 67,900 3,262,306 373,842 (3,354,028) 1,113,487 1,395,607 Items that will not be reclassified to profit or loss Remeasurement of defined benefit plans (940,586) - - - (940,586) W 2,321,720 373,842 (3,354,028) 1,113,487 455,021
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 44 24. Supplemental Cash Flow Information Cash and cash equivalents in the statement of cash flows consist of cash on hand, deposits, and short- term money market instruments. Details of cash and cash equivalents as of June 30, 2013 and December 31, 2012 were as follows: June 30, 2013 December 31, 2012 Cash W - 2,000 Ordinary deposits 8,462,377 5,374,125 Short-term financial instruments 265,283,000 277,449,670 W 273,745,377 282,825,795 Cash generated from operations for the six-month periods ended June 30, 2013 and 2012 were as follows: June 30, 2013 June 30, 2012 Profit for the period: W 20,135,257 24,659,315 Adjustments: Net interest expense 74,406,941 74,978,498 Dividends (200,000) (250,000) Income tax expenses 9,968,784 10,391,091 Loss on loans 18,164,944 21,687,165 Loss on installment financial receivables 338,552 2,200,962 Loss (income) on leases 238,248 (10,039) Loss on foreign exchange translations 4,323,000 27,500 Loss on equity method valuation 7,696,483 2,125,980 Gain on disposal of property and equipment (41,633) (1,661) Loss on disposal of property and equipment - 87,386 Bad debt expense 12,903,454 8,697,812 Retirement benefits 1,267,634 1,274,953 Depreciation 599,737 502,421 Amortization of intangible assets 621,720 531,975 Gain on valuation of derivatives (4,248,741) (27,500) Loss on valuation of derivatives - 272,954 W 126,039,123 122,489,497
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 45 24. Supplemental Cash Flow Information, Continued June 30, 2013 June 30, 2012 Changes in operating assets and liabilities: Increase in loans receivables W (283,752,366) (262,534,798) Decrease in installment financing receivables 27,190,233 55,086,969 Increase in finance lease receivables (39,440,929) (59,005,052) Decrease in account receivables 5,130,181 6,852,230 Decrease in accrued revenues - 1,793,683 (Increase) decrease in advanced payments (36,854) 254,740 (Increase) decrease in prepaid expenses (1,059,102) 436,058 (Decrease) increase in account payables (602,830) 4,716,375 Decrease in accrued expenses (7,189,621) (6,470,211) (Decrease) increase in unearned revenues (382,680) 297,352 Increases (decrease) in advances 302,162 (124,986) Increase in deposits 4,926,603 1,766,667 Decrease in defined benefit liabilities (201,515) (256,267) Increase in leasehold deposits received 10,630,174 8,527,702 (284,486,544) (248,659,538) Cash generated from operations W (138,312,164) (101,510,726) 25. Commitments and Contingencies Details of unused credit line agreements as of June 30, 2013 and December 31, 2012 were as follows: Financial institution Limit Unused limit June 30, 2013 Limit of overdraft Woori Bank and 11 others W 405 billion 405 billion Limit of letter of credit Korea Exchange Bank USD 2,000,000 USD 2,000,000 December 31, 2012 Limit of overdraft Woori Bank and 10 others W 435 billion 385 billion Limit of letter of credit Korea Exchange Bank - -
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 46 25. Commitments and Contingencies, Continued Details of pending significant litigations as of June 30, 2013 were as follows: Number of litigations Amount of litigations As a plaintiff 12 W 455,949 As a defendant 5 482,393 As of report date, no provisions have been recorded on the condensed consolidated interim financial statements of the Group as of June 30, 2013. The Group entered into a financial support agreement with Shinhan Bank for acquisition of mold equipment for Hyundai and Kia Motor Company’s component partner companies. The Group guarantees the loans of the component partner companies, and the amount of payment guarantees was W358,806 thousand and W1,905,528 thousand as of June 30, 2013 and December 31, 2012, respectively. Details of guarantees involving third parties as of June 30, 2013 and December 31, 2012 were as follows: Guarantor Details June 30, 2013 December 31, 2012 Hyundai Wia Guarantees on machinery installment financing receivables W 19,954,564 23,779,938 Hyundai Motor Company Guarantees on finance lease receivables 2,172,419 2,824,246 Seoul Guarantee Insurance Company Deposit guarantee 14,206,950 13,449,276
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 47 26. Related Party Transactions The parent company of the Group is Hyundai Motor Company. Related parties include associates, joint venture, post-employment employment benefit plans, member of key management personnel and entities which the Group controls directly or indirectly or has significant influence over them. Significant transactions, which occurred in the normal course of business with related parties, for the six-month periods ended June 30, 2013 and 2012 were as follows: June 30, 2013 June 30, 2012 Purchase of assets Disposal of assets Purchase of assets Disposal of assets Parent company W - - 112,602 - Others 31,693,719 32,511,728 26,723,694 26,395,537 W 31,693,719 32,511,728 26,836,296 26,395,537 Receivables and payables associated with related parties as of June 30, 2013 and December 31, 2012 were as follows: June 30, 2013 December 31, 2012 Receivables Payables Receivables Payables Parent company W 56,728 80,000 116,435 851,685 Associates 709,843 8,284,085 4,923,830 11,061,020 Others 3,613,010 172,824 8,577,609 186,881 W 4,379,581 8,536,909 13,617,874 12,099,586
  • Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2013 (Unaudited) (In thousands of won) 48 26. Related Party Transactions, Continued Revenue and expense associated with related parties for the six-month periods ended June 30, 2013 and 2012 were as follows: June 30, 2013 June 30, 2012 Revenue Expense Revenue Expense Parent company W 474,274 152 1,085,413 14,623 Associates 1,195,088 696,680 562,743 772,236 Others 3,506,735 6,213,626 4,161,253 3,271,268 W 5,176,097 6,910,458 5,809,409 4,058,127 The Controlling Company has been provided with guarantee by related parties (see note 25). Compensation for key management for the six-month periods ended June 30, 2013 and 2012 were as follows: June 30, 2013 June 30, 2012 Short-term employment benefits W 1,155,409 1,230,945 Retirement benefits 467,991 559,065 The key management above consists of directors (including non-permanent directors), who have significant authority and responsibilities for planning, operating, and controlling of the Group. 27. Financial Risk Management The Group is exposed to credit risk, liquidity risk, and market risk. In order to manage these risk factors, the Group operates risk management policies and programs which closely monitor these risk factors. The Group uses derivatives to manage specific risks. Condensed consolidated interim financial statements do not include all of the disclosure requirements for annual consolidated financial statements. See consolidated financial statements as of December 31, 2012 for details of full disclosures. There was no significant change in the Group's risk management division and policies after December 31, 2012.