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    Hci 2012 2_q_con_eng_final_ Hci 2012 2_q_con_eng_final_ Document Transcript

    • Hyundai Commercial, Inc. andSubsidiariesInterim Consolidated Financial StatementsJune 30, 2012 and 2011
    • Hyundai Commercial, Inc. and SubsidiariesIndexJune 30, 2012 and 2011Report on Review of Interim Financial Statements ..........................................................................1-2Interim Consolidated Financial StatementsInterim Consolidated Statements of Financial Position .........................................................................3-5Interim Consolidated Statements of Comprehensive Income................................................................6-7Interim Consolidated Statements of Changes in Equity ....................................................................... 8-9Interim Consolidated Statements of Cash Flows ....................................................................................10Notes to the Interim Consolidated Financial Statements...................................................................11-34
    • Report on Review of Interim Financial StatementsTo the Shareholders and Board of Directors ofHyundai Commercial, Inc.Reviewed Financial StatementsWe have reviewed the accompanying interim consolidated financial statements of HyundaiCommercial, Inc. (the Company) and its subsidiaries. These financial statements consist ofconsolidated statement of financial position of the Company and its subsidiaries as of June 30,2012, and the related consolidated statements of comprehensive income for the three-monthand the six-month periods ended June 30, 2012 and 2011, and statements of changes inequity and cash flows for the six-month periods ended June 30, 2012 and 2011, and asummary of significant accounting policies and other explanatory notes, expressed in Koreanwon.Managements Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidatedfinancial statements in accordance with the International Financial Reporting Standards asadopted by the Republic of Korea (Korean IFRS) 1034, Interim Financial Reporting, and forsuch internal control as management determines is necessary to enable the preparation ofconsolidated financial statements that are free from material misstatement, whether due tofraud or error.Auditors ResponsibilityOur responsibility is to issue a report on these interim consolidated financial statements basedon our reviews.We conducted our reviews in accordance with the quarterly and semi-annual reviewstandards established by the Securities and Futures Commission of the Republic of Korea. Areview of interim financial information consists of making inquiries, primarily of personsresponsible for financial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted in accordance withauditing standards generally accepted in the Republic of Korea and consequently does notenable us to obtain assurance that we would become aware of all significant matters thatmight be identified in an audit. Accordingly, we do not express an audit opinion. 1
    • ConclusionBased on our reviews, nothing has come to our attention that causes us to believe theaccompanying interim consolidated financial statements do not present fairly, in all materialrespects, in accordance with the Korean IFRS 1034, Interim Financial Reporting.Emphasis of matterWe audited the consolidated statement of financial position as of December 31, 2011, and therelated statements of comprehensive income, changes in equity and cash flows for the yearended December 31, 2011, in accordance with auditing standards generally accepted in theRepublic of Korea and expressed an unqualified opinion on those statements dated March 14,2012. The statement of financial position as of December 31, 2011, presented herein forcomparative purposes, is consistent, in all material respects, with the above audited statementof financial position as of December 31, 2011.Review standards and their application in practice vary among countries. The procedures andpractices used in the Republic of Korea to review such consolidated financial statements maydiffer from those generally accepted and applied in other countries. Accordingly, this report isfor use by those who are informed about Korean review standards and their application inpractice.Seoul, KoreaAugust 24, 2012 This report is effective as of August 24, 2012, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying interim consolidated financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any. 2
    • Hyundai Commercial, Inc. and SubsidiariesInterim Consolidated Statements of Financial PositionJune 30, 2012 and December 31, 2011(In Korean won) June 30, December 31, Note 2012 2011 Assets Cash and deposits Cash and cash equivalents 20 315,239,545,258 276,009,118,714 Deposits 9,000,000 9,000,000 315,248,545,258 276,018,118,714 Securities 3 Available-for-sale securities 21,920,499,370 26,848,232,720 Equity method investments 246,350,869,471 147,539,965,125 268,271,368,841 174,388,197,845 Loans receivable 4,5,6,7 Factoring 1,271,408,014 575,109,250 Allowance for doubtful accounts (7,083,261) (3,163,206) Loans 2,672,303,580,491 2,408,864,450,819 Allowance for doubtful accounts (17,708,928,242) (18,165,997,032) 2,655,858,977,002 2,391,270,399,831 Installment financial assets 4,5,6,7 Auto installment financing receivables 372,135,913,837 402,435,731,643 Allowance for doubtful accounts (2,309,106,954) (2,700,210,858) Durable goods installment financing receivables 44,939,504,217 68,855,356,831 Allowance for doubtful accounts (309,315,277) (475,143,590) 414,456,995,823 468,115,734,026 Lease receivables 4,5,8 106,162,624,869 84,053,398,124 Property and equipment 9 Vehicles 98,408,505 114,731,133 Fixtures and furniture 2,590,889,826 2,382,936,140 Others 410,999,664 410,999,664 3,100,297,995 2,908,666,937 3
    • Hyundai Commercial, Inc. and SubsidiariesInterim Consolidated Statements of Financial PositionJune 30, 2012 and December 31, 2011(In Korean won) June 30, December 31, Note 2012 2011 Other assets Intangible assets 10 ₩ 2,819,843,423 ₩ 3,072,304,012 Non-trade receivables 23,060,211,622 29,912,441,707 Allowance for doubtful accounts (145,645,787) (218,049,341) Accrued revenues 16,249,408,321 18,075,550,289 Allowance for doubtful accounts (104,009,229) (112,338,978) Advance payments 380,625,765 635,365,367 Prepaid expenses 2,947,184,936 3,383,242,667 Leasehold deposits 10,727,825,934 9,963,176,364 Derivative assets 15 1,393,026,517 1,369,008,885 Others 3,885,995,860 3,885,995,860 61,214,467,362 69,966,696,832 Total assets ₩3,824,313,277,150 ₩3,466,721,212,309 Liabilities and Equity Borrowings Borrowings 11 ₩ 709,591,561,777 ₩ 725,523,723,026 Debentures 12 2,312,721,130,449 1,937,737,884,950 Securitized debts 13 359,510,372,728 359,361,741,945 3,381,823,064,954 3,022,623,349,921 Other liabilities Non-trade payables 12,624,174,322 7,907,799,257 Accrued expenses 22,006,482,015 26,857,795,596 Unearned revenue 5,167,253,902 4,869,902,233 Advances 106,262,869 231,248,416 Withholdings 4,840,082,697 3,073,415,790 Accrued income taxes 7,361,014,012 14,047,411,098 Defined benefit liability 14 3,251,151,561 2,232,465,895 Leasehold deposits received 24,363,550,971 16,493,405,207 Deferred income tax liabilities 18,128,090,752 16,336,206,889 Derivative liabilities 15 2,343,820,146 2,691,394,681 100,191,883,247 94,741,045,062 Total liabilities 3,482,014,948,201 3,117,364,394,983 4
    • Hyundai Commercial, Inc. and SubsidiariesInterim Consolidated Statements of Financial PositionJune 30, 2012 and December 31, 2011(In Korean won) June 30, December 31, Notes 2012 2011 Equity Common stock 1,16 100,000,000,000 100,000,000,000 Preferred stock 25,000,000,000 25,000,000,000 125,000,000,000 125,000,000,000 Capital surplus 16 Paid-in capital in excess of par value 74,608,059,537 74,608,059,537 Accumulated other comprehensive 19 income and expenses Loss on valuation of derivatives (615,226,534) (1,082,947,513) Gain on valuation of available-for- 1,942,933,776 6,047,837,848 sale securities Accumulated comprehensive income 67,899,945 (1,702,584,378) of equity method investee 1,395,607,187 3,262,305,957 Retained earnings 16 141,274,842,225 146,466,631,832 Non-controlling interests 19,820,000 19,820,000 Total equity 342,298,328,949 349,356,817,326 Total liabilities and equity ₩3,824,313,277,150 ₩3,466,721,212,309 The accompanying notes are an integral part of these interim consolidated financial statements. 5
    • Hyundai Commercial, Inc. and Subsidiaries Interim Consolidated Statements of Comprehensive Income Three-Month and Six-Month Periods ended June 30, 2012 and 2011(In Korean won) 2012 2011 Notes Three Six Three Six Months Months Months MonthsOperating revenue Interest income ₩2,800,734,685 ₩5,572,386,120 ₩1,279,969,441 ₩ 2,387,169,557 Income on loans 68,177,970,017 133,313,505,392 59,945,849,276 113,805,600,081 Income on installment financial 10,977,195,309 23,040,822,533 15,401,001,549 31,475,076,372 receivables Income on leases 1,896,785,538 3,574,663,299 1,092,108,442 2,335,488,860 Gain on disposal of loans 966,463,198 1,729,577,040 653,969,795 1,117,030,921 Gain on foreign exchange - - 3,348,000,000 5,534,000,000 translations Dividend income - 250,000,000 - 300,000,000 Other operating income 1,053,204,157 628,670,379 1,241,670,031 754,483,806 Total operating revenue 85,872,352,904 168,109,624,763 82,962,568,534 157,708,849,597Operating expenses Interest expenses 41,035,492,920 80,550,883,516 36,938,859,569 70,920,446,952 Bad debts expense 5 3,889,005,153 8,697,812,014 5,817,998,892 10,960,116,735 Loss on disposal of loans 464,015,511 1,079,502,006 148,596,245 286,474,469 Loss on foreign currency 880,000,000 27,500,000 825,500,346 1,962 transactions General and administrative 17 15,581,238,326 29,866,953,086 13,278,632,714 27,065,419,592 expenses Other operating expenses 1,180,964,459 1,854,810,141 1,123,744,947 1,549,202,834 Total operating 63,030,716,369 122,350,414,743 61,481,332,713 116,315,662,544 expenses Operating income 22,841,636,535 45,759,210,020 21,481,235,821 41,393,187,053 6
    • Hyundai Commercial, Inc. and Subsidiaries Interim Consolidated Statements of Comprehensive Income Three-Month and Six-Month Periods ended June 30, 2012 and 2011(In Korean won) 2012 2011 Notes Three Six Three Six Months Months Months MonthsNon-operating income Gain on equity method 3 - 5,856,423,741 4,557,764,212 8,660,056,384 valuationNon-operating expenses Loss on equity method 3 12,975,036,702 7,982,403,935 - - valuation Other non-operating - 8,582,824,000 - - expenses 12,975,036,702 16,565,227,935 - - Income before income 9,866,599,833 35,050,405,826 26,039,000,033 50,053,243,437 taxesIncome tax expense 18 5,714,613,323 10,391,091,084 6,365,741,803 12,974,837,754 Net income ₩ 4,151,986,510 ₩24,659,314,742 ₩19,673,258,230 ₩37,078,405,683Net income attributable to: Owners of the parent 4,151,986,510 24,659,314,742 19,673,258,230 37,078,405,683 Non-controlling - - - - interests 4,151,986,510 24,659,314,742 19,673,258,230 37,078,405,683Other comprehensive 19 income, net of income taxes Gain on valuation of (244,727,857) 467,720,979 (102,132,583) 769,921,914 derivatives Gain(Loss) on valuation of available-for-sale (2,737,291,529) (4,104,904,072) (1,230,487,830) 3,836,630,666 financial securities Other comprehensive income of equity (6,691,593,080) 1,770,484,323 (305,379,086) (324,181,793) method investee (9,673,612,466) (1,866,698,770) (1,637,999,499) 4,282,370,787Total comprehensive income ₩(5,521,625,956) ₩22,792,615,972 ₩18,035,258,731 ₩41,360,776,470Total comprehensive income attributable to: Owners of the parent (5,521,625,956) 22,792,615,972 18,035,258,731 41,360,776,470 Non-controlling - - - - interests (5,521,625,956) 22,792,615,972 18,035,258,731 41,360,776,470 The accompanying notes are an integral part of these interim consolidated financial statements. 7
    • Hyundai Commercial, Inc. and Subsidiaries Interim Consolidated Statements of Changes in Equity Six-Month Periods ended June 30, 2012 and 2011 Accumulated(In Korean won) other Total attributable to Non- comprehensive Capital income and Retained owners of the controlling Capital stock surplus expenses earnings parent interests Total equityBalances as of January 1, 2011 100,000,000,000 - (862,281,456) 81,470,127,594 180,607,846,138 9,910,000 180,617,756,138Total comprehensive incomeNet income - - - 37,078,405,683 37,078,405,683 - 37,078,405,683Other comprehensive income Gain on valuation of derivatives - - 769,921,914 - 769,921,914 - 769,921,914 Gain on valuation of available-for- - - 3,836,630,666 - 3,836,630,666 - 3,836,630,666 sale securities Other comprehensive income of - - (324,181,793) - (324,181,793) - (324,181,793) equity method investeeTotal comprehensive income - - 4,282,370,787 37,078,405,683 41,360,776,470 - 41,360,776,470Transactions with ownersEstablishment of special purpose - - - - - 9,910,000 9,910,000 entityDividends - - - (10,000,000,000) (10,000,000,000) - (10,000,000,000)Total transactions with owners - - - (10,000,000,000) (10,000,000,000) 9,910,000 (9,990,090,000)Balances as of June 30, 2011 100,000,000,000 - 3,420,089,331 108,548,533,277 211,968,622,608 19,820,000 211,988,442,608 8
    • Hyundai Commercial, Inc. and Subsidiaries Interim Consolidated Statements of Changes in Equity Six-Month Periods ended June 30, 2012 and 2011 Accumulated(In Korean won) other Total attributable Non- comprehensive income and Retained to owners of the controlling Capital stock Capital surplus expenses earnings parent interests Total equityBalances as of January 1, 2012 125,000,000,000 74,608,059,537 3,262,305,957 146,466,631,832 349,336,997,326 19,820,000 349,356,817,326Total comprehensive incomeNet income - - - 24,659,314,742 24,659,314,742 - 24,659,314,742Other comprehensive income Gain on valuation of derivatives - - 467,720,979 - 467,720,979 - 467,720,979 Loss on valuation of available-for- - - (4,104,904,072) - (4,104,904,072) - (4,104,904,072) sale securities Other comprehensive income of - - 1,770,484,323 148,895,651 1,919,379,974 - 1,919,379,974 equity method investeeTotal comprehensive income - - (1,866,698,770) 24,808,210,393 22,941,511,623 - 22,941,511,623Transactions with ownersDividends - - - (30,000,000,000) (30,000,000,000) - (30,000,000,000)Total transactions with owners - - - (30,000,000,000) (30,000,000,000) - (30,000,000,000)Balances as of June 30, 2012 125,000,000,000 74,608,059,537 1,395,607,187 141,274,842,225 342,278,508,949 19,820,000 342,298,328,949 The accompanying notes are an integral part of these interim consolidated financial statements. 9
    • Hyundai Commercial, Inc. and Subsidiaries Interim Consolidated Statements of Cash Flows Six-Month Periods ended June 30, 2012 and 2011 (In Korean won) Note June 30, 2012 June 30, 2011Cash flows from operating activitiesCash generated from operations 20 (101,510,726,025) (275,138,668,439)Interest received 4,842,900,556 2,537,128,759Interest paid (77,670,773,925) (68,918,870,047)Dividends received 250,000,000 300,000,000Income taxes paid (14,172,117,385) (10,358,293,801)Net cash used in operations (188,260,716,779) (351,578,703,528)Cash flows from investing activitiesAcquisition of equity method investment (98,969,780,000) -Disposal of vehicles 63,107,858 27,020,000Acquisition of vehicles (76,172,300) (79,715,188)Acquisition of fixtures and furniture (766,713,486) (416,747,741)Acquisition of intangible assets (279,514,400) (85,415,316)Recover in leasehold deposits 5,000,000 -Increase in leasehold deposits (908,722,500) (2,161,847,000)Net cash used in investing activities (100,932,794,828) (2,716,705,245)Cash flows from financing activitiesProceeds from borrowings 345,790,000,000 525,939,158,071Repayments of borrowings (361,722,161,249) (483,278,171,079)Issuance of debentures 619,356,099,400 440,865,039,400Repayments of debentures (245,000,000,000) (233,740,000,000)Issuance of securitized debts - 199,456,325,600Repayments of securitized debts - (20,000,000,000)Cash inflows of transactions with subsidiaries - 9,910,000Payments of dividends (30,000,000,000) (10,000,000,000)Net cash provided by financing activities 328,423,938,151 419,252,261,992Net increase in cash and cash equivalents 39,230,426,544 64,956,853,219Cash and cash equivalents Beginning of period 276,009,118,714 99,938,403,013 End of period 315,239,545,258 164,895,256,232 The accompanying notes are an integral part of these interim consolidated financial statements. 10
    • Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsJune 30, 2012 and 2011, and December 31, 20111. General Information Hyundai Commercial, Inc. (the Company) was established on March 27, 2007, by taking over all the assets, liabilities, rights and obligations related with the loans of the industrial product division of Hyundai Capital Services, Inc. and its installment financing and lease financing division. It is engaged in installment financing, and leasing of facilities. The Company’s operations are headquartered in Yeouido, Seoul. Its shareholders are as follows: Shareholders Ownership Hyundai Motor Company 50.00% Myung-yi Chung 33.33% Tae-young Chung 16.67% Total 100.00% The consolidated financial statements have been prepared and presented which included the accounts of Hyundai Commercial, Inc., as the parent company according to the Korean IFRS 1027, and Commercial Auto First trust and SPC and another subsidiary(collectively the “Group”), while Hyundai Card Co., Ltd. and Hyundai Life Insurance Co., Ltd. are accounted for under the equity method. Subsidiaries as of June 30, 2012 and December 31, 2011, are as follows. The Company has the substantial power over the subsidiaries established as special purpose entities for asset securitization even though its ownership interests over the subsidiaries do not exceed 50%. June 30, 2012 December 31, 2011 Special Commercial Auto First Trust and SPC Commercial Auto First Trust and SPC Purpose Commercial Auto Second Trust and SPC Commercial Auto Second Trust and SPC Entities2. Summary of Significant Accounting Policies 2.1 Basis of Preparation The Group’s interim consolidated financial statements for the six-month period ended June 30, 2012, have been prepared in accordance Korean IFRS 1034, ‘Interim Financial Reporting’. These interim consolidated financial statements have been prepared in accordance with the Korean IFRS standards and interpretations issued and effective or issued and early adopted as of June 30, 2012. New standards, amendments and interpretations issued but not effective for the financial year beginning January 1, 2012, and not early adopted by the Group are as follows: 11
    • Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsJune 30, 2012 and 2011, and December 31, 2011 - Amendments to Korean-IFRS 1019, Employee Benefits According to the amendments to Korean-IFRS 1019, Employee Benefits, the corridor method is no longer permitted. Therefore, actuarial gains and losses on the defined benefit obligation are recognized immediately under other comprehensive income. The amendment requires to recognize immediately all past service costs. And the amendment replaces the interest cost on the defined benefit obligation, and the expected return on plan assets with a net interest cost based on the net defined benefit asset or liability and the discount rate measured at the beginning of the year. This amendment will be effective for the Group as of January 1, 2013. The Group is assessing the impact of application of the amended Korean-IFRS 1019 on its consolidated financial statements. - Enactment of Korean-IFRS 1113, Fair value measurement Korean-IFRS 1113, Fair value measurement, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across Korean-IFRS. Korean-IFRS 1101 does not extend the use of fair value accounting but provides guidance on how it should be applied where its use is already required or permitted by other standards within Korean-IFRS. This amendment will be effective for the Group as of January 1, 2013, and the Group expects that it would not have a significant impact on the Group. - Enactment of Korean-IFRS 1001, Presentation of Financial Statements According to the amendments to Korean-IFRS 1001, Presentation of Financial Statements, items of other comprehensive income present as two groups depending on whether it will be reclassified subsequently to profit or loss or not. An entity shall apply those amendments for annual periods beginning on or after July 1, 2012, and earlier application is permitted. The Group expects that it would not have a significant impact on the Group. 2.2 Accounting Policies The following is a summary of significant accounting policies followed by the Group in the preparation of its interim consolidated financial statements. These policies have been consistently applied to all the periods presented, unless otherwise stated. Interim period income tax expense is calculated by applying estimated average annual effective tax rate to the interim period’s pre-tax income. 12
    • Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsJune 30, 2012 and 2011, and December 31, 20113. Securities Securities as of June 30, 2012 and December 31, 2011, are as follows: (in thousands of Korean won) Type June 30, 2012 December 31, 2011 Available-for-sale securities Marketable equity securities 12,550,000 18,200,000 Equity securities Unlisted equity securities 3,257,412 3,083,604 Sub-total 15,807,412 21,283,604 Debt securities 6,113,087 5,564,629 Sub-total 21,920,499 26,848,233 Equity method investments 246,350,869 147,539,965 268,271,369 174,388,198 Available-for-sale securities Available-for-sale securities as of June 30, 2012 and December 31, 2011, are as follows: (in thousands of Korean won) Book value Number of Ownership Acquisition June 30, December shares (%) cost 2012 31, 2011 Marketable equity securities JNK Heaters Co., Ltd. 1,000,000 12.5 10,126,881 12,550,000 18,200,000 Unlisted equity securities 1 Leehan Corp. 136,000 12.3 3,199,762 3,256,792 3,082,984 Isung Eng,. Corp. 62 620 620 620 Debt securities 2 Leehan Corp. - - 5,469,801 6,113,087 5,564,629 18,797,064 21,920,499 26,848,233 1 The fair value of the securities for Leehan Corp. was valued as the valuation price provided by an external appraiser, Korea Asset Pricing. The external appraisers valuated the fair value as the average of valuation prices using the discounted cash flow model and the imputed market value model. 2 Those debt securities are the convertible bond issued by Leehan Corp. during the period, and the fair value of the convertible bond for Leehan Corp. was valued as the valuation price provided by an external appraiser, Korea Asset Pricing. The differences between the fair value of convertible bond and the book value of normal bond by effective interest rate recognized in the gain or loss on valuation of debt securities and the fluctuation of conversion right and advanced redemption right recognized in the gain or loss on embedded derivatives. 13
    • Hyundai Commercial, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements June 30, 2012 and 2011, and December 31, 2011 Equity method investments Equity method investments as of June 30, 2012 and December 31, 2011, are as follows: (in thousands of Korean won) June 30, 2012 Number of Ownership Acquisition Net asset Book value shares (%) cost value Hyundai Card Co., Ltd. 1 8,889,622 5.54 113,820,162 116,666,848 153,593,598 Hyundai Life Insurance Co., 7,613,060 38.73 98,969,780 56,043,454 92,757,271 2 Ltd. Total 212,789,942 172,710,302 246,350,869 1 The Company’s shareholdings in Hyundai Card Co., Ltd. are less than 20%. However, the Company is able to participate in the management and significantly influence the financial and operating processes. Thus, the equity method is applied. 2 The Group acquired the equity securities of Hyundai Life Insurance Co., Ltd. during the current period. (in thousands of Korean won) December 31, 2011 Number of Ownership Acquisition Net asset Book value shares (%) cost value Hyundai Card Co., Ltd. 1 8,889,622 5.54 113,820,162 110,613,215 147,539,965 Valuations of equity method investment for the six-month periods ended June 30, 2012 and 2011, are as follows: (in thousands of Korean won) June 30, 2012 Changes in accumulated Changes in Beginning Gain on Ending Acquisition other retained Balance valuation Balance comprehensive earnings incomeHyundai Card Co., 147,539,965 - 5,856,424 197,209 - 153,593,598 Ltd.Hyundai Life Insurance - 98,969,780 (7,982,404) 1,620,999 148,896 92,757,271 Co,. Ltd.Total 147,539,965 98,969,780 (2,125,980) 1,818,208 148,896 246,350,869 (in thousands of Korean won) June 30, 2011 Changes in accumulated Changes in Beginning Gain on Ending Acquisition other retained Balance valuation Balance comprehensive earnings 1 income( )Hyundai Card Co., 133,160,973 - 8,660,056 (415,618) (1,097) 141,404,314 Ltd. 1 ( ) Changes in accumulated other comprehensive income is the amount before income taxes. 14
    • Hyundai Commercial, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements June 30, 2012 and 2011, and December 31, 2011 The assets and liabilities as of June 30, 2012 and December 31, 2011, and revenue and income for the six-month periods ended June 30, 2012 and 2011, follow : (in thousands of Korean won) June 30, 2012 Year end Operating Assets Liabilities Net income revenue Hyundai Card December 31 11,083,975,683 8,978,009,491 1,234,977,718 105,713,461 Co., Ltd. Hyundai Life Insurance June 30 3,530,425,026 3,385,737,691 257,338,314 (3,991,872) Co,. Ltd. As Hyundai Life Insurance Co,. Ltd.’s fiscal year is from April 1, 2012 to March 31, 2013, the asset and liability amounts are as of June 30, 2012, and its operating revenue and net income amounts are from January 1, 2012 to June 30, 2012. The deemed acquisition date is February 29, 2012, and the investee recognized its net income of 13,891,570 thousand after deemed acquisition date. (in thousands of Korean won) December 31, 2011 June 30, 2011 Year end Operating Assets Liabilities Net income revenue Hyundai Card December 31 10,851,933,716 8,855,250,685 2,407,597,301 238,647,582 Co., Ltd. 4. Financial Receivables Financial receivables as of June 30, 2012 and December 31, 2011, are as follows:(in thousands of Korean won) June 30, 2012 Deferred loan origination fees Present Allowance Principal and costs value for doubtful Book value (Initial direct costs discounts accounts for lease assets)Loan receivables Factoring 1,271,408 - - (7,083) 1,264,325 receivables Loans 2,643,485,970 28,982,904 (165,294) (17,708,928) 2,654,594,652 2,644,757,378 28,982,904 (165,294) (17,716,011) 2,655,858,977Installment financial assets Auto 371,208,446 927,468 - (2,309,107) 369,826,807 Durable goods 45,286,917 (347,413) - (309,315) 44,630,189 416,495,363 580,055 - (2,618,422) 414,456,996Lease receivables 15
    • Hyundai Commercial, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements June 30, 2012 and 2011, and December 31, 2011 Finance lease 106,967,691 (12,930) - (792,136) 106,162,625 receivables 3,168,220,432 29,550,029 (165,294) (21,126,569) 3,176,478,598(in thousands of Korean won) December 31, 2011 Deferred loan origination fees Present Allowance Principal and costs value for doubtful Book value (Initial direct costs discounts accounts for lease assets) Loan receivables Factoring 575,109 - - (3,163) 571,946 Loans 2,390,384,894 18,629,791 (150,234) (18,165,997) 2,390,698,454 2,390,960,003 18,629,791 (150,234) (18,169,160) 2,391,270,400 Installment financial assets Auto 402,751,465 (315,733) - (2,700,211) 399,735,521 Durable goods 69,532,615 (677,259) - (475,143) 68,380,213 472,284,080 (992,992) - (3,175,354) 468,115,734 Lease receivables Finance lease 84,693,337 (19,542) - (620,397) 84,053,398 receivables 2,947,937,420 17,617,257 (150,234) (21,964,911) 2,943,439,532 5. Allowance for Doubtful Accounts Changes in allowance for doubtful accounts for the six-month periods ended June 30, 2012 and 2011, are as follows: (in thousands of Korean won) June 30, 2012 Loan Installment Lease Type Other assets Total receivables financial assets receivables Beginning balance 18,169,160 3,175,354 620,397 330,388 22,295,299 Amounts written off (1,837,601) (168,041) - - (2,005,642) Recoveries of amounts (6,976,948) (492,415) (29,269) - (7,498,632) previously written off Unwinding of discount (100,809) (11,804) - - (112,613) Additional(reversed) 8,462,209 115,328 201,008 (80,733) 8,697,812 allowance Ending balance 17,716,011 2,618,422 792,136 249,655 21,376,224 (in thousands of Korean won) June 30, 2011 Loan Installment Lease Type Other assets Total receivables financial assets receivables Beginning balance 12,795,689 3,609,027 214,613 372,974 16,992,303 Amounts written off (1,491,516) (108,512) - - (1,600,028) Recoveries of amounts (3,811,733) (790,425) (6,798) - (4,608,956) previously written off 16
    • Hyundai Commercial, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements June 30, 2012 and 2011, and December 31, 2011Unwinding of discount (52,619) (6,935) (108) - (59,662)Additional allowance 9,493,981 1,218,413 233,221 14,502 10,960,117Ending balance 16,933,802 3,921,568 440,928 387,476 21,683,774 6. Financial Instruments The fair values of financial instruments as of June 30, 2012 and December 31, 2011, are as follows:(in thousands of Korean won) June 30, 2012 December 31, 2011 Type Book Fair Book Fair value value value valueFinancial assets Cash and deposits 315,248,545 315,248,545 276,018,119 276,018,119 Available-for-sale 21,920,499 21,920,499 26,848,233 26,848,233 securities Loans receivable 2,655,858,977 2,658,605,196 2,391,270,400 2,398,975,565 Installment financial 414,456,996 417,786,700 468,115,734 473,294,235 assets Derivative assets 1,393,027 1,393,027 1,369,009 1,369,009 Non-trade 22,914,566 22,914,566 29,694,392 29,694,392receivables Accrued revenues 16,145,399 16,145,399 17,963,211 17,963,211 Leasehold deposits 10,727,826 10,705,059 9,963,176 9,861,028 3,458,665,835 3,464,718,991 3,221,242,274 3,234,023,792Financial liabilities Borrowings 709,591,562 715,773,727 725,523,723 730,010,502 Debentures 2,312,721,130 2,367,471,040 1,937,737,885 1,983,599,328 Securitized debts 359,510,373 367,830,150 359,361,742 367,266,231 Derivative liabilities 2,343,820 2,343,820 2,691,395 2,691,395 Non-trade payables 12,624,174 12,624,174 7,907,799 7,907,799 Accrued expenses 22,006,482 22,006,482 26,857,796 26,857,796 1 Withholdings 4,464,006 4,464,006 2,731,628 2,731,628 Leasehold deposits 24,363,551 24,740,460 16,493,405 16,677,090 received 3,447,625,098 3,517,253,859 3,079,305,373 3,137,741,769 1 Excluding taxes. 17
    • Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsJune 30, 2012 and 2011, and December 31, 2011 The fair value hierarchy of financial assets and liabilities carried at fair value as of June 30, 2012 and December 31, 2011, are as follows:(in thousands of Korean won) June 30, 2012 1 Book Fair Fair value hierarchy Type value value level 1 level 2 level 3Financial assets at fair value Available-for-sale 21,920,499 21,920,499 12,550,000 - 9,370,499 securities Derivative assets 1,393,027 1,393,027 - 1,393,027 - 23,313,526 23,313,526 12,550,000 1,393,027 9,370,499Financial liabilities at fair value Derivative liabilities 2,343,820 2,343,820 - 2,343,820 - 1 The levels of fair value hierarchy have been defined as follows: Level 1: Quoted prices in active markets for identical assets or liabilities. Listed stocks and derivatives Level 2: Inputs for the asset or liability included within valuation techniques that are observable market data. Most bonds issued in Korean won and foreign currency, general unlisted derivatives like swap, forward, option Level 3: Inputs for the asset or the liability that are not based on observable market data. Unlisted stocks, complicated structured bonds, complicated unlisted derivatives and others.(in thousands of Korean won) December 31, 2011 1 Book Fair Fair value hierarchy Type value value level 1 level 2 level 3Financial assets at fair value Available-for-sale 26,848,233 26,848,233 18,200,000 - 8,648,233 securities Derivative assets 1,369,009 1,369,009 - 1,369,009 - 28,217,242 28,217,242 18,200,000 1,369,009 8,648,233Financial liabilities at fair value Derivative liabilities 2,691,395 2,691,395 - 2,691,395 - 18
    • Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsJune 30, 2012 and 2011, and December 31, 2011 The changes in financial instruments of level 3 for the six-month periods ended June 30, 2012 and 2011, are as follows: (in thousands of Korean won) Available-for-sale securities Type June 30, 2012 June 30, 2011 Beginning balance 8,648,233 17,657,945 Gains on interest 487,707 - Gains on valuation 234,559 (3,194,363) (Other comprehensive income) 1 Reclassification - (11,518,000) Ending balance 9,370,499 2,945,582 1 The fair value hierarchy of the available-for-sale securities has been reclassified from level 3 to level 1 as JNK Heaters Co., Ltd. was listed during the prior period. The book values of financial instruments by categories as of June 30, 2012 and December 31, 2011, are as follows:(in thousands of Korean won) June 30, 2012 Financial Available-for- Hedging assets at fair Loans and Type sale financial derivative Total value through receivables assets instruments profit or lossFinancial assets Cash and deposits - 315,248,545 - - 315,248,545 Available-for- sale - - 21,920,499 - 21,920,499 securities Loans receivable - 2,655,858,977 - - 2,655,858,977 Installment - 414,456,996 - - 414,456,996 financial assets Derivative assets 228,839 - - 1,164,188 1,393,027 Non-trade - 22,914,566 - - 22,914,566 receivables Accrued revenues - 16,145,399 - - 16,145,399 Leasehold - 10,727,826 - - 10,727,826 deposits 228,839 3,435,352,309 21,920,499 1,164,188 3,458,665,835 19
    • Hyundai Commercial, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements June 30, 2012 and 2011, and December 31, 2011 (in thousands of Korean won) December 31, 2011 Financial Available-for- Hedging assets at fair Loans and Type sale financial derivative Total value through receivables assets instruments profit or loss Financial assets Cash and deposits - 276,018,119 - - 276,018,119 Available-for- sale - - 26,848,233 - 26,848,233 securities Loans receivable - 2,391,270,400 - - 2,391,270,400 Installment - 468,115,734 - - 468,115,734 financial assets Derivative assets 501,793 - - 867,216 1,369,009 Non-trade - 29,694,392 - - 29,694,392 receivables Accrued revenues - 17,963,211 - - 17,963,211 Leasehold - 9,963,176 - - 9,963,176 deposits 501,793 3,193,025,032 26,848,233 867,216 3,221,242,274 (in thousands of Korean won) June 30, 2012 December 31, 2011 Financial Hedging Financial Hedging Type liabilities at derivative Total liabilities at derivative Total amortized cost instruments amortized cost instrumentsFinancial liabilities Borrowings 709,591,562 - 709,591,562 725,523,723 - 725,523,723 Debentures 2,312,721,130 - 2,312,721,130 1,937,737,885 - 1,937,737,885 Securitized debts 359,510,373 - 359,510,373 359,361,742 - 359,361,742 Derivative - 2,343,820 2,343,820 - 2,691,395 2,691,395 liabilities Non-trade 12,624,174 - 12,624,174 7,907,799 - 7,907,799 payables Accrued expenses 22,006,482 - 22,006,482 26,857,796 - 26,857,796 Withholdings 4,464,006 - 4,464,006 2,731,628 - 2,731,628 Leasehold deposits 24,363,551 - 24,363,551 16,493,405 - 16,493,405 received 3,445,281,278 2,343,820 3,447,625,098 3,076,613,978 2,691,395 3,079,305,373 20
    • Hyundai Commercial, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements June 30, 2012 and 2011, and December 31, 2011 7. Derecognition of financial assets The Group issued securitized debts based on loans and installment financial assets. Related securitized debts have right of recourse about basic assets. Details of transferred financial assets not derecognized as of June 30, 2012 and December 31, 2011, are as follows: (in thousands of Korean won) Type June 30, 2012 December 31, 2011 Book value of assets Loan receivable 555,419,654 466,479,102 Installment financial assets 62,167,008 97,302,634 Sub total 617,586,662 563,781,736 Book value of related liabilities 359,510,373 359,361,742 Liabilities having right of resource on transferred assets : Fair value of assets 618,660,422 566,361,232 Fair value of related liabilities (367,830,150) (367,266,231) Net position 250,830,272 199,095,001 8. Finance Lease Receivables Details of total lease investments and present value of minimum lease receipts as of June 30, 2012 and December 31, 2011, are as follows: (in thousands of Korean won) June 30, 2012 December 31, 2011 Present value of Present value of Type Total lease Total lease minimum lease minimum lease investments investments receipts receiptsLess than 1 year 46,254,326 40,175,517 38,319,151 33,136,1561 to 5 years 71,138,888 66,779,244 55,204,893 51,537,639 117,393,214 106,954,761 93,524,044 84,673,795 Details of unearned interest income as of June 30, 2012 and December 31, 2011, are as follows: (in thousands of Korean won) Type June 30, 2012 December 31, 2011 Total lease investments 117,393,214 93,524,044 Net lease investments Minimum lease receipts 106,954,761 84,673,795 (present value) Unguaranteed residual value - - (present value) 21
    • Hyundai Commercial, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements June 30, 2012 and 2011, and December 31, 2011 106,954,761 84,673,795 Unearned interest income 10,438,453 8,850,249 9. Property and Equipment Property and equipment as of June 30, 2012 and December 31, 2011, consist of: (in thousands of Korean won) June 30, 2012 December 31, 2011 Type Acquisition Accumulated Acquisition Accumulated Book value Book value cost depreciation cost depreciation Vehicles 235,097 (136,688) 98,409 238,639 (123,908) 114,731 Fixture and 7,678,421 (5,087,532) 2,590,889 7,065,590 (4,682,654) 2,382,936 furniture Others 411,000 - 411,000 411,000 - 411,000 8,324,518 (5,224,220) 3,100,298 7,715,229 (4,806,562) 2,908,667 Changes in property and equipment for the six-month periods ended June 30, 2012 and 2011, are as follows:(in thousands of Korean won) June 30, 2012 Type Beginning balance Acquisition Disposal Depreciation Ending balanceVehicles 114,731 76,172 (61,447) (31,047) 98,409Fixture and 2,382,936 766,713 (87,386) (471,374) 2,590,889 furnitureOthers 411,000 - - - 411,000 2,908,667 842,885 (148,833) (502,421) 3,100,298(in thousands of Korean won) June 30, 2011 Type Beginning balance Acquisition Disposal Depreciation Ending balanceVehicles 119,066 79,715 (22,673) (31,547) 144,561Fixture and 1,986,277 416,748 (48,895) (640,518) 1,713,612 furnitureOthers 411,000 - - - 411,000 2,516,343 496,463 (71,568) (672,065) 2,269,173 22
    • Hyundai Commercial, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements June 30, 2012 and 2011, and December 31, 2011 10. Intangible Assets Intangible assets as of June 30, 2012 and December 31, 2011, consist of:(in thousands of Korean won) June 30, 2012 December 31, 2011 Type Acquisition Accumulated Book Acquisition Accumulated Book cost depreciation value cost depreciation valueSoftware 5,866,268 (4,642,484) 1,223,784 5,637,719 (4,331,112) 1,306,607Other intangible 2,230,097 (634,038) 1,596,059 2,179,131 (413,434) 1,765,697 assets 8,096,365 (5,276,522) 2,819,843 7,816,850 (4,744,546) 3,072,304 Changes in intangible assets for the six-month periods ended June 30, 2012 and 2011, are as follows: (in thousands of Korean won) June 30, 2012 Type Beginning balance Increase Amortization Ending balance Software 1,306,607 228,549 (311,372) 1,223,784 Other intangible assets 1,765,697 50,965 (220,603) 1,596,059 3,072,304 279,514 (531,975) 2,819,843 (in thousands of Korean won) June 30, 2011 1 Type Beginning balance Increase Amortization Ending balance Software 1,632,196 53,625 (558,445) 1,127,376 Other intangible assets 849,207 956,340 (152,598) 1,652,949 2,481,403 1,009,965 (711,043) 2,780,325 1 Inclusive of transfer from advance payments. 11. Borrowings Borrowings as of June 30, 2012 and December 31, 2011, consist of: (in thousands of Korean won) Annual Types Lender June 30, 2012 December 31, 2011 interest rate (%) Borrowings in won SK Securities Commercial paper 3.65 ~ 4.27 100,000,000 140,000,000 and 3 others Woori Bank and General loans 3.71 ~ 6.19 609,591,562 585,523,723 9 others 709,591,562 725,523,723 23
    • Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsJune 30, 2012 and 2011, and December 31, 201112. Debentures Debentures issued by the Group and outstanding as of June 30, 2012 and December 31, 2011, are as follows:(in thousands of Korean won) Annual June 30, 2012 December 31, 2011 Type interest rates (%) Par value Issue price Par value Issue priceCurrent portion of debenture Debenture 3.78 ~ 6.45 740,000,000 740,000,000 635,000,000 635,000,000 Less: Discount on - (270,012) - (253,677) debentures 740,000,000 739,729,988 635,000,000 634,746,323Non-current portion of debenture Debenture 3.64 ~ 8.00 1,574,741,000 1,574,741,000 1,304,713,500 1,304,713,500 Less: Discount on - (1,749,858) - (1,721,938) debentures 1,574,741,000 1,572,991,142 1,304,713,500 1,302,991,562 2,314,741,000 2,312,721,130 1,939,713,500 1,937,737,88513. Securitized debts The amounts of securitized debts which are secured by loans and installment financial assets in accordance with Asset Backed Securitization Act, as of June 30, 2012 and December 31, 2011, are as follows:(in thousands of Korean won) Annual June 30, 2012 December 31, 2011 Type interest rates (%) Par value Issue price Par value Issue priceCurrent portion of securitized debts Debenture 4.12 ~ 4.26 50,000,000 50,000,000 50,000,000 50,000,000 Less: Discount on - (18,499) - (62,214) securitized debts 50,000,000 49,981,501 50,000,000 49,937,786Non-current portion of securitized debts Debenture 4.76 ~ 5.43 310,000,000 310,000,000 310,000,000 310,000,000 Less: Discount on - (471,128) - (576,044) securitized debts 310,000,000 309,528,872 310,000,000 309,423,956 360,000,000 359,510,373 360,000,000 359,361,742 24
    • Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsJune 30, 2012 and 2011, and December 31, 201114. Defined Benefit Liability Details of the amounts recognized in the income statements for the six-month periods ended June 30, 2012 and 2011: (in thousands of Korean won) Type June 30, 2012 June 30, 2011 Current service cost 978,819 806,977 Interest cost 151,472 125,198 Expected return on plan assets (100,897) (75,764) Past service cost 245,559 146,177 1,274,953 1,002,588 The amounts of defined benefit plans recognized in the statements of financial position as of June 30, 2012 and December 31, 2011, are as follows: (in thousands of Korean won) Type June 30, 2012 December 31, 2011 Present value of funded obligations 8,595,421 7,596,812 Fair value of plan assets (5,344,269) (5,364,346) Defined benefit liability 3,251,152 2,232,46615. Derivative Financial Instruments and Hedge Accounting The Group has the convertible bond issued by Leehan Corp., and recognized the difference between the acquisition cost of convertible bond and the fair value of normal bond as derivative assets. The amount recognized as derivative assets as of June 30, 2012, is 228,839 thousand (December 31, 2011 : 501,793 thousand), while the net losses from derivative asset for the six- month period ended June 30, 2012, is 272,954 thousand. (June 30, 2011 : Nil) Derivatives designated as cash flow hedges as of June 30, 2012 and December 31, 2011, are as follows:(in thousands of Korean won) June 30, 2012 December 31, 2011 Accumulated Accumulated other other Type comprehen- comprehen- Assets Liabilities Assets Liabilities sive income sive income and and expenses expensesInterest rate swaps 36,073 223,006 (141,599) - 241,837 (899,733)Currency swaps 1,128,115 2,120,814 (473,628) 867,216 2,449,558 (183,215) 1,164,188 2,343,820 (615,227) 867,216 2,691,395 (1,082,948) 25
    • Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsJune 30, 2012 and 2011, and December 31, 2011 The amount recognized as other comprehensive income, representing the effective portion related to cash flow hedge, is 467,721 thousand as of June 30, 2012, and the reclassified amount from other comprehensive income to profit or loss is 373,842 thousand. There is no ineffective portion recognized related to cash flow hedge for the six-months periods ended June 30, 2012.16. Equity The Company is authorized to issue 80,000,000 shares (par value of per share : 5,000). As of June 30, 2012 and December 31, 2011, the number of common stock and preferred stock, and paid in capital are as follows : (in thousands of Korean won, except number of shares) Type June 30, December 31, 2012 2011 Number of shares 20,000,000 20,000,000 Common Capital stock 100,000,000 100,000,000 stock Additional paid-in capital - 100,000,000 100,000,000 Number of shares 5,000,000 5,000,000 Preferred Capital stock 25,000,000 25,000,000 stock Additional paid in capital 74,608,060 74,608,060 99,608,060 99,608,060 Total 199,608,060 199,608,060 The convertible preferred stocks have been issued at 20,000 per share(par value 5,000 per share) are non-cumulative, non-participating, nominative, non-permanent preferred stock without voting right, and will be converted into common stock after seven years from issue date. Legal reserve and discretionary reserve as of June 30, 2012 and December 31, 2011, are as follows: (in millions of Korean won) June 30, December 31, Type 2012 2011 Legal reserve Revenue reserve 4,000,000 1,000,000 Reserve for electronic financial Discretionary 100,000 100,000 transactions reserve Reserve for bad loans 3,357,192 - Unappropriated retained earnings (Expected reserve for bad loans 133,817,650 145,366,632 June 30, 2012: 9,918,236 thousand, December 31, 2011: 3,357,192 thousand) 141,274,842 146,466,632 26
    • Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsJune 30, 2012 and 2011, and December 31, 2011 If allowances for doubtful accounts do not meet the minimum amount calculated in accordance with allowance reserve standards of Regulation on Supervision under Article 11 of the Specialized Credit Financial Business Law Article 11, the Group appropriates a reserve for bad loans in an amount more than the difference between the allowance and the requirement. The reserve for bad loans is attributed to discretionary reserve for retained earnings. If the existing reserve for bad loans exceeds the reserve for bad loans to be reserved, the excess amounts are to be reversed. And if undisposed deficit exists, the reserve for bad loans is reserved after undisposed deficit is disposed of. Appropriated and expected reserves for bad loans as of June 30, 2012 and December 31, 2011, are as follows: (in thousands of Korean won) Type June 30, 2012 December 31, 2011 Appropriated reserve for bad loans 3,357,192 - Expected reserve for bad loans 9,682,546 3,357,192 13,039,738 3,357,192 Transfer to reserve for bad loans and net income in consideration of effect of changes in reserve for bad loan for the six-month periods ended June 30, 2012 and 2011, are as follows: (in thousands of Korean won) Type June 30, 2012 June 30, 2011 Net income 24,659,315 37,078,406 1 Transfer to reserve for bad loans (9,682,546) (408,955) Net income in consideration of changes in reserve for 2 14,976,769 36,669,451 bad loans Net income per share in consideration of changes in 3 749 1,833 reserve for bad loans (In won) 1 Transfer to reserve for bad loans are subtracted from balance of reserve for bad loans in 2011 to balance in 2010. 2 Net income in consideration of changes in reserve for bad loans is not accordance with K-IFRS, and the amount is the sum of the transfer to reserve for bad loans before income tax and net income. 3 Net income per share in consideration of changes is calculated by subtracting the transfer to reserve for bad loans from the net income for common stock. The 30 billion of dividends for fiscal year ended December 31, 2011, were paid in March 2012 (2011 : 10 billion). (in thousands of Korean won) Type December 31, 2011 December 31, 2010 Common stock 24,000,000 10,000,000 Preferred stock 6,000,000 - Total 30,000,000 10,000,000 27
    • Hyundai Commercial, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements June 30, 2012 and 2011, and December 31, 2011 17. General and Administrative Expenses General and administrative expenses for the three-month and six-month periods ended June 30, 2012 and 2011, are as follows: (in thousands of Korean won) 2012 2011 Three months Six months Three months Six monthsPayroll 4,568,093 8,195,793 4,274,675 8,695,536Severance benefits 781,519 1,274,914 561,708 1,002,588Fringe benefits 1,312,506 2,727,606 1,154,555 2,362,867Outsourcing service charges 992,298 1,979,729 756,554 1,509,578Sales promotions 3,602,914 6,888,858 2,445,376 5,726,356Commission 606,483 1,811,504 431,747 1,208,684Outsourcing service commission 732,547 1,233,670 535,593 958,006Depreciation 258,027 502,421 311,567 672,065Amortization 255,995 531,975 339,339 711,043Taxes and dues 443,323 938,001 548,729 879,271Electronic expenses 357,298 749,399 412,527 638,012Rent 372,536 628,469 208,812 429,658Maintenance expenses on 278,182 547,957 248,076 460,591 buildingTravel and transportation 187,139 375,963 168,305 311,253Education 150,203 282,273 227,632 386,322Communication 128,639 270,700 121,740 246,901Other expenses 553,536 927,721 531,698 866,689 15,581,238 29,866,953 13,278,633 27,065,420 18. Income Tax The Group recognized income tax based on estimation of weighted average annual tax rate annual fiscal year. Expected weighted average annual tax rate for June 30, 2012, is 29.7% (June 30, 2011 : 27.5%). 28
    • Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsJune 30, 2012 and 2011, and December 31, 201119. Other Comprehensive Income Other comprehensive income for the six-month periods ended June 30, 2012 and 2011, consist of: (in thousands of Korean won) June 30, 2012 Changes Beginning Reclassifi- Income Ending Type Other balance cation of tax effects balance changes profit or loss Loss on valuation of derivatives (1,082,948) 373,842 243,204 (149,325) (615,227) Gain on valuation of available-for-sale 6,047,838 - (5,415,441) 1,310,537 1,942,934 financial assets Accumulated comprehensive expense of equity (1,702,584) - 1,818,209 (47,725) 67,900 method investee 3,262,306 373,842 (3,354,028) 1,113,487 1,395,607 (in thousands of Korean won) June 30, 2011 Changes Beginning Reclassifi- Income Ending Type cation of Other balance tax effects balance profit or changes lossLoss on valuation of derivatives (1,662,559) 1,240,761 (191,820) (279,020) (892,638)Gain on valuation of available-for-sale 2,180,057 4,837,638 (1,001,007) 6,016,688 financial assets -Accumulated comprehensive expense of equity (1,379,779) (415,618) 91,436 (1,703,961) - method investee (862,281) 1,240,761 4,230,200 (1,188,591) 3,420,08920. Supplemental Cash Flow Information Cash and cash equivalents in the statements of financial position as of June 30, 2012 and December 31, 2011, consist of: (in thousands of Korean won) Type June 30, 2012 December 31, 2011 Cash 2,000 2,000 Ordinary deposits 17,622,199 6,005,235 Short-term financial instruments 297,615,346 270,001,884 315,239,545 276,009,119 29
    • Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsJune 30, 2012 and 2011, and December 31, 2011 Cash generated from operations for the six-month periods ended June 30, 2012 and 2011, are as follows:(in thousands of Korean won) June 30, 2012 June 30, 2011Net income 24,659,315 37,078,406Adjustments Net interest expenses 74,978,498 68,533,277 Dividends (250,000) (300,000) Income tax 10,391,091 12,974,838 Gain on loans receivable 21,687,165 15,172,240 Gain on installment financing 2,200,962 (250,805) Gain on leased assets (10,039) (14,991) Gain on foreign currency translation - (2,186,000) Gain on disposal of property and equipment (1,661) (4,346) Gain on valuation of derivatives (27,500) - Gain on equity method valuation 2,125,980 (8,660,056) Bad debts expense 8,697,812 10,960,117 Severance benefits 1,274,953 1,002,588 Depreciation 502,421 672,065 Amortization of intangible assets 531,975 711,043 Loss on foreign currency translation 27,500 - Loss on disposal of property and equipment 87,386 48,895 Loss on reduction of investment assets - 610,000 Loss on valuation of derivatives 272,954 2,186,000 Others - 1,098 122,489,497 101,455,963Changes in operating assets and liabilities Decrease in available-for-sale securities - 3,250,000 (Increase) in loans receivable (262,534,798) (415,348,138) Decrease in installment financing receivables 55,086,969 37,637,771 (Increase) in finance lease receivables (22,303,623) (22,769,853) (Increase) in deferred loan origination fees and (35,959,538) (23,675,361) costs (Decrease) in present value discounts (706,058) (1,025,485) (Decrease) in allowance for bad debts (35,833) (604,585) Decrease in non-trade receivables 6,852,230 2,592,380 Decrease(increase) in accrued revenues 1,793,683 (2,146,615) Decrease(increase) in advance payments 254,740 (400,508) Decrease in prepaid expenses 436,058 4,145,987 Increase in non-trade payables 4,716,375 703,537 (Decrease) in accrued expenses (6,470,211) (5,547,376) Increase in unearned revenue 297,352 1,739,579 (Decrease) in advance receipts (124,986) (120,157) Increase in withholdings 1,766,667 127,081 30
    • Hyundai Commercial, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements June 30, 2012 and 2011, and December 31, 2011 Payment of severance benefits (214,377) (336,638) Decrease(increase) in plan assets 161,594 (124,141) Transfer of severance benefits from related parties 522,976 412,549 Transfer of severance benefits to related parties (726,460) - Increase in leasehold deposits received 8,527,702 7,816,936 (248,659,538) (413,673,037) (101,510,726) (275,138,668) Significant investing and financing activities not affecting cash flows for the six-month periods ended June 30, 2012 and 2011, are as follows: (in thousands of Korean won) Type June 30, 2012 June 30, 2011 Transferred from advance payments to other - 924,550 intangible assets Transferred to legal reserve 3,000,000 1,000,000 Transferred to discretionary reserve 3,357,192 100,000 21. Commitments and Contingencies Details of credit line agreements of the Group as of June 30, 2012, and December 31, 2011, are as follows: June 30, 2012 December 31, 2011 Financial Type Contract limit No use Contract limit No use institutions Limit of Woori Bank and KRW 315 billion KRW 265 billion KRW 225 billion KRW 175 billion overdraft 6 other banksLimit of L/C Shinhan Bank - - USD 8 million USD 8 million Details of pending significant litigations involving the Group as of June 30, 2012, are as follows: (in thousands of Korean won) Type Number of litigations Amount of litigations Plaintiff 10 452,634 Defendant - - As of report date, the outcome of these cases cannot be reasonably determined and no adjustments are reflected on the consolidated financial statements of the Group as of June 30, 2012. The Group enters into a financial support agreement with Shinhan Bank for the acquisition of mold equipment for Hyundai and Kia Motor Company’s component partner companies. The Group guarantees the loans of the component partner companies. The amount of payment guarantees as of June 30, 2012, is 6,398,639 thousand (December 31, 2011: 12,542,306 thousand). 31
    • Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsJune 30, 2012 and 2011, and December 31, 2011 Details of guarantees involving third parties as of June 30, 2012, and December 31, 2011, are as follows: (in thousands of Korean won) Guarantor Details June 30, 2012 December 31, 2011 Guarantees on machinery installment Hyundai Wia 41,516,595 63,422,227 financing receivables Hyundai Motor Guarantees on finance lease receivables 6,196,598 8,877,631 Company22. Related Party Transactions The parent company is Hyundai Motor Company. Related parties include associates, joint ventures, post-employment benefit plans, members of key management personnel and entities which the Group controls directly or indirectly, has joint control or significant influence over them. Significant transactions, which occurred in the normal course of business with related companies for the six-month periods ended June 30, 2012 and 2011, are as follows: (in thousands of Korean won) June 30, 2012 June 30, 2011 Purchases Sale Purchases Sale Parent Company Hyundai Motor Company 112,602 - 209,814 - Others Hyundai Wia Corp. 26,248,587 - 31,802,695 - Hyundai Capital Services - 26,395,537 - 14,762,197 Inc. Hyundai Autoever Corp. 475,107 - 72,955 - 26,723,694 26,395,537 31,875,650 14,762,197 26,836,296 26,395,537 32,085,464 14,762,197Revenues and expenses arising from transactions with related parties for the three-month and six-month periods ended June 30, 2012 and 2011, and receivables and payables as of June 30, 2012and December 31, 2011, are as follows:(in thousands of Korean won) June 30, 2012 December 31, 2011 Receivables Payables Receivables Payables Parent Company Hyundai Motor Company 173,650 9,101 209,920 173,830 Others Kia Motors Corp. 2,053 - 2,966 - Hyundai Capital Services 2,915,635 53,607 2,435,947 34,453 Inc. Hyundai Card Co., Ltd. 3,767,922 8,240,856 3,504,434 2,870,760 Samwoo Co., Ltd. 26,103,902 118,675 31,345,746 118,675 Mseat Inc. 5,000,000 - 15,000,000 - 32
    • Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsJune 30, 2012 and 2011, and December 31, 2011 Employees 1,511,820 - 1,281,205 - 39,301,332 8,413,138 53,570,298 3,023,888 39,474,982 8,422,239 53,780,218 3,197,718(in thousands of Korean won) June 30, 2012 Revenues Expenses Three months Six months Three months Six months Parent Company Hyundai Motor Company 516,937 1,085,413 9,586 14,623 Others Kia Motors Corp. 6,105 13,685 - - Hyundai Capital Services 1,185,513 2,502,971 879,367 2,169,418 Inc. Autoever Systems Corp. - - 589,342 1,066,785 HMC Investment Securities - - 15,000 20,000 Hyundai Card Co., Ltd. 158,487 562,743 236,875 772,236 Innocean Worldwide Corp. - - 3,300 13,200 Samwoo 476,812 1,095,208 - - Haevichi Hotel and Resort - - - 330 Haevichi Country Club - - 820 1,370 Mseat Inc. 278,987 534,949 - - Wia Magna Powertrain - - - - Employees 7,454 14,440 125 165 2,113,358 4,723,996 1,724,829 4,043,504 2,630,295 5,809,409 1,734,415 4,058,127(in thousands of Korean won) June 30, 2011 Revenues Expenses Three months Six months Three months Six months Parent Company Hyundai Motor Company 790,112 1,602,519 1,683 6,181 Others Kia Motors Corp. 5,689 12,637 - - Hyundai Capital Services 818,210 1,435,930 664,800 829,859 Inc. Autoever Systems Corp. - - 598,114 978,575 HMC Investment Securities 256,200 21,931 - 82,000 Hyundai Card Co., Ltd. 124,572 235,868 192,137 313,080 Innocean Worldwide Corp. - - 20,816 46,116 Samwoo 142,151 192,191 - - Haevichi Hotel and Resort - - - - Haevichi Country Club - - - - Mseat Inc. 146,697 211,565 - - 33
    • Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsJune 30, 2012 and 2011, and December 31, 2011 Wia Magna Powertrain 28,221 59,417 - - Employees 7,262 15,595 - 55 1,529,002 2,185,134 1,475,867 2,249,685 2,319,114 3,787,653 1,477,550 2,255,866 The Group has been provided with guarantees by the related parties(Note 21). Compensation for key management for the six-month periods ended June 30, 2012 and 2011, consists of: (in thousands of Korean won) Type June 30, 2012 June 30, 2011 Short-term employee benefits 1,230,945 899,483 Severance benefits 559,065 317,884 The key management above consists of directors (including non-permanent directors), who have significant authority and responsibilities for planning, operating and controlling the operations of the Group.23. Financial Risk Management The Group is exposed to credit risk, liquidity risk and market risk (exchange and rate risk). In order to manage these factors, the Group operates risk management policies and programs that monitor closely and respond to each of the risk factors. The Group uses derivatives to manage specific risks. As the interim consolidated financial statements do not include all the financial risk management and disclosures that are required in annual consolidated financial statements, please refer to annual consolidated financial statements as of December 31, 2012. There was no significant change in the Groups risk management division and policies after December 31, 2011. 34