Audit Report: Hyundai Capital 1Q12 (English)

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Audit Report: Hyundai Capital 1Q12 (English)

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Audit Report: Hyundai Capital 1Q12 (English)

  1. 1. Hyundai Capital Services, Inc. andSubsidiariesInterim Consolidated Financial StatementsMarch 31, 2012 and 2011
  2. 2. Hyundai Capital Services, Inc. and SubsidiariesIndexMarch 31, 2012Report on Review of Interim Financial Statements ....................................................................... 1-2Interim Consolidated Financial StatementsInterim Consolidated Statements of Financial Position ...................................................................... 3-5Interim Consolidated Statements of Comprehensive Income............................................................. 6-8Interim Consolidated Statements of Changes in Equity ................................................................... 9-10Interim Consolidated Statements of Cash Flows ................................................................................ 11Notes to the Interim Consolidated Financial Statements................................................................ 12-49
  3. 3. Report on Review of Interim Financial StatementsTo the Shareholders and Board of Directors ofHyundai Capital Services, Inc.Reviewed Financial StatementsWe have reviewed the accompanying interim consolidated financial statements of HyundaiCapital Services, Inc. and its subsidiaries. These financial statements consist of consolidatedstatement of financial position of the Company and subsidiaries as of March 31, 2012, and therelated consolidated statements of comprehensive income, changes in equity and cash flowsfor the three-month periods ended March 31, 2012 and 2011, and a summary of significantaccounting policies and other explanatory notes, expressed in Korean won.Managements Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidatedfinancial statements in accordance with the International Financial Reporting Standards asadopted by the Republic of Korea (Korean IFRS) 1034, Interim Financial Reporting, and forsuch internal control as management determines is necessary to enable the preparation ofconsolidated financial statements that are free from material misstatement, whether due tofraud or error.Auditors ResponsibilityOur responsibility is to issue a report on these consolidated financial statements based on ourreviews.We conducted our reviews in accordance with the quarterly and semi-annual reviewstandards established by the Securities and Futures Commission of the Republic of Korea. Areview of interim financial information consists of making inquiries, primarily of personsresponsible for financial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted in accordance withauditing standards generally accepted in the Republic of Korea and consequently does notenable us to obtain assurance that we would become aware of all significant matters thatmight be identified in an audit. Accordingly, we do not express an audit opinion. 1
  4. 4. ConclusionBased on our reviews, nothing has come to our attention that causes us to believe theaccompanying interim consolidated financial statements do not present fairly, in all materialrespects, in accordance with the Korean IFRS 1034, Interim Financial Reporting.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 February24, 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 inpracticeSeoul, KoreaMay 11, 2012 This report is effective as of May 11, 2012, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying interim consolidated financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any. 2
  5. 5. Hyundai Capital Services, Inc. and SubsidiariesInterim Consolidated Statements of Financial PositionMarch 31, 2012 and December 31, 2011(In millions of Korean won) 2012 2011 Assets Cash and deposits Cash and cash equivalents (Note 25) 1,751,636 1,455,432 Deposits (Note 3) 10 10 1,751,646 1,455,442 Securities (Note 4) Available-for-sale securities 20,450 18,452 Equity method investments 53,691 51,768 74,141 70,220 Loans receivable (Notes 5, 6 and 8) 11,136,563 11,129,246 Allowances for doubtful accounts (275,702) (281,184) 10,860,861 10,848,062 Installment financial assets (Notes 5, 6 and 8) Auto installment financing receivables 4,758,356 5,030,541 Allowances for doubtful accounts (31,252) (36,748) Durable goods installment financing receivables 741 1,422 Allowances for doubtful accounts (77) (141) Mortgage installment financing receivables 21,821 25,679 Allowances for doubtful accounts (168) (1,204) Machinery installment financing receivables 689 1,682 Allowances for doubtful accounts (19) (37) 4,750,091 5,021,194 Lease receivables (Notes 5 and 6) Finance lease receivables (Note 9) 2,364,548 2,278,383 Cancelled lease receivables 305 211 2,364,853 2,278,594 Leased assets (Note 10) Operating leased assets 1,100,777 1,119,309 Cancelled leased assets 3,840 3,769 1,104,617 1,123,078 3
  6. 6. Hyundai Capital Services, Inc. and SubsidiariesInterim Consolidated Statements of Financial PositionMarch 31, 2012 and December 31, 2011(In millions of Korean won) 2012 2011 Property and equipment (Note 11) 320,608 265,433 Other assets Intangible assets (Note 12) 63,414 65,117 Non-trade receivables 93,441 87,895 Allowances for doubtful accounts (3,354) (2,913) Accrued revenues 122,998 128,351 Allowances for doubtful accounts (14,120) (14,371) Advance payments 98,829 55,013 Prepaid expenses 49,516 26,434 Leasehold deposits 33,601 35,929 Derivative assets (Note 18) 271,088 475,431 715,413 856,886 Total assets 21,942,230 21,918,910Liabilities and EquityBorrowings Borrowings (Note 13) 2,125,000 2,250,000 Debentures (Notes 8 and 14) 15,472,212 15,522,368 17,597,212 17,772,368Other liabilities Non-trade payables 387,763 345,089 Accrued expenses 131,957 135,083 Unearned revenue 58,450 61,095 Withholdings 28,912 24,140 Defined benefit liability (Note 15) 22,221 20,362 Leasehold deposits received 795,245 787,858 Deferred income tax liabilities (Note 16) 39,046 47,884 Provisions (Note 17) 9,852 10,446 Derivative liabilities (Note 18) 58,808 58,096 1,532,254 1,490,053 Total liabilities 19,129,466 19,262,421 4
  7. 7. Hyundai Capital Services, Inc. and SubsidiariesInterim Consolidated Statements of Financial PositionMarch 31, 2012 and December 31, 2011(In millions of Korean won) 2012 2011Equity Common stock (Notes 1 and 19) 496,537 496,537 Capital surplus Paid-in capital in excess of par value 369,339 369,339 Other capital surplus 38,200 38,200 407,539 407,539 Accumulated other comprehensive income and expenses (Note 24) Gain on valuation of available-for-sale 255 (388) Securities Accumulated comprehensive income of equity 25 47 method investees Loss on valuation of derivatives (Note 18) (23,423) (50,156) Cumulative effect of overseas operation (493) (343) translation (23,636) (50,840) Retained earnings (Note 19) 1,932,215 1,803,144 Non-controlling interests 109 109 Total equity 2,812,764 2,656,489 Total liabilities and equity 21,942,230 21,918,910 The accompanying notes are an integral part of these interim consolidated financial statements. 5
  8. 8. Hyundai Capital Services, Inc. and SubsidiariesInterim Consolidated Statements of Comprehensive IncomeThree-Month Periods ended March 31, 2012 and 2011(In millions of Korean won, except per share amounts) 2012 2011 Operating revenue Interest income (Note 20) Interest on bank deposits 12,602 9,088 Other interest income 43 130 12,645 9,218 Gain on valuation and disposal of securities 1,348 1,604 Income on loans (Notes 20 and 21) 373,411 381,019 Income on installment financial receivables (Notes 101,825 114,594 20 and 21) Income on leased assets (Notes 20 and 21) 221,253 222,517 Gain on disposal of loans 24,812 - Gain on foreign transactions Gain on foreign exchanges translation 85,926 146,543 Gain on foreign currency transactions 12,215 2,021 98,141 148,564 Dividend income 2,831 3,238 Other operating income Gain on valuation of derivatives 48,874 32,672 Gain on derivatives transactions - 715 Others 31,097 24,676 79,971 58,063 Total operating revenue 916,237 938,817 Operating expenses Interest expenses (Note 20) 229,454 239,921 Lease expenses (Note 21) 123,967 131,570 Bad debts expense (Note 6) 82,996 59,716 Loss on foreign transactions Loss on foreign exchanges translation 48,876 32,676 Loss on foreign currency transactions - 715 48,876 33,391 General and administrative expenses (Note 22) 136,149 133,186 6
  9. 9. Hyundai Capital Services, Inc. and SubsidiariesInterim Consolidated Statements of Comprehensive IncomeThree-Month Periods ended March 31, 2012 and 2011(In millions of Korean won, except per share amounts) 2012 2011 Other operating expenses Loss on valuation of derivatives 85,929 146,548 Loss on derivatives transactions 12,222 2,028 Others 15,388 10,583 113,539 159,159 Total operating expenses 734,981 756,943 Operating income 181,256 181,874 Non-operating income Gain on equity method valuation (Note 4) 2,259 2,885 Non-operating expenses Loss on equity method valuation (Note 4) 116 30 Income before income taxes 183,399 184,729 Income tax expense (Note 16) 54,329 39,605 Net income 129,070 145,124 Net income attributable to: Owners of the parent 129,070 145,124 Non-controlling interests - - 129,070 145,124 Other comprehensive income, net of income taxes (Note 24) Gain on valuation of available-for-sale financial 643 35 securities Other comprehensive income of equity method (22) 102 investees Gain (Loss) on valuation of derivatives 26,733 62,321 Effect of overseas operation translation (150) (184) 27,204 62,274 Total comprehensive income 156,274 207,398 7
  10. 10. Hyundai Capital Services, Inc. and SubsidiariesInterim Consolidated Statements of Comprehensive IncomeThree-Month Periods ended March 31, 2012 and 2011(In millions of Korean won, except per share amounts) 2012 2011 Total comprehensive income attributable to: Owners of the parent 156,274 207,398 Non-controlling interests - - 156,274 207,398 Earnings per share attributable to the ordinary equity holders of the company (Note 23) Basic earnings per share 1,300 1,461 The accompanying notes are an integral part of these interim consolidated financial statements. 8
  11. 11. Hyundai Capital Services, Inc. and Subsidiaries Interim Consolidated Statements of Changes in Equity Three-Month Periods ended March 31, 2012 and 2011 Accumulated Total(In millions of Korean won) other attributable Non- comprehensive Capital Capital income and Retained to owners of controlling stock surplus expenses earnings the parent interests Total equityBalances as of January 1, 2011 496,537 407,539 (67,371) 1,400,013 2,236,718 129 2,236,847Total comprehensive incomeNet income - - - 145,124 145,124 - 145,124Other comprehensive income Gain on valuation of available- - - 35 - 35 - 35 for-sale securities Other comprehensive income of - - 102 - 102 - 102 equity method investees Gain on valuation of derivatives - - 62,321 - 62,321 - 62,321 Effect of overseas operation - - (184) - (184) - (184) translationTotal comprehensive income - - 62,274 145,124 207,398 - 207,398Transactions with ownersDividends - - - (104,272) (104,272) - (104,272)Balances as of March 31, 2011 496,537 407,539 (5,097) 1,440,865 2,339,844 129 2,339,973 9
  12. 12. Hyundai Capital Services, Inc. and Subsidiaries Interim Consolidated Statements of Changes in Equity Three-Month Periods ended March 31, 2012 and 2011 Accumulated Total(In millions of Korean won) other attributable Non- comprehensive Capital Capital income and Retained to owners of controlling stock surplus expenses earnings the parent interests Total equityBalances as of January 1, 2012 496,537 407,539 (50,840) 1,803,144 2,656,380 109 2,656,489Total comprehensive incomeNet income - - - 129,070 129,070 - 129,070Other comprehensive income - - - - - - - Gain on valuation of available- - - 643 - 643 - 643 for-sale securities Other comprehensive income of - - (22) - (22) - (22) equity method investees Gain on valuation of derivatives - - 26,733 - 26,733 - 26,733 Effect of overseas operation - - (150) - (150) - (150) translationTotal comprehensive income - - 27,204 129,070 156,274 - 156,274Balances as of March 31, 2012 496,537 407,539 (23,636) 1,932,214 2,812,654 109 2,812,763 The accompanying notes are an integral part of these interim consolidated financial statements. 10
  13. 13. Hyundai Capital Services, Inc. and SubsidiariesInterim Consolidated Statements of Cash FlowsThree-Month Periods ended March 31, 2012 and 2011(In millions of Korean won) 2012 2011 Cash flows from operating activities Cash generated from operations (Note 25) 506,496 (81,391) Interest received 15,144 9,088 Interest paid (217,975) (230,624) Dividends received 2,831 3,238 Income taxes paid (1,451) (36,590) 305,045 (336,279) Cash flows from investing activities Decrease in deposits - 3 Dividends from equity method investments 733 707 Acquisition of land (34,165) (1,853) Acquisition of building (22,053) (4,785) Acquisition of vehicles (2,055) (78) Acquisition of fixtures and furniture (2,640) (5,820) Acquisition of other tangible assets - (231) Increase in construction in progress (847) (941) Acquisition of intangible assets (796) (2,142) Decrease in leasehold deposits 2,622 107 Increase in leasehold deposits (251) (629) Acquisition of equity method investments (535) - (59,987) (15,662) Cash flows from financing activities Proceeds from borrowings 530,000 750,000 Repayments of borrowings (655,000) (1,010,000) Issuance of debentures 1,494,933 1,499,996 Repayments of debentures (1,318,635) (773,671) Payments of dividends - (45,151) 51,298 421,174 Exchange losses on cash and cash equivalents (2) - Decrease in other cash and cash equivalents (150) (184) Net increase in cash and cash equivalents 296,204 69,049 Cash and cash equivalents (Note 25) Beginning of period 1,455,432 1,224,866 End of period 1,751,636 1,293,915 The accompanying notes are an integral part of these interim consolidated financial statements. 11
  14. 14. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 20111. General information Hyundai Capital Services, Inc. was established on December 22, 1993, to engage in installment financing, facilities lease and new technology financing. The Company changed its trade name from Hyundai Auto Finance Co., Ltd. to Hyundai Financial Services Co. on April 21, 1995, and changed its trade name once again to Hyundai Capital Services, Inc. on December 30, 1998. In accordance with the Monopoly Regulation and Fair Trade Act, the Company is incorporated into Hyundai Motor Company Group. As of March 31, 2012, the Company’s operations are headquartered in Yeouido, Seoul. Its major shareholders are Hyundai Motor Company and GE International Holdings Corporation with 56.47% and 43.30% ownership, respectively. The interim consolidated financial statements have been prepared and presented which included the accounts of Hyundai Capital Services, Inc. (the “Company”), as the parent company according to Korean IFRS 1027, and Autopia Thirty-fifth trust and SPC and other subsidiaries (collectively the “Group”), while HK Mutual Saving Bank and four other entities are accounted for using the equity method. Subsidiaries as of March 31, 2012 and December 31, 2011, are as follows. The Company has the substantial power over the subsidiaries established as special purpose entities for asset securitization even though its ownership interests over the subsidiaries do not exceed 50%. Ratio of Location ownership March 31, 2012 December 31, 2011Special Autopia Thirty-fifth SPC(trust) Autopia Thirty-fifth SPC(trust)Purpose Korea 0.9% Autopia Thirty-sixth SPC(trust) Autopia Thirty-sixth SPC(trust)Entities1 Autopia Thirty-seventh SPC(trust) Autopia Thirty-seventh SPC(trust) Autopia Thirty-ninth SPC(trust) Autopia Thirty-ninth SPC(trust) Autopia Fortieth SPC(trust) Autopia Fortieth SPC(trust) Autopia Forty-second SPC(trust) Autopia Forty-second SPC(trust) Autopia Forty-third SPC(trust) Autopia Forty-third SPC(trust) Autopia Forty-fourth SPC(trust) Autopia Forty-fourth SPC(trust) Autopia Forty-fifth SPC(trust) Autopia Forty-fifth SPC(trust) Autopia Forty-sixth SPC(trust) Autopia Forty-sixth SPC(trust) Autopia Forty-seventh SPC(trust) Autopia Forty-seventh SPC(trust) Stock 1 1 Germany 100% Hyundai Capital Europe GmbH Hyundai Capital Europe GmbHCompany 1 It holds 100% shares of Hyundai Capital Services Limited Liability Company established during 2011.2. Summary of Significant Accounting Policies The Group’s interim consolidated financial statements for the three-month period ended March 31, 2012, have been prepared in accordance Korean IFRS 1034, ‘Interim Financial Reporting’. These interim consolidated financial statements have been prepared in accordance with the Korean IFRS 12
  15. 15. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 2011 standards and interpretations issued and effective or issued and early adopted as of March 31, 2012. New standards, amendments and interpretations issued but not effective for the financial year beginning January 1, 2012, and not early adopted by the Group are as follows: - Amendments to Korean-IFRS1019, Employee Benefits According to the amendments to Korean-IFRS1019, Employee Benefits, the corridor method is no longer permitted. Therefore, actuarial gains and losses on the defined benefit obligation are recognized immediately under other comprehensive income. The amendment requires to recognize immediately all past service costs. And the amendment replaces the interest cost on the defined benefit obligation, and the expected return on plan assets with a net interest cost based on the net defined benefit asset or liability and the discount rate measured at the beginning of the year. This amendment will be effective for the Group as of January 1, 2013. The Group is assessing the impact of application of the amended Korean-IFRS1019 on its consolidated financial statements. - Enactment of Korean-IFRS1113, Fair value measurement Korean-IFRS1113, Fair value measurement, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across Korean-IFRS. Korean-IFRS1101 does not extend the use of fair value accounting but provides guidance on how it should be applied where its use is already required or permitted by other standards within Korean-IFRS. This amendment will be effective for the Group as of January 1, 2013, and the Group expects that it would not have a material impact on the Group. The following is a summary of significant accounting policies followed by the Group in the preparation of its interim consolidated financial statements. These policies have been consistently applied to all the periods presented, unless otherwise stated. Interim period income tax expense is calculated by applying estimated average annual effective tax rate to the interim period’s pre-tax income. 13
  16. 16. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 20113. Restricted Financial Instruments Restricted financial instruments as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won) Amount Type Entities 2012 2011 Restriction Hana Bank Maintaining deposits for Deposits and 1 other 10 10 opening account4. Securities Securities as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won) Type 2012 2011 Available-for-sale securities Marketable equity securities 6,080 5,687 Equity securities Unlisted equity securities 10,893 10,526 16,973 16,213 Government and Debt securities public bonds 3,477 2,239 Sub-total 20,450 18,452 Equity method investments 53,691 51,768 74,141 70,220 Available-for-sale securities Available-for-sale securities as of March 31, 2012 and December 31, 2011, are as follows: (1) Marketable equity securities (in millions of Korean won) Book value Number of Ownership Acquisition 2012 2011 shares (%) cost Marketable equity securities NICE Information Service 136,593 2.25 3,312 3,538 3,190 NICE Holdings 49,162 1.42 3,491 2,542 2,497 Unlisted equity securities Hyundai Finance 1 1,700,000 9.29 9,888 10,793 10,426 Corp. Korean Egloan, Inc. 4,000 3.12 100 100 100 16,791 16,973 16,213 14
  17. 17. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 2011 1 The fair value for Hyundai Finance Corp. was valued as the average of valuation prices provided by two external appraisers, KIS Pricing Inc. and Korea Asset Pricing, using the discounted cash flow model. The five-year financial statements, projected based on past performance, were used in measuring the fair value assuming that the operational structure will remain as is for the next five years. Operating income and expenses were estimated based on the past performance, business plan and expected market conditions. (2) Debt securities (in millions of Korean won) Book value Interest Acquisition Issuer rate (%) cost 2012 2011Government and Metropolitan Rapid public bonds Transit and others 2.50 3,322 3,477 2,239 Equity method investments Equity method investments as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won) 2012 Number of Ownership Acquisition Net asset Book value shares (%) cost valueHK Mutual Saving 1 4,990,438 20.00 45,719 35,623 47,871 Bank 1HI Network, Inc. 13,332 19.99 76 370 370 1Korea Credit Bureau 140,000 7.00 3,800 2,813 3,850Hyundai Capital Germany GmbH 2 600,200 30.01 1,065 1,005 1,065Hyundai Capital UK Ltd. 2 1,000,000 29.99 535 535 535 51,195 40,346 53,691 (in millions of Korean won) 2011 Number of Ownership Acquisition Net asset Book value shares (%) cost valueHK Mutual Saving 1 4,990,438 20.00 45,719 33,487 45,735 Bank 1HI Network, Inc. 13,332 19.99 76 1,003 1,003 1Korea Credit Bureau 140,000 7.00 3,800 2,928 3,965Hyundai Capital Germany GmbH 2 600,200 30.01 1,065 1,065 1,065 50,660 38,483 51,768 1 The Company’s shareholdings in HK Mutual Saving Bank, HI Network, Inc. and Korea Credit Bureau are less than 20%. However, the Company is able to significantly influence such as 15
  18. 18. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011 involvement in the financial and operating processes, and thus the equity method is applied. 2 The Group’s shareholdings are more than 20%. However, equity method is not applied due to insignificant fluctuation of equity. Valuations of equity method investments for the three-month periods ended March 31, 2012 and 2011, are as follows: (in millions of Korean won) 2012 Changes in accumulated Beginning Gain (loss) Ending Acquisition other Dividends Balance on valuation comprehensive Balance lossHK Mutual Saving Bank 45,735 - 2,158 (22) - 47,871HI Network, Inc. 1,003 - 100 - (733) 370Korea Credit Bureau 3,965 - (115) - - 3,850Hyundai Capital Germany GmbH 1,065 - - - - 1,065Hyundai Capital UK Ltd - 535 - - - 535 51,768 535 2,143 (22) (733) 53,691 Changes in accumulated Beginning Gain (loss) Ending other Dividends Balance on valuation comprehensive Balance lossHK Mutual Saving Bank 42,849 2,725 103 - 45,677HI Network, Inc. 1,055 160 - (707) 508Korea Credit Bureau 3,514 (30) - - 3,484Hyundai Capital Germany GmbH 1,065 - - - 1,065 48,483 2,855 103 (707) 50,734 16
  19. 19. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011 The difference between the acquired amounts of equity method investments and their corresponding net asset value as of March 31, 2012 and December 31, 2011, follows: (in millions of Korean won) 2012 2011 HK Mutual Saving Bank 12,248 12,248 Korea Credit Bureau 1,037 1,037 13,285 13,285 Summary of financial information of investees as of March 31, 2012 and December 31, 2011, for assets and liablities , and for the three-month periods ended March 31, 2012 and 2011, for revenue and income, follows: (in millions of Korean won) 2012 Operating Net income Assets Liabilities revenue (loss)HK Mutual Saving 2,500,492 2,322,377 96,428 10,791 Bank 1HI Network, Inc. 9,011 3,491 3,555 624Korea Credit Bureau 49,196 9,017 8,694 (1,152)Hyundai Capital 4,072 373 147 78 Germany GmbHHyundai Capital UK 1,785 - - - Ltd. 1 Although HK Mutual Savings Bank’s fiscal year is from July 2011 to June 2012, the asset and liability amounts are as of March 31, 2012, and its operating revenue and net income amounts are from January 1, 2012 to March 31, 2012. 2011 Operating Net income Assets Liabilities revenue (loss)HK Mutual Saving Bank 1 2,593,289 2,425,855 88,477 13,626HI Network, Inc. 8,560 3,544 5,075 798Korea Credit Bureau 51,484 9,650 6,876 (423)Hyundai Capital 3,889 341 132 12 Germany GmbH 1 Although HK Mutual Savings Bank’s fiscal year is from July 2010 to June 2011, the asset and liability amounts are as of December 31, 2011, and its operating revenue and net income amounts are from January 1, 2011 to March 31, 2011. 5. Financial receivables 17
  20. 20. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011 Financial receivables as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won) 2012 Deferred loan origination fees Allowance Present value Carrying Principal and costs for doubtful discounts amount (Direct profit for accounts leased assets)Loan receivables Loans 11,248,021 (109,707) (1,751) (275,702) 10,860,861Installment financial assets Auto 4,825,815 (67,459) - (31,252) 4,727,104 Durable goods 740 1 - (77) 664 Mortgage 21,773 48 - (168) 21,653 Machinery 687 - 2 (19) 670 4,849,015 (67,410) 2 (31,516) 4,750,091Lease receivables Finance lease 2,388,843 (674) - (23,621) 2,364,548 receivables Cancelled lease 5,275 - - (4,970) 305 receivables 2,394,118 (674) - (28,591) 2,364,853 18,491,154 (177,791) (1,749) (335,809) 17,975,805 2011 Deferred loan origination fees Allowance Present value Carrying Principal and costs for doubtful discounts amount (Direct profit for accounts leased assets)Loan receivables Loans 11,239,870 (108,782) (1,842) (281,184) 10,848,062Installment financial assets Auto 5,109,299 (78,757) - (36,748) 4,993,794 Durable goods 1,419 3 - (141) 1,281 Mortgage 25,620 60 - (1,204) 24,476 Machinery 1,674 - 6 (37) 1,643 5,138,012 (78,694) 6 (38,130) 5,021,194Lease receivables Finance lease 2,300,204 (703) - (21,118) 2,278,383 receivables Cancelled lease 4,656 - - (4,445) 211 receivables 2,304,860 (703) - (25,563) 2,278,594 18,682,742 (188,179) (1,836) (344,877) 18,147,850 18
  21. 21. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011 6. Allowance for Doubtful Accounts Changes in allowance for doubtful accounts for the three-month periods ended March 31, 2012 and 2011, are as follows:(in millions of Korean won) 2012 Loan Installment Lease Type Other assets Total receivables financial assets receivablesBeginning balance 281,184 38,130 25,563 17,284 362,161Amounts written off (100,814) (12,139) (30) (1,854) (114,837)Recoveries of amounts 20,299 2,648 85 1,958 24,990 previously written offDiscount unwind (1,886) (70) (47) - (2,003)Additional(reversed) 76,919 2,947 3,020 86 82,972 allowanceEnding balance 275,702 31,516 28,591 17,474 353,283 2011 Loan Installment Lease Type Other assets Total receivables financial assets receivablesBeginning balance 215,703 28,643 21,031 7,648 273,025Amounts written off (56,556) (6,554) (9) (1,150) (64,269)Recoveries of amounts 25,260 3,499 51 1,993 30,803 previously written offDiscount unwind (1,458) (89) (39) - (1,586)Additional(reversed) 59,526 1,270 1,269 (2,349) 59,716 allowanceEnding balance 242,475 26,769 22,303 6,142 297,689 7. Financial instruments a. Fair value of financial instruments The fair values of financial instruments as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won) 2012 2011 Type Book value Fair value Book value Fair value Assets Financial assets Cash and deposits 1,751,646 1,751,646 1,455,442 1,455,442 Available-for-sale 20,450 20,450 18,452 18,452 securities Loan receivables 10,860,861 11,140,488 10,848,063 11,124,599 Installment financial 4,750,091 4,861,804 5,021,194 5,145,837 assets Derivative assets 271,088 271,088 475,431 475,431 19
  22. 22. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 2011 Other assets 232,567 232,503 234,892 234,810 17,886,703 18,277,979 18,053,474 18,454,571LiabilitiesFinancial liabilities Borrowings 2,125,000 2,134,616 2,250,000 2,257,918 Debentures 15,472,212 15,914,610 15,522,368 15,886,881 Derivative liabilities 58,808 58,808 58,096 58,096 Other liabilities 1,176,148 1,182,949 1,183,744 1,190,133 18,832,168 19,290,983 19,014,208 19,393,028 b. Fair value hierarchy The fair value hierarchy of financial assets and liabilities carried at fair value as of March 31, 2012 and December 31, 2011, is as follows:(in millions of Korean won) 2012 1 Fair value hierarchy Type Book value Fair value level 1 level 2 level 3Financial assetsFinancial assets at fair value Available-for-sale securities 20,450 20,450 6,080 3,477 10,893 Derivative assets 271,088 271,088 - 271,088 - 291,538 291,538 6,080 274,565 10,893Financial liabilities Derivative liabilities 58,808 58,808 - 58,808 - 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. 2011 Fair value hierarchy(*) Type Book value Fair value level 1 level 2 level 3Financial assetsFinancial assets at fair value Available-for-sale 18,452 18,452 5,687 2,239 10,526 20
  23. 23. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 2011 securities Derivative assets 475,431 475,431 - 475,431 - 493,883 493,883 5,687 477,670 10,526Financial liabilities Derivative liabilities 58,096 58,096 - 58,096 - c. Changes in financial instruments of level 3 The changes in financial instruments of level 3 for the three-month periods ended March 31, 2012 and 2011, are as follows: (in millions of Korean won) Available-for-sale securities Type 2012 2011 Beginning balance 10,526 9,887 Gain on valuation 367 197 (Other comprehensive income) Ending balance 10,893 10,084 d. Financial instruments by categories The carrying amounts of financial instruments by categories as of March 31, 2012 and December 31, 2011, are as follows:(in millions of Korean won) 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 - 1,751,646 - - 1,751,646 Available-for- sale - - 20,450 - 20,450 securities Loan receivables - 10,860,861 - - 10,860,861 Installment - 4,750,091 - - 4,750,091 financial assets Derivative assets 42 - - 271,046 271,088 Other assets - 232,567 - - 232,567 42 17,595,165 20,450 271,046 17,886,703 21
  24. 24. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011 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 - 1,455,442 - - 1,455,442 Available-for- sale - - 18,452 - 18,452 securities Loan receivables - 10,848,063 - - 10,848,063 Installment - 5,021,194 - - 5,021,194 financial assets Derivative assets 53 - - 475,378 475,431 Other assets - 234,892 - - 234,892 53 17,559,591 18,452 475,378 18,053,474 (in millions of Korean won) 2012 2011 Financial Financial Hedging Hedging liabilities at liabilities at Type derivative Total derivative Total amortized amortized instruments instruments cost costFinancial liabilities Borrowings 2,125,000 - 2,125,000 2,250,000 - 2,250,000 Debentures 15,472,212 - 15,472,212 15,522,368 - 15,522,368 Derivative - 58,808 58,808 - 58,096 58,096 liabilities Other liabilities 1,176,148 - 1,176,148 1,183,744 - 1,183,744 18,773,360 58,808 18,832,168 18,956,112 58,096 19,014,208 8. Derecognition of financial assets The Group issued senior and subordinated asset-backed securities based on loans and installment financial assets, and subsidiaries, like Autopia Thirty-fifth SPC, issued securitized debts based on senior beneficiary certificates. Meanwhile, the Group is involved in ongoing securitized financial instruments through credit reinforcement such as acquisitions of subordinated beneficiary certificates. Details of not derecognized financial assets transferred as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won) Type 2012 2011 Book value of assets Loan receivable 2,029,492 2,289,879 Installment financial assets 1,698,431 1,775,534 3,727,833 4,065,413 Book value of related liabilities (2,489,058) (2,748,872) 22
  25. 25. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011 Liabilities having right of resource about transferred assets : Fair value of assets 3,820,026 4,167,861 Fair value of related liabilities (2,512,419) (2,772,816) Net position 1,307,607 1,395,045 9. Finance lease receivables a. Total lease investments and present value of minimum lease receipts Details of total lease investments and present value of minimum lease receipts as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won) 2012 2011 Present value of Present value of Type Total lease Total lease minimum lease minimum lease investments investments receipts receiptsLess than 1 year 1,052,734 881,959 984,475 808,5211 to 5 years 1,642,845 1,503,812 1,610,089 1,475,991Over 5 years 104 103 77 76 2,695,683 2,385,874 2,594,641 2,284,588 b. Unearned interest income Details of unearned interest income as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won) Type 2012 2011 Total lease investments 2,695,683 2,594,641 Net lease investments Minimum lease receipts 2,385,874 2,284,588 (present value) Unguaranteed residual value 2,295 14,913 (present value) sub-total 2,388,169 2,299,501 Unearned interest income 307,514 295,140 10. Leased assets All operating leased assets consist of vehicles as of March 31, 2012 and December 31, 2011, and the details are as follows: 23
  26. 26. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011 (in millions of Korean won) 2012 2011 Acquisition Accumulated Acquisition Accumulated Book value Book value cost depreciation cost depreciationOperating leased assets 1,754,776 (653,999) 1,100,777 1,749,697 (630,388) 1,119,309Cancelled 6,066 (2,226) 3,840 5,995 (2,226) 3,769 leased assets 1,760,842 (656,225) 1,104,617 1,755,692 (632,614) 1,123,078 Future minimum lease receipts under operating lease as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won) Type 2012 2011 Less than 1 year 394,764 403,735 1 to 5 years 329,002 345,238 Over 5 years 4 4 723,770 748,977 11. Property and equipment a. Details of property and equipment Property and equipment as of March 31, 2012 and December 31, 2011, consist of: (in millions of Korean won) 2012 2011 Type Acquisition Accumulated Carrying Acquisition Accumulated Carrying cost depreciation amount cost depreciation amount Land 139,590 - 139,590 105,425 - 105,425 Buildings 142,908 (23,834) 119,074 120,855 (22,916) 97,939 Structures 2,844 (304) 2,540 2,844 (286) 2,558 Vehicles 3,798 (1,130) 2,668 1,743 (982) 761 Fixture and 156,588 (105,126) 51,462 154,771 (101,001) 53,770 furniture Others 2,000 (9) 1,991 2,001 (7) 1,994 Construction in 3,283 - 3,283 2,986 - 2,986 progress 451,011 (130,403) 320,608 390,625 (125,192) 265,433 b. Changes in property and equipment Changes in property and equipment for the three-month periods ended March 31, 2012 and 2011, are as follows: 24
  27. 27. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011 2012 Beginning Ending Type Acquisition Replacement Disposal Depreciation balance balance Land 105,425 34,165 - - - 139,590 Buildings 97,939 22,053 - - (918) 119,074 Structures 2,558 - - - (18) 2,540 Vehicles 761 2,055 - - (148) 2,668 Fixture and 53,770 2,640 523 (351) (5,120) 51,462 furniture Others 1,994 - (1) - (2) 1,991 Construction in 2,986 847 (550) - - 3,283 progress 265,433 61,760 (28) (351) (6,206) 320,608 2011 Beginning Ending Type Acquisition Replacement Depreciation balance balance Land 101,844 1,853 - - 103,697 Buildings 92,543 4,785 - (757) 96,571 Structures 2,246 - - (15) 2,231 Vehicles 838 78 - (89) 827 Fixture and 35,321 5,820 13 (4,376) 36,778 furniture Others 1,200 231 - (2) 1,429 Construction in 8,377 941 (3,264) - 6,054 progress 242,369 13,708 (3,251) (5,239) 247,587 12. Intangible assets a. Details of Intangible assets Intangible assets as of March 31, 2012 and December 31, 2011, consist of:(in millions of Korean won) 2012 2011 Type Acquisition Accumulated Book Acquisition Accumulated Book cost depreciation value cost depreciation valueDevelopment costs 71,898 (44,477) 27,421 71,254 (42,619) 28,635Rights of trademark 69 (42) 27 69 (39) 30Other intangible 53,347 (17,381) 35,966 53,296 (16,844) 36,452 assets 125,314 (61,900) 63,414 124,619 (59,502) 65,117 b. Changes in intangible assets Changes in intangible assets for the three-month periods ended March 31, 2012 and 2011, are as follows: 25
  28. 28. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011 (in millions of Korean won) 2012 Beginning Type Increase Replacement Amortization Ending balance balance Development costs 28,635 797 30 (2,041) 27,421 Rights of trademark 30 - - (3) 27 Other intangible assets 36,452 - (2) (484) 35,966 65,117 797 28 (2,528) 63,414 2011 Beginning Type Increase Replacement Amortization Ending balance balance Development costs 20,004 199 3,251 (1,441) 22,013 Rights of trademark 44 - - (4) 40 Other intangible assets 32,564 1,942 - (412) 34,094 52,612 2,141 3,251 (1,857) 56,147 13. Borrowings Borrowings as of March 31, 2012 and December 31, 2011, consist of: (in millions of Korean won) Annual Types Lender 2012 2011 interest rate (%) Borrowings in won Shinhan Bank Commercial paper 3.63 ~ 5.10 650,000 750,000 and 7 others Kookmin Bank General loans 4.16 ~ 5.72 1,475,000 1,500,000 and 12 others 2,125,000 2,250,000 14. Debentures Debentures issued by the Group and outstanding are as follows: (in millions of Korean won) Annual March 31, December 31, ` interest 2012 2011 Type rates Securitized Securitized Debenture Total Debenture Total (%) debenture debentureShort-termdebenture Debenture 3.76~5.04 270,000 - 270,000 100,000 - 100,000 Less: Discount (141) - (141) (29) - (29) on debentures 26
  29. 29. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011 269,859 - 269,859 99,971 - 99,971Current portion ofdebenture Debenture 2.90~8.76 3,169,516 986,156 4,155,672 4,030,429 996,073 5,026,502 Less: Discount (834) (211) (1,045) (1,191) (228) (1,419) on debentures 3,168,682 985,945 4,154,627 4,029,238 995,845 5,025,083Long-termdebenture Debenture 0 ~7.47 9,579,745 1,510,181 11,089,926 8,665,456 1,761,283 10,426,739 Less: Discount (35,132) (7,068) (42,200) (21,169) (8,256) (29,425) on debentures 9,544,613 1,503,113 11,047,726 8,644,287 1,753,027 10,397,314 12,983,154 2,489,058 15,472,212 12,773,496 2,748,872 15,522,368 Securitized debentures are issued based on loans receivable and installment financial assets (Note 8). 15. Defined benefit liability a. The amounts of defined benefit plans recognized in the statements of financial position as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won) Type 2012 2011 Present value of funded obligations 52,048 49,709 1 Fair value of plan assets (29,827) (29,347) Defined benefit liability 22,221 20,362 1. As of March 31, 2012, contribution to the National Pension Fund of 43 million is included (December 31, 2011 : 45 million). b. Changes in present value of defined benefit obligations as of March 31, 2012 and 2011: (in millions of Korean won) Type 2012 2011 Beginning balance 49,709 38,732 Current service cost 2,868 2,349 Interest cost 491 442 Actuarial losses (242) - Transfer of severance benefits from 1,308 366 related parties Transfer of severance benefits to related - (380) parties 27
  30. 30. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 2011 Benefits paid (2,086) (802) Ending balance 52,048 40,707 c. Changes in the fair value of plan assets as of March 31, 2012 and 2011: (in millions of Korean won) Type 2012 2011 Beginning balance 29,347 27,045 Contributions by plan participants - 3,499 Expected return on plan assets 286 263 Actuarial (losses)/gains 21 36 Transfer of severance benefits from 492 346 related parties Transfer of severance benefits to - (318) related parties Benefits paid (319) (559) Ending balance 29,827 30,312 d. Details of the amounts recognized in the income statement as of March 31, 2012 and 2011: (in millions of Korean won) Type 2012 2011 Current service cost 2,868 2,349 Interest cost 491 442 Expected return on plan assets (286) (263) Actuarial losses (263) - 2,810 2,528 e. Actual return on plan assets as of March 31, 2012 and 2011: (in millions of Korean won) Type 2012 2011 Actual return on plan assets 307 299 f. Details of plan assets consist of : (in millions of Korean won) Type March 31, 2012 December 31, 2011 Amount Ratio(%) Amount Ratio(%) Cash 496 1.67 179 0.61 28
  31. 31. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 2011 Deposits 11,680 39.16 11,576 39.45 Interest rate guaranteed asset 17,651 59.17 17,592 59.94 for 1-year 29,827 100 29,347 100 g. Actuarial assumptions Actuarial assumptions required to recognize defined benefit liability are as follows: Type March 31, December 31, 2012 2011 Discount rate 4.28% 4.21% Expected return on plan assets 4.15% 4.15% Future salary increases 5.60% 5.60% Assumptions regarding future mortality experience are set based on actuarial advice published by Korea Insurance Development Institute.16. Income tax a. Income tax expense for the three-month periods ended March 31, 2012 and 2011, consists of (in millions of Korean won) Type 2012 2011 1 Current tax 61,762 (16,344) Changes in deferred tax assets(liabilities) (8,838) 73,837 Deferred tax credited directly to equity 1,405 (17,888) Income tax 54,329 39,605 1 Income tax for the three-month period ended March 31, 2012, includes changes in tax reconciliation of the previous year. b. Deferred tax credited directly to equity (in millions of Korean won) Type 2012 2011 Gain on valuation of available-for-sale (150) 2 financial securities Loss on valuation of derivatives 1,555 (17,890) 1,405 (17,888) c. Reconciliation between income before income tax and income tax expense 29
  32. 32. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsMarch 31, 2012 and 2011, and December 31, 2011 (in millions of Korean won) Type 2012 2011 Profit before tax 183,400 184,729 Current tax (24.2%) 43,921 44,678 Adjustments: Income not subject to tax (10) (7) Expenses not deductible for tax 313 83 purposes Others 10,105 (5,149) Income tax 54,329 39,605 Effective tax rate 29.6% 21.4% (Income tax over net income before tax) d. Changes in temporary differences and deferred assets (liabilities) (in millions of Korean won) 2012 Temporary differences Deferred assets (liabilities) Type Opening Changes Ending Opening EndingDerivatives instruments (178,437) 123,563 (54,874) (54,421) (13,280)Deferred fee (156,056) 24,755 (131,301) (37,765) (31,774)Direct cost for leased (99,692) (525) (100,217) (24,126) (24,253) assetsForeign exchanges 174,256 (119,954) 54,302 42,170 13,141 translationAccrued expenses 25,262 1,819 27,081 6,113 6,554Depreciation 69,156 (81,199) (12,043) 16,736 (2,914)Present value (6) - (6) (2) (2) discountsUnearned revenue - 29,471 29,471 - 7,132Others (22,415) 49,418 27,003 3,411 6,350 (187,932) 27,348 (160,584) (47,884) (39,046) 2011 Temporary differences Deferred assets (liabilities) Type Opening Changes Ending Opening EndingAllowances for doubtful accounts (35,003) (173,184) (208,187) (8,471) (50,381)Derivatives (264,263) 36,348 (227,915) (59,619) (50,770) instrumentsDeferred fee (192,524) 51,317 (141,207) (45,647) (31,066)Direct cost for leased (84,109) (2,312) (86,421) (19,057) (19,013) assetsForeign exchanges 227,514 (74,256) 153,258 55,058 34,356 translationAccrued expenses 132,116 (102,145) 29,971 31,770 7,253Unearned revenue 43,532 (43,532) - 10,658 -Present value (66,457) 66,337 (120) (16,081) (26) discounts 30

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