HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIESCONSOLIDATED FINANCIAL STATEMENTSAS OF MARCH 31, 2012AND FOR THE THREE MONTHS E...
Independent Accountants’ Review ReportEnglish Translation of a Report Originally Issued in KoreanTo the Shareholders and B...
HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES(the “Company”)CONSOLIDATED FINANCIAL STATEMENTSAS OF MARCH 31, 2012AND FOR THE...
HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES                        CONSOLIDATED STATEMENTS OF FINANCIAL POSITION          ...
HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES                CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (CONTINUED)      ...
HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES                     CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME           ...
HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES                          CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ E...
HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES                         CONSOLIDATED STATEMENTS OF CASH FLOWS                 ...
HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)               ...
- 3 -                              HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES                            NOTES TO CONSOLI...
- 4 -K-IFRS 1107 Financial Instruments: Disclosures – Transfers of Financial AssetsThe amendments to K-IFRS 1107 increase ...
- 5 -3.   CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY     In the application of the Company’s...
- 6 -4. SUBSIDIARY: (1) Details of the Company’s subsidiaries as of March 31, 2012 and December 31, 2011 are as follows.  ...
- 7 -        (2) Restricted financial assets as of March 31, 2012 and December 31, 2011 are as follows (Unit: Won in      ...
- 8 -  8. ALLOWANCE FOR DOUBTFUL ACCOUNTS:     Changes in the allowance for doubtful accounts for the three months ended M...
- 9 -The appraised value of the land and the statutory standard market price of land and buildings as of March 31, 2012are...
- 10 -10. INTANGIBLE ASSETS:  (1) Intangible assets as of March 31, 2012 and December 31, 2011 are as follows (Unit: Won i...
- 11 -    11. ASSETS PLEDGED AS COLLATERAL:       Land and buildings amounting to ₩1,711 million are provided as collatera...
- 12 -                                                      Amount to be redeemed                   Period                ...
- 13 -(2) Defined benefit planThe Company also operates a defined benefit plan. Actuarial evaluation of plan assets and de...
- 14 -  4) Details of pension expenses are as follows (Unit: Won in millions):                                            ...
- 15 -(2) Provision for unused credit limitsThe Company recognizes loss provision for expected future use of unused portio...
- 16 -18. DERIVATIVES AND HEDGE ACCOUNTING:  (1) There are no derivative instruments held for trading as of March 31, 2012...
- 17 -21. RETAINED EARNINGS:  (1) Details of retained earnings as of March 31, 2012 and December 31, 2011 are as follows (...
- 18 -23. RESERVE FOR BAD LOANS:Reserve for bad loans is calculated and disclosed according to Article 11, Supervisory Reg...
- 19 -25. INCOME TAX FROM CONTINUING OPERATIONS  (1) Income tax expense for the three months ended March 31, 2012 and 2011...
- 20 -                                                                Three months ended March 31, 2012                   ...
- 21 -26. EARNINGS PER SHARE:  (1) Earnings per share for the three months ended March 31, 2012 and 2011 is as follows.   ...
- 22 -(2) Alliance    The Company has separate agency agreements regarding its credit card business with SC First Bank,   ...
Audit Report: Hyundai Card 1Q12 (English)
Audit Report: Hyundai Card 1Q12 (English)
Audit Report: Hyundai Card 1Q12 (English)
Audit Report: Hyundai Card 1Q12 (English)
Audit Report: Hyundai Card 1Q12 (English)
Audit Report: Hyundai Card 1Q12 (English)
Audit Report: Hyundai Card 1Q12 (English)
Audit Report: Hyundai Card 1Q12 (English)
Audit Report: Hyundai Card 1Q12 (English)
Audit Report: Hyundai Card 1Q12 (English)
Audit Report: Hyundai Card 1Q12 (English)
Audit Report: Hyundai Card 1Q12 (English)
Audit Report: Hyundai Card 1Q12 (English)
Audit Report: Hyundai Card 1Q12 (English)
Audit Report: Hyundai Card 1Q12 (English)
Audit Report: Hyundai Card 1Q12 (English)
Audit Report: Hyundai Card 1Q12 (English)
Audit Report: Hyundai Card 1Q12 (English)
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Audit Report: Hyundai Card 1Q12 (English)

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Audit Report: Hyundai Card 1Q12 (English)

  1. 1. HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIESCONSOLIDATED FINANCIAL STATEMENTSAS OF MARCH 31, 2012AND FOR THE THREE MONTHS ENDEDMARCH 31, 2012 AND 2011AND INDEPENDENT ACCOUNTANTS’ REVIEW REPORT
  2. 2. Independent Accountants’ Review ReportEnglish Translation of a Report Originally Issued in KoreanTo the Shareholders and Board of Directors ofHyundai Card Co., Ltd. and its subsidiaries:We have reviewed the accompanying consolidated financial statements of Hyundai Card Co., Ltd. and itssubsidiaries (collectively the “Company”). The financial statements consist of the consolidated statements offinancial position as of March 31, 2012 and the related consolidated statements of comprehensive income, changesin shareholders’ equity and cash flows for the three months ended March 31, 2012 and 2011, respectively, and asummary of significant accounting policies and other explanatory information.Management’s responsibility for the consolidated financial statementsThe Company’s management is responsible for the preparation and fair presentation of the accompanyingconsolidated financial statements and for such internal control as management determines is necessary to enable thepreparation of consolidated financial statements that are free from material misstatement, whether due to fraud orerror.Independent accountants’ responsibilityOur responsibility is to express a conclusion on the accompanying consolidated financial statements based on ourreview.We conducted our reviews in accordance with standards for review of interim financial statements in the Republicof Korea. A review is limited primarily to inquiries of company personnel and analytical procedures applied tofinancial data, and this provides less assurance than an audit. We have not performed an audit and, accordingly, wedo not express an audit opinion.Review conclusionBased on our reviews, nothing has come to our attention that causes us to believe that the accompanyingconsolidated financial statements of the Company are not presented fairly, in all material respects, in accordancewith Korean International Financial Standards 1034 Interim Financial Reporting.OthersWe have also audited the consolidated statements of financial position as of December 31, 2011, and the relatedconsolidated statements of comprehensive income, changes in shareholders’ equity and cash flows, all expressed inKorean won, for the year ended December 31, 2011, in accordance with auditing standards generally accepted in theRepublic of Korea. On those consolidated financial statements we expressed an unqualified opinion in ourindependent auditors’ report dated as of February 27, 2012. In addition, the consolidated financial statement ofposition as of December 31, 2011, does not differ, in all material respects, with the comparative consolidatedstatements of financial position as of December 31, 2011 included in the accompanying consolidated financialstatements.May 30, 2012 Notice to ReadersThis report is effective as of May 30, 2012, the review report date. Certain subsequent events or circumstancesmay have occurred between the review date and the time the review report is read. Such events or circumstancescould significantly affect the accompanying consolidated financial statements and may result in modifications tothe review report.
  3. 3. HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES(the “Company”)CONSOLIDATED FINANCIAL STATEMENTSAS OF MARCH 31, 2012AND FOR THE THREE MONTHS ENDEDMARCH 31, 2012 AND 2011The accompanying financial statements including all footnote disclosures were prepared by andare the responsibility of the Company.Chung, Tae YoungCEO
  4. 4. HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF MARCH 31, 2012 AND DECEMBER 31, 2011 March 31, 2012 December 31, 2011 (Korean won in millions)ASSETSCASH AND BANK DEPOSITS (Notes 5, 31, 32 and 33): Cash and cash equivalents ₩ 885,472 ₩ 830,023 Bank deposits 33,031 33,031 Total cash and bank deposits 918,503 863,054INVESTMENT FINANCIAL ASSETS (Notes 6, 32 and 33): Financial assets available-for-sale (AFS) 1,767 1,767 Total investment financial assets 1,767 1,767CARD ASSETS (Notes 7, 8, 29, 32 and 33): Card receivables, net of present value discounts, deferred origination fees and allowance for doubtful accounts 6,227,359 6,432,350 Cash advances, net of allowance for doubtful accounts 916,002 978,118 Card loans, net of present value discounts, deferred loan origination fees and allowance for doubtful accounts 2,107,729 1,963,798 Total card assets 9,251,090 9,374,266LOANS (Notes 7, 8, 32 and 33) Other loans, net of allowance for doubtful accounts 470 470PROPERTY AND EQUIPMENT (Notes 9, 11, 14 and 29): Land 118,161 83,995 Buildings, net of accumulated depreciation 64,256 42,187 Vehicles, net of accumulated depreciation 310 270 Fixtures and equipment, net of accumulated depreciation 59,123 57,974 Finance lease assets 2,222 2,500 Construction in progress 7,371 472 Total property and equipment 251,443 187,398OTHER FINANCIAL ASSETS (Notes 8, 18, 29, 32 and 33): Other accounts receivable, net of allowance for doubtful accounts 59,791 44,940 Accrued revenue, net of allowance for doubtful accounts 42,301 43,753 Guarantee deposits 43,656 52,759 Derivative assets 6,561 2,555 Total other financial assets 152,309 144,007OTHER NON-FINANCIAL ASSETS (Notes 5, 8, 10, 25 and 29): Advanced payments, net of allowance for doubtful accounts 24,724 25,224 Prepaid expenses 51,336 48,549 Intangible assets 68,972 72,976 Deferred income tax assets 130,110 112,403 Others 22,035 21,820 Total other non-financial assets 297,177 280,972 Total Assets ₩ 10,872,759 ₩ 10,851,934(Continued)
  5. 5. HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (CONTINUED) AS OF MARCH 31, 2012 AND DECEMBER 31, 2011 March 31, 2012 December 31, 2011LIABILITIES AND SHAREHOLDERS’ EQUITY (Korean won in millions)BORROWINGS : Borrowings (Notes 12, 32 and 33) ( ₩ 330,000 ₩ 590,000 Bonds payable, net of discounts on debentures (Notes 13, 28, 32 and 33) 6,756,635 6,481,760 Total borrowings 7,086,635 7,071,760RETIREMENT BENEFIT (Note 15) Retirement benefit obligation 19,493 17,775 Total retirement benefit 19,493 17,775OTHER FINANCIAL LIABILITIES (Notes 14, 18, 27, 29, 32 and 33): Accounts payable 990,988 1,066,706 Withholdings 82,936 64,313 Accrued expenses 101,495 140,922 Finance lease liabilities 2,280 2,548 Derivative liabilities 6,519 5,326 Import deposits 12,762 11,684 Total other financial liabilities 1,196,980 1,291,499OTHER NON-FINANCIAL LIABILITIES : Withholdings 6,551 5,650 Unearned revenue 359,820 347,865 Provisions (Notes 17 and 27) 80,257 80,233 Current tax liability 46,345 40,469 Total other non-financial liabilities 492,973 474,217SHAREHOLDERS’ EQUITY : Share capital (Note 19) 802,326 802,326 Capital surplus (Note 20) 57,704 57,704 Retained earnings (Notes 21 and 23) 1,223,394 1,148,397 Reserves (Notes 18, 22 and 30) (6,776) (11,764) Non-controlling interest 30 20 Total shareholders’ equity 2,076,678 1,996,683 Total Liabilities and Shareholders’ Equity ₩ 10,872,759 ₩ 10,851,934 See accompanying notes to consolidated financial statements.
  6. 6. HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011 Three months ended March 31, 2012 2011 (Korean won in millions, except for per share amount)OPERATING REVENUE: Card income (Notes 29 and 35) ₩ 586,824 ₩ 578,424 Interest income (Note 34) 5,296 4,884 Reversal of impairment loss on financial assets available-for-sale (Note 36) 67 67 Dividends income 233 294 Other operating revenue (Notes 29 and 37) 23,002 26,856 Total operating revenue 615,422 610,525OPERATING EXPENSES: Card expenses (Notes 29 and 35) 251,048 227,534 Interest expenses (Note 34) 86,663 90,361 General and administrative expenses (Notes 15, 16, 24 and 29) 131,911 113,693 Securitization expenses 110 108 Bad debt expense and loss on disposal of loans 42,315 52,827 Transfer to provision for unused credit limits (Note 17) 1,727 2,621 Impairment loss on financial assets available-for-sale (Note 36) - 8 Other operating expenses (Notes 29 and 37) 22,797 28,270 Total operating expenses 536,571 515,422OPERATING INCOME 78,851 95,103INCOME BEFORE INCOME TAX 78,851 95,103INCOME TAX EXPENSE (Note 25) 3,854 21,053INCOME FOR THE PERIOD 74,997 74,050OTHER COMPREHENSIVE INCOME FOR THE PERIOD (Note 30) Effective portion of changes in fair value of cash flow hedges 4,988 (435)TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ₩ 79,985 ₩ 73,615Net income attributable to: Owners of the Company 74,997 74,050 Non-controlling interests - -Total comprehensive income attributable to: Owners of the Company 79,985 73,615 Non-controlling interests - -Earnings per share (In won per share) (Note 26) Basic earnings per share ₩ 467 ₩ 461 Diluted earnings per share ₩ 467 ₩ 461 See accompanying notes to consolidated financial statements.
  7. 7. HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011 Capital surplus Reserves Other Net change in fair Cash flow Attributable to Non- Share Share capital Treasury Retained value of financial hedging owners of the controlling capital premium surplus shares earnings assets AFS reserve Company interests Total (Korean won in millions)Balance at January 1, 2011 ₩ 802,326 ₩ 45,399 ₩ 12,305 - ₩ 909,749 ₩ - ₩ (3,150) ₩ 1,766,629 ₩ 20 ₩ 1,766,649Comprehensive income - Net income - - - - 74,050 - - 74,050 - 74,050 Other comprehensive income - - - - - - (435) (435) - (435) Non-controlling interests - - - - - - - - 10 10Balance at March 31, 2011 802,326 45,399 12,305 - 983,799 - (3,585) 1,840,244 30 1,840,274Balance at January 1, 2012 802,326 45,399 12,305 - 1,148,397 - (11,764) 1,996,663 20 1,996,683Comprehensive income - - - - - - - - - - Net income - - - - 74,997 - - 74,997 - 74,997 Other comprehensive income - - - - - - 4,988 4,988 - 4,988 Non-controlling interests - - - - - - - - 10 10Balance at March 31, 2012 ₩ 802,326 ₩ 45,399 ₩ 12,305 ₩ - ₩ 1,223,394 - ₩ (6,776) ₩ 2,076,648 ₩ 30 ₩ 2,076,678 See accompanying notes to consolidated financial statements.
  8. 8. HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011 Three months ended March 31, 2012 2011 (Korean won in millions)CASH FLOWS FROM OPERATING ACTIVITIES: Income for the period ₩ 74,997 ₩ 74,050 Income tax expense 3,854 21,053 Interest income (5,296) (4,884) Interest expense 86,663 90,361 Dividend received (233) (294) Bad debt expense and loss on disposal of receivables 42,315 52,827 Retirement benefits 2,216 1,906 Depreciation 6,510 4,573 Amortization 3,440 2,403 Loss on foreign currency translation 5,251 10,013 Loss on valuation and transaction of derivatives 7,828 12,119 Increase in provision for unused credit limit 1,727 2,620 Increase in provision for mileage point 539 336 Loss from disposal of property and equipment 72 - Impairment loss of financial assets AFS - 8 Other operating losses - 129 Reversal of other provision (2,242) - Gain on foreign currency translation (7,057) (12,265) Gain on valuation and transaction of derivatives (5,160) (9,976) Amortization of present value discounts on card asset (11,308) (5,565) Amortization of deferred origination fees (5,040) (4,604) Reversal of impairment loss for investment financial assets (67) (67)Changes in working capital: Decrease in card assets 96,551 43,835 Decrease (increase) in other financial assets (15,145) 20,358 Decrease (increase) in other non-financial assets (8,391) 14,001 Decrease in derivative assets 1,091 20,358 Decrease in provisions - (33,268) Increase (decrease) in retirement benefit obligations (1,210) 89 Decrease (increase) in plan asset 712 (1,550) Decrease in derivative liabilities - (14,198) Decrease in finance lease liabilities (269) - Decrease in other financial liabilities (96,954) (108,529) Increase in other non-financial liabilities 11,955 9,289Cash generated from operating activities Interest received 7,121 4,242 Interest paid (82,257) (90,189) Dividend received 233 294 Income tax paid (17,268) (23,010)Net cash provided by operating activities 95,178 76,465(Continued)
  9. 9. HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011 Three months ended March 31, 2012 2011 (Korean won in millions)CASH FLOWS FROM INVESTING ACTIVITIES: Disposal of investment financial assets 67 67 Disposal of intangible assets 1,250 - Net decrease (increase) in guarantee deposit 9,683 (2,260) Net increase in bank deposit - (9,900) Acquisition of property and equipment (64,887) (10,788) Acquisition of intangible assets (1,489) (2,874)Net cash used in investing activities (55,376) (25,755)CASH FLOWS FROM FINANCING ACTIVITIES: Increase in borrowings 2,180,000 - Proceeds from issue of bonds payable 943,302 1,330,027 Increase in non-controlling interest 10 10 Repayment of borrowings (2,440,000) (781,191) Repayment of bonds payable (667,665) (517,631)Net cash provided by financing activities 15,647 31,215NET INCREASE IN CASH AND CASH EQUIVALENTS 55,449 81,925CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 830,023 797,048CASH AND CASH EQUIVALENTS, END OF THE PERIOD (Note 32) ₩ 885,472 ₩ 878,973 See accompanying notes to consolidated financial statements.
  10. 10. - 3 - HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 20111. GENERAL: Hyundai Card Co., LTD (the “Parent”) is engaged in the credit card business under the Specialized Credit Financial Business Law of Korea. On June 15, 1995, the Parent acquired the credit card business of Korea Credit Circulation Co., Ltd. and on June 16, 1995, the Korean government granted permission to the Parent to engage in the credit card business. As of March 31, 2012, the Parent has approximately 9.27 million card members, 1.97 million registered merchants, and 177 marketing centers, branches and posts. Its head office is located in Yeoido, Seoul. As of March 31, 2012, the total common stock of the Parent is ₩802,326 million. The shareholders of the Parent and their respective ownerships as of March 31, 2012 and December 31, 2011 are as follows: March 31, 2012 December 31, 2011 Shareholder Number of shares % of ownership Number of shares % of ownership Hyundai Motor Co., Ltd. 50,572,187 31.52 50,572,187 31.52 Kia Motors Co., Ltd. 18,422,142 11.48 18,422,142 11.48 Hyundai Steel Co., Ltd. 8,729,750 5.44 8,729,750 5.44 GE Capital Intl Holdings 69,000,073 43.00 69,000,073 43.00 Hyundai Commercial Inc. 8,889,622 5.54 8,889,622 5.54 Others 4,851,512 3.02 4,851,512 3.02 Totals 160,465,286 100.00 160,465,286 100.002. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The Parent and its subsidiaries (the “Company”) maintains its official accounting records in Republic of Korean won (“Won”) and prepares consolidated financial statements in conformity with Korean statutory requirements and Korean International Reporting Standards (“K-IFRS”), in the Korean language (Hangul). Accordingly, these consolidated financial statements are intended for use by those who are informed about K- IFRS and Korean practices. (1) Basis of Preparation The Company’s interim consolidated financial statements for the three months ended March 31, 2012 are prepared in accordance with K-IFRS 1034 Interim Financial Reporting. The Company’s accounting policies applied for the accompanying interim consolidated financial statements are the same as the policies applied for the preparation of consolidated financial statements for the year ended December 31, 2011, except for the effects from the introduction of new and revised accounting standards or interpretations below. 1) Accounting standards and interpretations that were newly applied during the three months ended March 31, 2012, and changes in the Company’s accounting policies are as follows:
  11. 11. - 4 -K-IFRS 1107 Financial Instruments: Disclosures – Transfers of Financial AssetsThe amendments to K-IFRS 1107 increase the disclosure requirements for transactions involving transfers offinancial assets. These amendments are intended to provide greater transparency around risk exposures when afinancial asset is transferred but the transferor retains some level of continuing involvement in the asset. Theamendments also require disclosures where transfers of financial assets are not evenly distributed throughoutthe period. K-IFRS 1107 requires additional disclosures regarding the continuous involvement of the Companyrelated to transferred asset. The Company additionally disclosed the fair value of transferred asset, for financialassets that are transferred but not removed. (Note 28)Amendments to K-FIRS 1012 Deferred Tax – Recovery of Underlying AssetsThe amendments to K-IFRS 1012 provide an exception to the general principles in K-IFRS 1012 that themeasurement of deferred tax assets and deferred tax liabilities should reflect the tax consequences that wouldfollow from the manner in which the entity expect to recover the carrying amount of an asset. Investmentproperty measured using the revaluation model under K-IFRS 1040 Investment Property or a non-depreciableasset measured using the revaluation model in K-IFRS 1016 Property, Plant, and Equipment, are presumed tobe recovered through sale for the purposes of measuring deferred taxes, unless the presumption is rebutted incertain circumstances. The amendments do not have a significant effect on the Company’s consolidatedfinancial statements and disclosures.Amendments to K-IFRIC Interpretation 2114 – Prepayments of a Minimum Funding RequirementsThe amendments to K-IFRIC Interpretation 2114 requires the surplus from to prepayments of a minimumfunding requirements be recognized as an asset while it was not before adopting the interpretation. Theamendments do not have a significant effect on the Company’s consolidated financial statements anddisclosures.2) Currently, enactments and amendments of the K-IFRSs are in progress, and the financial information presented in the consolidated financial statements may change accordingly in the future. The Company has not applied the following new and revised K-IFRSs that have been issued but are not yet effective:K-IFRS 1019 (as revised in 2011) Employee BenefitsThe amendments to K-IFRS 1019 change the accounting for defined benefit plans and termination benefits.The most significant change relates to the accounting for changes in defined benefit obligations and plan assets.The amendments require the recognition of changes in defined benefit obligations and in fair value of planassets when they occur, and hence eliminate the ‘corridor approach’ permitted under the previous version of K-IFRS 1019 and accelerate the recognition of past service costs. The amendments to K-IFRS 1019 are effectivefor annual periods beginning on or after January 1, 2013 and require retrospective application with certainexceptions.K-IFRS 1113 Fair Value MeasurementK-IFRS 1113 establishes a single source of guidance for fair value measurements and disclosures about fairvalue measurements. The standard defines fair value, establishes a framework for measuring fair value, andrequires disclosures about fair value measurements. K-IFRS 1113 is effective for annual periods beginning onor after January 1, 2013, with earlier application permitted.The Company does not anticipate that these amendments referred above will have a significant effect on theCompany’s consolidated financial statements and disclosures.
  12. 12. - 5 -3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Company’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The application of the Company’s accounting policies and the judgments by management on sources of estimation uncertainty are the same as those of the consolidated financial statements as of December 31, 2011
  13. 13. - 6 -4. SUBSIDIARY: (1) Details of the Company’s subsidiaries as of March 31, 2012 and December 31, 2011 are as follows. Place of Voting share (%) incorporation and Companies Major operation operations March 31, 2012 December 31, 2011 PRIVIA 1st SPC Asset securitization Korea 0.9 0.9 PRIVIA 2nd SPC Asset securitization Korea 0.9 0.9 PRIVIA 3rd SPC Asset securitization Korea 0.9 - (2) Summarized financial information of the Company’s subsidiaries as of March 31, 2012 and December 31, 2011 are as follows (Unit: Won in millions): March 31, 2012 Companies Asset Liability Sales Net income PRIVIA 1st SPC ₩ 47 ₩ - ₩ 62 ₩ 37 PRIVIA 2nd SPC 448,091 458,258 10,637 - PRIVIA 3rd SPC 455,730 3,717 - 3,279 December 31, 2011 Companies Asset Liability Sales Net income PRIVIA 1st SPC ₩ 10 ₩ - ₩ 17,854 ₩ 391 PRIVIA 2nd SPC 448,139 463,317 29,895 - (3) Changes in the Company’s subsidiaries for the three month ended March, 31 2012 are as follows. Companies Asset PRIVIA 3rd SPC Newly established due to ABS issuance5. CASH AND DEPOSITS: (1) Details of cash and cash equivalents as of March 31, 2012 and December 31, 2011are as follows (Unit: Won in millions): March 31, 2012 December 31, 2011 Annual Annual interest rate(%) Amount interest rate(%) Amount Cash on hand - ₩ 4 - ₩ 4 Current deposits - 14,748 - 8,749 Pass-book deposits - 55,220 - 72,770 Other cash equivalents 3.30~3.45 160,000 3.20~3.60 300,000 Time deposits 2.90~3.73 25,500 2.90~3.70 25,500 Restricted cash & deposits 3.22~3.60 630,000 3.00~4.25 423,000 ₩ 885,472 ₩ 830,023
  14. 14. - 7 - (2) Restricted financial assets as of March 31, 2012 and December 31, 2011 are as follows (Unit: Won in millions): Type Entity March 31, 2012 December 31, 2011 Restriction Due from financial Financial KB and others Guarantee deposits institutions instruments ₩ 18 ₩ 18 for overdraft Financial Shinhan Bank Secured deposits instruments and others 33,000 33,000 Financial Mirae Asset Social enterprise instruments Securities 13 13 fund Others Other dues Korea Asset Management Escrow account Corporation 18,610 18,610 ₩ 51,641 ₩ 51,641 6. INVESTMENT FINANCIAL ASSETS: Investment financial assets as of March 31, 2012 and December 31, 2011 are as follows (Unit: Won in millions): March 31, 2012 December 31, 2011 Financial assets AFS Unlisted shares investments ₩ 1,767 ₩ 1,767 7. CARD ASSETS AND LOANS Card assets and loans by customer as of March 31, 2012 and December 31, 2011 are as follows (Unit: Won in millions): March 31, 2012 December 31, 2011 Households Corporates Total Households Corporates TotalCARD ASSETS : Card receivables (*) ₩ 5,785,623 ₩ 508,466 ₩6,294,089 ₩ 6,039,571 ₩ 461,552 ₩ 6,501,123 Cash advances 951,626 - 951,626 1,016,028 - 1,016,028 Card loans (*) 2,176,852 - 2,176,852 2,030,869 - 2,030,869 Sub total 8,914,101 508,466 9,422,567 9,086,468 461,552 9,548,020LOANS Loans to corporate - 500 500 - 500 500 Total 8,914,101 508,966 9,423,067 9,086,468 462,052 9,548,520Allowance for doubtful accounts (164,166) (7,341) (171,507) (165,480) (8,304) (173,784)Book value ₩ 8,749,935 ₩ 501,625 ₩ 9,251,560 ₩ 8,920,988 ₩ 453,748 ₩9,374,736Composition rate 94.58% 5.42% 100.00% 95.16% 4.84% 100.00% (*) Adjusted for deferred origination fees and present value discounts
  15. 15. - 8 - 8. ALLOWANCE FOR DOUBTFUL ACCOUNTS: Changes in the allowance for doubtful accounts for the three months ended March 31, 2012 and 2011 are as follows (Unit: Won in millions): Three months ended March 31, 2012 Card Cash receivables advances Card loans Loans Other assets Total Balance at January 1, 2012 ₩ 68,773 ₩ 37,910 ₩ 67,071 ₩ 30 ₩ 2,306 ₩ 176,090 Bad debt expenses (151) (108) (75) - - (334) Bad debt recovered 184 275 101 - - 560 Disposition & repurchase (4,896) (2,988) (3,130) - - (11,014) Provision of (Reversal of) allowance for doubtful accounts 2,820 535 5,156 - (76) 8,435 Balance at March 31, 2012 ₩ 66,730 ₩ 35,624 ₩ 69,123 ₩ 30 ₩ 2,230 ₩ 173,737 Three months ended March 31, 2011 Card Cash receivables advances Card loans Loans Other assets Total Balance at January 1, 2011 ₩ 59,315 ₩ 43,132 ₩ 63,527 ₩ 8 ₩ 4,059 ₩ 170,041 Bad debt expenses (1,157) (1,207) (784) - - (3,148) Bad debt recovered 74 102 26 - - 202 Disposition & repurchase (7,074) (5,685) (7,113) - - (19,872) Provision of (Reversal of) allowance for doubtful accounts 17,148 11,491 11,932 48 (1,388) 39,231 Balance at March 31, 2011 ₩ 68,306 ₩ 47,833 ₩ 67,588 ₩ 56 ₩ 2,671 ₩ 186,454 9. PROPERTY AND EQUIPMENT: (1) Property and equipment as of March 31, 2012 and December 31, 2011 are as follows (Unit: Won in millions): March 31, 2012 December 31, 2011 Acquisition Accumulated Acquisition Accumulated cost depreciation Book value cost depreciation Book valueLand ₩ 118,161 ₩ - ₩ 118,161 ₩ 83,995 ₩ - ₩ 83,995Buildings 67,836 (3,580) 64,256 45,436 (3,249) 42,187Vehicles 579 (269) 310 502 (232) 270Fixtures and equipment 134,337 (75,214) 59,123 127,465 (69,491) 57,974Finance lease assets 3,334 (1,112) 2,222 3,334 (834) 2,500Assets under construction 7,371 - 7,371 472 - 472 Total ₩ 331,618 ₩ (80,175) ₩ 251,443 ₩ 261,204 ₩ (73,806) ₩ 187,398
  16. 16. - 9 -The appraised value of the land and the statutory standard market price of land and buildings as of March 31, 2012are as follows (Unit: Won in millions): Lot March 31, 2012 Yeoido 2nd land ₩ 14,601 Yeoido 3rd land 9,130 Hannamdong site 4,702 Youngdeungpo building site 5,962 Land Ulsan building site 807 Suwon building site 1,440 Gwangju building site 960 Busan building site 3,095 40,697 Yeoido 2nd building 10,028 Yeoido 3rd building 9,018 Building Ulsan building 1,416 Suwon building 2,709 Gwangju building 1,920 25,091 ₩ 65,788 (2) Changes in the book value of property and equipment for the three months ended March 31, 2012 and 2011 are as follows (Unit: Won in millions): Three months ended March 31, 2012 Beginning Ending balance Acquisition Reclassification(*) Disposal Depreciation balance Land ₩ 83,995 ₩ 34,166 ₩ - ₩ - ₩ - ₩ 118,161 Buildings 42,187 22,053 347 - (331) 64,256 Vehicles 270 76 - - (36) 310 Fixtures and equipment 57,974 6,961 125 (72) (5,865) 59,123 Finance lease assets 2,500 - - - (278) 2,222 Construction in progress 472 1,631 5,268 - - 7,371 Total ₩ 187,398 ₩ 64,887 ₩ 5,740 ₩ (72) ₩ (6,510) ₩ 251,443 (*) ₩5,740 million of construction in progress is reclassified from advanced payments. Three months ended March 31, 2011 Beginning Ending balance Acquisition Reclassification Disposal Depreciation balance Land ₩ 80,414 ₩ 1,853 ₩ - ₩ - ₩ - ₩ 82,267 Buildings 34,494 4,812 - - (254) 39,052 Vehicles 293 233 - - (37) 489 Fixtures and equipment 36,617 3,890 31 - (4,282) 36,256 Construction in progress 698 - (31) - - 667 Total ₩ 152,516 ₩ 10,788 ₩ - ₩ - ₩ (4,573) ₩ 158,731
  17. 17. - 10 -10. INTANGIBLE ASSETS: (1) Intangible assets as of March 31, 2012 and December 31, 2011 are as follows (Unit: Won in millions): March 31, 2012 Accumulated Acquisition cost amortization Book value Development cost ₩ 51,590 ₩ (16,384) ₩ 35,206 Industrial property rights 195 (89) 106 Others 16,868 (6,388) 10,480 Construction in progress 1,696 - 1,696 Membership 21,484 - 21,484 Total ₩ 91,833 ₩ (22,861) ₩ 68,972 December 31, 2011 Accumulated Acquisition cost amortization Book value Development cost ₩ 50,499 ₩ (13,843) ₩ 36,656 Industrial property rights 195 (79) 116 Others 16,869 (5,500) 11,369 Construction in progress 2,101 - 2,101 Membership 22,734 - 22,734 Total ₩ 92,398 ₩ (19,422) ₩ 72,976 (2) Changes in intangible assets for the three months ended March 31, 2012 and 2011 are as follows (Unit: Won in millions): Three months ended March 31, 2012 Beginning Ending balance Acquisition Reclassification(*) Disposal Amortization balance Development cost ₩ 36,656 ₩ 718 ₩ 373 ₩ - ₩ (2,541) ₩ 35,206 Industrial property rights 116 - - - (10) 106 Others 11,369 - - - (889) 10,480 Construction in progress 2,101 771 (1,176) - - 1,696 Membership 22,734 - - (1,250) - 21,484 Total ₩ 72,976 ₩ 1,489 ₩ (803) ₩ (1,250) ₩ (3,440) ₩ 68,972 (*) ₩803 million of construction in progress is reclassified to advanced payments. Three months ended March 31, 2011 Beginning Ending balance Acquisition Reclassification Disposal Amortization balance Development cost ₩ 21,801 ₩ 1,444 ₩ 7,196 ₩ - ₩ (1,734) ₩ 28,707 Industrial property rights 155 - - - (10) 145 Others 9,757 79 - - (659) 9,177 Construction in progress 17,253 1,351 (7,196) - - 11,408 Membership 21,484 - - - - 21,484 Total ₩ 70,450 ₩ 2,874 ₩ - ₩ - ₩ (2,403) ₩ 70,921
  18. 18. - 11 - 11. ASSETS PLEDGED AS COLLATERAL: Land and buildings amounting to ₩1,711 million are provided as collateral for leasehold deposits received as of March 31, 2012. 12. BORROWINGS: Borrowings as of March 31, 2012 and December 31, 2011 are as follows (Unit: Won in millions): Annual interest Borrowed from rates (%) Maturity March 31, 2012 December 31, 2011Commercial papers SK Securities 2012.4.9 and others 3.56 ~ 3.61 ~ 2012.7.9 ₩ 210,000 ₩ 490,000Borrowings Jeonbuk Bank 2012.11.2 and others 4.69 ~ 5.55 ~ 2014.7.19 120,000 100,000 ₩ 330,000 ₩ 590,000 13. BONDS PAYABLE: (1) Bonds payable issued by the Company and outstanding as of March 31, 2012 and December 31, 2011 are as follows (Unit: Won in millions): Annual March 31, 2012 December 31, 2011 interest rates (%) Maturity Par value Issue price Par value Issue price Short-term 2012.6.20 ~ 3.65 ~ 4.95 debentures 2013.2.8 ₩ 140,000 ₩ 140,000 ₩ 130,000 ₩ 130,000 Current portion of 2012.4.7 ~ 3.47 ~ 6.19 debentures 2013.3.24 1,305,512 1,305,512 1,333,797 1,333,797 Long-term 3.75 ~ 6.94 debentures 1M USD Libor 2013.4.2 ~ + 0.724%, 2019.3.19 1M USD Libor + 1.5% 5,323,007 5,323,007 5,027,320 5,027,320 Discounts on debentures (11,884) (9,357) Total ₩6,756,635 ₩ 6,481,760 The outstanding bonds payable are non-guaranteed corporate bonds, with their principals to be redeemed at maturity. Bond issuance costs are recorded as discounts on bonds payable and amortized using the effective interest rate method. (2) The redemption schedule for the bonds payable is as follows (Unit: Won in millions): Amount to be redeemed Period as of March 31, 2012 2012.4.1 ~ 2013.3.31 ₩ 1,445,512 2013.4.1 ~ 2014.3.31 1,435,767 2014.4.1 ~ 2015.3.31 1,872,120 2015.4.1 ~ 2016.3.31 1,455,120 2016.4.1 ~ 560,000 ₩ 6,768,519
  19. 19. - 12 - Amount to be redeemed Period as of December 31, 2011 2012.1.1 ~ 2012.12.31 ₩ 1,463,797 2013.1.1 ~ 2013.12.31 1,537,300 2014.1.1 ~ 2014.12.31 1,791,320 2015.1.1 ~ 2015.12.31 870,000 2016.1.1 ~ 828,700 ₩ 6,491,11714. FINANCE LEASE LIABILITIES: (1) Lease contract The Company uses electronic equipment under a finance lease for 3 years. The Company may exercise a bargain purchase option at expiration date of the lease contract. The lessor has the legal ownership of the financial assets as collateral for the finance lease obligation; the collateral amounts to ₩2,222 million and ₩2,500 million as of March 31, 2012 and December 31, 2011, respectively. (2) Finance lease liabilities of March 31, 2012 and December 31, 2011 are as follows (Unit: Won in millions): March 31, 2012 December 31, 2011 Minimum lease Present value of Minimum lease Present value of payments minimum lease payments payments minimum lease payments Less than 1 year ₩ 1,202 ₩ 1,111 ₩ 1,202 ₩ 1,096 1-5 years 1,202 1,169 1,503 1,452 Present value discounts (124) (157) Present value ₩ 2,280 ₩ 2,54815. RETIREMENT BENEFIT PLAN: (1) Defined Contribution Plan The Company operates a defined contribution plan for participating employees. The Company pays fixed contributions into a separate fund, and the plan assets are managed by a trustee as a separately from the Company’s assets. Plan forfeitures occur when a terminated participant who is not fully vested receives a plan distribution of his or her account balance, which will reduce the Company’s contribution to pay. The Company is required to contribute a specified percentage of employee’s earnings to the plan fund. The only obligation that the Company has with respect to the plan is to make the specified contributions in the future. The expense related to post-employment benefit plans under defined contribution plans during the three-month period ended March 31, 2012 and 2011 are ₩2 million and ₩0, respectively, which represents contribution payable to these plans based on the rate as of March 31, 2012 and December 31, 2011. ₩2 million and ₩1 million are recorded as payables as of March 31, 2012 and December 31, 2011, respectively. The amount is subject to be transferred to other account operated for the defined contribution plan participants. The expense recognized in the consolidation statements of comprehensive income related to post-employment benefit plan under the defined contribution plan for the three month period ended March 31, 2012 and 2011 are as follows (Unit: Won in millions): March 31, 2012 March 31, 2011 Defined contribution plan ₩ 2 ₩ - Total ₩ 2 ₩ -
  20. 20. - 13 -(2) Defined benefit planThe Company also operates a defined benefit plan. Actuarial evaluation of plan assets and defined benefitobligation were performed by HMC Investment Securities Co., Ltd. as of March 31, 2012. The present value ofthe defined benefit obligation, current service cost and past service cost is calculated using the projected unitcredit method.1) Details of defined benefit plan are as follows (Unit: Won in millions):As of March 31, 2012 and December 31, 2011, the amounts recognized in the consolidation statements offinancial position related to retirement benefit obligation are as follows (Unit: Won in millions): March 31, 2012 December 31, 2011 Present value of defined benefit obligation ₩ 38,211 ₩ 37,007 Fair value of plan assets (18,681) (19,195) Transferred to national pension fund (37) (37) Retirement benefit obligation ₩ 19,493 ₩ 17,7752) Changes in the present value of the defined benefit obligation for the three months ended March 31, 2012 and 2011 are as follows (Unit: Won in millions): Three months ended March 31, 2012 2011 Beginning balance ₩ 37,007 ₩ 27,790 Current service cost 2,193 1,782 Interest cost 366 314 Transfer of employees between the Company and the related companies 22 236 Actuarial gains (losses) (147) - Benefits paid (1,230) (147) Ending balance ₩ 38,211 ₩ 29,9753) Changes in the fair value of the plan assets for the three months ended March 31, 2012 and 2011 are as follows (Unit: Won in millions): Three months ended March 31, 2012 2011 Beginning balance ₩ 19,195 ₩ 18,143 Contributions from the employer - 1,500 Expected return on plan assets 184 174 Actuarial gains (losses) 14 16 Transfer of employees between the Company and its related companies 10 200 Benefits paid (722) (151) Ending balance ₩ 18,681 ₩ 19,882
  21. 21. - 14 - 4) Details of pension expenses are as follows (Unit: Won in millions): Three months ended March 31, 2012 2011 Current service cost ₩ 2,193 ₩ 1,782 Interest cost 366 314 Expected return on plan assets (184) (174) Actuarial gains (161) (16) Total ₩ 2,214 ₩ 1,906 Return on plan assets ₩ 198 ₩ 190 5) Details of the fair value of the plan assets as of March 31, 2012 and December 31, 2011 are as follows (Unit: Won in millions): March 31, 2012 December 31, 2011 Amount Ratio Amount Ratio Deposits ₩ 18,681 100% ₩ 19,195 100% 6) Actuarial assumption as of March 31, 2012 and December 31, 2011 are as follows: March 31, 2012 December 31, 2011 Discount rate (%) 4.29 4.23 Expected return on plan assets (%) 4.08 4.08 Expected rate of salary increase (%) 5.60 5.6016. EMPLOYEE BENEFITS: Details of employee benefits for the three months ended March 31, 2012 and 2011 are as follows (Unit: Won in millions): Three months ended March 31, 2012 2011 Short-term employee benefits ₩ 24,963 ₩ 25,356 Pension expenses 2,216 1,906 Ending balance ₩ 27,179 ₩ 27,26217. PROVISION: (1) Details of provision for the three months ended March 31, 2012 and the year ended December 31, 2011 are as follows (Unit: Won in millions): March 31, 2012 December 31, 2011 Provision for unused credit limits ₩ 48,894 ₩ 47,167 Provision for mileage points 11,779 11,240 Other provisions 19,584 21,826 ₩ 80,257 ₩ 80,233
  22. 22. - 15 -(2) Provision for unused credit limitsThe Company recognizes loss provision for expected future use of unused portions of credit limits. The changesin loss provision are as follows (Unit: Won in millions): March 31, 2012 March 31, 2011 Beginning ₩ 47,167 ₩ 46,073 Increase 1,727 2,620 Ending ₩ 48,894 ₩ 48,693(3) Provision for mileage pointsThe Company records provisions for projected expenses considering past rewards history and experience. Thechanges in provision for mileage points are as follows (Unit: Won in millions): March 31, 2012 March 31, 2011 Point Customer loyalty Point Customer loyalty Beginning ₩ 3,685 ₩ 7,555 ₩ 2,368 ₩ 12,069 Increase (decrease) (307) 846 (61) 397 Ending ₩ 3,378 ₩ 8,401 ₩ 2,307 ₩ 12,466(4) Other provisions March 31, 2012 March 31, 2011 Beginning ₩ 21,826 ₩ 20,916 Increase (decrease) (2,242) - Ending ₩ 19,584 ₩ 20,916Above amounts include provision for deposits in escrow account of ₩14,058 million, provision for pendinglitigations of ₩5,489 million and provision for relief from voice phishing of ₩37 million.
  23. 23. - 16 -18. DERIVATIVES AND HEDGE ACCOUNTING: (1) There are no derivative instruments held for trading as of March 31, 2012 and December 31, 2011. (2) Cash flow hedge 1) Fair value of cash flow hedge as of March 31, 2012 and December 31, 2011 are as follows (Won in millions): March 31, 2012 December 31, 2011 Contract Contract Amount Asset Liabilities Amount Asset Liabilities Interest rate swap ₩ 280,000 ₩ 972 195 ₩ 280,000 ₩ 643 ₩ 931 Cross currency swap 972,973 5,589 6,324 582,573 1,912 4,395 Total ₩ 1,252,973 ₩ 6,561 ₩ 6,519 ₩ 862,573 ₩ 2,555 ₩ 5,326 For transactions between local currencies and foreign currencies, the unsettled amount of transaction is presented using the basic foreign exchange rate on the contract amount in foreign currencies. For transaction between foreign currencies and other foreign currencies, the unsettled amount is presented using the basic foreign exchange rate on the contract amount in foreign currencies purchased. 2) Expected cash flow for cash flow hedge The maximum period, of which the Company is exposed to future cash flows fluctuations arising from currency swaps are as follows (Won in millions): March 31, 2012 December 31, 2011 Less than 1month ₩ (1,723) ₩ (1,228) 1-3 months (5,847) (398) 3-12 months (13,980) (10,805) 1-5 years (7,648) 367 ₩ (29,198) ₩ (12,064)19. SHARE CAPITAL: (1) The Parent’s authorized shares are 600,000,000 (₩5,000 per shares), and 160,465,286 shares of common stocks (₩802,326 million) are issued as of March 31, 2012. (2) There are no changes in shares of the Parent for the three months ended March 31, 2012. (3) 50,572,187 shares (₩252,861 million) of common stock issued by the Parent are owned by Hyundai Motors Company as of March 31, 2012.20. CAPITAL SURPLUS: Details of capital surplus as of March 31, 2012 and December 31, 2011 are as follows (Unit: Won in millions): March 31, 2012 December 31, 2011 Share premium ₩ 45,399 ₩ 45,399 Other capital surplus 12,305 12,305 ₩ 57,704 ₩ 57,704
  24. 24. - 17 -21. RETAINED EARNINGS: (1) Details of retained earnings as of March 31, 2012 and December 31, 2011 are as follows (Unit: Won in millions): March 31, 2012 December 31, 2011 Legal reserve (*) ₩ 20,143 ₩ 20,143 Reserve for bad loans 458,179 439,031 Retained earnings 745,072 689,223 ₩ 1,223,394 ₩ 1,148,397 (*) The Korean Commercial Code requires a company to appropriate at least 10 percent of dividends paid as legal reserve for each fiscal period, until the reserve equals 50 percent of paid-in capital. This reserve is not available for payment of cash dividends; however, it can be used to reduce deficit or be transferred to capital. (2) Changes in retained earnings for the three months ended March 31, 2012 and 2011 are as follows (Unit: Won in millions): Three months ended March 31, 2012 2011 Beginning ₩ 1,148,397 ₩ 909,749 Net income attributable to the owners of the Company 74,997 74,050 Total dividends - - Ending ₩ 1,223,394 ₩ 983,79922. RESERVES: (1) Reserves as of March 31, 2012 and December 31, 2011 are as follows (Unit: Won in millions): March 31, 2012 December 31, 2011 Cash flow hedging reserve ₩ (6,776) ₩ (11,764) (2) Cash flow hedging reserve Details of cash flow hedging reserve for the three months ended March 31, 2012 and 2011 are as follows (Unit: Won in millions): Three months ended March 31, 2012 2011 Beginning ₩ (11,764) ₩ (3,150) Cash flow hedging reserve gains (losses) Interest rate swap 1,065 1,098 Cross currency swap 5,505 (1,570) Tax effect (1,582) 37 Amount reclassified to current income - - Tax effect related to reclassified amounts to current income - - Ending ₩ (6,776) ₩ (3,585) Cash flow hedging reserve represents the cumulative gain or loss of hedging instruments related to the effective portion of the Company’s hedge accounting. The cumulative deferred gains or losses of hedging instruments is reclassified to income or loss only when the hedged item is reflected in income or loss, or by which initial book value of non-financial hedged item is adjusted in accordance with relevant accounting policy.
  25. 25. - 18 -23. RESERVE FOR BAD LOANS:Reserve for bad loans is calculated and disclosed according to Article 11, Supervisory Regulation on CompanySpecialized Credit Finance. (1) Reserve for bad loans reflected in retained earnings as of March 31, 2012 and December 31, 2011 are as follows (Unit: Won in millions): March 31, 2012 December 31, 2011 Accumulated reserve for bad loans ₩ 439,031 ₩ 192,810 Expected reserve for bad loans 19,148 246,221 Reserve for bad loans ₩ 458,179 ₩ 439,031 (2) The provision of reserve for bad loans and adjusted income after reserve for bad loans for the three months ended of March 31, 2012 and 2011 are as follows (Unit: Won in millions): March 31, 2012 December 31, 2011 Provision ₩ 19,148 ₩ 28,182 Adjusted income after reserve for bad loans 55,850 45,868 Adjusted EPS after reserve for bad loans 348 28624. GENERAL AND ADMINISTRATIVE EXPENSES: Details of general and administrative expenses as of March 31, 2012 and 2011 are as follows (Unit: Won in millions): Three months ended March 31, 2012 2011 PAYROLL Salaries wages ₩ 19,414 ₩ 20,699 Pension expenses 2,216 1,906 Employee benefits 7,546 6,588 29,176 29,193 OTHER EXPENSES Travel expenses ₩ 502 ₩ 422 Communication expenses 5,414 5,590 Post expense 3,120 3,057 Rental expenses 6,740 5,039 Taxes dues 3,777 4,868 Repair and maintenance expenses 151 181 Insurance premiums 4 7 Entertainment expenses 184 256 Advertising expenses 9,799 10,433 Supply expenses 529 386 Vehicle maintenance expenses 8 9 Periodicals expenses 27 27 Publication expenses 1,831 1,310 Training expenses 843 733 Electronic data processing expense 8,345 6,997 Expense for temporary staff 8,750 8,325 Professional expenses 33,513 21,688 Delivery commission 980 641 Commission expense 5,872 5,919 Business activities expense 915 778 Depreciation expense 6,510 4,573 Amortization expense 3,440 2,403 Event expense 667 157 Conference expense 96 103 Building administrative expense 718 598 102,735 84,500 ₩ 131,911 ₩ 113,693
  26. 26. - 19 -25. INCOME TAX FROM CONTINUING OPERATIONS (1) Income tax expense for the three months ended March 31, 2012 and 2011 are summarized as follows (Unit: Won in millions): Three months ended March 31, 2012 2011 Income tax currently payable ₩ 23,143 ₩ 21,796 Changes in deferred tax assets (liabilities) by temporary differences (*) (17,707) (1,890) Total 5,436 19,906 Changes in income tax expense reflected directly in shareholders’ equity (1,582) 1,147 Income tax expense ₩ 3,854 ₩ 21,053 (*) Ending net deferred tax assets due to temporary differences ₩ 130,110 ₩ 126,953 Beginning net deferred tax assets due to temporary differences 112,403 125,063 Changes in net deferred tax assets due to temporary differences ₩ (17,707) ₩ (1,890) (2) Income tax expenses reflected directly in shareholders’ equity for the three months ended March 31, 2012 are as follows (Unit: Won in millions): January 1, 2012 March 31, 2012 Increase (Decrease) Loss on valuation of derivatives ₩ 3,732 ₩ 2,150 ₩ (1,582) (3) A reconciliation between income before income tax and income tax expense for the three months ended March 31, 2012 and 2011 are as follows (Unit: Won in millions): Three months ended March 31, 2012 2011 Income before income tax ₩ 78,852 ₩ 95,103 Income tax payable by the statutory income tax rate (23.6% and 24.2% for the three months ended March 31, 2012 and 2011) 18,620 22,988 Tax reconciliations: Non-taxable income - - Non-deductible expenses 283 9 Revision of beginning deferred taxes (*) (17,481) - Consolidation effect - (1,495) Others (45) (449) Sub-total (17,243) (1,935) Any adjustments recognized in the period due to current tax of prior period 2,477 - Income tax of continued operation ₩ 3,854 ₩ 21,053 (*) True-up adjustment due to difference in the amount disclosed in prior year’s audit report and the actual tax return amount Details of changes in accumulated temporary differences for the three months ended March 31, 2012 and for the year ended December 31, 2011 are as follows (Unit: Won in millions): Three months ended March 31, 2012 Beginning Ending Deferred Descriptions balance(*) Decrease Increase balance tax asset (liab.) Temporary differences to be deducted: Escrow deposit ₩ 14,058 ₩ - ₩ - ₩ 14,058 ₩ 3,386 Present value discount 9,178 303 - 8,875 2,138 Provision for unused commitments 47,167 47,167 48,894 48,894 11,776 Accrued expenses 62,771 62,771 56,732 56,732 13,664 Provision for mileage point 295,241 295,241 302,418 302,418 72,836 Unearned revenue (annual fee) 63,864 63,864 68,983 68,983 16,615 Debt-for-equity swap 7,459 - - 7,459 1,796 Loss on impairment of financial assets 8,247 67 - 8,180 1,970
  27. 27. - 20 - Three months ended March 31, 2012 Beginning Ending Deferred Descriptions balance(*) Decrease Increase balance tax asset (liab.) available-for-sale Allowance for doubtful accounts - - 115 115 28 Retirement benefit obligation 28,056 - 2,476 30,532 7,354 Loss on fair value of currency swaps 19,062 15,410 10,257 13,909 3,350 Provision for pending litigation 7,768 7,768 5,526 5,526 1,331 Loss on fair value of interest rate swaps 931 931 195 195 47 563,802 493,522 495,596 565,876 136,291Temporary differences to be added: Retirement insurance premium ₩ (19,195) ₩ - ₩ (514) ₩ (19,709) ₩ (4,747) Accrued income (243) - - (243) (59) Foreign currency translation gains (3,652) - - (3,652) (880) Gain on fair value of currency swaps (202) (202) (554) (554) (133) Gain on fair value of interest rate swaps (643) (643) (972) (972) (234) Amortization of intangible assets (531) - - (531) (128) (24,466) (845) (2,040) (25,661) (6,181) Deferred income tax assets ₩ 130,110(*) True-up adjustment of ₩(17,481) million, due to the difference between the amount disclosed in prior year’s audit report and the actual tax return is reflected in the beginning balances. Year ended December 31, 2011 Beginning Ending Deferred Descriptions balance(*) Decrease Increase balance tax asset (liab.)Temporary differences to be deducted: Escrow deposit ₩ 18,116 ₩ 18,116 ₩ 14,058 ₩ 14,058 ₩ 3,385 Present value discount 804 8,644 17,551 9,711 2,339 Provision for unused commitments 215,032 46,073 47,167 216,126 52,047 Accrued expenses 57,894 59,541 64,418 62,771 15,116 Provision for mileage points 233,069 14,437 79,006 297,638 71,676 Debt-for-equity swap 7,450 - - 7,450 1,794 Loss on impairment of financial assets available-for-sale 16,262 8,015 8 8,255 1,988 Foreign currency translation losses 20,419 20,419 - - - Retirement benefit obligation 21,278 - - 21,278 5,124 Loss on fair value of currency swaps(PL) (9,993) - 13,645 3,652 879 Loss on fair value of currency swaps 4,136 4,136 15,410 15,410 3,712 Loss on fair value of interest rate swaps 973 973 931 931 224 585,440 180,354 252,194 657,280 158,284Temporary differences to be added: Retirement insurance premium (20,998) - - (20,998) (5,056) Allowance for doubtful accounts 12,754 12,754 - - - Accrued expenses - 533 (2,397) (2,930) (705) Accrued income (291) (291) - - - Foreign currency translation gains (10,373) - 6,721 (3,652) (879) Provision for pending litigation - 2,800 (158,391) (161,191) (38,818) Gain on fair value of currency swaps - - (202) (202) (49) Gain on fair value of interest rate swaps (458) (458) (643) (643) (155) Gain on fair value of securities (67) - 67 - - Amortization of intangible assets - - (909) (909) (219) Others (IFRS conversion effect) (107,893) (107,893) - - - (127,326) (92,555) (155,754) (190,525) (45,881) Deferred income tax assets ₩ 112,403(*) True-up adjustment of ₩(7,156) million, due to a difference between the amount disclosed in prior year’s audit report and the actual tax return is reflected in the beginning balances.
  28. 28. - 21 -26. EARNINGS PER SHARE: (1) Earnings per share for the three months ended March 31, 2012 and 2011 is as follows. Three months ended March 31, 2012 2011 Net income ₩ 74,997,698,096 ₩ 74,049,884,990 Weighted average number of shares 160,465,286 160,465,286 Net income per share ₩ 467 ₩ 461 In addition, earnings per share for the year ended December 31, 2011 is ₩1,487 won. (2) Diluted earnings per share As the Company has not issued any diluted securities, as such, diluted earnings per share is the same as basic earnings per share for the three months March 31, 2012.27. CONTINGENCIES AND COMMITMENTS: (1) Credit line agreement a. The Company’s credit line agreement as of March 31, 2012 and December 31, 2011 (Unit: Won in millions): Type Financial instruments March 31, 2012 December 31, 2011 Overdraft limit SC First Bank ₩ 50,000 ₩ 50,000 Intraday overdraft limit Shinhan Bank and others 250,000 250,000 b. Credit Facility Agreement The Company entered into a Credit Facility Agreement with GE Capital Corporation (“GECC”) on August 4, 2010. The Credit Facility limit is Euro equivalent of USD200 million. The Company will pay 28bp of commitment fee for the amount and the maturity is renewable every 364 days, up to 3 years. With regard to the Credit Facility Agreement, the Company, GECC, Hyundai Motor Company and Kia Motors Corp. entered into a Support Agreement and the contract date of Support Agreement is the same as that of Credit Facility Agreement. In accordance with the Support Agreement, GECC has the right of debt- for-equity swap for the unredeemed amount in case that the Company is not able to repay after a year from the first withdrawal of Credit Facility. Additionally, GECC has a put option to sell 41% of convertible stock to Hyundai Motor Company and 15% of convertible stock to Kia Motors Corp. at the time of debt-for-equity swap. Hyundai Motor Company and Kia Motors Corp. have call options to buy stocks from GECC on the same condition of put option in case that GECC does not exercise a put option. The Company will pay 15bp of commitment fee on the amount equivalent to 41% and 15% of settled amount of Credit Facility to Hyundai Motor Company and Kia Motors Corp., respectively. c. Revolving Credit Facility The Company has a revolving credit facility agreement with many financial institutions for credit lines for the period ended March 31, 2012 detail are as follows (Unit: Won in millions): Financial instruments Credit line Term Kookmin Bank ₩ 100,000 2012-01-30 ~ 2013-01-28 Kookmin Bank 30,000 2011-05-28 ~ 2012-05-28 Kookmin Bank 30,000 2011-10-24 ~ 2012-10-22 Nong Hyup 100,000 2012-03-29 ~ 2013-03-29 Citibank, Seoul 50,000 2011-12-24 ~ 2012-12-23 Woori Bank 200,000 2011-06-30 ~ 2012-06-30 Shinhan Bank 50,000 2011-04-28 ~ 2012-04-28 Shinhan Bank 50,000 2011-05-31 ~ 2012-05-31
  29. 29. - 22 -(2) Alliance The Company has separate agency agreements regarding its credit card business with SC First Bank, Shinhan Bank, Woori Bank, Korea Exchange Bank, Citibank, Hana Bank, Gwangju Bank, Jeonbuk Bank, Cheju Bank, Postal Office, Korea Computer Co., Ltd. and others.(3) License Agreement and Franchise Agreement The Company entered into Member Issuance and Franchise Agreements with Master Card International, Visa International and Diners Club International for credit card issuance, and pays each a fee based on a fixed rate for each credit card issued.(4) Overseas Travel Insurance Agreement The Company has a travel insurance agreement with Hyundai Marine & Fire Insurance Co., Ltd. to cover the risks and damages that may occur during credit cardholders’ travel. As of March 31, 2012, the maximum amount of insurance claim is ₩1.2 billion per cardholder.(5) Directors and Officers Liability Insurance The Company has insurance for its directors and officers covering indemnity with the limit of ₩20 billion and financial accident liability with the limit of ₩1 billion.(6) Pending Lawsuits As of March 31, 2012, the following are the pending lawsuits, whose outcomes cannot be ascertained as of the report date (Unit: Won in millions): Type Plaintiff Defendant Amount Status Claim for loss Hankook Cardnet and 6 The Company and 16 compensation others defendants ₩ 2,742 Ongoing Claim for loss Jeong, Seong Hwa and 70 The Company and 16 compensation others defendants 5,971 Ongoing Claim for loss Lee, Bok Gi The Company and 16 compensation and 113 others defendants 153 Ongoing Claim for loss Shin, Gwang Sik and 5 The Company and 16 compensation others defendants 1,801 Ongoing Claim for loss HanKook Card System and The Company and 16 compensation 18 others defendants 1,700 Ongoing Unfair profits Jung, So Yeon and 26 The Company and 5 others defendants 21 Ongoing Claim for loss Jang, Won Sik and 124 The Company and 11 compensation others defendants 700 Ongoing Claim for loss Ko, Sung Bong and 108 The Company and 16 compensation others defendants 109 Ongoing Claim for loss Yoon, Yong Seob and 30 The Company and 16 compensation others defendants 310 Ongoing Claim for loss Lee, Kyoung Hee and 3 The Company and 16 compensation others defendants 80 Ongoing Claim for loss Kang, Kyoung Hee and 53 The Company and 16 compensation others defendants 108 Ongoing Claim for loss The Company and 16 compensation Shin, Dong Wook defendants 2 Ongoing Claim for loss The Company and 16 compensation Yoo, Jae Won and 5 others defendants 100 Ongoing Claim for loss The Company and 16 compensation SPECOM Co. Ltd. defendants 845 Ongoing Claim for loss Lim, Byeong Gwi and 30 The Company and 16 compensation others defendants 2,481 Ongoing Claim for loss ZIO TECHNET and 32 The Company and 16 903 Ongoing

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