Eng fy2013 3_q_20131126_final

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Eng fy2013 3_q_20131126_final

  1. 1. Hyundai Commercial, Inc. and Subsidiaries Condensed Consolidated Interim Financial Statements (Unaudited) September 30, 2013 (With Independent Auditors’ Review Report Thereon)
  2. 2. Contents Page Independent Auditors’ Review Report 1 Condensed Consolidated Interim Statements of Financial Position 3 Condensed Consolidated Interim Statements of Comprehensive Income 5 Condensed Consolidated Interim Statements of Changes in Equity 7 Condensed Consolidated Interim Statements of Cash Flows 8 Notes to the Condensed Consolidated Interim Financial Statements 9
  3. 3. KPMG Samjong Accounting Corp. 10th Floor, Gangnam Finance Center, 737 Yeoksam-dong, Gangnam-ku, Seoul 135-984, Republic of Korea Tel +82 (2) 2112 0100 Fax +82 (2) 2112 0101 www.kr.kpmg.com Independent Auditors’ Review Report Based on a report originally issued in Korean The Board of Directors and Shareholders Hyundai Commercial, Inc.: Reviewed Financial Statements We have reviewed the accompanying condensed consolidated interim financial statements of Hyundai Commercial, Inc. and its subsidiaries (the “Group”), which comprise the condensed consolidated interim statement of financial position as of September 30, 2013, the condensed consolidated interim statements of comprehensive income for the three-month and nine-month periods ended September 30, 2013, changes in equity and cash flows for the nine-month period ended September 30, 2013, and notes, comprising a summary of significant accounting policies and other explanatory information. Management’s Responsibility Management is responsible for the preparation and fair presentation of these condensed consolidated interim financial statements in accordance with Korean International Financial Reporting Standards (“KIFRS”) No. 1034, ‘Interim Financial Reporting’, and for such internal control as management determines is necessary to enable the preparation of condensed consolidated interim financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Review Responsibility Our responsibility is to issue a report on these condensed consolidated interim financial statements based on our review. We conducted our review in accordance with the Review Standards for Quarterly & Semiannual Financial Statements established by the Securities and Futures Commission of the Republic of Korea. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the Republic of Korea and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements referred to above are not prepared, in all material respects, in accordance with K-IFRS No. 1034, ‘Interim Financial Reporting’.
  4. 4. ABCD Other Matters The condensed consolidated interim statements of comprehensive income for the three-month and ninemonth periods ended September 30, 2012, and changes in equity and cash flows for the nine-month period ended September 30, 2012, presented for comparative purposes, were reviewed by Samil Accounting Corp. and their review report thereon, dated November 27, 2012, expressed that nothing had come to their attention that caused them to believe that the condensed consolidated interim financial statements as of and for the three-month and nine-month periods ended September 30, 2012 were not prepared, in all material respects, in accordance with K-IFRS No. 1034, ‘Interim Financial Reporting’. However, as discussed in note 3 to the condensed consolidated interim financial statements, the Group adopted the amendment to K-IFRS No.1001, ‘Presentation of Financial Statements.’ The Group applied this change in accounting policies retrospectively, and accordingly restated the comparative information of the statement of comprehensive income for the three-month and nine-month periods ended September 30, 2012. The condensed consolidated statement of financial position of the Group as of December 31, 2012, and the related condensed consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, which are not accompanying this report, were audited by Samil Accounting Corp. in accordance with auditing standards generally accepted in the Republic of Korea and their report thereon, dated March 19, 2013, expressed an unqualified opinion. The accompanying condensed consolidated statement of financial position of the Group as of December 31, 2012, presented for comparative purposes, is not different from that audited by Samil Accounting Corp. in all material respects, except for the effects of changes in accounting policies discussed in note 3 to the condensed consolidated interim financial statements. We have not performed a review, audit or any other attestation on the accompanying condensed consolidated statement of financial position of the Group as of December 31, 2012 and the condensed consolidated statements of comprehensive income for the three-month and nine-month periods ended September 30, 2012, including changes in accounting policies described in note 3, and accordingly it is not included in the scope of our review. The procedures and practices utilized in the Republic of Korea to review such condensed consolidated interim financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report is for use by those knowledgeable about Korean review standards and their application in practice. KPMG Samjong Accounting Corp. Seoul, Korea November 13, 2013 This report is effective as of November 13, 2013, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying condensed consolidated interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that the above report has not been updated to reflect the impact of such subsequent events or circumstances, if any. 2
  5. 5. Hyundai Commercial, Inc. and Subsidiaries Condensed Consolidated Interim Statements of Financial Position As of September 30, 2013 and December 31, 2012 (Unaudited) September 30, 2013 Notes (In Korean won) Assets Cash and due from bank Cash and cash equivalents Due from banks 9 24 4 Securities Available-for-sale securities Investments in associates 5,9 6 282,825,795,422 9,000,000 282,834,795,422 49,111,105,063 264,333,008,478 313,444,113,541 26,984,327,193 285,401,945,483 312,386,272,676 108,000,000 (270,108) 2,800,613,129,940 (19,258,899,976) 2,781,461,959,856 294,982,265,107 (1,805,335,877) 18,096,794,054 (123,232,454) 311,150,490,830 333,721,265,726 (2,351,089,917) 25,624,608,935 (176,228,378) 356,818,556,366 187,148,406,539 (1,606,732,143) 185,541,674,396 132,356,464,281 (1,026,910,813) 131,329,553,468 42,847,918 3,174,606,600 410,999,664 3,628,454,182 69,799,497 2,701,927,277 410,999,664 3,182,726,438 3,463,921,048 8,860,367,508 (46,486,875) 17,697,493,082 (104,104,532) 7,258,368,189 4,273,994,956 2,114,730,221 141,834,064 3,885,995,860 47,546,113,521 3,453,010,248 15,919,893,264 (106,582,840) 16,979,241,639 (120,891,875) 1,157,855,722 3,258,141,295 11,083,913,915 137,774,538 3,885,995,860 55,648,351,766 4,139,744,959,654 3,923,662,215,992 7 ,8,9,10 Installment financial assets Auto installment financial receivables Allowance for doubtful accounts Durable goods installment financing receivables Allowance for doubtful accounts 290,522,965,693 9,000,000 290,531,965,693 3,152,027,337 (14,452,046) 3,002,475,950,426 (17,711,378,226) 2,987,902,147,491 Loans receivables Factoring Allowance for doubtful accounts Loans Allowance for doubtful accounts W December 31, 2012 (Restated) 7 ,8,9,10 Lease receivables Financial lease receivables Allowance for doubtful accounts 7 ,8,9 11 Property and equipments Vehicles Fixtures and furniture Others 12 Other assets Intangible assets Account receivables Allowance for doubtful accounts Accrued revenues Allowance for doubtful accounts Advanced payments Prepaid expenses Leasehold deposits Derivative assets Other investment assets 8 13 9 9 9 9,18 W Total assets See accompanying notes to the condensed consolidated interim financial statements. 3
  6. 6. Hyundai Commercial, Inc. and Subsidiaries Condensed Consolidated Interim Statements of Financial Position, Continued As of September 30, 2013 and December 31, 2012 (Unaudited) September 30, 2013 713,160,297 3,811,298,060 (1,670,150,616) 939,485,760 4,000,000,000 3,457,191,901 130,082,243,227 160,738,031,822 137,539,435,128 353,166,511,075 19,820,000 338,086,980,425 19,820,000 353,186,331,075 Equity Capital stock Common stock Preferred stock (1,914,821,981) 7,100,000,000 15,389,637,505 138,248,394,317 Total liabilities 74,608,059,537 (3,776,735,788) (1,708,212,564) (7,179,580,284) 9,18 100,000,000,000 25,000,000,000 125,000,000,000 (626,970,675) 9 17 9 3,585,555,415,567 74,608,059,537 9 9 15,199,624,950 27,995,752,026 4,660,074,481 245,291,834 3,470,180,556 2,056,215,563 33,014,098,305 9,539,343,812 20,052,096,124 7,505,990,273 123,738,667,924 (1,067,661,257) Other liabilities Account payables Accrued expenses Unearned revenue Advances Withholdings Defined benefit liabilities Leasehold deposits received Current income tax liabilities Deferred income tax liabilities Derivative liabilities W 723,883,961,368 2,428,295,638,414 309,637,147,861 3,461,816,747,643 100,000,000,000 25,000,000,000 125,000,000,000 9,14 9,15 9,10,16 703,154,996,064 2,663,886,918,271 289,802,483,701 3,656,844,398,036 3,786,558,628,579 Liabilities Borrowings and debt securities issued Borrowings Debentures Securitized debts December 31, 2012 (Restated) 11,949,377,655 22,250,132,426 5,340,629,542 228,777,637 3,922,817,042 3,852,014,692 48,707,968,488 8,705,251,115 23,092,151,832 1,665,110,114 129,714,230,543 Notes (In Korean won) 338,106,800,425 4,139,744,959,654 3,923,662,215,992 1,19 Capital surplus Paid-in capital in excess of par value 19 Accumulated other comprehensive income (loss) Unrealized loss on valuation of derivatives Unrealized gain (loss) on valuation of available-forsale securities Accumulated comprehensive income (loss) of equity method investee Remeasurement of defined benefit plans 23 3 Retained earnings Legal reserve Voluntary reserve Unappropriated retained earnings (Appropriated regulatory reserve for credit losses (W15,289,637,505) and (W3,357 ,191,901), respectively) (Estimated provision (reversal) of regulatory reserve for credit losses - (W3,686,307,413) and (W11,932,445,604), respectively) 20 3 Total equity attributable to owners of the Controlling Company Non-controlling interests Total equity W Total liabilities and equity See accompanying notes to the condensed consolidated interim financial statements. 4
  7. 7. Hyundai Commercial, Inc. and Subsidiaries Condensed Consolidated Interim Statements of Comprehensive Income For the three-month and nine-month periods ended September 30, 2013 and 2012 (Unaudited) 2013 Three-month period ended Nine-month period ended 2,415,138,307 73,009,333,728 2012 Three-month Nine-month period ended period ended (Restated) 7,021,317,747 213,855,804,900 3,332,853,322 70,404,077,267 8,905,239,442 203,717,582,659 6,952,103,467 2,983,330,279 1,137,224,979 4,233,000,000 1,563,991,099 22,410,676,017 8,139,463,268 3,385,075,574 200,000,000 90,000,000 2,284,969,718 10,178,561,477 2,155,841,557 689,998,753 1,936,000,000 776,500,402 33,219,384,010 5,730,504,856 2,419,575,793 1,908,500,000 250,000,000 1,138,302,325 257,387,307,224 89,473,832,778 257,289,089,085 39,555,848,726 5,871,818,797 1,818,388,340 389 17,909,655,745 4,232,427,150 2,203,095,873 118,568,968,231 18,775,273,064 5,104,035,793 90,000,389 50,979,890,535 73,686,600 5,468,545,445 42,130,758,142 5,154,175,230 868,126,232 17,169,883,854 2,054,899,540 1,353,779,670 122,681,641,658 13,851,987,244 1,947,628,238 47,036,836,940 2,300,353,520 2,872,888,913 71,591,235,020 199,060,400,057 68,731,622,668 190,691,336,513 20,702,886,839 58,326,907,167 20,742,210,110 66,597,752,572 2,431,294,617 7,046,939,634 3,138,429,404 8,994,853,145 137,999,529 41,633,144 477,083,344 49,401,100 1,660,733 287,108,823 2,569,294,146 Operating expenses Interest expense Bad debt expense Loss on disposal of loans Loss on foreign transactions General and administrative expenses Loss on valuation of derivatives Other operating expenses (Restated) 92,294,121,859 (In Korean won) Operating revenue Interest income Income on loans Income on installment financial receivables Income on leases Gain on disposal of loans Gain on foreign transactions Dividend income Gain on valuation of derivatives Other operating income 7,565,656,122 3,187,830,504 9,283,622,701 3 6 8,284,642,285 20,596,770,698 4,513,627,024 12,496,030,959 6 123,472,416 - 1,000,000 326,685,269 - 50,000,000 133,493,412 - 87,386,150 50,000,000 381,808,160 8,582,824,000 Notes W 8 21 Operating income Non-operating income Gain on equity method valuation Gain on disposal of property and equipment Miscellaneous income Non-operating expenses Loss on equity method valuation Loss on disposal of property and equipment Donation Miscellaneous losses Other non-operating expenses 3 6 8,408,114,701 20,924,455,967 4,697,120,436 21,598,049,269 14,864,066,284 44,968,107,322 19,232,920,178 54,283,326,004 22 5,800,726,420 15,769,510,628 5,778,851,657 16,169,942,741 20,24 W 9,063,339,864 29,198,596,694 13,454,068,521 38,113,383,263 Profit attributable to: Owners of the Controlling Company Non-controlling interests W 9,063,339,864 - 29,198,596,694 - 13,454,068,521 - 38,113,383,263 - Profit for the period W 9,063,339,864 29,198,596,694 13,454,068,521 38,113,383,263 Profit before income taxes Income tax expenses Profit for the period (Profit adjusted by regulatory reserve for credit losses amounted to W9,063,339,864 and W12,499,033,858 for the three-month, and W25,512,289,281 and W27,475,802,027 for the nine-month periods ended September 30, 2013 and 2012) See accompanying notes to the condensed consolidated interim financial statements. 5
  8. 8. Hyundai Commercial, Inc. and Subsidiaries Condensed Consolidated Interim Statements of Comprehensive Income, Continued For the three-month and nine-month periods ended September 30, 2013 and 2012 (Unaudited) 2013 (In Korean won) Three-month period ended Notes Other comprehensive income (loss), net of Income taxes Items that are or may be reclassified to profit or loss subsequently Items that will not be reclassified to profit or loss Total comprehensive income for the period Total comprehensive income attributable to: Owners of the Controlling Company Non-controlling interests Total comprehensive income for the period 2012 Nine-month period ended Three-month period ended Nine-month period ended (Restated) (Restated) 3,23 W 393,108,701 (8,081,004,096) 5,992,610,939 4,125,912,169 (13,081,028) 380,027,673 (38,061,948) (8,119,066,044) 5,992,610,939 4,125,912,169 W 9,443,367,537 21,079,530,650 19,446,679,460 42,239,295,432 W 9,443,367,537 - 21,079,530,650 - 19,446,679,460 - 42,239,295,432 - W 9,443,367,537 21,079,530,650 19,446,679,460 42,239,295,432 See accompanying notes to the condensed consolidated interim financial statements. 6
  9. 9. Hyundai Commercial, Inc. and Subsidiaries Condensed Consolidated Interim Statements of Changes in Equity For the nine-month periods ended September 30, 2013 and 2012 (Unaudited) Capital stock (In Korean won) Accumulated other comprehensive income (loss) Capital surplus Retained earnings Total attributable to owners of the Controlling Company Non-controlling interests Total equity 349,356,817,326 349,356,817,326 - - 38,113,383,263 38,113,383,263 - 38,113,383,263 - (1,193,237,206) - (1,193,237,206) - (1,193,237,206) - (2,553,302,601) - (2,553,302,601) - (2,553,302,601) - 7,872,451,976 4,125,912,169 1,482,519,831 39,595,903,094 9,354,971,807 43,721,815,263 - 9,354,971,807 43,721,815,263 125,000,000,000 74,608,059,537 6,447,632,025 (55,000,000,000) 132,003,121,027 (55,000,000,000) 338,058,812,589 19,820,000 (55,000,000,000) 338,078,632,589 125,000,000,000 125,000,000,000 74,608,059,537 74,608,059,537 2,609,636,376 (1,670,150,616) 939,485,760 135,869,284,512 1,670,150,616 137,539,435,128 338,086,980,425 338,086,980,425 19,820,000 19,820,000 338,106,800,425 338,106,800,425 - - 29,198,596,694 29,198,596,694 - 29,198,596,694 - 847,160,724 - 847,160,724 - 847,160,724 - - (1,340,130,972) - (1,340,130,972) - (1,340,130,972) - W 19,820,000 19,820,000 - Balance as of September 30, 2013 349,336,997,326 349,336,997,326 - W 146,466,631,832 940,586,101 147,407,217,933 - Balance as of January 1, 2013 Changes in accounting policy Balance as of January 1, 2013 (Restated) Total comprehensive income (loss) Profit for the period Other comprehensive income (loss) Net unrealized gain on valuation of derivatives Net unrealized loss on valuation of available-forsale securities Other comprehensive loss of equity method Investees Remeasurement of defined benefit plans Total comprehensive income (loss) for the period Transactions with owners Dividends paid 3,262,305,957 (940,586,101) 2,321,719,856 - W 74,608,059,537 74,608,059,537 - W 125,000,000,000 125,000,000,000 - Balance as of January 1, 2012 Changes in accounting policy Balance as of January 1, 2012 (Restated) Total comprehensive income (loss) Profit for the period Other comprehensive income (loss) Net unrealized loss on valuation of derivatives Net unrealized loss on valuation of available-forsale securities Other comprehensive income of equity method investees Total comprehensive income for the period Transactions with owners Dividends paid Balance as of September 30, 2012 - (7,588,033,848) (38,061,948) (8,119,066,044) 29,198,596,694 (7,588,033,848) (38,061,948) 21,079,530,650 - (7,588,033,848) (38,061,948) 21,079,530,650 - - - (6,000,000,000) (6,000,000,000) - (6,000,000,000) 125,000,000,000 74,608,059,537 (7,179,580,284) 160,738,031,822 353,166,511,075 19,820,000 353,186,331,075 See accompanying notes to the condensed consolidated interim financial statements. 7
  10. 10. Hyundai Commercial, Inc. and Subsidiaries Condensed Consolidated Interim Statements of Cash Flows For the nine-month periods ended September 30, 2013 and 2012 (Unaudited) Notes (In Korean won) Cash flows from operating activities Cash used in operations Interest received Interest paid Dividend received Income taxes paid Net cash used in operating activities 24 W 2013 2012 508,690,000,000 (565,985,679,701) 899,089,156,160 (415,000,000,000) (30,000,000,000) (55,000,000,000) 341,793,476,459 7,697,170,271 Net cash increase (decrease) in cash and cash equivalents (98,969,780,000) 63,107,858 (76,172,300) (1,075,495,388) (637,334,104) 5,000,000 (908,722,500) (101,599,396,434) 572,540,000,000 (593,268,965,304) 921,848,440,878 (687,398,500,000) (19,834,664,160) (4,711,000,000) (6,000,000,000) 183,175,311,414 Cash flows from financing activities Proceeds from borrowings Repayments of borrowings Issuance of debentures Repayments of debentures Repayments of securitized debts Liquidation of derivatives Payments of dividends Net cash provided by financing activities (113,475,492,585) 7,521,014,110 (117,067,771,780) 250,000,000 (17,588,100,850) (240,360,351,105) 3,717,175,679 (26,873,441,598) 33,890,000 10,502,000 (1,392,630,598) (123,111,013) (6,859,044,802) 9,306,000,928 (289,147,437) (22,469,806,841) Cash flows from investing activities Proceeds from sale of available-for-sale securities Acquisition of available-for-sale securities Acquisition of investments in associates Proceeds from disposal of vehicles Acquisition of vehicles Proceeds from disposal of fixtures and furniture Acquisition of fixtures and furniture Acquisition of intangible assets Increase in advanced payments Decrease in leasehold deposits Increase in leasehold deposits Net cash used in investing activities (30,067,670,981) 5,233,076,246 (114,695,825,147) 200,000,000 (13,677,914,420) (153,008,334,302) (166,271,080) Cash and cash equivalents at beginning of period 24 282,825,795,422 276,009,118,714 Cash and cash equivalents at end of period 24 W 290,522,965,693 275,842,847,634 See accompanying notes to the condensed consolidated interim financial statements. 8
  11. 11. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 1. Reporting Entity Hyundai Commercial, Inc., the controlling company, and its subsidiaries (collectively, the “Group”) included in consolidation are summarized as below. (a) Controlling Company Hyundai Commercial, Inc. (the “Controlling Company”) was established on March 27, 2007, by taking over all the assets, liabilities, rights, and obligations related with the loans of the industrial product division of Hyundai Capital Services, Inc. and its installment financing and lease financing division. It is engaged in installment financing and leasing of facilities. The Group’s operations are headquartered in Yeouido, Seoul. The common shareholders of the Group’s as of September 30, 2013 were as follows: Hyundai Motor Company Myung-yi Chung Tae-young Chung Number of shares 10,000,000 6,667,000 3,333,000 20,000,000 Percentage of ownership (%) 50.00 33.33 16.67 100.00 (b) The Group’s subsidiaries Subsidiaries as of September 30, 2013 and December 31, 2012 were as follows. The Group has control over the subsidiaries established as special purpose entities for asset securitization even though its ownership interests over the subsidiaries do not exceed 50%. Special Purpose Entities 2. September 30, 2013 Commercial Auto First SPC (trust) Commercial Auto Second SPC (trust) December 31, 2012 Commercial Auto First SPC (trust) Commercial Auto Second SPC (trust) Basis of Preparation (a) Statement of compliance These condensed consolidated interim financial statements were prepared in accordance with K-IFRS No. 1034, Interim Financial Reporting as part of the period covered by the Group’s K-IFRS consolidated annual financial statements. Selected explanatory notes are included to explain events and transactions that are significant to understanding of the changes in financial position and performance of the Group since the last annual consolidated financial statements as of and for the year ended December 31, 2012. (b) Use of estimates and judgments The preparation of the condensed consolidated interim financial statements in conformity with K-IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. 9
  12. 12. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 3. Significant Accounting Policies (a) Changes in accounting policies Except as described below, the accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in the consolidated financial statements as of and for the year ended December 31, 2012. The following changes in accounting policies are also expected to be reflected in the Group’s consolidated financial statements as of and for the year ended December 31, 2013. 1) New standards and interpretations i) Amendments to K-IFRS No. 1001 Presentation of Financial Statements The Group applies the amendments from annual periods beginning at January 1, 2013. The amendments require presenting items in other comprehensive income on the basis of whether they are potentially reclassifiable to profit or loss in subsequent periods. ii) Enactment of K-IFRS No. 1110 Consolidated Financial Statements The Group applies the standard from annual periods beginning on January 1, 2013. The standard outlines the requirements for the preparation and presentation of consolidated financial statements, requiring the Group to consolidate entities it controls. An investor is considered to have control over an investee when it has exposure or rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. iii) Enactment of K-IFRS No. 1112 Disclosure of Interests in Other Entities The Group applies the standard from annual periods beginning on January 1, 2013. The standard requires a wide range of disclosures about an entity's interests in subsidiaries, joint arrangements, associates and unconsolidated 'structured entities'. The standard requires the disclosure of information that enables users of financial statements to evaluate the nature, and risks associated with its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows. iv) Amendments to K-IFRS No. 1019 Employee Benefits The Group applies the amendments from annual periods beginning on January 1, 2013. The amendments require recognition of actuarial gains and losses immediately in other comprehensive income, and to calculate expected returns on plan assets based on the rate used to discount the defined benefit obligation. v) Enactment of K-IFRS No. 1113 Fair Value Measurement The Group applies the standard from annual periods beginning on January 1, 2013. The standard provides a single framework for measuring fair value and requires disclosures about fair value measurements. 10
  13. 13. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 3. Significant Accounting Policies, Continued (a) Changes in accounting policies, continued 2) Effects of changes in accounting policies i) Amendments to K-IFRS No. 1001 Presentation of Financial Statements The Group applied the amendments to K-IFRS No. 1001 Presentation of Financial Statements regarding presentation of operating income from the annual period ended December 31, 2012. The Group applied the changes of accounting policy retrospectively and restated its comparative interim financial statements. The following table summarizes the financial effects on the statement of comprehensive income for the three-month and nine-month periods ended September 30, 2012. September 30, 2012 As previously reported Three-month Nine-month period ended period ended Operating income Profit for the period Earnings per share (won) W Adjustments (*) Three-month Nine-month period ended period ended As restated Three-month Nine-month period ended period ended 20,608,118 66,367,328 134,092 230,425 20,742,210 66,597,753 13,454,069 38,113,383 - - 13,454,069 38,113,383 673 1,906 - - 673 1,906 (*) The following items were classified as operating income before applying the amendments to KIFRS No. 1001 Presentation of Financial Statements. After the amendments, they were excluded from operating income. September 30, 2012 Nine-month Three-month period ended period ended Non-operating income Gain on disposal of property and equipment W (1,661) Miscellaneous income (49,401) (287,108) Non-operating expenses Loss on disposal of property and equipment 87,386 Donations 50,000 50,000 Miscellaneous losses 133,493 381,808 134,092 230,425 ii) Amendments to K-IFRS No. 1019 Employee Benefits The amendments to K-IFRS No. 1019 Employee Benefits are applied retrospectively, and the Group reclassified accumulated actuarial gains and losses into other comprehensive income accordingly. The following table summarizes the financial effects on the condensed consolidated statement of financial position as of December 31, 2012. The Group applied the changes of accounting policy retrospectively and restated its comparative financial statements. December 31, 2012 As previously reported Accumulated other comprehensive income W Retained earnings 11 Adjustments As restated 2,609,636 (1,670,150) 939,486 135,869,285 1,670,150 137,539,435
  14. 14. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 3. Significant Accounting Policies, Continued (a) Changes in accounting policies, continued 3) New standards and interpretations not yet adopted The following new standards, interpretations and amendments to existing standards have been published and are mandatory for the Group for annual periods beginning after January 1, 2013, and the Group has not early adopted them. The financial impact of the adoption of these amendments is currently under assessment. K-IFRS No. 1032 Financial Instruments: Presentation The amendments address inconsistencies in current practice when applying the offsetting criteria in K-IFRS No. 1032 Financial Instrument: Presentation. The amendments clarify the meaning of a legally enforceable right of set-off and that some gross settlement systems may be considered equivalent to net settlement. The amendments are effective for annual periods beginning on or after January 1, 2014 and are required to be applied retrospectively. (b) Consolidation i) Subsidiaries The Group controls subsidiaries when it is exposed, or has rights, to variable returns from its involvement with the subsidiaries and has the ability to affect those returns through its power over the subsidiaries. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. If a subsidiary of the Group uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in preparing the consolidated financial statements. ii) Intra-group transactions Intra-group balances and transactions, and any unrealized income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements. Intra-group losses are recognized as expense if intra-group losses indicate an impairment that requires recognition in the consolidated financial statements. iii) Non-controlling interests Non-controlling interests in a subsidiary are accounted for separately from the parent’s ownership interests in a subsidiary. Each component of net profit or loss and other comprehensive income is attributed to the owners of the parent and non-controlling interest holders, even when the allocation reduces the non-controlling interest balance below zero. iv) Changes in ownership interests in a subsidiary Changes in ownership interests in a subsidiary that do not result in a loss of control, such as the subsequent purchase or sale by a parent of a subsidiary’s equity instruments, are accounted for as equity transactions in capital adjustments. Adjustments to non-controlling interests are based on a proportionate amount of net asset of the subsidiary. No adjustments are made to goodwill and no gain or loss is recognized in profit or loss. The difference between the consideration and the adjustments made to non-controlling interest is recognized directly in equity attributable to the owners of the Group. 12
  15. 15. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 3. Significant Accounting Policies, Continued (c) Associates An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but not have control or joint control over these policies. Significant influence is generally presumed to exist when the Group holds 20% or more, but less than 50%, of the voting rights. Under the equity method, an investment in an associate is initially recognized in the consolidated statements of financial position at cost and adjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of the associate. When the Group’s share of losses of an associate exceeds the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. If an associate uses accounting policies different from those of the Group for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in applying the equity method. When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term investments, is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has to make payments on behalf of the investee for further losses. (d) Cash and cash equivalents The Group considers cash on hand, call deposits, and highly liquid financial assets which are subject to insignificant risk of changes in their fair values to be cash and cash equivalents. (e) Non-derivative financial assets Non-derivative financial assets are classified into the following measurement categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets, all of which are initially recognized on the date at which the Group becomes a party to the contractual provisions of the instrument. A financial asset is measured initially at its fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition. i) Financial assets at fair value through profit or loss Financial assets are classified as at fair value through profit or loss when the financial asset is either held for trading or is designated at fair value through profit or loss. Financial assets at fair value through profit or loss are measured at fair value upon initial recognition and changes therein are recognized in profit or loss. Upon initial recognition, attributable transaction costs are recognized in profit or loss as incurred. 13
  16. 16. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 3. Significant Accounting Policies, Continued (e) Non-derivative financial assets, continued ii) Held-to-maturity investments If the non-derivative assets have a fixed maturity with fixed or determinable payments, and the Group has the positive intent and ability to hold them until maturity, then such financial assets are classified as held-to-maturity. Subsequent to initial recognition, held-to-maturity financial assets are measured at amortized cost using the effective interest rate method. iii) Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method. iv) Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as financial assets at fair value through profit or loss, held-tomaturity investments or loans and receivables. Subsequent to initial recognition, they are measured at fair value, with changes in fair value, net of any tax effect, recorded in other comprehensive income in equity. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives those are linked to and must be settled by delivery of such unquoted equity instruments are measured at cost. v) Derecognition of financial assets The Group de-recognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows of the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. If the Group retains substantially all the risks and rewards of ownership of the transferred financial assets, the Group continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received. vi) Offsetting between financial assets and financial liabilities Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Group currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously. (f) Derivative financial instruments Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below. 1) Hedge accounting The Group holds various derivative financial instruments, such as currency swaps and interest rate swaps, etc., to hedge its foreign currency and interest rate risk exposures. On initial designation of the hedge, the Group formally documents the relationship between the hedging instruments and hedged items, including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. 14
  17. 17. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 3. Significant Accounting Policies, Continued (f) Derivative financial instruments, continued i) Fair value hedge Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss. The gain or loss from remeasuring the hedging instrument at fair value for a derivative hedging instrument and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the consolidated statement of comprehensive income. The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, or if the hedge no longer meets the criteria for hedge accounting. Any adjustment arising from gain or loss on the hedged item attributable to the hedged risk is amortized to profit or loss from the date the hedge accounting is discontinued. ii) Cash flow hedge When a derivative is designated to hedge the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income, net of tax, and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss. 2) Embedded derivative instruments Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria has been met: (a) the economic characteristics and risks of the host contract and the embedded derivatives are not clearly and closely related to a separate instrument with the same terms as the embedded derivative that would meet the definition of a derivative, and (b) the hybrid (combined) instrument is not measured at fair value through profit or loss. Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss. 3) Other derivative instruments Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss. 15
  18. 18. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 3. Significant Accounting Policies, Continued (g) Impairment of financial assets A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized. Objective evidence that a financial asset is impaired includes, but not limited to, the following events: i) Assets carried at amortized cost An impairment loss in respect of assets carried at amortized cost measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate and is recognized in profit or loss. Interest on the impaired asset continues to be recognized through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. ii) Available-for-sale financial assets When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available-for-sale are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed, with the amount of the reversal recognized in profit or loss. (h) Revenue recognition The Group recognizes capital lent to customers as loans receivables. Installment financial capital paid by the Group to manufacturers or sellers on behalf of customers is recognized as installment financial assets. Financial lease receivables classified as financial leases are recognized as lease receivables. The expected future cash flows from loans receivables, installment financial assets and lease receivables (“financial receivables”) described above are amortized under the effective interest method over the period of the financial receivables being used by customers. (i) Deferral of loan origination fee and loan origination cost Loan origination fee, which is processing fee in relation to the loan origination process such as upfront fee, is deferred and deducted from the loan account, adjusted over the life of the loan based on the effective interest rate method. Loan origination cost, which relates to activities performed by the lender such as soliciting potential borrowers, is deferred and added to the loan account, adjusted over the life of the loan based on the effective interest rate method when the future economic benefit in connection with the cost incurred can be identified on a per loan basis. 16
  19. 19. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 3. Significant Accounting Policies, Continued (j) Allowance for financial receivables i) Calculation of allowance for doubtful accounts The Group recognizes the impairment of receivables as an allowance for doubtful accounts. It is based on the impairment estimates made through impairment assessment of receivables carried at amortized cost. Allowance for doubtful account consists of impairments related to individually material financial receivables and collective assessment for impairment incurred in homogeneous assets. Individually material receivables undertake the individual assessment of the difference between the assets’ carrying amount and the present value of estimated future cash flows. Unimpaired assets from individual assessments and individually immaterial assets undertake the collective assessment classified by asset groups that have analogous risk attributes. The Group uses statistical model in the collective assessment based on the expected probability of default, periodic collect amounts, loss-given default based on the past losses, loss emergence period, and management’s decision about the current economy and credit circumstance. The material factors used in statistical model for the collective assessment are evaluated to compare with actual data regularly. The amount of impairment loss is reflected in allowance for doubtful accounts as profit or loss. ii) Write-off policy The Group writes off the doubtful receivables when the assets are deemed unrecoverable. This decision considers the information about significant changes of financial position such that a borrower or an obligor is in default, or the amount recoverable from security is not enough. Write-off decision of standard small loan is generally made based on the delinquent status of loan. (k) Leases i) Classification The Group classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the lessee assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases. The lease arrangement classified as a finance lease is where: ① the lease transfers ownership of the asset to the lessee by the end of the lease term, ② the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised, ③ the lease term is for the major part of the economic life of the asset even if the title is not transferred, ④ at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset, or ⑤ the leased assets are of such a specialized nature that only the lessee can use them without major modifications. Minimum lease payments include that part of the residual value that is guaranteed by the lessee, by a party related to the lessee or by a third party unrelated to the Group that is financially capable of discharging the obligation under the guarantee. 17
  20. 20. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 3. Significant Accounting Policies, Continued (k) Leases, continued ii) Finance leases Where the Group has substantially all the risks and rewards of ownership, lease of property, and equipment are classified as finance lease. An amount equal to the net investment in the lease is presented as a receivable. Expenses that are incurred with regard to the lease contract made but not executed at the date of the statement of financial position are accounted for as prepaid leased assets and are classified as finance lease receivables at the inception of the lease. Lease receivables include amounts such as commissions, legal fees, and internal costs that are incremental and directly attributable to negotiation and arranging a lease. Each lease payment is allocated between principal and finance income. Financial income on an uncollected part of net investment shall be allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. (l) Property and equipment Property and equipment are initially measured at cost and after initial recognition, are carried at cost less accumulated depreciation and accumulated impairment losses. The cost of property and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. The cost of replacing a part of an item of property or equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced cost is derecognized. The cost of the day to day servicing of property and equipment are recognized in profit or loss as incurred. Property and equipment are depreciated on a straight-line basis over the estimated useful lives, which most closely reflect the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives for the current and comparative years are as follows: Descriptions Vehicles Fixtures and furniture Depreciation method Straight-line Straight-line Useful lives 4 years 4 years Works of art classified under other tangible assets are not amortized due to their indefinite useful life in nature. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the carry amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount, and recognized within other operating income (expenses) in the consolidated statement of comprehensive income. 18
  21. 21. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 3. Significant Accounting Policies, Continued (m) Intangible assets Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses. Amortization of intangible assets is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. Descriptions Development Software Other intangible assets Amortization method Straight-line Straight-line Straight-line Useful lives 5 years 4 years 5 years i) Research and development Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred. ii) Subsequent expenditures Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred. (n) Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). Nonfinancial assets that are subject to amortization suffered impairment are viewed for possible reversal of the impairment at each reporting date. (o) Non-derivative financial liabilities The Group classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities. The Group recognizes financial liabilities in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the financial liability. i) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the acquisition are recognized in profit or loss as incurred. 19
  22. 22. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 3. Significant Accounting Policies, Continued (o) Non-derivative financial liabilities, continued ii) Other financial liabilities Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method. The Group derecognizes a financial liability from the consolidated statement of financial position when it is extinguished (i.e., when the obligation specified in the contract is discharged, cancelled or expires). (p) Pension obligations The Group operates a defined benefit plan. A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The liability recognized in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of reporting period less the fair value of plan assets, together with adjustments for unrecognized past-service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in other comprehensive income or loss in the period in which they arise. (q) Provisions and contingent liabilities When there is a probability that an outflow of economic benefits will occur due to a present obligation resulting from a present legal or as a result of past events, and whose amount is reasonably estimable, a corresponding amount of provision is recognized in the consolidated financial statements. Provisions are the best estimate of the expenditure required to settle the present obligation that consider the risks and uncertainties inevitably surround many events and circumstances at the reporting date. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditure expected to be required to settle the obligation. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed. A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future events, or a present obligation that arises from past events but is not certain to occur, or cannot be reliably estimated, a disclosure regarding the contingent liability is made in the notes to the consolidated financial statements. 20
  23. 23. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 3. Significant Accounting Policies, Continued (r) Foreign currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Korean won, which is the Group’s functional currency. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of comprehensive income, except when deferred in other comprehensive income as qualifying cash flow hedges. (s) Equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects. Preference share capital is classified as equity if it is non-redeemable, or redeemable only at the Group’s option, and any dividends are discretionary. Dividends thereon are recognized as distributions within equity upon approval by the Group’s shareholders. (t) Income tax Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income. i) Current income tax Current income tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit. ii) Deferred income tax Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax assets and liabilities are not recognized if they arise from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted by the statement of financial position date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. 21
  24. 24. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 3. Significant Accounting Policies, Continued (t) Income tax, continued The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. 4. Restricted Financial Instruments Restricted financial instruments as of September 30, 2013 and December 31, 2012 were as follows: Type Due from banks 5. Depository Kookmin Bank and 2 others September 30, 2013 December 31, 2012 9,000 W 9,000 Restriction Guarantee deposit for account opening Available-for-sale Securities Balances as of available-for-sale securities as of September 30, 2013 and December 31, 2012 were as follows: September 30, 2013 Equity securities Marketable equity securities Unlisted equity securities Beneficiary certificates W December 31, 2012 8,290,000 10,650,000 6,072,629 5,607,645 23,179,733 22 10,726,682 49,111,105 W 16,257,645 11,568,743 Debt securities - 37,542,362 26,984,327
  25. 25. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 5. Available-for-sale Securities, Continued Details of available-for-sale securities as of September 30, 2013 and December 31, 2012 were as follows: Book value Acquisition September December 31, Number Ownership cost 30, 2013 2012 of shares (%) Marketable equity securities JNK Heaters Co., Ltd. Unlisted equity securities Leehan Corp. (*1) Anyang KDC Project Corp. Anyang KDC Asset Management Corp. Isung Eng, Corp. 1,000,000 12.50 W 10,126,881 8,290,000 10,650,000 136,000 12.30 3,199,762 3,769,920 3,304,936 389,999 15.00 2,293,275 2,293,275 2,293,275 1,499 15.00 8,814 8,814 8,814 24 - Beneficiary certificates Hanjoo New Credit private special asset investment trust Yuniaedaebu private special asset investment trust Yuniaedaebu private special asset investment 2nd trust 620 620 620 5,502,471 6,072,629 5,607,645 N/A 73.70 5,491,196 5,514,663 - N/A - 8,243,070 8,243,070 - N/A - 9,422,000 9,422,000 - 23156266 23179733 - 7,152,626 7,551,321 6,726,682 Debt securities Leehan Corp. (*2) Commercial Auto Third SPC 4,000,000 W 23 4,017,422 4,000,000 11,152,626 11,568,743 10,726,682 49,938,244 49,111,105 26,984,327
  26. 26. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 5. Available-for-sale Securities, Continued (*1) The fair value of the securities of Leehan Corp. is the valuation price provided by an external appraiser, Korea Asset Pricing. The external appraiser valuated the fair value as the average of valuation prices using the discounted cash flow model and the imputed market value model. (*2) The debt security is a convertible bond issued by Leehan Corp. The fair value of the convertible bond is provided by an external appraiser, Korea Asset Pricing. The difference between the fair value and book value of the convertible bond is amortized using the effective interest rate method and is recognized as a gain or loss on valuation of debt securities. The fluctuation of in the fair value of the conversion right and the advanced redemption right is recognized in the gain or loss on embedded derivatives. 24
  27. 27. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 6. Investments in Associates Details of investments in associates as of September 30, 2013 and December 31, 2012 were as follows: Number of shares September 30, 2013 Hyundai Card Co., Ltd. (*) Hyundai Life Insurance Co., Ltd. Ownership (%) 5.54 10,685,620 39.07 8,889,622 113,820,162 126,104,415 165,717,956 138,913,060 74,948,516 98,615,052 252,733,222 201,052,931 264,333,008 W 113,820,162 121,460,539 158,386,190 138,913,060 5.54 10,685,620 W Book value W December 31, 2012 Hyundai Card Co., Ltd. (*) Hyundai Life Insurance Co., Ltd. 8,889,622 Acquisition cost Proportionate net asset value of investee 102,391,658 127,015,755 252,733,222 223,852,197 285,401,945 39.07 W (*) The Group’s shareholdings are less than 20%. However, the Group is able to significantly exert influence through its involvement in the financial and operating processes, and thus the equity method is applied. 25
  28. 28. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 6. Investments in Associates, Continued Details of valuation of equity method investment and other changes as of September 30, 2013 and December 31, 2012 were as follows: Beginning balance Share of profit(loss) Acquisition Changes in accumulated other comprehensive income (loss) (*) Changes in retained earning Ending balance September 30, 2013 Hyundai Card Co., Ltd. W 158,386,190 Hyundai Life Insurance Co., Ltd. 127,015,755 - 7,046,940 284,826 - 165,717,956 - (20,596,771) (7,803,932) - 98,615,052 W 285,401,945 - (13,549,831) (7,519,106) - 264,333,008 W 147,539,965 - 10,609,150 237,075 - 158,386,190 - 138,913,060 (18,716,249) 5,334,179 1,484,765 127,015,755 W 147,539,965 138,913,060 (8,107,099) 5,571,254 1,484,765 285,401,945 December 31, 2012 Hyundai Card Co., Ltd. Hyundai Life Insurance Co., Ltd. (**) (*) Tax effects are not deducted (**) The Group recognized W8,582,824 of imposition amount related to acquisition of Hyundai Life Insurance Co., Ltd. as other non-operating expenses for the nine-month period ended September 30, 2012. 26
  29. 29. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 6. Investments in Associates, Continued Condensed financial statements of associates as of and for the nine-month ended September 30, 2013 and for the year ended December 31, 2012 were as follows: Fiscal year end Assets Profit (loss) for the period Liabilities Operating revenue 8,614,817,007 1,875,911,211 127,203,292 September 30, 2013 Hyundai Card Co., Ltd. Hyundai Life Insurance Co., Ltd. December W 10,939,628,346 4,054,029,585 3,862,219,250 740,471,405 (28,938,932) December 31, 2012 Hyundai Card Co., Ltd. Hyundai Life Insurance Co., Ltd. (*) December W 11,252,488,244 9,060,021,557 2,524,941,896 191,504,230 3,562,563,039 885,330,384 (6,045,704) March March 3,824,606,629 (*) Hyundai Life Insurance Co., Ltd. is a corporation with fiscal year ending on March 31. However, its assets and liabilities presented above are as of December 31, 2012, and the results of its operations are for the nine-month period ended December 31, 2012. 27
  30. 30. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 7. Financial Receivables Details of financial receivables as of September 30, 2013 and December 31, 2012 were as follows: Principal Deferred loan origination fees and costs Allowance for doubtful accounts Present value discount Book value September 30, 2013 Loans receivables 3,152,027 - - (14,452) 3,137,575 2,960,371,452 42,366,488 (261,990) (17,711,378) 2,984,764,572 2,963,523,479 42,366,488 (261,990) (17,725,830) 2,987,902,147 291,424,266 3,557,999 - (1,805,336) 293,176,929 18,294,517 (197,723) - (123,232) 17,973,562 309,718,783 3,360,276 - (1,928,568) 311,150,491 187,013,026 135,381 - (1,606,732) 185,541,675 W 3,460,255,288 45,862,145 (261,990) (21,261,130) 3,484,594,313 108,000 - - (270) 107,730 2,764,943,740 35,870,003 (200,613) (19,258,900) 2,781,354,230 2,765,051,740 Factoring receivables 35,870,003 (200,613) (19,259,170) 2,781,461,960 331,018,925 25,765,456 356,784,381 2,702,341 (140,848) 2,561,493 - (2,351,090) (176,228) (2,527,318) 331,370,176 25,448,380 356,818,556 132,355,777 687 - (1,026,911) 131,329,553 W 3,254,191,898 38,432,183 (200,613) (22,813,399) 3,269,610,069 W Loans Installment financial assets Auto Durable goods Lease receivables Financial lease receivables December 31, 2012 Loans receivables Factoring receivables Loans Installment financial assets Auto Durable goods Lease receivables Financial lease receivables W 28
  31. 31. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 8. Allowance for Doubtful Accounts Changes in allowance for doubtful accounts for the nine-month period ended September 30, 2013 and for the year ended December 31, 2012 were as follows: Loans receivables September 30, 2013 Beginning balance W 19,259,170 Amounts written off (6,452,388) Recoveries of amounts previously written off 441,884 Disposal of receivables (12,287,883) Unwinding of discount (201,947) Additional (reversed) allowance 16,966,994 Ending balance W 17,725,830 December 31, 2012 Beginning balance W 18,169,160 Amounts written off (4,168,839) Recoveries of amounts previously written off 772,833 Disposal of receivables (14,903,755) Unwinding of discount (226,349) Additional (reversed) allowance 19,616,120 Ending balance W 19,259,170 Installment financial assets Lease receivables Other assets Total 2,527,318 1,026,911 227,475 23,040,874 (306,497) (137,513) - (6,896,398) 40,649 32,256 - 514,789 (1,513,822) (955) - (13,802,660) (18,209) - - (220,156) 1,199,129 686,033 (76,883) 18,775,273 1,928,568 1,606,732 150,592 21,411,722 3,175,354 620,397 330,388 22,295,299 (396,392) - - (4,565,231) 86,527 - - 859,360 (1,921,390) (34,163) - (16,859,308) (28,019) - - (254,368) 1,611,238 440,677 (102,913) 21,565,122 2,527,318 1,026,911 227,475 23,040,874 29
  32. 32. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 9. Fair Value of Financial Instruments Fair value is the amount at which the asset could be exchanged or the liabilities could be settled in a transaction between knowledgeable and willing independent parties. The best estimated fair value is the published price quotation in an active market. The Group believes that valuation technique applied to the financial instruments is adequate and fair value of financial instruments is reasonable, but if the Group use another valuation technique or assumptions, such fair value might be changed. Also, as fair value measurement of financial instruments uses variable valuation techniques and assumptions, comparing fair value with those recognized by other financial institutions might be difficult. Fair values of financial instruments as of September 30, 2013 and December 31, 2012 were as follows: September 30, 2013 Book value Fair value Financial assets Cash and due from banks W Available-for-sale securities Loans receivables Installment financial assets December 31, 2012 Book value Fair value 290,531,966 290,531,966 282,834,795 282,834,795 49,111,105 2,987,902,147 49,111,105 2,971,440,679 26,984,327 2,781,461,960 26,984,327 2,775,937,581 311,150,491 310,283,118 356,818,556 357,631,944 185,541,674 185,642,264 131,329,553 132,353,718 141,834 141,834 137,775 137,775 8,813,881 8,813,881 15,813,310 15,813,310 17,593,389 2,114,730 3,852,901,217 17,593,389 2,073,546 3,835,631,782 16,858,350 11,083,914 3,623,322,540 16,858,350 11,201,215 3,619,753,015 703,154,996 2,663,886,918 289,802,484 706,479,489 2,700,658,502 296,673,394 723,883,961 2,428,295,638 309,637,148 730,188,793 2,494,275,095 319,737,569 1,665,110 1,665,110 7,505,990 7,505,990 Account payables 11,949,378 11,949,378 15,199,625 15,199,625 Accrued expenses 22,250,132 22,250,132 27,995,752 27,995,752 3,387,983 3,387,983 3,045,893 3,045,893 48,707,968 3,744,804,969 49,334,332 3,792,398,320 33,014,098 3,548,578,105 33,618,900 3,631,567,617 Lease receivables Derivative assets Account receivables Accrued revenues Leasehold deposits W Financial liabilities Borrowings Debentures Securitized debts W Derivative liabilities Withholdings (*) Leasehold deposits W (*) Excluding taxes and dues 30
  33. 33. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 9. Fair Value of Financial Instruments, Continued The levels of fair value hierarchy have been defined as follows: - Level 1: Quoted prices in active markets for identical assets or liabilities. For example, listed stocks and derivatives. - Level 2: Inputs for the asset or liability included within valuation techniques that are observable market data. For example, most bonds issued in Korean won and foreign currency, general unlisted derivatives like swap, forward, option. - Level 3: Inputs for the asset or liability that is not based on observable market data. For example, unlisted stocks, complicated structured bonds, complicated unlisted derivatives and others. The fair value hierarchy of financial instruments as of September 30, 2013 and December 31, 2012 were as follows: Book value Fair value hierarchy Level 2 Fair value Level 1 Level 3 49,111,105 141,834 49,252,939 8,290,000 8,290,000 141,834 141,834 40,821,105 40,821,105 1,665,110 1,665,110 - 1,665,110 - Financial assets Available-for-sale securities W 26,984,327 Derivative assets 137,775 W 27,122,102 26,984,327 137,775 27,122,102 10,650,000 10,650,000 137,775 137,775 16,334,327 16,334,327 7,505,990 - 7,505,990 - September 30, 2013 Financial assets Available-for-sale securities W 49,111,105 Derivative assets 141,834 W 49,252,939 Financial liabilities Derivative liabilities W December 31, 2012 Financial liabilities Derivative liabilities W 7,505,990 31
  34. 34. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 9. Fair Value of Financial Instruments, Continued The changes in financial instruments of level 3 for the nine-month period ended September 30, 2013 and for the year ended December 31, 2012 were as follows: Available-for-sale securities September 30, 2013 December 31, 2012 Beginning balance W Acquisition Interest income Gains on valuation (other comprehensive income) Ending balance 16,334,327 23,156,266 738,495 592,017 40,821,105 W 8,648,233 6,302,089 871,838 512,167 16,334,327 The book values of financial instruments by categories as of September 30, 2013 and December 31, 2012 were as follows: Financial assets at fair Available-forvalue through sale financial profit or loss assets Hedging derivative instruments Loans and receivables Total September 30, 2013 Financial assets Cash and due from banks W - - 290,531,966 - 290,531,966 Available-for-sale securities - 49,111,105 - - 49,111,105 Loans receivable - - 2,987,902,147 - 2,987,902,147 Installment financial assets - - 311,150,491 - 311,150,491 Financial lease receivables - - 185,541,674 - 185,541,674 736 - - 141,098 141,834 Account receivables - - 8,813,881 - 8,813,881 Accrued revenues - - 17,593,389 - 17,593,389 Leasehold deposits - - 2,114,730 - 2,114,730 W 736 49,111,105 3,803,648,278 141,098 3,852,901,217 W Derivative assets December 31, 2012 Financial assets Cash and due from banks - - 282,834,795 - 282,834,795 Available-for-sale securities - 26,984,327 - - 26,984,327 Loans receivable - - 2,781,461,960 - 2,781,461,960 Installment financial assets - - 356,818,556 - 356,818,556 Financial lease receivables - - 131,329,553 - 131,329,553 74,422 - - 63,353 137,775 Account receivables - - 15,813,310 - 15,813,310 Accrued revenues - - 16,858,350 - 16,858,350 - - 11,083,914 - 11,083,914 74,422 26,984,327 3,596,200,438 63,353 3,623,322,540 Derivative assets Leasehold deposits W 32
  35. 35. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 9. Fair Value of Financial Instruments, Continued Hedging derivative instruments Financial liabilities at amortized cost Total September 30, 2013 Financial liabilities Borrowings W 703,154,996 - 703,154,996 2,663,886,918 - 2,663,886,918 289,802,484 - 289,802,484 - 1,665,110 1,665,110 Account payables 11,949,378 - 11,949,378 Accrued expenses 22,250,132 - 22,250,132 3,387,983 - 3,387,983 Debentures Securitized debts Derivative liabilities Withholdings (*) Leasehold deposits received 48,707,968 - 48,707,968 W 3,743,139,859 1,665,110 3,744,804,969 W 723,883,961 - 723,883,961 2,428,295,638 - 2,428,295,638 309,637,148 - 309,637,148 - 7,505,990 7,505,990 Account payables 15,199,625 - 15,199,625 Accrued expenses 27,995,752 - 27,995,752 3,045,893 - 3,045,893 33,014,098 - 33,014,098 3,541,072,115 7,505,990 3,548,578,105 December 31, 2012 Financial liabilities Borrowings Debentures Securitized debts Derivative liabilities Withholdings (*) Leasehold deposits received W (*) Excluding taxes and dues 33
  36. 36. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 10. Transfer of Financial Assets (a) Financial assets that are not entirely derecognized The Group issued senior and subordinated securitized debts based on loans and instalment receivables which were securitized. The securitized debts have recourse only to the transferred assets. Details of financial assets transferred but not entirely derecognized as of September 30, 2013 and December 31, 2012 were as follows: September 30, 2013 December 31, 2012 Book value of assets Loans receivables W 637,705,793 12,511,874 Installment financial assets Sub total Book value of related liabilities 539,978,100 35,652,795 650,217,667 575,630,895 W 289,802,484 309,637,148 W 646,776,822 574,639,694 (296,673,394) (319,737,569) 350,103,428 254,902,125 Liabilities having right of resource on transferred assets: Fair value of assets Fair value of related liabilities Net position W (b) Financial assets that are entirely derecognized The Group derecognized loans receivables from the consolidated financial statements by transferring them for W101,598,233 to Commercial Auto Third SPC (Trustee Bank: Citibank Korea, Inc.) on December 18, 2012. Gains related to the transaction amounted to W2,450,829. The Group has continuing involvement in the transferred asset after taking over debt securities issued by Commercial Auto Third SPC. Details of continuing involvement were as follows: Book value of continuing involvement Available-for-sale securities Acquisition on debt securities W 4,017,422 34 Maximum exposure to loss 4,017,422
  37. 37. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 11. Financial Lease Receivables Details of total lease investments and present value of minimum lease payment as of September 30, 2013 and December 31, 2012 were as follows: September 30, 2013 Total lease investments Less than 1 year W December 31, 2012 Present value of minimum lease payment Total lease investments Present value of minimum lease payment W 71,552,483 55,614,516 48,968,100 122,350,986 1 to 5 years 80,187,482 115,595,924 88,188,405 83,388,364 202,538,468 187,148,407 143,802,921 132,356,464 Details of unearned interest income as of September 30, 2013 and December 31, 2012 were as follows: September 30, 2013 December 31, 2012 202,538,468 132,356,464 187,148,407 15,390,061 Unearned interest income 143,802,921 187,148,407 Total lease investments W Net lease investments Minimum lease payment (present value) Unguaranteed residual value (present value) 132,356,464 11,446,457 12. Property and Equipment Details of property and equipment as of September 30, 2013 and December 31, 2012 were as follows: Acquisition cost Accumulated depreciation Book value September 30, 2013 W 113,472 9,187,421 411,000 (70,624) (6,012,815) - 42,848 3,174,606 411,000 W Vehicles Fixtures and furniture Others 9,711,893 (6,083,439) 3,628,454 W 235,097 7,965,357 411,000 (165,298) (5,263,430) - 69,799 2,701,927 411,000 W 8,611,454 (5,428,728) 3,182,726 December 31, 2012 Vehicles Fixtures and furniture Others 35
  38. 38. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 12. Property and Equipment, Continued Changes in property and equipment for the nine-month period ended September 30, 2013 and for the year ended December 31, 2012 were as follows: Beginning balance September 30, 2013 Vehicles Fixtures and furniture Others Acquisition Disposal Depreciation Ending balance 69,799 - (2,534) (24,417) 42,848 W 2,701,927 411,000 3,182,726 1,392,631 1,392,631 (225) (2,759) (919,727) (944,144) 3,174,606 411,000 3,628,454 W 114,731 76,172 (61,447) (59,657) 69,799 W December 31, 2012 Vehicles Fixtures and furniture Others W 2,382,936 411,000 2,908,667 1,418,127 1,494,299 (114,015) (175,462) (985,121) (1,044,778) 2,701,927 411,000 3,182,726 As of September 30, 2013, the Group maintained comprehensive property insurance with Hyundai Marine and Fire Insurance for its fixtures and furniture, and other tangible assets for up to W4,008,254 (W4,008,254 as of December 31, 2012), vehicle insurance for its vehicles, and group accident insurance, travel insurance and business damage insurance for its employees. Also, the Group maintained comprehensive property insurance with Hyundai Marine and Fire Insurance for its machine tool installment financial assets and lease assets for up to W187,038,984 (W92,452,845 as of December 31, 2012). 36
  39. 39. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 13. Intangible Assets Details of intangible assets as of September 30, 2013 and December 31, 2012 were as follows: Accumulated amortization Acquisition cost September 30, 2013 Development costs Software Others Book value W 3,694,703 6,541,948 25,851 (1,349,176) (5,423,557) (25,848) 2,345,527 1,118,391 3 W 10,262,502 (6,798,581) 3,463,921 W 2,847,793 6,422,131 25,851 (869,745) (4,947,389) (25,631) 1,978,048 1,474,742 220 W 9,295,775 (5,842,765) 3,453,010 December 31, 2012 Development costs Software Others Changes in intangible assets for the nine-month period ended September 30, 2013 and for the year ended December 31, 2012 were as follows: Beginning balance September 30, 2013 Development costs Software Others W W December 31, 2012 Development costs Software Others W W Increase (*) Amortization Ending balance 1,978,048 1,474,742 220 3,453,010 846,910 123,112 970,022 (479,431) (479,463) (217) (959,111) 2,345,527 1,118,391 3 3,463,921 1,763,019 1,306,607 2,678 3,072,304 694,513 784,411 1,478,924 (479,484) (616,276) (2,458) (1,098,218) 1,978,048 1,474,742 220 3,453,010 (*) Includes transfer from advanced payments 37
  40. 40. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 14. Borrowings Details of borrowings as of September 30, 2013 and December 31, 2012 were as follows: Annual interest rate (%) Lender Borrowings in Korean won SK Securities and 2 others Woori Bank and 8 others December 31, 2012 General loan W 160,000,000 210,000,000 W Commercial paper 2.61 ~ 4.17 September 30, 2013 543,154,996 703,154,996 513,883,961 723,883,961 2.98 ~ 5.80 15. Debentures Details of debentures issued by the Group as of September 30, 2013 and December 31, 2012 were as follows: Annual interest Par value Issue price rate (%) September 30, 2013 Current portion of debenture Debenture Discount on debentures 2.28 ~ 8.00 W 2,113,000,000 - 2,113,000,000 (1,678,161) 2,111,321,839 W 2,665,794,000 2,663,886,918 W 847,488,500 - 847,488,500 (313,409) 847,488,500 Non-current portion of debenture Debenture Discount on debentures 552,565,079 2,113,000,000 December 31, 2012 Current portion of debenture Debenture Discount on debentures 552,794,000 (228,921) 552,794,000 Non-current portion of debenture Debenture Discount on debentures 552,794,000 - 847,175,091 1,582,704,000 - 1,582,704,000 (1,583,452) 1,582,704,000 1,581,120,548 2,430,192,500 2,428,295,639 2.74 ~ 8.00 3.05 ~ 6.00 3.10 ~ 8.00 W 38
  41. 41. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 16. Securitized Debts The amounts of securitized debts, which are secured by loans and installment financial assets in accordance with Asset Backed Securitization Act as of September 30, 2013 and December 31, 2012 were as follows: Annual interest rate (%) Par value Issue price September 30, 2013 Current portion of securitized debts Securitized debts Discount on securitized debts W 150,000,000 - 150,000,000 (64,371) 150,000,000 149,935,629 140,000,000 - 140,000,000 (133,145) 140,000,000 139,866,855 W 290,000,000 289,802,484 W 50,000,000 - 50,000,000 (33,017) 50,000,000 49,966,983 260,000,000 - 260,000,000 (329,835) 260,000,000 Non-current portion of securitized debts Securitized debts Discount on securitized debts 4.76 ~ 5.19 259,670,165 310,000,000 309,637,148 4.90 ~ 5.43 December 31, 2012 Current portion of securitized debts Securitized debts Discount on securitized debts Non-current portion of securitized debts Securitized debts Discount on securitized debts 4.78 ~ 4.92 4.76 ~ 5.43 W 17. Defined Benefit Liability Details of defined benefit liability as of September 30, 2013 and December 31, 2012 were as follows: September 30, 2013 Present value of defined obligations Fair value of plan assets Defined benefit liability benefit 12,597,779 (8,745,764) 3,852,015 W W 39 December 31, 2012 10,602,378 (8,546,162) 2,056,216
  42. 42. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 17. Defined Benefit Liability, Continued Changes in present value of defined benefit obligations for the nine-month period ended September 30, 2013 and for the year ended December 31, 2012 were as follows: September 30, 2013 Beginning balance Current service cost Interest cost Actuarial losses Transfer of severance benefits from related parties Transfer of severance benefits to related parties Benefits paid Ending balance W December 31, 2012 10,602,378 1,881,119 269,644 56,218 766,994 1,301,233 (521,624) (456,950) 12,597,779 W 7,596,812 2,065,107 312,346 966,673 (1,230,543) (409,250) 10,602,378 Changes in the fair value of plan assets for the nine-month period ended September 30, 2013 and for the year ended December 31, 2012 were as follows: September 30, 2013 Beginning balance Expected return on plan assets Remeasurement gains Transfer of severance benefits from related parties Transfer of severance benefits to related parties Contributions by plan participants Benefits paid Ending balance December 31, 2012 8,546,162 213,781 6,004 600,148 (174,678) (456,950) 8,745,764 W 5,364,346 220,433 4,187 611,445 W (294,075) 3,000,000 (348,877) 8,546,162 Gains and losses related to defined benefit plans for the nine-month periods ended September 30, 2013 and 2012 were as follows: September 30, 2013 Current service cost Interest cost Expected return on plan assets 1,881,119 269,644 (213,781) 1,936,982 W W 40 September 30, 2012 1,917,869 231,909 (160,665) 1,989,113
  43. 43. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 18. Derivative Financial Instruments and Hedge Accounting The Group acquired the convertible bonds issued by Leehan Corp. in 2011, and recorded the difference between the acquisition cost of convertible bond and the fair value of bond without convertible right as derivative assets. The Group recognized derivative assets of W736 and W74,423 as of September 30, 2013 and December 31, 2012, respectively. Net losses on the derivative assets were W73,687 and W391,854 for the nine-month periods ended September 30, 2013 and 2012, respectively. Cash flow hedge is used by the Group to reduce the exposure from changes in interest rate and exchange rate of the cash flows of foreign currency debentures. Interest rate swaps and currency swaps are used. Derivatives designated as cash flow hedges as of September 30, 2013 and December 31, 2012 were as follows: Assets Liabilities Other comprehensive income (loss) September 30, 2013 W 141,098 - 1,288,577 376,533 (1,555,301) 487,640 W 141,098 1,665,110 (1,067,661) W 63,352 - 2,084,383 5,421,607 (1,531,844) (382,978) W Interest rate swaps Currency swaps 63,352 7,505,990 (1,914,822) December 31, 2012 Interest rate swaps Currency swaps For the nine-month period ended September 30, 2013, the amount recognized as other comprehensive income, representing the effective portion related to cash flow hedge, is W847,161 and the amount reclassified from other comprehensive income to profit or loss is W90,000 (before tax). There is no amount recognized as profit or loss related to cash flow hedge, representing the ineffective portion, for the nine-month period ended September 30, 2013. 41
  44. 44. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 19. Equity The Controlling Company is authorized to issue 80,000,000 shares (par value at W5,000). Details of capital stock as of September 30, 2013 were as follows: Preferred stock (*) Common stock Number of issued shares outstanding Capital stock Paid-in-capital in excess of par value W Total 20,000,000 100,000,000 5,000,000 25,000,000 25,000,000 125,000,000 - 74,608,060 74,608,060 (*) The convertible preferred stocks are non-cumulative, non-participating, nominative, non-permanent preferred stocks without voting right. The stocks will be converted to common stock after 7 years from issue date. 20. Retained Earnings Details of retained earnings as of September 30, 2013 and December 31, 2012 were as follows: September 30, 2013 Legal reserve Revenue reserve Voluntary reserve Reserve for loan losses Reserve for electronic financial transactions December 31, 2012 W 4,000,000 3,357,192 100,000 3,457,192 138,248,394 Unappropriated retained earnings (Expected regulatory reserve for credit losses September 30, 2013: W3,686,307; December 31, 2012: W11,932,446) 7,100,000 15,289,638 100,000 15,389,638 W 130,082,243 160,738,032 137,539,435 Appropriated and expected regulatory reserve for credit losses as of September 30, 2013 and December 31, 2012 were as follows: September 30, 2013 Appropriated regulatory reserve for credit losses Expected regulatory reserve for credit losses December 31, 2012 W 15,289,638 3,357,192 W 3,686,307 18,975,945 11,932,446 15,289,638 42
  45. 45. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 20. Retained Earnings, Continued Profit adjusted for estimated regulatory reserve for credit losses for the nine-month periods ended September 30, 2013 and 2012 were as follows: September 30, 2013 Three-month Nine-month period ended period ended Profit for the period Estimated provision of regulatory reserve for credit losses Profit adjusted by regulatory reserve for credit losses Earnings per share adjusted by estimated regulatory reserve for credit losses (won) W September 30, 2012 Three-month Nine-month period ended period ended 9,063,340 29,198,597 13,454,069 38,113,383 - (3,686,307) (955,035) (10,637,581) 9,063,340 25,512,290 12,499,034 27,475,802 453 1,276 625 1,374 The dividends for the year ended December 31, 2012 were paid in March 2013, and details of dividend for the years ended December 31, 2012 and 2011 were as follows: December 31, 2012 Interim dividends Common stock Annual dividends Common stock Preferred stock December 31, 2011 W 25,000,000 - W 6,000,000 31,000,000 24,000,000 6,000,000 30,000,000 43
  46. 46. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 21. General and Administrative Expenses Details of general and administrative expenses for the three-month and nine-month periods ended September 30, 2013 and 2012 were as follows: September 30, 2013 Nine-month Three-month period ended period ended Wages and salaries W September 30, 2012 Three-month Nine-month period ended period ended 6,764,920 17,421,419 5,975,718 14,171,511 669,348 1,936,982 714,199 1,989,113 Employee welfare 1,522,068 4,846,711 1,437,064 4,164,670 Outsourcing service charges 1,155,610 3,313,182 1,056,232 3,035,961 Sales commission 1,874,438 6,982,512 3,112,890 10,001,748 Commission 935,283 2,885,731 704,314 2,515,818 Outsourcing service commission 927,062 2,636,145 392,791 1,626,461 Depreciation 344,407 944,144 264,423 766,844 Amortization 337,391 959,111 267,036 799,011 Taxes and dues 502,028 1,560,174 451,326 1,389,327 Electronic data processing expenses 862,528 2,073,050 1,186,651 1,936,049 Rent 972,619 2,406,658 366,329 994,798 24,020 61,650 280,313 828,270 Travel expenses 156,046 591,952 123,935 499,898 Training expenses 144,081 371,271 248,857 531,130 Communication 171,121 497,489 170,279 440,979 Others 546,686 1,491,710 417,527 1,345,249 17,909,656 50,979,891 17,169,884 47,036,837 Retirement benefits Administrative expenses for building W 22. Income Tax Expenses Income tax expense is calculated based on the current tax expense with prior year adjustments, deferred tax expense from changes in temporary differences, and other adjustments. The effective tax rate for the nine-month periods ended September 30, 2013 and 2012 were 35.1% and 29.8%, respectively. The Group did not recognize deferred income tax assets of W11,829,161 and W4,956,191 as of September 30, 2013 and December 31, 2012, respectively, related to temporary differences in investments in associates because it is not probable that the temporary differences will be realized. 44
  47. 47. Hyundai Commercial, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements September 30, 2013 (Unaudited) (In thousands of won) 23. Accumulated Other Comprehensive Income (Loss) Details of accumulated other comprehensive income and loss for the nine-month periods ended September 30, 2013 and 2012 were as follows: Beginning balance September 30, 2013 Items that are or may be reclassified subsequently to profit or loss Unrealized loss on valuation of derivatives W Unrealized gain (loss) on valuation of available-forsale financial assets Accumulated comprehensive income (loss) of equity method investees Changes Reclassification Other of profit or loss changes Income tax effects Ending balance Items that will not be reclassified to profit or loss Remeasurement of defined benefit plans (270,466) (1,067,661) 713,160 - (1,767,983) 427,852 (626,971) 3,811,298 - (7,519,106) (68,928) (3,776,736) (90,000) (8,079,462) 88,458 (5,471,368) - (50,214) 12,152 (1,708,213) 939,485 (90,000) (8,129,676) 100,610 (7,179,581) (1,082,948) 562,817 (2,137,008) 380,954 (2,276,185) 6,047,838 - (3,402,436) 849,133 3,494,535 (1,702,584) - 7,879,685 (7,233) 6,169,868 3,262,306 September 30, 2012 Items that are or may be reclassified subsequently to profit or loss Unrealized loss on valuation of derivatives W Unrealized gain on valuation of available-for-sale financial assets Accumulated comprehensive income (loss) of equity method investees 1,207,627 (1,670,151) W (90,000) 2,609,636 Items that will not be reclassified to profit or loss Remeasurement of defined benefit plans (1,914,822) 562,817 2,340,241 1,222,854 7,388,218 (940,586) W - - - (940,586) 2,321,720 562,817 2,340,241 1,222,854 6,447,632 45

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