audit report: hyundai capital 2011 (english)
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Audit Report , Hyundai Capital, 2011TRANSCRIPT
Hyundai Capital Services, Inc. and Subsidiaries
Consolidated Financial Statements December 31, 2011 and 2010
Hyundai Capital Services, Inc. and Subsidiaries Index December 31, 2011 and 2010
Report of Independent Auditors ......................................................................................................... 1-2
Consolidated Financial Statements
Consolidated Statements of Financial Position...................................................................................... 3-5
Consolidated Statements of Comprehensive Income ............................................................................ 6-8
Consolidated Statements of Changes in Shareholders’ Equity .......................................................... 9-10
Consolidated Statements of Cash Flows ................................................................................................ 11
Notes to the Consolidated Financial Statements .............................................................................. 12-73
1
Report of Independent Auditors
To the Shareholders and Board of Directors of Hyundai Capital Services, Inc. We have audited the accompanying consolidated statements of financial position of Hyundai Capital Services, Inc.(the “Company”) and its subsidiaries as of December 31, 2011 and 2010, and January 1, 2010, and the related statements of comprehensive income, changes in shareholders’ equity and cash flows for the years ended December 31, 2011 and 2010, expressed in Korean won. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements, referred to above, present fairly, in all material respects, the financial position of Hyundai Capital Services, Inc. and its subsidiaries as of December 31, 2011 and 2010, and January 1, 2010, and their financial performance and cash flows for the years ended December 31, 2011 and 2010, in conformity with International Financial Reporting Standards as adopted by the Republic of Korea (“Korean-IFRS”).
Auditing standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report is for use by those who are informed about Korean auditing standards and their application in practice.
Seoul, Korea February 24, 2012
2
This report is effective as of February 24, 2012, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.
Hyundai Capital Services, Inc. and Subsidiaries Consolidated Statements of Financial Position December 31, 2011 and 2010, and January 1, 2010
3
(In millions of Korean won)
December 31, 2011 December 31,
2010 January 1,
2010 Assets
Cash and deposits
Cash and cash equivalents (Note 25) \ 1,455,432 \ 1,224,866 \ 990,836
Deposits (Note 4) 10 25 1,938 1,455,442 1,224,891 992,774
Securities (Note 5)
Available-for-sale securities 18,452 20,577 15,867 Equity method investments 51,768 48,483 40,055
70,220 69,060 55,922
Loans receivable (Notes 6 and 7) 11,129,247 10,434,141 8,862,145 Allowances for doubtful accounts (281,184) (215,703) (175,933)
10,848,063 10,218,438 8,686,212
Installment financial assets (Notes 6 and 7)
Auto installment financing receivables 5,030,541 5,023,945 4,668,702 Allowances for doubtful accounts (36,748) (27,489) (31,368) Durable goods installment financing receivables 1,422 6,801 16,297
Allowances for doubtful accounts (141) (633) (292) Mortgage installment financing receivables 25,679 40,025 70,191
Allowances for doubtful accounts (1,204) (403) (463) Machinery installment financing receivables 1,682 14,653 44,229 Allowances for doubtful accounts (37) (117) (394)
5,021,194 5,056,782 4,766,902
Lease receivables (Notes 6 and 7)
Finance lease receivables (Note 9) 2,278,383 1,777,477 1,253,352 Cancelled lease receivables 211 961 452
2,278,594 1,778,438 1,253,804
Leased assets (Note 10)
Operating leased assets 1,119,309 1,282,845 1,406,453 Cancelled leased assets 3,769 3,192 3,036
1,123,078 1,286,037 1,409,489
Hyundai Capital Services, Inc. and Subsidiaries Consolidated Statements of Financial Position December 31, 2011 and 2010, and January 1, 2010
4
(In millions of Korean won)
December 31, 2011 December 31,
2010 January 1,
2010 Property and equipment (Note 11) 265,433 242,369 238,683 Other assets
Intangible assets (Note 12) 65,117 52,612 38,934 Non-trade receivables 87,895 76,569 83,961
Allowances for doubtful accounts (2,913) (4,176) (3,207) Accrued revenues 128,351 115,278 102,730 Allowances for doubtful accounts (14,371) (3,472) (3,790) Advance payments 55,013 64,106 44,225 Prepaid expenses 26,434 18,186 25,575 Leasehold deposits 35,929 31,954 30,474 Derivative assets (Note 18) 475,431 521,530 1,278,570
856,886 872,587 1,597,472
Total assets \ 21,918,910 \ 20,748,602 ₩ 19,001,258
Liabilities and Shareholders’ Equity Borrowings
Borrowings (Note 13) \ 2,250,000 \ 2,646,945 \ 2,452,978
Debentures (Note 14) 15,522,368 14,396,741 13,034,855
17,772,368 17,043,686 15,487,833
Other liabilities Non-trade payables 345,089 362,539 281,652 Accrued expenses 135,083 110,225 108,746 Unearned revenue 61,095 69,338 68,899 Withholdings 24,140 21,939 20,446 Defined benefit liability (Note 15) 20,362 11,687 9,242 Leasehold deposits received 787,858 746,532 663,195 Deferred income tax liabilities (Note 16) 47,884 2,617 39,734 Provisions (Note 17) 10,446 46,624 26,416 Derivative liabilities (Note 18) 58,096 96,568 78,174
1,490,053 1,468,069 1,296,504
Total liabilities 19,262,421 18,511,755 16,784,337
Hyundai Capital Services, Inc. and Subsidiaries Consolidated Statements of Financial Position December 31, 2011 and 2010, and January 1, 2010
5
(In millions of Korean won)
December 31, 2011 December 31,
2010 January 1,
2010 Shareholders' equity
Common stock (Notes 1 and 19) 496,537 496,537 496,537
Capital surplus Paid-in capital in excess of par value 369,339 369,339 369,339 Other capital surplus 38,200 38,200 38,200
407,539 407,539 407,539 Accumulated other comprehensive income and
expenses (Note 24) Gain(Loss) on valuation of available-for-sale
securities (388)
512
(1,835)
Accumulated comprehensive income of equity method investees
47
24
(69)
Loss on valuation of derivatives (50,156) (67,924) (3,566) Cumulative effect of overseas operation translation
(343)
17
-
(50,840) (67,371) (5,470)
Retained earnings (Note 19) 1,803,144 1,400,013 1,318,186
Non-controlling interests 109 129 129
Total shareholders' equity 2,656,489 2,236,847 2,216,921
Total liabilities and shareholders' equity \ 21,918,910 \ 20,748,602 \ 19,001,258
The accompanying notes are an integral part of these consolidated financial statements.
Hyundai Capital Services, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income Years Ended December 31, 2011 and 2010
6
(In millions of Korean won, except per share amounts)
2011 2010
Operating revenue Interest income (Note 20)
Interest on bank deposits \ 41,991 \ 25,755
Other interest income 385 1,208
42,376 26,963 Gain on valuation and disposal of
securities
Gain on disposal of available-for-sale securities
4,169 5,122
Reversal of impairment loss on available-for-sale securities - 1,078
4,169 6,200
Income on loans (Notes 20 and 21) 1,548,557 1,387,421 Income on installment financial
receivables (Notes 20 and 21) 436,247 492,202
Income on leases (Notes 20 and 21) 871,572 875,137
Gain on disposal of loans 72,040 14,857
Gain on foreign transactions Gain on foreign exchanges translation 21,235 188,938 Gain on foreign currency transactions 46,301 29,696
67,536 218,634
Dividend income 5,990 6,742
Other operating income Gain on valuation of derivatives 134,197 92,630 Gain on derivatives transactions 3,887 73,964 Others 144,908 79,485
282,992 246,079
Total operating revenue 3,331,479 3,274,235
Hyundai Capital Services, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income Years Ended December 31, 2011 and 2010
7
(In millions of Korean won, except per share amounts)
2011 2010
Operating expenses
Interest expenses (Note 20) \ 956,039 \ 890,180
Lease expenses (Note 21) 505,187 557,288
Bad debts expense (Note 7) 354,220 145,478
Loss on foreign transactions Loss on foreign exchange translation 134,211 92,639 Loss on foreign currency transactions 3,887 65,401
138,098 158,040
General and administrative expenses
(Note 22) 603,367 585,953
Other operating expenses
Loss on valuation of derivatives 21,229 188,949 Loss on derivatives transactions 46,326 37,721 Others 47,590 80,880
115,145 307,550
Total operating expenses 2,672,056 2,644,489
Operating income 659,423 629,746
Non-operating income
Gain on equity method valuation (Note 5)
3,968 9,663
3,968 9,663
Non-operating expenses Loss on equity method valuation
- 197
- 197
Income before income taxes 663,391 639,212
Income tax expense (Note 16) 155,987 150,227
Net income \ 507,404 \ 488,985
Net income attributable to:
Owners of the parent 507,404 488,985 Non-controlling interests - -
507,404 488,985
Hyundai Capital Services, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income Years Ended December 31, 2011 and 2010
8
(In millions of Korean won, except per share amounts)
2011 2010 Other comprehensive income, net of income taxes (Note 24)
Gain(Loss) on valuation of available-for-sale financial securities
(900) 2,347
Other comprehensive income of equity method investees(Note 5)
23 93
Gain (Loss) on valuation of derivatives
17,768 (64,359)
Effect of overseas operation translation
(360) 18
16,531 (61,901)
Total comprehensive income \ 523,935 \ 427,084
Total comprehensive income
attributable to:
Owners of the parent 523,935 427,084 Non-controlling interests - -
523,935 427,084 Earnings per share attributable to the
ordinary equity holders of the company (Note 23)
Basic earnings per share
\ 5,109 \ 4,924
Diluted earnings per share
5,109 4,924
The accompanying notes are an integral part of these consolidated financial statements.
Hyundai Capital Services, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders’ Equity Years Ended December 31, 2011 and 2010
9
(In millions of Korean won) Capital
stock Capital surplus
Accumulated other
comprehensive income and expense s
Retained earnings
Total attributable to owners of the parent
Non-
controlling interests
Total equity
Balances as of January 1, 2010 \ 496,537 \ 407,539 \ (5,470) \ 1,318,186 \ 2,216,792 \ 129 \ 2,216,921
Total comprehensive income Net income - - - 488,985 488,985 - 488,985 Other comprehensive income
Gain on valuation of available-for-sale securities - - 2,347 - 2,347 - 2,347
Other comprehensive income of equity method investees - - 93 - 93 - 93
Loss on valuation of derivatives - - (64,359) - (64,359) - (64,359) Effect of overseas operation
translation - - 18 - 18 - 18
Total comprehensive income - - (61,901) 488,985 427,084 - 427,084
Transactions with owners Year-end dividends - - - (203,580) (203,580) - (203,580) Transfer from dividends payable - - - 2 2 - 2 Interim dividends - - - (203,580) (203,580) - (203,580)
Total transactions with owners - - - (407,158) (407,158) - (407,158)
Balances as of December 31 , 2010 \ 496,537 \ 407,539 \ (67,371) \ 1,400,013 \ 2,236,718 \ 129 \ 2,236,847
Hyundai Capital Services, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders’ Equity Years Ended December 31, 2011 and 2010
10
(In millions of Korean won) Capital
stock Capital surplus
Accumulated other
comprehensive income and expense s
Retained earnings
Total attributable to owners of the parent
Non-
controlling interests
Total equity
Balances as of January 1, 2011 \ 496,537 \ 407,539 \ (67,371) \ 1,400,013 \ 2,236,718 \ 129 \ 2,236,847
Total comprehensive income Net income - - - 507,404 507,404 - 507,404 Other comprehensive income
Loss on valuation of available-for-sale securities - - (900) - (900) - (900)
Other comprehensive income of equity method investees - - 23 - 23 - 23
Gain on valuation of derivatives - - 17,768 - 17,768 - 17,768 Effect of overseas operation
translation - - (360) - (360) - (360)
Total comprehensive income - - 16,531 507,404 523,935 - 523,935
Transactions with owners Year-end Dividends - - - (104,273) (104,273) - (104,273) Liquidation of special purpose entity - - - - - (20) (20)
Total transactions with owners - - - (104,273)
(104,273)
(20)
(104,293)
Balances as of December 31 , 2011 \ 496,537 \ 407,539 \ (50,840) \ 1,803,144 \ 2,656,380 \ 109 \ 2,656,489
The accompanying notes are an integral part of these consolidated financial statements.
Hyundai Capital Services, Inc. and Subsidiaries Consolidated Statements of Cash Flows Years Ended December 31, 2011 and 2010
11
(In millions of Korean won) 2011 2010 Cash flows from operating activities
Cash generated from operations (Note 25) \ 630,961 \ (498,303) Interest received 37,090 23,479 Interest paid (864,563) (829,726) Dividends received 5,990 6,742 Income taxes paid (154,724) (169,620)
(345,246) (1,467,428)
Cash flows from investing activities Decrease in deposits 16 1,913 Dividends from equity method investments 707 1,227 Acquisition of land (3,581) (3,065) Acquisition of building (8,549) (2,968) Acquisition of structures (379) (172) Disposal of vehicles 37 11 Acquisition of vehicles (328) (224) Disposal of fixtures and furniture 626 58 Acquisition of fixtures and furniture (37,712) (19,412) Acquisition of other tangible assets (801) (114) Increase in construction in progress (8,079) (13,812) Disposal of intangible assets 71 29 Acquisition of intangible assets (8,152) (4,860) Decrease in leasehold deposits 4,012 5,665 Increase in leasehold deposits (7,609) (6,481) Establish of special purpose entity 20 10 Liquidation of special purpose entity (40) (10)
(69,741) (42,205)
Cash flows from financing activities Proceeds from borrowings 2,990,000 3,895,650 Repayments of borrowings (3,390,650) (3,645,849) Issuance of debentures 5,119,021 5,802,014 Repayments of debentures (3,968,170) (3,900,992) Payments of dividends (104,273) (407,158)
645,928 1,743,665
Exchange losses on cash and cash equivalents (15) (19) Increase(decrease) in other cash and cash equivalen ts (360) 17 Net increase in cash and cash equivalents 230,566 234,030 Cash and cash equivalents
Beginning of period 1,224,866 990,836
End of period \ 1,455,432 \ 1,224,866
The accompanying notes are an integral part of these consolidated financial statements.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
12
1. General Information
Hyundai Capital Services, Inc. (the “Company”) was established on December 22, 1993, to engage
in installment financing, facilities lease and new technology financing. The Company changed its
trade name from Hyundai Auto Finance Co., Ltd. to Hyundai Financial Services Co. on April 21,
1995, and changed its trade name once again to Hyundai Capital Services, Inc. on December 31,
1998. In accordance with the Monopoly Regulation and Fair Trade Act, the Company is
incorporated into the Hyundai Motor Company Group. As of December 31, 2011, the Company’s
operations are headquartered in Yeouido, Seoul. Its major shareholders are Hyundai Motor
Company and GE International Holdings Corporation with 56.47% and 43.30% ownership,
respectively.
2. Summary of Significant Accounting Policies
The consolidated financial statements have been prepared and presented which included the
accounts of Hyundai Capital Services, Inc., as the parent company according to Korean IFRS
1027, and Autopia Thirty-fifth SPC(trust) and other subsidiaries(collectively the “Group”), while HK
Mutual Saving Bank and three other entities are accounted for using the equity method.
Subsidiaries as of December 31, 2011 and 2010, and January 1, 2010, are as follows. The
Company has the substantial power over the subsidiaries established as special purpose entities
for asset securitization even though its ownership interests over the subsidiaries do not exceed
50%.
Location
Ratio of
ownership December 31, 2011 December 31, 2010 January 1, 2010
Special
Purpose
Entities1
Autopia Thirty-fifth SPC(trust) Autopia Thirty-third SPC(trust) Autopia Thirty- second SPC(trust)
Korea 0.9% Autopia Thirty-sixth SPC(trust) Autopia Thirty-fourth SPC(trust) Autopia Thirty-third SPC(trust)
Autopia Thirty-seventh SPC(trust) Autopia Thirty-fifth SPC(trust) Autopia Thirty-fourth SPC(trust)
Autopia Thirty-ninth SPC(trust) Autopia Thirty-sixth SPC(trust) Autopia Thirty-fifth SPC(trust)
Autopia Fortieth SPC(trust) Autopia Thirty-seventh SPC(trust) Autopia Thirty-sixth SPC(trust)
Autopia Forty-second SPC(trust) Autopia Thirty-eighth SPC(trust) Autopia Thirty-seventh SPC(trust)
Autopia Forty-third SPC(trust) Autopia Thirty-ninth SPC(trust) Autopia Thirty-eighth SPC(trust)
Autopia Forty-fourth SPC(trust) Autopia Fortieth SPC(trust) Autopia Thirty-ninth SPC(trust)
Autopia Forty-fifth SPC(trust) Autopia Forty-first SPC(trust) Autopia Fortieth SPC(trust)
Autopia Forty-sixth SPC(trust) Autopia Forty-second SPC(trust) Autopia Forty-first SPC(trust)
Autopia Forty-seventh SPC(trust) Autopia Forty-third SPC(trust) Autopia Forty-second SPC(trust)
Autopia Forty-fourth SPC(trust) Autopia Forty-third SPC(trust)
Autopia Forty-fifth SPC(trust)
Stock
Company Germany 100% Hyundai Capital Europe GmbH
2 Hyundai Capital Europe GmbH
1 Autopia Thirty-third, Thirty-fourth, Thirty-eighth and Forty-first SPC(trust) have been liquidated during the
2011, and Autopia Forty sixth and Forty-seventh SPC(trust) have been established during 2011. ² It holds 100% shares of Hyundai Capital Services Limited Liability Company established during 2011.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
13
The Group maintains its accounting records in Korean won and prepares statutory financial
statements in the Korean language (Hangul) in conformity with the International Financial
Reporting Standards as adopted by the Republic of Korea (“Korean-IFRS”). The accompanying
consolidated financial statements have been condensed, restructured and translated into English
from the Korean language financial statements.
The Group’s financial statements for the annual period beginning on January 1, 2011, have been
prepared in accordance with Korean-IFRS. These are the standards, subsequent amendments
and related interpretations issued by the International Accounting Standards Board ("IASB") that
have been adopted by the Republic of Korea.
The consolidated financial statements of the Group were prepared in accordance with Korean-
IFRS and are subject to Korean-IFRS1101, ‘First-time Adoption of Korean-IFRS’.
The transition date, according to Korean-IFRS1101, from the previous accounting principles
generally accepted in the Republic of Korea (“Previous K-GAAP”) to Korean-IFRS is January 1,
2010. Reconciliations and descriptions of the effect of the transition from Previous K-GAAP to
Korean-IFRS on the Group’s equity, comprehensive income and cash flows are described in Note
3.
The preparation of financial statements requires the use of certain critical accounting estimates. It
also requires management to exercise judgment in the process of applying the Group’s accounting
policies. The areas involving a higher degree of judgment or complexity, or areas where
assumptions and estimates are significant to the consolidated financial statements are disclosed in
Note 3.
New standards, amendments and interpretations issued but not effective for the financial year
beginning January 1, 2011, and not early adopted by the Group are as follows:
- Amendments to Korean-IFRS1101, Hyperinflation and Removal of Fixed Dates for first-time
adopters(announced in December, 2010)
As an exception to retrospective application requirements, this amendment to Korean-IFRS1101
allows a prospective application of derecognition of financial assets for transactions occurring on
or after the date of transition to Korean-IFRS, instead of fixed date (January 1, 2004). Accordingly,
the Group is not required to restate and recognize those assets or liabilities that were
derecognized as a result of a transaction that occurred before the dated of transition to Korean-
IFRS. This amendment will be effective for the Group as of January 1, 2012. The Group expects
that the application of this amendment would not have material impact on its consolidated financial
statements.
- Amendments to Korean-IFRS1012, Income Taxes
According to the amendments to Korean-IFRS1012, Income Taxes, for the investment property
that is measured using the fair value model, the measurement of deferred tax liability and deferred
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
14
tax asset should reflect the tax consequences of recovering the carrying amount of the investment
property entirely through sale, unless evidences support otherwise. This amendment will be
effective for the Group as of January 1, 2012. The Group expects that the application of this
amendment would not have material impact on its consolidated financial statements.
- Amendments to Korean-IFRS1019, Employee Benefits
According to the amendments to Korean-IFRS1019, Employee Benefits, the corridor method is no
longer permitted. Therefore, actuarial gains and losses on the defined benefit obligation are
recognized immediately under other comprehensive income. The amendment requires to
recognize immediately all past service costs. And the amendment replaces the interest cost on the
defined benefit obligation, and the expected return on plan assets with a net interest cost based on
the net defined benefit asset or liability and the discount rate measured at the beginning of the
year. This amendment will be effective for the Group as of January 1, 2013. The Group is
assessing the impact of application of the amended Korean-IFRS1019 on its consolidated financial
statements.
- Amendments to Korean-IFRS1107, Financial Instruments: Disclosures
According to the amendment, an entity should provide the required disclosures of nature, carrying
amount, risk and rewards associated with all transferred financial instruments that are not
derecognized from an entity’s financial statements. In addition, an entity is required to disclose
additional information related to transferred and derecognized financial instruments for any
continuing involvement in transferred assets. This amendment will be effective for the Group as of
January 1, 2012. The Group is assessing the impact of application of the amended Korean-
IFRS1107 on its consolidated financial statements.
- Enactment of Korean-IFRS1113, Fair value measurement
Korean-IFRS1113, Fair value measurement, aims to improve consistency and reduce complexity
by providing a precise definition of fair value and a single source of fair value measurement and
disclosure requirements for use across Korean-IFRS. Korean-IFRS1101 does not extend the use
of fair value accounting but provides guidance on how it should be applied where its use is already
required or permitted by other standards within Korean-IFRS. This amendment will be effective for
the Group as of January 1, 2013, and the Group expects that it would not have a material impact
on the Group.
The following is a summary of significant accounting policies followed by the Group in the
preparation of its consolidated financial statements. These policies have been consistently applied
to all the periods presented, unless otherwise stated.
Certain accounts of the prior period financial statements were reclassified to conform with the
December 31, 2011 financial statement presentation. These reclassifications have no impact on
the previously reported net income or shareholders’ equity.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
15
2.1 Consolidation
a. Subsidiaries
Subsidiaries are all entities (including special purpose entities) over which the Company has the
power to govern the financial and operating policies generally accompanying a shareholding of
more than one-half of the voting rights. The existence and effect of potential voting rights that are
currently exercisable or convertible are considered when assessing whether the Company controls
another entity. The Group also assesses existence of control where it does not have more than 50%
of the voting power but is able to govern the financial and operating policies by virtue of de-facto
control. De-facto control may arise in circumstances where the size of the Group’s voting rights
relative to the size and dispersion of holdings of other shareholders give the Group the power to
govern the financial and operating policies and others.
Subsidiaries are fully consolidated from the date on which control is transferred to the Company.
They are de-consolidated from the date that control ceases.
The Group uses the acquisition method to account for business combinations. The consideration
transferred is measured as the fair values of the assets transferred, equity interests issued and
liabilities incurred or assumed at the acquisition date. Acquisition-related costs are expensed as
incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition date. On an acquisition-by-
acquisition basis, the Group recognizes any non-controlling interest in the acquiree at the non-
controlling interest’s proportionate share of the acquiree’s net assets.
The excess of the consideration transferred and the amount of any non-controlling interest in the
acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the
fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this
is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain
purchase, the difference is recognized directly in the statement of comprehensive income.
Intercompany transactions, balances and unrealized gains on transactions between Group
companies are eliminated.
b. Special purpose entities
The Group established several SPEs for the purpose of asset-backed securitization, but owns none
of the shares directly or indirectly. The Group consolidates the SPEs when the risks, rewards and
substance of the relationship indicated that the Group consolidates the SPEs. SPEs controlled by
the Group are created with conditions that impose strict limits on the decision-making power over
the operations therefore the Group obtains all benefits from the SPEs’ operation and net assets,
and that the Group may be exposed to risks incident to the activities of the SPEs or the Group
retains the majority of the residual or ownership risks related to the SPEs’ assets.
c. Transactions with non-controlling interests
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
16
The Group treats transactions with non-controlling interests as transactions with equity owners of
the Group. For purchases from non-controlling interests, the difference between any consideration
paid and the relevant share acquired of the carrying value of net assets of the subsidiary is
recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in
equity.
d. Associates and joint ventures
Associates are all entities over which the Group has significant influence but not control, generally
accompanying a shareholding of between 20% and 50% of the voting rights. Investments in
associates are accounted for using the equity method of accounting and are initially recognized at
cost. The Group’s investment in associates includes goodwill identified on acquisition, net of any
accumulated impairment loss.
The Group’s share of its associates’ post-acquisition profits or losses is recognized in the income
statement, and its share of post-acquisition movements in other comprehensive income is
recognized in other comprehensive income. The cumulative post-acquisition movements are
adjusted against the carrying amount of the investment. When the Group’s share of losses in an
associate equals or exceeds its interest in the associate, including any other unsecured
receivables, the Group does not recognize further losses, unless it has incurred obligations or made
payments on behalf of the associate.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent
of the Group’s interest in the associates. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the asset transferred. Accounting policies of
associates have been changed where necessary to ensure consistency with the policies adopted by
the Group.
2.2 Foreign currency translation
a. Functional and presentation 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.
b. Transactions and balances
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 income statement, except when deferred in other comprehensive
income as qualifying cash flow hedges.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
17
2.3 Critical accounting estimates and assumptions
Estimates and judgments are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under the
circumstances. The resulting accounting estimates will, by definition, seldom equal the related
actual results. The estimates and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year are
addressed below.
a. Allowance for doubtful accounts
The Group presents the allowance for doubtful accounts calculated based on the best estimates
that are necessary to reflect the impairment incurred at each reporting date. Allowance for doubtful
accounts is recognized as individual and collective units considering the financial circumstances of
customers, net realizable value, credit quality, size of portfolio, concentrativeness, economic factors
and others. According to the change in these factors, the allowance for doubtful accounts will be
changed in a future period.
b. Fair value of financial instruments
Fair value of financial assets and liabilities is based on quoted market prices, exchange-broker
prices of financial instruments traded in an active market. If there is no quoted price for a financial
instrument, the Group establishes fair value by using valuation techniques and advanced self-
valuation techniques.
Valuation techniques include the Discount Cash Flow method using variables observable in market,
comparison method with similar instruments that have observable market transactions, and option
pricing model. For more complicated financial instruments, the Group uses advanced self-valuation
techniques. Parts of or all the variables used in this valuation technique may not be observable in
market, or may be derived from quoted prices and market ratio, or may be measured based on
specific assumption.
At initial recognition if the difference between the fair value of valuation technique and transaction
price occurs, then the transaction price as the best estimate of fair value is recognized as fair value.
This fair value difference presents in profit immediately on any available observable market data
according to individual factors and changes of environment.
2.4 Revenue recognition
The Group recognizes capital lent to customers as loans receivable, when installment payments or
deferred payments on services and goods are made. While 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.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
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The expected future cash flows from loans receivable, 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.
2.5 Statements of cash flows
The Group prepares statements of cash flows using indirect method.
2.6 Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-
term highly liquid investments with original maturities of three months or less.
2.7 Financial assets
a. Classification
The Group classifies its financial assets as financial assets at fair value through profit or loss, loans
and receivables and available-for-sale financial assets. Management determines the classification
of its financial assets at initial recognition.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading. A financial
asset is classified in this category if acquired principally for the purpose of selling in the short term.
Derivatives are also categorized as held for trading unless they are designated as hedges.
Meanwhile, the Group has no financial asset at fair value through profit or loss other than financial
assets held for trading.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or
not classified in any of the other categories.
b. Recognition and measurement
Regular purchases and sales of financial assets are recognized on the trade-date. Investments are
initially recognized at fair value plus transaction costs for all financial assets not carried at fair value
through profit or loss. Financial assets carried at fair value through profit or loss are initially
recognized at fair value, and transaction costs are expensed in the income statement. Available-for-
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
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sale financial assets and financial assets at fair value through profit or loss are subsequently carried
at fair value. Loans and receivables are subsequently carried at amortized cost using the effective
interest method.
Changes in the fair value of financial assets at fair value through profit or loss are recognized in
income statement as gain or loss.
When securities classified as available-for-sale are sold or impaired, the accumulated fair value
adjustments recognized in equity are transferred to the income statement as gain or loss on
disposal of securities. Interest on available-for-sale securities calculated using the effective interest
method is recognized in the income statement as part of interest income. Dividends on available-for
sale equity instruments are recognized in the income statement as dividend income when the
Group’s right to receive payments is established.
c. Derecognition of financial assets
A financial asset is derecognized only if the contractual rights on cash flow of the financial asset
terminate or all the risks and rewards of ownership of the financial asset are substantially
transferred.
If the Group transfers substantially all the risks and rewards of ownership of the financial asset, the
Group shall derecognise the financial asset and recognise separately as assets or liabilities any
rights and obligations created or retained in the transfer. If the Group retains substantially all the
risks and rewards of ownership of the financial asset, the Group shall continue to recognise the
financial asset.
d. Impairment of financial assets
(1) Assets carried at amortized cost
The Group assesses at the end of each reporting period whether there is objective evidence that a
financial asset is impaired. Impairment losses are incurred only if there is objective evidence of
impairment and that loss event has an impact on the estimated future cash flows of the financial
asset. The amount of the loss is measured as the difference between the asset’s carrying amount
and the present value of estimated future cash flows discounted at the financial asset’s original
effective interest rate.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized, the reversal of the
previously recognized impairment loss is recognized in the income statement.
(2) Available-for-sale financial assets
The Group assesses at the end of each reporting period whether there is objective evidence that a
financial asset or a group of financial assets is impaired. For equity securities classified as
available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
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also evidence that the assets are impaired. If any such evidence exists for available-for-sale
financial assets, the difference between carrying amount and current fair value is recognized in
profit or loss. Impairment losses recognized in profit or loss for an investment in an equity
instrument classified as available for sale are not be 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.
2.8 Deferral of loan origination fee and loan origi nation cost
Loan origination fee, which is a 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.
2.9 Allowances for financial receivables
a. Calculation of allowances 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 accounts consists of impairments related to individually
material financial receivables and allowances of 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 emergency period, and management’s decision
about the current economy and credit circumstances. 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.
b. 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.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
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2.10 Leases
a. Classification
The Group classifies leases based on the extent to which risks and rewards incidental to ownership
of a leased asset lie with the lessor or the lessee.
The lease arrangement classified as a financial lease is where: ①the lease transfers ownership of
the asset to the lessee by the end of the lease term, ②the 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, ③the lease term is for the major part of the economic life of the asset even if the title
is not transferred, ④at 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 ⑤the 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 obligations under the guarantee.
b. Finance leases
Where the Group has substantially all the risks and rewards of ownership, leases of property, plant
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 reclassified 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 negotiating 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.
If a lease agreement is cancelled in the middle of lease term, the Group reclassifies the amount of
financial lease receivables into cancelled leased receivables, while the amount of financial lease
receivables not yet due is reclassified as cancelled leased assets.
c. Operating leases
The property on operating leases is stated at acquisition cost, net of accumulated depreciation.
Expenditures that are incurred for 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 reclassified as
operating leased assets at the inception of the lease term. Rentals from operating lease other than
any guaranteed residual value are reported as revenues on a straight-line basis over the lease
term. Initial direct costs incurred during the period of preparing the lease contract are recognized as
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
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operating leased assets and are amortized over the lease term in proportion to the recognition of
income on leased assets.
If a lease agreement is cancelled in the middle of lease term, the balance of operating leased
assets is substituted for cancelled leased assets. The cancelled leased assets are depreciated over
its residual useful life, but are mostly disposed of in the month of cancellation.
2.11 Property and equipment
Property and equipment are stated at historical cost less accumulated depreciation and
accumulated impairment losses. Historical cost includes expenditure that is directly attributable to
the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or
recognized as a separate asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the Group and the cost of the item can be measured
reliably.
Depreciation method and estimated useful lives used by the Group are as follows:
Depreciation Method Useful life
Buildings Straight-line 40 years
Structures Straight-line 40 years
Fixtures and furniture Straight-line 3-4 years
Vehicles Straight-line 4 years
Other tangible assets Straight-line 5 years
Work 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 asset’s carrying amount is greater than its estimated recoverable amount. Gains and
losses on disposals are determined by comparing the proceeds with the carrying amount and are
recognised within other operating income (expenses) in the income statement.
2.12 Intangible assets
Intangible assets are stated at cost, which includes acquisition cost and directly related costs
required to prepare the asset for its intended use. Intangible assets are stated net of accumulated
amortization calculated based on using the following amortization method and estimated useful
lives:
Amortization Method Useful life
Development costs Straight-line 5 years
Rights of trademark Straight-line 5 years
Other intangible assets Straight-line 5 years
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
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Memberships classified under other intangible assets are not amortized over their indefinite useful
life.
2.13 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 an asset’s fair value less costs to sell
and value in use. For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (cash-generating units). Non-financial
assets that are subject to amortization suffered impairment are reviewed for possible reversal of the
impairment at each reporting date.
2.14 Financial Liabilities
(a) Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss are financial instruments held for trading.
Financial liabilities are classified as financial liabilities at fair value through profit or loss when
incurred principally for the purpose of repurchasing it in the near term. Derivatives or embedded
derivatives are also categorized as this category unless they are designated as hedges.
(b) Financial liabilities carried at amortized cost
The Group classifies non-derivative financial liabilities, except for financial liabilities at fair value
through profit or loss and financial liabilities that arise when a transfer of a financial asset does not
qualify for derecognition, as financial liabilities carried at amortized cost and as ‘trade payables’,
‘borrowings’, and ‘other financial liabilities’ in the statement of financial position. In case when a
transfer of a financial asset does not qualify for derecognition, the transferred asset is continuously
recognized as asset and the consideration received is recognized as financial liabilities.
2.15 Pension obligations
The Group operates a defined benefit 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 the 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.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
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Actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions are recognized in profits or losses in the period in which they arise.
2.16 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 financial
statements. Where there are a number of similar obligations, the likelihood that an outflow will be
required in settlement is determined by considering the class of obligations as a whole. A provision
is recognized even if the likelihood of an outflow with respect to any one item included in the same
class of obligations may be small.
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 expenditures expected to be required to settle the obligation.
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 financial statements.
2.17 Derivative financial instruments
The Group has applied hedging policies using derivatives to deal with the risk of changes in foreign
currency exchange rates and interest rates arising from liabilities. The Group has contracted
currency swap and interest swap derivative financial instruments to deal with the risk of changes in
foreign currency exchange rates arising from foreign currency liabilities and the risk of changes in
interest rates arising from floating-rate liabilities.
Derivatives are initially recognized at fair value on the date a derivative contract is entered into and
are subsequently re-measured at their fair value. The method of recognizing the resulting gain or
loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature
of the item being hedged. The Group applies cash flow hedge, which are hedges of a particular risk
associated with a recognized asset or liability or a highly probable forecast transaction.
The Group documents at the inception of the transaction the relationship between hedging
instruments and hedged items, as well as its risk management objectives and strategy for
undertaking various hedging transactions to apply hedging accounting. The Group also documents
its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that
are used in hedging transactions are highly effective in offsetting changes in fair values or cash
flows of hedged items.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
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The effective portion of changes in the fair value of derivatives that are designated and qualify as
cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the
ineffective portion is recognized immediately in profits or losses. The cumulative gain or loss that
was reported in equity is recognized when the hedged items affect profits and losses.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and
is recognized when the forecast transaction is ultimately recognized in the income statement. When
a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported
in equity is immediately transferred to profits or losses.
2.18 Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognized in the income
statement, except to the extent that it relates to items recognized in other comprehensive income or
directly in equity. In this case, the tax is also recognized in other comprehensive income or directly
in equity.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively
enacted at the statement of financial position date in the countries where the Group operates and
generates taxable income. Management periodically evaluates positions taken in tax returns with
respect to situations in which applicable tax regulation is subject to interpretation. It establishes
provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
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.
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
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
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taxable entity or different taxable entities where there is an intention to settle the balances on a net
basis.
2.19 Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the
Group by the weighted average number of ordinary shares in issue during the period excluding
ordinary shares purchased by the Group and held as treasury shares.
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary
shares outstanding to assume conversion of all dilutive potential ordinary shares. Only dilutive
potential ordinary shares are dilutive, they are added to the number of ordinary shares outstanding
in the calculation of diluted earnings per share.
2.20 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the
chief operating decision-maker. The chief operating decision-maker is responsible for allocating
resources and assessing performance of the operating segments.
2.21 Dividend Distribution Dividend distribution to the Company’s shareholders is recognized as a liability in the financial
statements in the period in which the dividends are approved by the Company’s shareholders.
2.22 Approval of Issuance of the Financial Statemen ts The issuance of the December 31, 2011 financial statements of the Group was approved by the
Board of Directors on January 31, 2012.
3. Transition to Korean-IFRS
The Group's transition date to Korean-IFRS is January 1, 2010, and adoption date is January 1, 2011.
In preparing consolidated financial statements in accordance with Korean-IFRS 1101 ‘First-time
Adoption of Korean International Financial Reporting Standards’, the Group has applied the
mandatory exceptions and certain optional exemptions allowed by Korean-IFRS.
a. Exemptions of Korean-IFRS 1101 elected by the Group
The Group has elected to apply the following optional exemptions from full retrospective
application.
(1) Business combination
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
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The Group has not retrospectively applied Korean-IFRS 1103 ‘Business combination’ to the
business combinations that took place prior to the transition date.
(2) Deemed cost of property and equipment
The Group has elected to use the carrying amount of property and equipment under Previous K-
GAAP as deemed cost at the date of transition to Korean-IFRS.
b. Explanation on the reconciliation of Previous K-GAAP and Korean-IFRS
Major reconciliations of the transition between Previous K-GAAP and Korean-IFRS are as follows:
(1) Impairment of financial assets (allowance for financial assets)
Under Previous K-GAAP, allowances for financial receivables (loans receivable, installment
financial assets and lease receivables) are calculated based on the long-term average expected
loss. In case the allowance calculated based on the expected loss is smaller than the allowance
calculated in accordance to the guidelines provided in the Act on the Specialized Credit Financial
Business, the Group recognizes an allowance in accordance to the guidelines provided in the Act
on the Specialized Credit Financial Business. Under Korean-IFRS, impairment losses are
recognized where there is evidence that impairment occurred. Allowance for financial receivables
is measured individually for assets that are individually significant and on a collective basis for
portfolios with similar risk characteristics.
(2) Provision for unused loan commitment
Under Previous K-GAAP, provision for unused loan commitment is not recognised. Under Korean-
IFRS, the expected losses of unused loan commitment are recognized as provision for unused
credit lines.
(3) Accrued revenue for overdue receivables
Under Previous K-GAAP, accrued revenue for receivables which are overdue is not recognized.
Under Korean-IFRS, accrued revenue for past due and impaired receivables and the interests on
impaired receivable are recognized using expected cash flow after impairments.
(4) Measurement of financial assets carried at amortized cost
Under Previous K-GAAP, non-marketable loan and receivables are measured at nominal value if
the difference between nominal value and discounted value is not substantial. Under Korean-IFRS,
loan and receivables are initially measured at fair value and subsequently carried at amortized cost
using the effective interest method.
(5) Recognition of unused compensated absences
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
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According to Previous K-GAAP, unused compensated absences given to employees are
recognized as liabilities at the end of the reporting period only when the right to be paid has been
established. Under Korean-IFRS, the Group recognizes liabilities when an employee has provided
service in exchange for compensated absences.
(6) Depreciation method for property and equipment
Under Previous K-GAAP, depreciation method for certain property and equipment was the
declining-balance method. Under Korean-IFRS, the Group uses the straight-line method to reflect
properly the matching of the future economic benefits.
(7) Retirement benefit obligations
Under Previous K-GAAP, the Group recognizes the amount which would be payable assuming all
eligible employees and directors were to terminate their employment as of the statement of
financial position date as accrued severance benefits. Under Korean-IFRS, the Group recognizes
the estimated amount using the projected unit credit method which is on an actuarial basis as the
defined benefit obligation.
(8) Reclassification of memberships as intangible assets
Under Previous K-GAAP, memberships are classified as investments. Under Korean-IFRS, the
Group reclassifies memberships held for operating purposes as an intangible asset with an infinite
useful life.
(9) Consolidation
Under Previous K-GAAP, Autopia Thirty-fifth SPC, trust and other subsidiaries were previously
excluded from consolidation in accordance with Article 1.3, Clause 1 of Enforcement Decree of the
Act on External Audit of Stock Companies. Under Korean-IFRS, they are consolidated (Note 2).
(10) Income tax effects
The Group recognized changes in deferred tax representing the impact of deferred taxes on the
adjustments for the transition to Korean-IFRS.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
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c. Effects on the consolidated assets, liabilities and equity, total comprehensive income and net
income
(1) Reconciliation of assets, liabilities and equity as of January 1, 2010
(in millions of Korean won)
Assets Liabilities Shareholders ’ equity
Previous K-GAAP \ 15,854,426 \ 13,698,696 \ 2,155,730
Conversion effects to Korean-IFRS
Allowance for doubtful accounts 220,443 - 220,443
Provision for unused loan commitments - 26,416 (26,416)
Accrued revenues 21,259 - 21,259
Measurement of amortized cost (6,395) - (6,395)
Recognition of unused compensated absences
- 2,267 (2,267)
Depreciation 11,748 - 11,748
Retirement benefit obligations - 91 (91)
Others (3,945) 3,335 (7,280)
Scope of consolidation 2,903,721 2,998,859 (95,138)
Deferred income taxes - 54,672 (54,672)
Total effect of transition 3,146,831 3,085,640 61,191
Korean-IFRS \ 19,001,257 \ 16,784,336 \ 2,216,921
(2) Reconciliation of assets, liabilities and equity as of December 31, 2010 and total
comprehensive income and net income for the year ended December 31, 2010
(in millions of Korean won)
Assets Liabilities Shareholders’ equity
Total comprehensive
income
Net income
Previous K-GAAP \ 17,931,200 \ 15,727,686 \ 2,203,514 \ 454,942 \ 511,545
Conversion effects to Korean-IFRS
Allowance for doubtful accounts 208,187 - 208,187 (12,256) (12,256)
Provision for unused loan commitments - 46,624 (46,624) (20,208) (20,208)
Accrued revenues 22,771 - 22,771 1,512 1,512
Measurement of amortized cost 2,168 150 2,018 8,413 8,413
Recognition of unused compensated absences - 2,524 (2,524) (257) (257)
Depreciation 1,113 - 1,113 (10,635) (10,635)
Retirement benefit obligations - 3,823 (3,823) (3,732) (3,732)
Others (131) 476 (607) 6,673 6,673
Scope of consolidation 2,585,543 2,655,916 (70,373) 24,765 30,063
Deferred income taxes (2,249) 74,556 (76,805) (22,133) (22,133)
Total effect of transition 2,817,402 2,784,069 33,333 (27,858) (22,560)
Korean-IFRS \ 20,748,602 \ 18,511,755 \ 2,236,847 \ 427,084 \ 488,985
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
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d. Adjustments of cash flows in 2010
According to Korean-IFRS, cash flows of the related income (expenses) and assets (liabilities) are
adjusted to separately disclose the cash flows from interest received, interest paid and cash
payments of income taxes that were not presented separately under Previous K-GAAP. And the
effects of the change in exchange rate on cash and cash equivalents held or due in a foreign
currency are presented separately from cash flows from operating, investing and financing
activities. There are no other significant differences between cash flows under Korean-IFRS and
Previous K-GAAP.
e. Adjustments of operating income and expenses
The Group reclassified certain non-operating income and expenses under Previous K-GAAP to
other operating income and expenses according to Korean-IFRS.
Adjustments are as follows:
(in millions of Korean won)
Type 2011 2010
Other operating income 29,300 26,749
Other operating expenses 20,267 20,199
4. Restricted Financial Instruments
Restricted financial instruments are as follows:
Amount
Type
Entities December
31, 2011
December
31, 2010
January 1,
2010
Restriction
Deposits
Hana Bank and Nonghyup \ 10 \ 25 \ 25
Maintaining deposits for checking account
SC Bank - - \ 1,913 Guarantee for interest expense of debentures
\ 10 \ 25 \ 1,938
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
31
5. Securities
Securities are as follows:
(in millions of Korean won)
Type December 31,
2011
December 31,
2010
January 1,
2010
Available-for-sale securities
Equity securities Marketable equity
securities \ 5,687 \ 7,318 \ 3,951
Unlisted equity securities 10,526 9,887 8,802
16,213 17,205 12,753
Debt securities Government and public bonds 2,239 3,372 3,114
Sub-total 18,452 20,577 15,867 Equity method investments 51,768 48,483 40,055
\ 70,220 \ 69,060 \ 55,922
Available-for-sale securities
Available-for-sale securities are as follows:
(1) Equity securities
(in millions of Korean won) Book value
Number of shares
Ownership (%)
Acquisition cost
December
31, 2011
December
31, 2010
January
1, 2010
Marketable equity securities
Korea Information Service1 - - \ - \ - \ - \ 3,951
NICE Information Service1 136,593 2.25 3,312 3,190 4,221 -
NICE Holdings1 49,162 1.42 3,491 2,497 3,097 - Unlisted equity securities
Hyundai Finance Corp. 2 1,700,000 9.29 9,888 10,426 9,887 8,726
HI Network, Inc. (Common stock) - - - - - 59
HI Network, Inc. (Preferred stock) - - - - - 17
Korean Egloan, Inc. 4,000 3.12 100 100 - -
\ 16,791 \ 16,213 \ 17,205 \ 12,753
1 Korea Information Service was divided into NICE Information Service and NICE Holdings. In this
transaction, the Group recognized gain on disposal of available-for-sale securities amounting to \ 1,550
million.
²The fair value for Hyundai Finance Corp. was valued as the average of valuation prices provided by two
external appraisers, KIS Pricing Inc. and Korea Asset Pricing, using the discounted cash flow model. The
five-year financial statements, projected based on past performance, were used in measuring the fair value
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
32
assuming that the operational structure will remain as is for the next five years. Operating income and
expenses were estimated based on the past performance, business plan and expected market conditions.
(2) Debt securities (in millions of Korean won)
Book value
Issuer Interest rate (%)
Acquisition cost
December
31, 2011
December
31, 2010
January
1, 2010 Government and
public bonds Metropolitan Rapid Transit and others 2.50 \ 2,118 \ 2,239 \ 3,372 \ 3,114
Equity method investments
Equity method investments are as follows:
(in millions of Korean won) December 31, 2011
Number of shares Ownership
(%) Acquisition cost Net asset
value Book value
HK Mutual Saving Bank 1 4,990,438 20.00 \ 45,719 \ 33,487 \ 45,735
HI Network, Inc. 1 13,332 19.99 76 1,003 1,003
Korea Credit Bureau 1 140,000 7.00 3,800 2,928 3,965 Hyundai Capital
Germany GmbH 2 600,200 30.01 1,065 1,065 1,065
\ 50,660 \ 38,483 \ 51,768
(in millions of Korean won) December 31, 2010
Number of shares Ownership
(%) Acquisition cost Net asset
value Book value
HK Mutual Saving Bank 1 4,990,438 20.00 \ 45,719 \ 30,601 \ 42,849
HI Network, Inc. 1 13,332 19.99 76 1,055 1,055
Korea Credit Bureau 1 140,000 7.00 3,800 2,477 3,514 Hyundai Capital
Germany GmbH 2 600,200 30.01 1,065 908 1,065
\ 50,660 \ 35,041 \ 48,483
(in millions of Korean won) January 1, 2010
Number of shares Ownership
(%) Acquisition cost Net asset
value Book value
HK Mutual Saving Bank 1 4,990,438 20.00 \ 45,719 \ 23,551 \ 35,799
Korea Credit Bureau 1 140,000 7.00 3,800 2,154 3,191 Hyundai Capital
Germany GmbH 2 600,200 30.01 1,065 1,065 1,065
\ 50,584 \ 26,770 \ 40,055
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
33
1 The Group’s shareholdings in HK Mutual Saving Bank, HI Network, Inc. and Korea Credit Bureau are less
than 20%. However, the Group is able to significantly influence such involvement in the financial and
operating processes, and thus the equity method is applied.
2 The Group’s shareholdings are more than 20%. However, equity method is not applied due to insignificant
fluctuation of equity.
Valuations of equity method investments are as follows:
(in millions of Korean won)
2011
Beginning Balance Acquisition Gain (loss)
on valuation
Changes in accumulated
other comprehensive
income
Dividends Ending Balance
HK Mutual Saving Bank \ 42,849 \ - \ 2,863 \ 23 \ - \ 45,735
HI Network, Inc. 1,055 - 654 - (706) 1,003
Korea Credit Bureau 3,514 - 451 - - 3,965
Hyundai Capital Germany GmbH 1,065 - - - - 1,065
\ 48,483 \ - \ 3,968 \ 23 \ (706) \ 51,768
(in millions of Korean won) 2010
Beginning Balance Acquisition Gain (loss)
on valuation
Changes in accumulated
other comprehensive
income
Dividends Ending Balance
HK Mutual Saving Bank \ 35,799 \ - \ 6,937 \ 113 \ - \ 42,849
HI Network, Inc ¹ - 76 2,206 - (1,227) 1,055
Korea Credit Bureau 3,191 - 323 - - 3,514
Hyundai Capital Germany GmbH 1,065 - - - - 1,065
\ 40,055 \ 76 \ 9,466 \ 113 \ (1,227) \ 48,483
¹The Group reclassified available-for-sale securities into equity method investments after transition date.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
34
The difference between the acquired amounts of equity method investments and their
corresponding net asset value are as follows:
(in millions of Korean won)
December 31,
2011
December 31,
2010
January 1,
2010
HK Mutual Saving Bank \ 12,248 \ 12,248 \ 12,248
Korea Credit Bureau 1,037 1,037 1,037
\ 13,285 \ 13,285 \ 13,285
Summary of financial information of investees are as follows:
(in millions of Korean won)
2011
Assets Liabilities Operating revenue Net income
HK Mutual Saving Bank 1 \ 2,593,289 \ 2,425,855 \ 372,233 \ 14,313
HI Network, Inc. 8,560 3,544 21,835 3,314
Korea Credit Bureau 51,484 9,650 40,535 6,380 Hyundai Capital Germany
GmbH 3,889 341 1,171 503
1 HK Mutual Saving Bank is a corporation with fiscal year ending on June 30. But its assets and liabilities
above are as of December 31, 2011, and the results of its operations are for the year ended December 31,
2011.
(in millions of Korean won)
2010
Assets Liabilities Operating revenue Net income
(loss)
HK Mutual Saving Bank 1 \ 2,439,109 \ 2,286,106 \ 332,117 \ 34,683
HI Network, Inc. 8,734 3,458 20,706 4,733
Korea Credit Bureau 45,301 9,914 33,190 4,338 Hyundai Capital
Germany GmbH 3,145 117 540 43
1 HK Mutual Saving Bank is a corporation with fiscal year ending on June 30. But its assets and liabilities
above are as of December 31, 2010, and the results of its operations are for the year ended December 31,
2010.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
35
6. Financial Receivables
Financial receivables are as follows:
(in millions of Korean won) December 31, 2011
Principal
Deferred loan origination fees and
costs (Initial direct costs for lease assets)
Present value discounts
Allowance for doubtful
accounts Book value
Loan receivables
Loans \ 11,239,870 \ (108,782) \ (1,841) \ (281,184) \ 10,848,063
Installment financial assets
Auto 5,109,299 (78,757) - (36,748) 4,993,794 Durable goods 1,419 3 - (141) 1,281 Mortgage 25,620 60 - (1,204) 24,476 Machinery 1,674 - 6 (37) 1,643
5,138,012 (78,694) 6 (38,130) 5,021,194
Lease receivables Finance lease
receivables 2,300,204 (703) - (21,118) 2,278,383
Cancelled lease receivables 4,656 - - (4,445) 211
2,304,860 (703) - (25,563) 2,278,594
\ 18,682,742 \ (188,179) \ (1,835) \ (344,877) \ 18,147,851
(in millions of Korean won) December 31, 2010
Principal
Deferred loan origination fees and
costs (Initial direct costs for lease assets)
Present value discounts
Allowance for doubtful
accounts Book value
Loan receivables
Loans \ 10,545,431 \ (110,263) \ (1,027) \ (215,703) \ 10,218,438
Installment financial assets Auto 5,123,219 (99,271) (3) (27,489) 4,996,456 Durable goods 6,762 39 - (633) 6,168 Mortgage 39,915 111 - (404) 39,622 Machinery 14,595 - 58 (117) 14,536
5,184,491 (99,121) 55 (28,643) 5,056,782
Lease receivables Finance lease
receivables 1,797,372 (622) - (19,273) 1,777,477
Cancelled lease receivables 2,719 - - (1,758) 961
1,800,091 (622) - (21,031) 1,778,438
\ 17,530,013 \ (210,006) \ (972) \ (265,377) \ 17,053,658
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
36
(in millions of Korean won) January 1, 2010
Principal
Deferred loan origination fees and
costs (Initial direct costs for lease assets)
Present value discounts
Allowance for doubtful
accounts Book value
Loan receivables
Loans \ 8,977,097 \ (113,437) \ (1,514) \ (175,934) \ 8,686,212
Installment financial assets Auto 4,766,715 (97,945) (67) (31,368) 4,637,335 Durable goods 16,159 138 - (292) 16,005 Mortgage 69,952 239 - (463) 69,728 Machinery 43,906 - 322 (394) 43,834
4,896,732 (97,568) 255 (32,517) 4,766,902
Lease receivables Finance lease
receivables 1,265,203 (410) - (11,441) 1,253,352
Cancelled lease receivables 1,541 - - (1,089) 452
1,266,744 (410) - (12,530) 1,253,804
\ 15,140,573 \ (211,415) \ (1,259) \ (220,981) \ 14,706,918
7. Allowance for Doubtful Accounts
Changes in allowance for doubtful accounts for the years ended December 31, 2011 and 2010, are
as follows:
(in millions of Korean won)
2011
Type Loan
receivables Installment
financial assets Lease
receivables Other assets Total
Beginning balance \ 215,703 \ 28,643 \ 21,031 \ 7,648 \ 273,025
Amounts written off (331,061) (30,839) (1,049) (5,683) (368,632)
Recoveries of amounts previously written off
90,411 11,842 282 8,225 110,760
Discount unwind (6,702) (326) (159) - (7,187) Additional(reversed)
allowance 312,833 28,810 5,458 7,094 354,195
Ending balance \ 281,184 \ 38,130 \ 25,563 \ 17,284 \ 362,161
(in millions of Korean won)
2010
Type Loan
receivables Installment financial assets Lease
receivables Other assets Total
Beginning balance \ 175,934 \ 32,517 \ 12,529 \ 6,997 \ 227,977
Amounts written off (191,927) (28,888) (332) (3,728) (224,875)
Recoveries of amounts previously written off
104,982 15,861 366 8,673 129,882
Unwinding of discount (4,972) (411) (54) - (5,437)
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
37
Additional(reversed) allowance
131,686 9,564 8,522 (4,294) 145,478
Ending balance \ 215,703 \ 28,643 \ 21,031 \ 7,648 \ 273,025
8. Financial Instruments
a. Fair value of financial instruments
The fair values of financial instruments are as follows:
(in millions of Korean won)
Type
December 31, 2011 December 31, 2010 January 1, 2010
Book value Fair
value Book value Fair
value Book
value Fair value
Assets
Financial assets
Cash and deposits \ 1,455,442 \ 1,455,442 \ 1,224,891 \ 1,224,891 \ 992,774 \ 992,774Available-for-sale
securities 18,452 18,452 20,577 20,577 15,867 15,867
Loans receivable 10,848,063 11,124,599 10,218,438 10,571,397 8,686,212 9,037,365
Installment financial assets
5,021,194 5,145,837 5,056,782 5,218,322 4,766,902 4,960,643
Derivative assets 475,431 475,431 521,530 521,530 1,278,570 1,278,570
Non-trade receivables 84,983 84,983 72,393 72,393 80,754 80,754
Accrued revenues 113,980 113,980 111,806 111,806 98,939 98,939
Leasehold deposits 35,929 35,847 31,955 31,821 30,473 30,653
\ 18,053,474 \ 18,454,571 \ 17,258,372 \ 17,772,737 \ 15,950,491 \ 16,495,565
Liabilities
Financial liabilities
Borrowings \ 2,250,000 \ 2,257,918 \ 2,646,945 \ 2,652,759 \ 2,452,978 \ 2,458,590
Debentures 15,522,368 15,886,881 14,396,741 14,795,749 13,034,854 13,929,019
Derivative liabilities 58,096 58,096 96,568 96,568 78,174 78,174
Non-trade payables1 249,236 249,236 240,414 240,414 210,615 210,615
Accrued expenses 135,083 135,083 110,225 109,943 108,746 108,746
Withholdings1 11,567 11,567 10,791 10,791 11,407 11,407Leasehold deposits
received 787,858 794,247 746,531 763,718 663,195 670,409
\ 19,014,208 \ 19,393,028 \ 18,248,215 \ 18,669,942 \ 16,559,969 \ 17,466,960
1 Excluding taxes.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
38
b. Fair value hierarchy
The fair value hierarchy of financial assets and liabilities carried at fair value are as follows: (in millions of Korean won)
December 31, 2011
Type Book
value Fair
value Fair value hierarchy 1
level 1 level 2 level 3
Financial assets Available-for-sale securities \ 18,452 \ 18,452 \ 5,687 \ 2,239 \ 10,526
Derivative assets 475,431 475,431 - 475,431 -
493,883 493,883 5,687 477,670 10,526
Financial liabilities
Derivative liabilities \ 58,096 \ 58,096 \ - \ 58,096 \ -
1 The levels of fair value hierarchy have been defined as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities. Listed stocks and derivatives
Level 2: Inputs for the asset or liability included within valuation techniques that are observable market
data. Most bonds issued in Korean won and foreign currency, general unlisted derivatives like swap,
forward, option
Level 3: Inputs for the asset or the liability that are not based on observable market data. Unlisted
stocks, complicated structured bonds, complicated unlisted derivatives and others.
(in millions of Korean won)
December 31, 2010
Type Book
value Fair
value Fair value hierarchy 1
level 1 level 2 level 3
Financial assets Available-for-sale securities \ 20,577 \ 20,577 \ 7,318 \ 3,372 \ 9,887
Derivative assets 521,530 521,530 - 521,530 -
542,107 542,107 7,318 524,902 9,887
Financial liabilities
Derivative liabilities \ 96,568 \ 96,568 \ - \ 96,568 \ -
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
39
(in millions of Korean won)
January 1, 2010
Type Book
value Fair
value Fair value hierarchy 1
level 1 level 2 level 3
Financial assets Available-for-sale securities \ 15,867 \ 15,867 \ 3,951 \ 3,114 \ 8,802
Derivative assets 1,278,570 1,278,570 - 1,278,570 -
\ 1,294,437 \ 1,294,437 \ 3,951 \ 1,281,684 \ 8,802
Financial liabilities
Derivative liabilities \ 78,174 \ 78,174 \ - \ 78,174 \ -
c. Changes in financial instruments of level 3
The changes in financial instruments of level 3 for the years ended December 31, 2011 and 2010,
are as follows:
(in millions of Korean won)
Type Available-for-sale securities 2011 2010
Beginning balance \ 9,887 \ 8,802
Acquisition 100 -
Gain on valuation (Other comprehensive income)
539 1,161
Replacement - (76)
Ending balance \ 10,526 \ 9,887
d. Financial instruments by categories
The book value of financial instruments by categories are as follows:
(in millions of Korean won)
December 31, 2011
Type
Financial assets at fair value through profit or loss
Loans and receivables
Available-for-sale financial
assets
Hedging derivative
instruments
Total
Financial assets
Cash and deposits \ - \ 1,455,442 \ - \ - \ 1,455,442 Available-for- sale
securities - - 18,452 - 18,452
Loans receivable - 10,848,063 - - 10,848,063 Installment
financial assets - 5,021,194 - - 5,021,194
Derivative assets 53 - - 475,378 475,431 Non-trade
receivables - 84,983 - - 84,983
Accrued revenues - 113,980 - - 113,980
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
40
Leasehold deposits
- 35,929 - - 35,929
\ 53 \ 17,559,591 \ 18,452 \ 475,378 \ 18,053,474
(in millions of Korean won)
December 31, 2010
Type
Financial assets at fair value through profit or loss
Loans and receivables
Available-for-sale financial
assets
Hedging derivative
instruments
Total
Financial assets
Cash and deposits \ - \ 1,224,891 \ - \ - \ 1,224,891 Available-for- sale
securities - - 20,577 - 20,577
Loans receivable - 10,218,438 - - 10,218,438 Installment
financial assets - 5,056,782 - - 5,056,782
Derivative assets 72 - - 521,458 521,530 Non-trade
receivables - 72,393 - - 72,393
Accrued revenues - 111,806 - - 111,806 Leasehold
deposits - 31,955 - - 31,955
\ 72 \ 16,716,265 \ 20,577 \ 521,458 \ 17,258,372
(in millions of Korean won)
January 1, 2010
Type
Financial assets at fair value through profit or loss
Loans and receivables
Available-for-sale financial
assets
Hedging derivative
instruments
Total
Financial assets
Cash and deposits \ - \ 992,774 \ - \ - \ 992,774 Available-for- sale
securities - - 15,867 - 15,867
Loans receivable - 8,686,212 - - 8,686,212 Installment
financial assets - 4,766,902 - - 4,766,902
Derivative assets 72,506 - - 1,206,064 1,278,570 Non-trade
receivables - 80,754 - - 80,754
Accrued revenues - 98,939 - - 98,939 Leasehold
deposits - 30,473 - - 30,473
\ 72,506 \ 14,656,054 \ 15,867 \ 1,206,064 \ 15,950,491
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
41
(in millions of Korean won)
December 31, 2011
Type Financial liabilities
at amortized cost Hedging derivative instruments Total
Financial liabilities
Borrowings \ 2,250,000 \ - \ 2,250,000
Debentures 15,522,368 - 15,522,368 Derivative
liabilities - 58,096 58,096
Non-trade payables 249,236 - 249,236
Accrued expenses 135,083 - 135,083 Withholdings 11,567 - 11,567 Leasehold deposits received 787,858 - 787,858
\ 18,956,112 \ 58,096 \ 19,014,208
(in millions of Korean won)
December 31, 2010
Type Financial liabilities
at amortized cost Hedging derivative instruments Total
Financial liabilities
Borrowings \ 2,646,945 \ - \ 2,646,945
Debentures 14,396,741 - 14,396,741 Derivative
liabilities - 96,568 96,568
Non-trade payables 240,414 - 240,414
Accrued expenses 110,225 - 110,225 Withholdings 10,791 - 10,791 Leasehold deposits received 746,531 - 746,531
\ 18,151,647 \ 96,568 \ 18,248,215
(in millions of Korean won)
January 1, 2010
Type Financial liabilities
at amortized cost Hedging derivative instruments Total
Financial liabilities
Borrowings \ 2,452,978 \ - \ 2,452,978
Debentures 13,034,854 - 13,034,854 Derivative
liabilities - 78,174 78,174
Non-trade payables 210,615 - 210,615
Accrued expenses 108,746 - 108,746 Withholdings 11,407 - 11,407 Leasehold deposits received 663,195 - 663,195
\ 16,481,795 \ 78,174 \ 16,559,969
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
42
9. Finance Lease Receivables
a. Total lease investments and present value of minimum lease receipts
Details of total lease investments and present value of minimum lease receipts are as follows:
(in millions of Korean won)
Type
December 31, 2011 December 31, 2010 January 1, 2010
Total lease investments
Present value of minimum lease
receipts Total lease
investments Present value of minimum lease
receipts
Total lease
investments Present value of minimum lease
receipts
Less than 1 year \ 984,475 \ 808,521 \ 765,722 \ 633,321 \ 549,958 \ 454,001
1 to 5 years 1,610,089 1,475,991 1,272,610 1,149,144 893,871 797,404
Over 5 years 77 76 - - - -
\ 2,594,641 \ 2,284,588 \ 2,038,332 \ 1,782,465 \ 1,443,829 \ 1,251,405
b. Unearned interest income
Details of unearned interest income as of December 31, 2011 and December 31, 2010, are as
follows:
(in millions of Korean won)
Type December 31,
2011
December 31,
2010
January 1,
2010
Total lease investments \ 2,594,641 \ 2,038,332 \ 1,443,829
Net lease investments
Minimum lease receipts
(present value)
2,284,588 1,782,465 1,251,405
Unguaranteed residual value (present value)
14,913 14,285 13,388
sub-total 2,299,501 1,796,750 1,264,793 Unearned interest income \ 295,140 \ 241,582 \ 179,036
10. Leased Assets
All operating leased assets consist of vehicles and the details are as follows:
(in millions of Korean won)
December 31, 2011
Acquisition cost Accumulated depreciation Book value
Operating leased assets \ 1,749,697 \ (630,388) \ 1,119,309 Cancelled leased assets 5,995
(2,226)
3,769
\ 1,755,692 \ (632,614) \ 1,123,078
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
43
(in millions of Korean won)
December 31, 2010
Acquisition cost Accumulated depreciation Book value
Operating leased assets \ 1,991,961 \ (709,116) \ 1,282,845 Cancelled leased assets 3,234 (42) 3,192
\ 1,995,195 \ (709,158) \ 1,286,037
(in millions of Korean won)
January 1, 2010
Acquisition cost Accumulated depreciation Book value
Operating leased assets \ 2,112,300 \ (705,847) \ 1,406,453 Cancelled leased assets 3,211
(175)
3,036
\ 2,115,511 \ (706,022) \ 1,409,489
Future minimum lease receipts under operating lease are as follows:
(in millions of Korean won)
Type December 31,
2011
December 31,
2010
January 1,
2010
Less than 1 year \ 403,735 \ 423,307 \ 501,195
1 to 5 years 345,238 414,181 430,194
Over 5 years 4 - -
\ 748,977 \ 837,488 \ 931,389
11. Property and Equipment
a. Details of property and equipment
Property and equipment consist of:
(in millions of Korean won)
Type December 31, 2011
Acquisition cost Accumulated
depreciation Book value
Land \ 105,425 \ - \ 105,425
Buildings 120,855 (22,916) 97,939
Structures 2,844 (286) 2,558
Vehicles 1,743 (982) 761 Fixture and furniture 154,771 (101,001) 53,770
Others 2,001 (7) 1,994 Construction in progress
2,986 - 2,986
\ 390,625 \ (125,192) \ 265,433
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
44
(in millions of Korean won)
Type December 31, 2010
Acquisition cost Accumulated
depreciation Book value
Land \ 101,844 \ - \ 101,844
Buildings 112,305 (19,762) 92,543
Structures 2,466 (220) 2,246
Vehicles 1,608 (770) 838 Fixture and furniture 116,971 (81,650) 35,321
Others 1,200 - 1,200 Construction in progress
8,377 - 8,377
\ 344,771 \ (102,402) \ 242,369
(in millions of Korean won)
Type January 1, 2010
Acquisition cost Accumulated
depreciation Book value
Land \ 98,778 \ - \ 98,778
Buildings 109,337 (16,963) 92,374
Structures 2,295 (161) 2,134
Vehicles 1,412 (452) 960 Fixture and furniture 108,272 (75,991) 32,281
Others 1,086 - 1,086 Construction in progress
11,070 - 11,070
\ 332,250 \ (93,567) \ 238,683
b. Changes in property and equipment
Changes in property and equipment for the years ended December 31, 2011 and 2010, are as
follows:
(in millions of Korean won)
2011
Type Beginning
balance Acquisition Replacement Disposal Depreciation Ending balance
Land \ 101,844 \ 3,581 \ - \ - \ - \ 105,425
Buildings 92,543 8,549 - - (3,153) 97,939
Structures 2,246 379 - - (67) 2,558
Vehicles 838 328 - (30) (375) 761 Fixture and furniture
35,321 37,712 688 (597) (19,354) 53,770
Others 1,200 801 - - (7) 1,994 Construction in progress
8,377 8,079 (13,470) - - 2,986
\ 242,369 \ 59,429 \ (12,782) \ (627) \ (22,956) \ 265,433
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
45
(in millions of Korean won)
2010
Type Beginning
balance Acquisition Replacement Disposal Depreciation Ending balance
Land \ 98,778 \ 3,066 \ - \ - \ - \ 101,844
Buildings 92,374 2,968 - - (2,799) 92,543
Structures 2,134 171 - - (59) 2,246
Vehicles 960 223 - - (345) 838 Fixture and furniture
32,281 19,412 353 (109) (16,616) 35,321
Others 1,086 114 - - - 1,200 Construction in progress
11,070 13,811 (16,504) - - 8,377
\ 238,683 \ 39,765 \ (16,151) \ (109) \ (19,819) \ 242,369
As of December 31, 2011, the Company carries comprehensive asset insurance for its buildings for
up to ₩215,210 million (December 31, 2010: ₩209,783 million, January 1, 2010: ₩184,307
million). Comprehensive movable property insurance for fixture and furniture covers up to ₩20,195 million (December 31, 2010: ₩18,812 million, January 1, 2010: ₩21,315 million). Other
leased office buildings and vehicles are covered with liability and general insurance.
12. Intangible Assets
a. Details of Intangible assets
Intangible assets consist of:
(in millions of Korean won)
Type December 31, 2011
Acquisition cost Accumulated
depreciation Book value
Development costs \ 71,254 \ (42,619) \ 28,635
Rights of trademark 69 (39) 30 Other intangible assets 53,296 (16,844) 36,452
\ 124,619 \ (59,502) \ 65,117
(in millions of Korean won)
Type December 31, 2010
Acquisition cost Accumulated
depreciation Book value
Development costs \ 56,142 \ (36,138) \ 20,004
Rights of trademark 69 (25) 44 Other intangible assets 47,545 (14,981) 32,564
\ 103,756 \ (51,144) \ 52,612
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
46
(in millions of Korean won)
Type January 1, 2010
Acquisition cost Accumulated
depreciation Book value
Development costs \ 38,613 \ (30,922) \ 7,691
Rights of trademark 69 (12) 57 Other intangible assets 44,368 (13,182) 31,186
\ 83,050 \ (44,116) \ 38,934
b. Changes in intangible assets
Changes in intangible assets for the years ended December 31, 2011 and 2010, are as follows:
(in millions of Korean won)
2011
Type Beginning balance Increase 1 Disposal Amortization Ending balance
Development costs \ 20,004 \ 15,162 \ (50) \ (6,481) \ 28,635
Rights of trademark 44 - - (14) 30
Other intangible assets 32,564 5,772 (21) (1,863) 36,452
\ 52,612 \ 20,934 \ (71) \ (8,358) \ 65,117 1 Inclusive of transfer from construction in progress
(in millions of Korean won)
2010
Type Beginning balance Increase 1 Disposal Amortization Ending balance
Development costs \ 7,691 \ 17,529 \ - \ (5,216) \ 20,004
Rights of trademark 57 - - (13) 44
Other intangible assets 31,186 3,205 (28) (1,799) 32,564
\ 38,934 \ 20,734 \ (28) \ (7,028) \ 52,612
13. Borrowings
Borrowings consist of:
(in millions of Korean won)
Types Lender Annual interest rate (%)
December 31,
2011
December 31,
2010
January 1,
2010
Borrowings in won
Commercial paper SK Securities
and 7 others
3.75 ~ 5.11 \ 750,000 \ 1,410,000
\ 971,300
General loans Kookmin Bank
and 12 others
4.16 ~ 5.98 1,500,000 1,170,000
910,000
2,250,000 2,580,000 1,881,300
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
47
Borrowings in foreign currency
General loans - - - 56,945 326,678
Securitized borrowings
Commercial paper - - - 10,000 245,000
\ 2,250,000 \ 2,646,945 \ 2,452,978
Securitized borrowings are issued based on loans receivable and installment financial assets.
14. Debentures
Debentures issued by the Group and outstanding are as follows:
(in millions of Korean won)
Type Annual
interest rates (%)
December 31, 2011 December 31, 2010 January 1, 2010
Debenture Securitized debenture
Total Debenture Securitized
debenture
Total
Debenture Securitized debenture Total
Short-term debenture
Debenture 3.92 ~ 5.04 \ 100,000 \ - \ 100,000 \ 659,397 \ - \ 659,397 \ 155,000 \ - \ 155,000
Less: Discount on debentures (29) - (29) (259) - (259)
(23) - (23)
99,971 - 99,971 659,138 - 659,138
154,977 - 154,977
Current portion of debenture
Debenture 2.44 ~ 8.76 4,030,429 996,073 5,026,502 2,428,128 956,425 3,384,553
3,594,431 562,832 4,157,263
Less: Discount on debentures (1,191) (228) (1,419) (5,849) (314) (6,163)
(1,952) (177) (2,129)
4,029,238 995,845 5,025,083 2,422,279 956,111 3,378,390
3,592,479 562,655 4,155,134
Long-term debenture
Debenture 2.44 ~ 8.76 8,665,456 1,761,283 10,426,739 8,401,694 1,980,229 10,381,923
6,464,582 2,282,377 8,746,959
Less: Discount on debentures (21,169) (8,256) (29,425) (15,726) (6,984) (22,710)
(17,799) (4,416) (22,215)
8,644,287 1,753,027 10,397,314 8,385,968 1,973,245 10,359,213
6,446,783 2,277,961 8,724,744
\ 12,773,496 \ 2,748,872 \ 15,522,368 \ 11,467,385 \ 2,929,356 \ 14,396,741 \ 10,194,239 \ 2,840,616 \ 13,034,855
Securitized debentures are issued based on loans receivable and installment financial assets.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
48
15. Defined Benefit Liability
a. The amounts of defined benefit plans recognized in the statements of financial position are as
follows:
(in millions of Korean won)
Type December 31,
2011
December 31,
2010
January 1,
2010
Present value of funded obligations \ 49,709 \ 38,732 \ 37,337
Fair value of plan assets¹ (29,347) (27,045) (28,095)
Defined benefit liability \ 20,362 \ 11,687 \ 9,242
¹ As of December 31, 2011, contribution to the National Pension Fund of \ 45 million is included
( December 31, 2010 : \ 51 million, January1, 2010: \ 76 million.)
b. Changes in present value of defined benefit obligations for the years ended December 31, 2011
and 2010:
(in millions of Korean won)
Type 2011 2010
Beginning balance \ 38,732 \ 37,337
Current service cost 9,800 8,260
Interest cost 1,860 2,006
Actuarial losses 5,699 5,453
Transfer of severance benefits from
related parties
2,263 1,729
Transfer of severance benefits to related
parties
(2,941) (1,883)
Benefits paid (5,704) (14,170)
Ending balance \ 49,709 \ 38,732
c. Changes in the fair value of plan assets for the years ended December 31, 2011 and 2010:
(in millions of Korean won)
Type 2011 2010
Beginning balance \ 27,045 \ 28,095
Contributions by plan participants 3,500 -
Expected return on plan assets 1,075 1,325
Actuarial (losses)/gains 98 (157)
Transfer of severance benefits from
related parties
1,527 1,255
Transfer of severance benefits to
related parties
(1,661) (1,104)
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
49
Benefits paid (2,237) (2,369)
Ending balance \ 29,347 \ 27,045
d. Details of the amounts recognized in the income statement for the years ended
December 31, 2011 and 2010:
(in millions of Korean won)
Type 2011 2010
Current service cost \ 9,800 \ 8,260
Interest cost 1,860 2,006
Expected return on plan assets (1,075) (1,325)
Actuarial losses 5,601 4,375
\ 16,186 \ 13,316
e. Actual return on plan assets for the years ended December 31, 2011 and 2010:
(in millions of Korean won)
Type 2011 2010
Actual return on plan assets \ 1,173 \ 1,168
f. Details of plan assets consist of :
(in millions of Korean won)
Type December 31, 2011 December 31, 2010 January 1, 2010
Amount Ratio(%) Amount Ratio(%) Amount Ratio(%)
Cash \ 179 0.61 \ 96 0.36 \ - -
Deposits 11,576 39.45 12,053 44.56 28,095 100.00 Interest rate guaranteed
asset for 1-year 17,592 59.94 14,896 55.08 - -
\ 29,347 100.00 \ 27,045 100.00 \ 28,095 100.00
g. Actuarial assumptions
Actuarial assumptions required to recognize defined benefit liability are as follows:
Type December 31,
2011
December 31,
2010
January 1,
2010
Discount rate 4.21% 4.90% 5.90%
Expected return on plan assets 4.15% 4.20% 4.73%
Future salary increases 5.60% 5.39% 5.31%
Assumptions regarding future mortality experience are set based on actuarial advice published by
Korea Insurance Development Institute.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
50
h. Adjustments for the differences
Adjustments for the differences between initial assumptions and actual figures as of December 31,
2011 and 2010, are as follows :
(in millions of Korean won)
Type 2011 2010
Defined benefit obligations \ 3,271 \ 2,013 Plan assets 98 (157)
16. Income Tax
a. Income tax expense for the years ended December 31, 2011 and 2010, consists of:
(in millions of Korean won)
Type 2011 2010
Current tax \ 124,239 \ 170,855 Changes in deferred tax assets(liabilities) 45,267 (37,117) Deferred tax credited directly to equity (13,519) 16,489
Income tax \ 155,987 \ 150,227
b. Deferred tax credited directly to equity
(in millions of Korean won)
Type 2011 2010 Loss(Gain) on valuation of available-for-
sale financial securities \ 218 \ (663)
Accumulated comprehensive income of equity method investees
- (20)
Loss(Gain) on valuation of derivatives (13,737) 17,172
\ (13,519) \ 16,489
c. Reconciliation between income before income tax and income tax expense
(in millions of Korean won)
Type 2011 2010
Profit before tax \ 663,391 \ 639,211
Current tax 160,493 154,664
Adjustments:
Income not subject to tax 881 (89) Expenses not deductible for tax
purposes 23,877 362
Changes in tax reconciliation of the previous year
- 1,237
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
51
Additional tax payments(refunds) (18,884) 4,051
Others (SPC consolidation, others) (10,380) (9,998)
Income tax \ 155,987 \ 150,227
Effective tax rate (Income tax over net income before tax)
23.5% 23.5%
d. Changes in temporary differences and deferred assets (liabilities)
(in millions of Korean won)
2011
Type Temporary differences Deferred assets (liabilities)
Beginning Changes Ending Beginning Ending Allowances for doubtful
accounts \ 173,184 \ (173,184) \ - \ 41,911 \ -
Derivatives (264,264) 50,049 (214,215) (59,235) (51,840)
Deferred fees (154,491) (1,564) (156,055) (33,988) (37,765)
Initial direct costs for lease assets
(82,713) (16,979) (99,692) (18,197) (24,126)
Gain on foreign exchanges translation
227,514 (53,258) 174,256 51,246 42,170
Non-trade payables 69,374 (44,112) 25,262 16,789 6,113
Depreciation 375 68,781 69,156 83 16,736
Present value discounts (120) 114 (6) (26) (2)
Others 18,959 (5,596) 13,363 3,668 3,411
Consolidation effects (37,951) 2,173 (35,778) (4,868) (2,581)
\ (50,133) \ (173,576) \ (223,709) \ (2,617) \ (47,884)
(in millions of Korean won)
2010
Type Temporary differences Deferred assets (liabilities)
Beginning Changes Ending Beginning Ending Allowances for doubtful
accounts \ 142,605 \ 30,579 \ 173,184 \ 34,510 \ 41,911
Derivatives (995,442) 731,178 (264,264) (232,117) (59,235)
Deferred fees (124,557) (29,934) (154,491) (27,403) (33,988)
Initial direct costs for lease assets
(65,709) (17,004) (82,713) (14,456) (18,197)
Gain on foreign exchanges translation
836,404 (608,890) 227,514 194,862 51,246
Non-trade payables 80,201 (10,827) 69,374 19,409 16,789
Depreciation 176 199 375 39 83
Present value discounts (280) 160 (120) (62) (26)
Others 38,224 (19,265) 18,959 8,820 3,668
Consolidation effects (82,880) 44,929 (37,951) (23,336) (4,868)
\ (171,258) \ 121,125 \ (50,133) \ (39,734) \ (2,617)
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
52
e. Realization of the deferred tax assets and basic judgment
Realization of the future tax benefits related to the deferred tax assets is dependent on many
factors, including the Group’s ability to generate taxable income within the period during which the
temporary differences reverse, the outlook of the Korean economic environment, and the overall
future industry outlook. Management periodically considers these factors in reaching its conclusion
and recognized the deferred income tax asset based on future realization.
As of December 31, 2011, the Group recognizes deferred income tax assets excluding certain
temporary differences which may not be realized. The amount above may change if the estimation
of future taxable income changes.
17. Provisions for Unused Loan Commitments
The Group has loan commitments. Changes in provisions for unused loan commitments for the
years ended December 31, 2011 and 2010, are as follows:
(in millions of Korean won)
Type 2011 2010
Beginning balance \ 46,624 \ 26,416
Additional (Reversal) (36,178) 20,208
Ending balance \ 10,446 \ 46,624
18. Derivative Financial Instruments and Hedge Acco unting
a. Trading derivatives
Trading derivatives are as follows: (in millions of Korean won)
Type
December 31, 2011 December 31, 2010 January 1, 2010
Notional principal amounts 1
Assets Liabilities Notional principal amounts 1
Assets Liabilities Notional
principal amounts 1
Assets Liabilities
Forward foreign exchange \ 398 \ 53 \ - \ 578 \ 72 \ - \ 127,969 \ 27,552 \ -
Currency swaps - - - - - - 126,282 44,954 -
\ 398 \ 53 \ - \ 578 \ 72 \ - \ 254,251 \ 72,506 \ -
1 Notional principal amounts are the amounts of foreign currency contracts for the Korean won against
foreign currency transaction, and the amount of foreign currency purchase contracts for the foreign currency
against the foreign currency transaction translated in the exchange rate as of December 31, 2011 and 2010,
and January 1, 2010.
The Group recognized gain on trading derivatives of \ 6 million during the year ended December
31, 2011 (2010 : \ 555 million).
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
53
b. Derivatives designated as cash flow hedges
Derivatives designated as cash flow hedges are as follows:
(in millions of Korean won)
Type
December 31, 2011 December 31, 2010 January 1, 2010
Notional principal amounts
Assets Liabilities Notional principal amounts
Assets Liabilities Notional
principal amounts
Assets Liabilities
Interest rate swaps \ 360,000 \ 12 \ 1,331 \ 280,000 \ 9 \ 2,073 \ 1,185,000 \ - \ 11,926
Currency swaps 7,081,241 475,366 56,765 6,616,568 521,449 94,495 6,699,386 1,206,064 66,248
\ 7,441,241 \ 475,378 \ 58,096 \ 6,896,568 \ 521,458 \96,568 \ 7,884,386 \ 1,206,064 \ 78,174
The maximum period the Company is exposed to the variability in future cash flows arising from
derivatives designated as cash flow hedges, is expected to be until August 18, 2016.
There is no ineffective portion recognized related to cash flow hedge for the years ended
December 31, 2011 and 2010.
19. Shareholders’ Equity
a. Capital stock
The Company is authorized to issue 500,000,000 shares. As of December 31, 2011, the Company
has 99,307,435 shares issued and outstanding with a par value of \ 5,000 per share.
b. Legal reserve
The Korean Commercial Law requires the Company to appropriate, as a legal reserve, an amount
equal to a minimum of 10% of annual cash dividends declared, until the reserve equals 50% of its
issued capital stock. This reserve is not available for the payment of cash dividends, but may be
transferred to capital stock or used to reduce accumulated deficit, if any.
c. Discretionary reserve
The Company appropriates a reserve in accordance with Electronic Financial Transactions Act and
a reserve for business rationalization in accordance with Restriction of Special Taxation Act.
d. Legal reserve and discretionary reserve
Legal reserve and discretionary reserve are as follows:
(in millions of Korean won)
Type
December 31
2011
December 31,
2010
January 1,
2010
Legal reserve Revenue reserve \ 79,699 \ 48,914 \ 28,556
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
54
Discretionary reserve
Reserve for electronic financial transactions
100 100 100
Reserve for business rationalization 74 74 74
174 174 174
Unappropriated retained earnings
(Expected reserve for bad loans
December 31, 2011: \ 270,220 million
December 31, 2010: \ 208,187 million
January 1, 2010: \ - million)
1,723,271 1,350,925 1,289,456
\1,803,144 \1,400,013 \ 1,318,186
e. Reserve for bad loans
If allowances for doubtful accounts do not meet the minimum amount calculated in accordance
with allowance reserve standards of Regulation on Supervision under Article 11 of the Specialized
Credit Financial Business Law, the Group appropriates a reserve for bad loans in an amount more
than the difference between the allowance and the requirement.
(1) Appropriated and expected reserves for bad loans as of December 31, 2011 and 2010, are as
follows:
(in millions of Korean won)
Type 2011 2010
Appropriated reserve for bad loans \ - \ -
Expected reserve for bad loans 270,220 208,187
\ 270,220 \ 208,187
(2) Transfer to reserve for bad loans and net income in consideration of effect of changes in
reserve for bad loans for the year ended December 31, 2011, are as follows:
(in millions of Korean won)
Type Amounts
Net income \ 507,404
Transfer to reserve for bad loans1 (62,033)
Net income in consideration of changes in reserve for bad loans2
445,371
Net income per share in consideration of changes in reserve for bad loans (In won)
4,485
1 The amount transferred to reserve for bad loans was the difference between the balance of reserve for
bad loans as of December 31, 2011, and the balance as of December 31, 2010. 2 Net income in consideration of changes in reserve for bad loans is not accordance with K-IFRS, and the
amount is the sum of the transfer to reserve for bad loans before income tax and net income.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
55
f. Dividends
The Group does not plan to declare dividends for fiscal year of 2011, and dividends for fiscal year
of 2010 are as follows :
(in millions of Korean won)
Type Amounts
Interim
dividends
Number of shares eligible for
dividends
99,307,435
Par value for share (won) \ 5,000
Dividends rate 41.00%
Dividends 203,580
Year-end
dividends
Number of shares eligible for
dividends
99,307,435
Par value for share (won) \ 5,000
Dividends rate 21.00%
Dividends 104,273
Total dividends \ 307,853
Net income 488,986
Dividends payout ratio (Dividends/ Net income) 62.96%
20. Net Interest Income
Net interest income for the years ended December 31, 2011 and 2010, is as follows:
(in millions of Korean won)
Type 2011 2010
Interest income
Cash and deposits \ 41,991 \ 25,755
Loans receivable 1,497,749 1,342,333
Installment financial assets 429,931 485,241
Lease receivables1 216,551 175,901
Other² 385 1,207
2,186,607 2,030,437
Interest expenses
Borrowings 103,222 102,918
Debentures 804,002 743,545
Other² 48,815 43,717
956,039 890,180
Net interest income \ 1,230,568 \ 1,140,257
1 Includes amortization of present value discount for lease guarantee.
²Amortization of present value discount using the effective interest method.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
56
21. Net Commission Income
Net commission income for the years ended December 31, 2011 and 2010, is as follows:
(in millions of Korean won)
Type 2011 2010
Commission income
Loans receivable \ 50,808 \ 45,089
Installment financial assets 6,316 6,961
Lease receivables 121,879 83,504
179,003 135,554
Commission expenses
Lease expenses 13,521 10,017
Net Commission Income \ 165,482 \ 125,537
22. General and Administrative Expenses
General and administrative expenses for the years ended December 31, 2011 and 2010, are as
follows:
(in millions of Korean won)
Type
2011 2010
Payroll \ 154,968 \ 141,156
Severance benefits 16,139 13,318
Fringe benefits 33,285 31,884
Depreciation 22,957 19,819
Advertising 52,957 78,514
Travel and transportation 4,658 4,000
Communication 13,145 12,396
Water, lighting and heating 9,104 8,557
Outsourcing service
commission
47,281 31,941
Commission 17,613 16,940
Sales commission 69,357 77,780
Amortization 8,359 7,028
Outsourcing service charges 68,479 65,408
Rent 34,699 32,693
Other expenses 50,366 44,519
\ 603,367 \ 585,953
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
57
23. Earnings Per Share
a. Basic earnings per share
Basic earnings per share attributable to common stock for the years ended December 31, 2011
and 2010, is as follows:
Type 2011 2010
(1) Net income attributable to common stock (In won)
\ 507,403,611,674 \ 488,985,560,819
(2) Weighted average of number of outstanding common shares
99,307,435 99,307,435
(3) Basic earnings per share (In won) (1)÷(2)
\ 5,109 \ 4,924
b. Diluted earnings per share
As there was no discontinued operation during the years ended December 31, 2011 and 2010,
basic earnings per share is the same as basic earnings per share from continuing operations.
There are no potential common stocks as of December 31, 2011 and 2010. Therefore, the diluted
earnings per share is the same as basic earnings per share for years ended December 31, 2011
and 2010.
24. Other Comprehensive Income
Other comprehensive income for the years ended December 31, 2011 and 2010, consists of:
(in millions of Korean won)
2011
Type
Beginning balance
Changes
Income
tax effects
Ending balance
Reclassifi -cation of profit or
loss
Other changes
Gain(Loss) on valuation of available-for-sale financial assets
\ 512 \ - \ (1,118) \ 218 \ (388)
Accumulated comprehensive expense of equity method investees
24 - 23 - 47
Loss on valuation of derivatives
(67,925) 2,942 28,563 (13,737) (50,157)
Gain on exchange differences of foreign operations
17 - (360) - (343)
\ (67,372) \ 2,942 \ 27,108 \(13,519) \ (50,841)
(in millions of Korean won) 2010
Type Beginning Changes Income Ending
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
58
balance Reclassifi -cation of profit or
loss
Other changes
tax effects
balance
Gain(Loss) on valuation of available-for-sale financial assets
\ (1,835) \ - \ 3,010 \ (663) \ 512
Accumulated comprehensive expense of equity method investees
(69) - 113 (20) 24
Loss on valuation of derivatives
(3,566) 2,995 (84,526) 17,172 (67,925)
Gain on exchange differences of foreign operations
- - 17 - 17
\ (5,470) \ 2,995 \ (81,386) \ 16,489 \ (67,372)
25. Cash Flow Statement
a. Cash and cash equivalents
Cash and cash equivalents in cash flow statements consisting of cash in hand, deposits and short-
term money-market instruments are as follows:
(in millions of Korean won)
Type December 31,
2011
December 31,
2010
January 1,
2010
Cash \ 4 \ 4 \ 7
Ordinary deposits 135,706 182,321 235,167
Current deposits 1,923 3,241 1,343
Short-term financial
instruments
1,317,800 1,039,300
754,319
\ 1,455,433 \ 1,224,866 \ 990,836
b. Cash generated from operations
Cash generated from operations for the years ended December 31, 2011 and 2010 are as follows:
(in millions of Korean won)
Type 2011 2010
Net income \ 507,404 \ 488,985
Adjustments
Net interest expenses 913,663 863,216
Income tax 155,988 150,226 Gain on disposal of available-for-sale financial assets
(1,589) (3,367)
Gain on loans receivable (40,806) (53,334)
Gain on installment financing (93,230) (99,316)
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
59
Gain on leased assets (1,234) (846)
Gain on foreign exchange translations (21,235) (188,938)
Dividends (5,990) (6,742)
Gain on valuation of derivatives (134,197) (92,630)
Other operating income (36,214) (14,681)
Gain on equity method valuation (3,968) (9,466)
Lease expenses 361,521 486,184
Bad debts expense 354,220 145,478
Loss on foreign exchange translations 134,211 92,639
Severance benefits 16,186 13,316
Depreciation 22,956 19,819
Amortization of intangible assets 8,358 7,028
Loss on valuation of derivatives 21,229 188,949
Other operating expenses 17 33,741
1,649,886 1,531,276
Changes in operating assets and liabilities Decrease in available-for-sale financial
assets 2,597 1,591
(Increase) in loans receivable (1,025,499) (1,760,261) Decrease(Increase) in installment financing receivables 15,641 (316,647)
(Increase) in finance lease receivables (736,817) (712,184)
Decrease in canceled leased receivables 7,382 5,330
(Increase) in operating leased assets (195,802) (337,235)
Decrease in canceled leased assets 220,857 147,679
Decrease in deferred loan origination fees and costs 105,653 145,856
(Increase) in present value discounts (38,912) (42,840)
Increase in allowance for bad debts 110,759 129,883
Decrease(Increase) in non-trade receivables (17,010) 7,388
Increase in accrued revenues (8,167) (10,273)
Decrease (increase) in advance payments 9,093 (23,606)
Decrease (increase) in prepaid expenses (8,248) 7,389
Decrease(Increase) in derivative assets (13,769) 79,832
Increase (decrease) in non-trade payables 13,035 81,062
(Decrease) in accrued expenses (241) (787)
Increase(decrease) in unearned revenue (8,244) 439
Increase in withholdings 2,201 1,493
Increase in leasehold deposits received 32,896 83,789
Payment of severance benefits (5,704) (14,115)
Decrease(increase) in plan assets (1,130) 2,219
Transfer of severance benefits to related parties (678) 1,081
Increase in derivative liabilities 13,778 4,353
(1,526,329) (2,518,564)
\ 630,961 \ (498,303)
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
60
c. Investing and financing activities not affecting cash flows
Significant investing and financing activities not affecting cash flows for the years ended December
31, 2011 and 2010 are as follows:
(in millions of Korean won)
Type 2011 2010
Write-off of financial receivables \ 368,632 \ 224,875 Transferred from construction in progress to
intangible assets 13,451 15,875
Transferred to legal reserve 30,785 20,358 26. Commitments and Contingencies
a. Credit Line Agreement
Details of credit line agreements of the Group are as follows:
(in millions of Korean won)
Type Financial institutions December
31, 2011
December
31, 2010
Limit of overdraft Shinhan Bank and 2 other banks \ 41,500 \ 51,500
Limit of daily loan SC Jeil Bank and 2 other banks 45,000 49,400 Limit of purchasing
commercial paper - - 10,000
Limit of credit line (SPC) - - 61,200
\ 86,500 \ 172,100
b. Credit Facility Agreement
The Group has revolving credit facility agreements with several financial institutions. Details of
credit facility agreements are as follows:
(in millions of Korean won)
Financial institutions December 31, 2011 December 31, 2010
GE Capital Corporation1 Euro currency for
USD 1 billion
Euro currency for
USD 1 billion
Mizuho Corporate Bank, Seoul Branch \ 65,000 \ 65,000
JPMorgan, Seoul Branch 80,000 34,000
Citibank, Seoul2 50,000 50,000
Standard Chartered, Seoul Branch 50,000 50,000
Societe Generale, Seoul Branch 55,000 -
Bank of China, Seoul Branch 30,000 -
DBS Bank, Seoul Branch 50,000 -
Credit Agricole, Seoul 26,000 -
RBS, Seoul 110,000 -
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
61
ING Bank, Seoul 100,000 -
KDB Bank 30,000 -
Kyobo Life Insurance Co., Ltd 50,000 -
CITIBANK, N.A. USD 200 million - The Bank of TOKYO MITSUBISHI UFJ.,
Ltd USD 200 million -
1 GE Capital Corporation (the “GECC”) and Hyundai Motor Company entered into a support agreement
which includes the provision of debt-to-equity swap for the unredeemed amount and the put/call option of
the converted stocks. 2 Comprehensive limit including overdraft of ₩ 10 billion.
There has been no usage of the above credit facility agreements as of December 31, 2011 and
December 31, 2010.
c. Guarantees
Details of guarantees involving third parties are as follows:
(in millions of Korean won)
Guarantor
Details December
31, 2011
December
31, 2010
Hyundai Motor
Company
Joint liabilities on finance lease
receivables1
\ 216
\ 3,092
Hyundai Wia Joint liabilities on machinery installment financing receivables1
1,674 14,730
Seoul Guarantee Insurance Co., Ltd.
Guarantee for debt collection deposit, others
186,062 204,560
1 The amounts represent the guaranteed balances as of December 31, 2011 and 2010, as defined under
the joint liability agreement.
The Group carries residual value guarantee insurance with Hyundai Marine & Fire Insurance Co., Ltd.
against loss in case unredeemed mortgage loans exceed recoverable amount from the collateral of the
loans. The receivables balance carried insurance and residual value guaranteed by the insurance
are as follows:
(in millions of Korean won)
Type December 31, 2011 December 31, 2010
Receivables balance \ 865,834 \ 1,102,921
The amount of residual value guaranteed by insurance
284,470 369,321
d. Pending significant litigations
Details of pending significant litigations involving the Group as of December 31, 2011, are as
follows:
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
62
(in millions of Korean won) Type Number of litigations Amount of litigations
Plaintiff 4 \ 1,082
Defendant 5 157
In addition, the Group has filed lawsuits against a number of debtors to collect receivables. As of
report date, the outcome of these cases cannot be reasonably determined and no adjustments are
reflected on the consolidated financial statements of the Group as of December 31, 2011. 27. Related Party Transactions
a. Relationships between parents and subsidiaries
The parent company is Hyundai Motor Company. Related parties include associates, joint
ventures, post-employment benefit plans, members of key management personnel and entities
which the Group controls directly or indirectly, has joint control or significant influence over them.
b. Transaction between related parties
Significant transactions, which occurred in the normal course of business with related companies
for the years ended December 31, 2011 and 2010, are as follows:
(in millions of Korean won) 2011 2010 Purchases Disposal Purchases Disposal Parent Company
Hyundai Motor Company \ 905,992 \ - \ 839,417 \ -
Others
Kia Motors Corp. 220,001 - 289,834 -
Hyundai Autoever Corp. 6,471 - 7,251 -
Hyundai Glovis Co.,Ltd. - 63,800 - 30,321
Hyundai Card Co., Ltd. 147,915 - 70,612 -
Hyundai Commercial 27,586 - 10,658 -
401,973 63,800 378,355 30,321
\ 1,307,965 \ 63,800 \ 1,217,772 \ 30,321
Revenues and expenses arising from transactions with related parties for the years ended
December 31, 2011 and 2010, and receivables and payables as of December 31, 2011 and
December 31, 2010, are as follows:
(in millions of Korean won) December 31, 2011 December 31, 2010 Receivables Payables Receivables Payables Parent Company
Hyundai Motor Company \ 3,924 \ 7,279 \ 5,188 \ 9,662
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
63
Others
Kia Motors Corp. 19,431 17,867 422 10,643
Hyundai Card Co., Ltd. 1,165 137,262 1,681 106,061
Hyundai Commercial 46 4,268 24 2,346
Other related parties 12,844 - 27,315 10
33,486 159,397 29,442 119,060
\ 37,410 \ 166,676 \ 34,630 \ 128,722
(in millions of Korean won) 2011 2010
Revenues Expenses Revenues Expenses Parent Company
Hyundai Motor Company \ 15,803 \ 2,453 \ 27,616 \ 2,073
Others
Kia Motors Corp. - 5,090 1,794 626
Hyundai Card Co., Ltd. 26,914 15,600 21,428 18,053 Hyundai Commercial 1,075 922 772 759 Other related parties 15,881 33,353 3,177 41,510
43,870 54,965 27,171 60,948
\ 59,673 \ 57,418 \ 54,787 \ 63,021
The Group has been provided with a credit facility by GECC (Note 26).
c. Key management compensation
Compensation for key management for the years ended December 31, 2011 and 2010, consists
of:
(in millions of Korean won)
Type 2011 2010
Short-term employee benefits \ 10,786 \ 7,021
Severance benefits 2,553 1,203
The key management above consists of directors (including nonpermanent directors), who have
significant authority and responsibilities for planning, operating and controlling the Group.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
64
28. Financial Risk Management
The Group is exposed to credit risk, liquidity risk and market risk (exchange and rate risk). In order
to manage these factors, the Group operates risk management policies and programs that monitor
closely and respond to each of the risk factors. The Group uses derivatives to manage specific
risks.
28.1 Credit risk
a. Exposure to credit risk
Exposures to credit risk are as follows:
(in millions of Korean won)
Type December 31,
2011
December 31,
2010
January 1,
2010
Cash and deposits \ 1,455,438 \ 1,224,887 \ 992,767
Available-for-sale securities 2,239 3,372 3,114
Loans receivable 10,848,063 10,218,438 8,686,212
Installment financial assets 5,021,194 5,056,782 4,766,902
Lease receivables 2,278,594 1,778,438 1,253,804
Non-trade receivables 84,983 72,393 80,754
Accrued revenue 113,980 111,806 98,939
Leasehold deposits 35,929 31,955 30,473
Derivative assets 475,431 521,530 1,278,570
Unused loan commitments 1,062,198 1,071,419 635,461
\ 21,378,049 \ 20,091,020 \ 17,826,996
b. Credit quality of financial assets
Credit quality of financial assets exposed to credit risk are as follows: (in millions of Korean won)
Type December 31, 2011 December 31, 2010 January 1, 2010
Normal Past due Impaired Normal Past due Impaired Normal Past due Impaired
Cash and deposits \ 1,455,438 \ - \ - \ 1,224,887 \ - \ - \ 992,767 \ - \ -
Available-for- sale securities 2,239 - - 3,372 - - 3,114 - -
Financial receivables
Loans receivable 10,231,927 525,603 90,532 9,638,971 499,519 79,948 8,145,096 461,750 79,366
Installment financial assets 4,884,452 133,172 3,570 4,881,495 168,567 6,720 4,534,141 225,884 6,877
Lease receivables 2,235,881 38,633 4,080 1,724,271 51,037 3,130 1,216,064 36,756 984
17,352,260 697,408 98,182 16,244,737 719,123 89,798 13,895,301 724,390 87,227
Non-trade receivables 84,983 - - 72,393 - - 80,754 - -
Accrued revenue 113,980 - - 111,806 - - 98,939 - -
Leasehold deposits 35,929 - - 31,955 - - 30,473 - -
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
65
Derivative assets 475,431 - - 521,530 - - 1,278,570 - -
Unused loan commitments 1,062,198 - - 1,071,419 - - 635,461 - -
\ 20,582,458 \ 697,408 \ 98,182 \ 19,282,099 \ 719,123 \ 89,798 \ 17,015,379 \ 724,390 \ 87,227
(1) Financial receivables neither past due nor impaired
Credit quality according to internal credit rating of financial receivables which are neither past due
nor impaired are as follows:
(in millions of Korean won)
Type December 31, 2011 Gross amount Allowance Book value
First-rate \ 2,451,862 \ (1,654) \ 2,450,208
Second-rate 5,018,855 (7,250) 5,011,605
Third-rate 6,201,583 (32,518) 6,169,065
Fourth-rate 495,853 (7,126) 488,727
Fifth-rate 713,174 (21,651) 691,523
Sixth-rate 83,792 (13,834) 69,958
No rating 2,561,475 (90,301) 2,471,174
\ 17,526,594 \ (174,334) \ 17,352,260
(in millions of Korean won)
Type December 31, 2010 Gross amount Allowance Book value
First-rate \ 1,398,614 \ (598) \ 1,398,016
Second-rate 4,973,898 (7,823) 4,966,075
Third-rate 6,200,694 (32,099) 6,168,595
Fourth-rate 1,002,305 (16,129) 986,176
Fifth-rate 986,277 (32,442) 953,835
Sixth-rate 485,733 (51,885) 433,848
No rating 1,360,428 (22,236) 1,338,192
\ 16,407,949 \ (163,212) \ 16,244,737
(in millions of Korean won)
Type January 1, 2010 Gross amount Allowance Book value
First-rate \ 2,995,272 \ (4,538) \ 2,990,734
Second-rate 3,045,099 (9,804) 3,035,295
Third-rate 2,388,224 (13,126) 2,375,098
Fourth-rate 1,953,147 (22,306) 1,930,841
Fifth-rate 471,802 (8,173) 463,629
Sixth-rate 799,876 (27,892) 771,984
No rating 2,359,268 (31,548) 2,327,720
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
66
\ 14,012,688 \ (117,387) \ 13,895,301
The Group classifies financial receivables into six internal credit rating based on the rating criteria
and the characteristic of receivables. The internal credit rating is assessed based on the expected
probability of default in the previous month. Meanwhile, some financial receivables are not given
credit rating for reason of lacking in research data such as information on new loan accounts of the
current month or requiring additional management.
(2) Financial receivables past due but not impaired
Financial receivables past due but not impaired as of are as follows:
(in millions of Korean won)
December 31, 2011
Types Less than 1 month Between
1 ~ 2 months Between
2~3 months Total
Loans receivable \ 429,678 \ 82,150 \ 49,813 \ 561,641
Installment financial assets 126,482 11,124 4,379 141,985
Lease receivables 34,481 3,727 1,530 39,738
590,641 97,001 55,722 743,364
Allowance (21,391) (9,466) (15,099) (45,956)
Book value \ 569,250 \ 87,535 \ 40,623 \ 697,408
(in millions of Korean won)
December 31, 2010
Types Less than 1 month Between
1 ~ 2 months Between
2~3 months Total
Loans receivable \ 426,165 \ 62,167 \ 35,782 \ 524,114
Installment financial assets 158,040 10,620 3,179 171,839
Lease receivables 47,422 2,978 1,877 52,277
631,627 75,765 40,838 748,230
Allowance (14,104) (5,427) (9,576) (29,107)
Book value \ 617,523 \ 70,338 \ 31,262 \ 719,123
(in millions of Korean won)
January 1, 2010
Types Less than 1 month Between
1 ~ 2 months Between
2~3 months Total
Loans receivable \ 407,590 \ 51,268 \ 25,930 \ 484,788
Installment financial assets 208,622 17,736 4,927 231,285
Lease receivables 34,286 2,593 982 37,861
650,498 71,597 31,839 753,934
Allowance (18,765) (6,017) (4,762) (29,544)
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
67
Book value \ 631,733 \ 65,580 \ 27,077 \ 724,390
(3) Impaired financial receivables
(in millions of Korean won)
December 31, 2011 Type Gross amount Allowance Book value
Loans receivable \ 194,964 \ (104,432) \ 90,532
Installment financial assets 12,109 (8,539) 3,570
Lease receivables 15,695 (11,615) 4,080
\ 222,768 \ (124,586) \ 98,182
(in millions of Korean won)
December 31, 2010 Type Gross amount Allowance Book value
Loans receivable \ 138,877 \ (58,929) \ 79,948
Installment financial assets 12,623 (5,903) 6,720
Lease receivables 11,355 (8,225) 3,130
\ 162,855 \ (73,057) \ 89,798
(in millions of Korean won)
January 1, 2010 Type Gross amount Allowance Book value
Loans receivable \ 139,809 \ (60,443) \ 79,366
Installment financial assets 15,389 (8,512) 6,877
Lease receivables 6,077 (5,093) 984
\ 161,275 \ (74,048) \ 87,227
(4) Credit quality of other assets
Credit quality according to external credit rating of other assets, excluding financial receivables,
which are neither past due nor impaired are as follows:
(in millions of Korean won)
Cash and deposits 1
December 31,
2011
December 31,
2010
January 1,
2010
AAA \ 769,485 \ 767,370 \ 645,270
AA+ 175,139 11,384 16,857
AA 90,000 140,000 110,000
AA- 100,000 95,000 80,000
A+ 190,000 150,000 30,000
A 100,000 - 50,000
A- - 20,000 20,039
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
68
No rating 30,814 41,133 40,598
\ 1,455,438 \ 1,224,887 \ 992,764
1 The average external credit rating of three domestic credit rating agencies is used.
(in millions of Korean won)
Derivative assets 2
December 31,
2011
December 31,
2010
January 1,
2010
AA \ - \ 19,326 \ 14,252
AA- 20,216 94,114 247,567
A+ 275,467 267,156 597,466
A 150,554 123,027 281,680
A- 29,194 - -
BBB+ - 17,907 131,905
BBB - - 5,700
\ 475,431 \ 521,530 \ 1,278,570
2 Derivative assets are classified based on S&P credit rating.
(in millions of Korean won)
Unused loan
commitments
December 31,
2011
December 31,
2010
January 1,
2010
First-rate \ 27,828 \ 7,590 \ 42
Second-rate 15,757 5,783 1,097
Third-rate 782,238 633,715 428,845
Fourth-rate 163,369 246,446 117,527
Fifth-rate 31,548 87,848 46,162
Sixth-rate 2,764 21,789 6,048
No rating 38,694 68,248 35,740
\ 1,062,198 \ 1,071,419 \ 635,461
c. Assets pledges as collateral
The assets pledged as collateral for financial receivables are as follows:
(in millions of Korean won)
December 31, 2011
Type
Impaired Unimpaired
Total Delinquent Non-delinquent
Total financial receivables
\ 98,182 \ 697,408 \ 17,352,260 \ 18,147,850
Collateralized assets Collateralized
vehicles 46,084 314,978 4,562,891 4,923,953
Collateralized real 1,293 5,578 122,428 129,299
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
69
estate
\ 47,377 \ 320,556 \ 4,685,319 \ 5,053,252
(in millions of Korean won)
December 31, 2010
Type
Impaired Unimpaired
Total Delinquent Non-delinquent
Total financial receivables
\ 89,798 \ 719,123 \ 16,244,737 \ 17,053,658
Collateralized assets Collateralized
vehicles 25,580 335,495 4,576,957 4,938,032
Collateralized real estate
328 2,739 127,734 130,801
\ 25,908 \ 338,234 \ 4,704,691 \ 5,068,833
(in millions of Korean won)
January 1, 2010
Type
Impaired Unimpaired
Total Delinquent Non-delinquent
Total financial receivables
\ 87,227 \ 724,390 \ 13,895,301 \ 14,706,918
Collateralized assets Collateralized
vehicles 24,015 342,834 4,041,776 4,408,625
Collateralized real estate
136 1,389 60,713 62,238
Collateralized other assets
- - 2 2
\ 24,151 \ 344,223 \ 4,102,491 \ 4,470,865
d. Credit risk concentration
Credit risk concentration of financial receivables by debtors are as follows:
(in millions of Korean won)
Type December 31, 2011 Including allowance Ratio Allowance Book value
Individual \ 15,625,565 84.5% \ (308,056) \ 15,317,509
Corporate
Finance 43,581 0.2% (484) 43,097
Manufacturing 881,447 4.8% (11,473) 869,974
Service 847,200 4.6% (9,693) 837,507
Public 7,545 0.0% (35) 7,510
Others 1,087,388 5.9% (15,135) 1,072,253
2,867,161 15.5% (36,820) 2,830,341
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
70
\ 18,492,726 100.0% \ (344,876) \ 18,147,850
(in millions of Korean won)
Type December 31, 2010 Including allowance Ratio Allowance Book value
Individual \ 14,902,141 86.0% \ (236,824) \ 14,665,317
Corporate
Finance 38,098 0.2% (296) 37,802
Manufacturing 737,970 4.3% (10,444) 727,526
Service 721,722 4.2% (6,854) 714,868
Public 6,270 0.1% (54) 6,216
Others 912,833 5.2% (10,904) 901,929
2,416,893 14.0% (28,552) 2,388,341
\ 17,319,034 100.0% \ (265,376) \ 17,053,658
(in millions of Korean won)
Type January 1, 2010 Including allowance Ratio Allowance Book value
Individual \ 13,036,416 87.2% \ (197,359) \ 12,839,057
Corporate
Finance 29,513 0.2% (260) 29,253
Manufacturing 613,349 4.1% (7,351) 605,998
Service 545,776 3.7% (6,466) 539,310
Public 4,034 0.1% (18) 4,016
Others 698,810 4.7% (9,526) 689,284
1,891,482 12.8% (23,621) 1,867,861
\ 14,927,898 100.0% \ (220,980) \ 14,706,918
28.2 Liquidity risk
Cash flows of financial liabilities based on remaining contractual maturities are as follows:
(in millions of Korean won) December 31, 2011
Type Immediate payment
Up to 3 months 3 months to
1 year 1 to 5 years Over 5 years Total
Borrowings \ - \ 673,265 \ 665,329 \ 1,005,538 \ - \ 2,344,132
Debentures - 1,690,963 4,034,987 10,540,078 1,018,160 17,284,188
Other liabilities 4,729 290,381 188,498 625,188 2 1,108,798
Net settlement derivative
liabilities
-
61 (264) (1,175) - (1,378)
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
71
Gross settlement derivative
liabilities
Cash inflow - (19,064) (499,630) (1,767,979) - (2,286,673)
Cash outflow - 21,679 534,412 1,834,948 - 2,391,039
\ 4,729 \2,657,285 \ 4,923,332 \12,236,598 \ 1,018,162 \ 20,840,106
(in millions of Korean won) December 31, 2010
Type Immediate payment
Up to 3 months 3 months to
1 year 1 to 5 years Over 5 years Total
Borrowings \ - \ 1,024,716 \ 1,130,162 \ 557,869 \ - \ 2,712,747
Debentures - 958,326 3,728,696 10,882,286 408,872 15,978,180
Other liabilities 4,545 351,093 162,139 548,020 - 1,065,797
Net settlement derivative
liabilities
- 1,353 1,211 (68) - 2,496
Gross settlement derivative
liabilities
Cash inflow - (10,023) (400,276) (1,565,978) - (1,976,277)
Cash outflow - 12,849 427,425 1,644,488 - 2,084,762
\ 4,545 \ 2,338,314 \ 5,049,357 \12,066,617 \ 408,872 \ 19,867,705
The above amounts including the principal and future interest payments are contractual
undiscounted cash flows and are not equal to the amounts in the statement of financial position
based on the discounted cash flows.
The unused agreement of limited loan products amounts to a maximum of \ 1,062,198 million as of
December 31, 2011 (2010: \ 1,071,419 million). The unused loan agreement above may have to
be paid immediately on customers’ request.
28.3 Market risk
a. Interest rate risk
The Group manages the interest rate risk through Value at Risk(VaR), Earning at Risk(EaR)
measurement and Interest Rate Gap Analysis that analyze the maturity between the interest
revenue-generating assets and the interest-bearing liabilities.
VaR is calculated using the standard framework of the Bank for International Settlements(BIS). The
VaR model uses the proxy of modified duration per expiration interval proposed by the BIS and
expected interest rate volatility of expiration interval by reason of interest rate fluctuation of 100bp.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
72
The interest rate risk using VaR are as follows:
VaR is a commonly used market risk measurement techniques but has some limitations. VaR
estimates the expected loss under the specific reliability based on the historical changes in the
market data. However, the past changes in market cannot reflect all conditions and environments
that may occur in the future. Therefore, in the process of calculating, the timing and size of the
actual loss may vary according to changes in assumptions.
b. Foreign exchange risk
The Group holds fianancial instruments and borrowings that are denominated in foreign currencies
and is exposed to foreign exchange risk arising from various currency exposures. The Group
undertakes hedging strategies with hedge accounting being applied to manage these foreign
exchange risks.
Foreign exchange position exposures of the Group are as follows:
The Group’s exposure to foreign exchange risk is hedged by derivatives. Therefore, foreign
exchange risk of the Group is not significant.
(in millions of Korean won)
Type December 31,
2011
December 31,
2010
January 1,
2010
Interest rate VaR \ 111,625 \ 78,614 \ 52,510
(in millions of Korean won)
Currency December 31,
2011
December 31,
2010
January 1,
2010
Cash and deposits USD \ 11 \ 14 \ 24 EUR 2,246 721 43
RUB 833 1 25
Others 60 37 30
3,150 773 122
Borrowings and Debentures
USD 4,253,083 3,802,165 3,366,191
EUR 978,635 991,408 1,133,981
MYR 475,478 497,145 291,393
JPY 519,806 514,125 1,187,051
CHF 796,816 426,304 -
Others 57,423 150,671 13,063
\ 7,081,241 \ 6,381,818 \ 5,991,679
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010
73
28.4 Capital risk management
The objective of the Group’s capital management is to maintain sound capital structure. The Group
uses the adjusted capital adequacy ratio under the Supervision of Specialized Credit Financial
Business Law as a capital management indicator. This ratio is calculated as adjusted total assets
divided by adjusted equity.
Adjusted capital adequacy ratios of the Group are as follows:
The above adjusted capital adequacy ratio is calculated according to Supervision of Specialized
Credit Financial Business Law.
(in millions of Korean won)
Type December 31,
2011
December 31,
2010
January 1,
2010
Adjusted total assets (1) \ 20,164,623 \ 19,295,545 \ 18,114,010
Adjusted equity (2) 2,621,593 2,243,382 2,262,984
Adjusted capital adequacy ratio (2)÷(1) 13.00% 11.63% 12.49%