audit report: hyundai capital 1q12 (english)
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Audit Report: Hyundai Capital 1Q12 (English)TRANSCRIPT
Hyundai Capital Services, Inc. and Subsidiaries Interim Consolidated Financial Statements March 31, 2012 and 2011
Hyundai Capital Services, Inc. and Subsidiaries Index March 31, 2012
Report on Review of Interim Financial Statements ....................................................................... 1-2
Interim Consolidated Financial Statements
Interim Consolidated Statements of Financial Position ...................................................................... 3-5
Interim Consolidated Statements of Comprehensive Income ............................................................. 6-8
Interim Consolidated Statements of Changes in Equity ................................................................... 9-10
Interim Consolidated Statements of Cash Flows ................................................................................ 11
Notes to the Interim Consolidated Financial Statements ................................................................ 12-49
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Report on Review of Interim Financial Statements
To the Shareholders and Board of Directors of Hyundai Capital Services, Inc. Reviewed Financial Statements We have reviewed the accompanying interim consolidated financial statements of Hyundai Capital Services, Inc. and its subsidiaries. These financial statements consist of consolidated statement of financial position of the Company and subsidiaries as of March 31, 2012, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the three-month periods ended March 31, 2012 and 2011, and a summary of significant accounting policies and other explanatory notes, expressed in Korean won. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with the International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS) 1034, Interim Financial Reporting, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to issue a report on these consolidated financial statements based on our reviews. We conducted our reviews in accordance with the quarterly and semi-annual review standards established by the Securities and Futures Commission of the Republic of Korea. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the Republic of Korea and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
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Conclusion Based on our reviews, nothing has come to our attention that causes us to believe the accompanying interim consolidated financial statements do not present fairly, in all material respects, in accordance with the Korean IFRS 1034, Interim Financial Reporting. Emphasis of Matter We audited the consolidated statement of financial position as of December 31, 2011, and the related statements of comprehensive income, changes in equity and cash flows for the year ended December 31, 2011, in accordance with auditing standards generally accepted in the Republic of Korea and expressed an unqualified opinion on those statements dated February 24, 2012. The statement of financial position as of December 31, 2011, presented herein for comparative purposes, is consistent, in all material respects, with the above audited statement of financial position as of December 31, 2011. Review standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to review such consolidated 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 review standards and their application in practice Seoul, Korea May 11, 2012 This report is effective as of May 11, 2012, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying interim consolidated financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.
Hyundai Capital Services, Inc. and Subsidiaries Interim Consolidated Statements of Financial Position March 31, 2012 and December 31, 2011
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(In millions of Korean won) 2012 2011 Assets Cash and deposits
Cash and cash equivalents (Note 25) \ 1,751,636 \ 1,455,432 Deposits (Note 3) 10 10
1,751,646 1,455,442 Securities (Note 4)
Available-for-sale securities 20,450 18,452 Equity method investments 53,691 51,768
74,141 70,220 Loans receivable (Notes 5, 6 and 8) 11,136,563 11,129,246 Allowances for doubtful accounts (275,702) (281,184) 10,860,861 10,848,062 Installment financial assets (Notes 5, 6 and 8)
Auto installment financing receivables 4,758,356 5,030,541 Allowances for doubtful accounts (31,252) (36,748) Durable goods installment financing receivables 741 1,422
Allowances for doubtful accounts (77) (141) Mortgage installment financing receivables 21,821 25,679
Allowances for doubtful accounts (168) (1,204) Machinery installment financing receivables 689 1,682 Allowances for doubtful accounts (19) (37) 4,750,091 5,021,194
Lease receivables (Notes 5 and 6) Finance lease receivables (Note 9) 2,364,548 2,278,383 Cancelled lease receivables 305 211 2,364,853 2,278,594
Leased assets (Note 10) Operating leased assets 1,100,777 1,119,309 Cancelled leased assets 3,840 3,769 1,104,617 1,123,078
Hyundai Capital Services, Inc. and Subsidiaries Interim Consolidated Statements of Financial Position March 31, 2012 and December 31, 2011
4
(In millions of Korean won) 2012 2011
Property and equipment (Note 11) 320,608 265,433 Other assets
Intangible assets (Note 12) 63,414 65,117 Non-trade receivables 93,441 87,895
Allowances for doubtful accounts (3,354) (2,913) Accrued revenues 122,998 128,351 Allowances for doubtful accounts (14,120) (14,371) Advance payments 98,829 55,013 Prepaid expenses 49,516 26,434 Leasehold deposits 33,601 35,929 Derivative assets (Note 18) 271,088 475,431 715,413 856,886
Total assets \ 21,942,230 \ 21,918,910
Liabilities and Equity Borrowings
Borrowings (Note 13) \ 2,125,000 \ 2,250,000 Debentures (Notes 8 and 14) 15,472,212 15,522,368
17,597,212 17,772,368 Other liabilities
Non-trade payables 387,763 345,089 Accrued expenses 131,957 135,083 Unearned revenue 58,450 61,095 Withholdings 28,912 24,140 Defined benefit liability (Note 15) 22,221 20,362 Leasehold deposits received 795,245 787,858 Deferred income tax liabilities (Note 16) 39,046 47,884 Provisions (Note 17) 9,852 10,446 Derivative liabilities (Note 18) 58,808 58,096
1,532,254 1,490,053 Total liabilities 19,129,466 19,262,421
Hyundai Capital Services, Inc. and Subsidiaries Interim Consolidated Statements of Financial Position March 31, 2012 and December 31, 2011
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(In millions of Korean won) 2012 2011
Equity Common stock (Notes 1 and 19) 496,537 496,537 Capital surplus
Paid-in capital in excess of par value 369,339 369,339 Other capital surplus 38,200 38,200
407,539 407,539 Accumulated other comprehensive income and
expenses (Note 24)
Gain on valuation of available-for-sale Securities 255 (388)
Accumulated comprehensive income of equity method investees 25 47
Loss on valuation of derivatives (Note 18) (23,423) (50,156) Cumulative effect of overseas operation translation (493) (343)
(23,636) (50,840) Retained earnings (Note 19) 1,932,215 1,803,144
Non-controlling interests 109 109 Total equity 2,812,764 2,656,489 Total liabilities and equity \ 21,942,230 \ 21,918,910
The accompanying notes are an integral part of these interim consolidated financial statements.
Hyundai Capital Services, Inc. and Subsidiaries Interim Consolidated Statements of Comprehensive Income Three-Month Periods ended March 31, 2012 and 2011
6
(In millions of Korean won, except per share amounts) 2012 2011
Operating revenue Interest income (Note 20)
Interest on bank deposits \ 12,602 \ 9,088 Other interest income 43 130 12,645 9,218
Gain on valuation and disposal of securities 1,348 1,604
Income on loans (Notes 20 and 21) 373,411 381,019 Income on installment financial receivables (Notes
20 and 21) 101,825 114,594
Income on leased assets (Notes 20 and 21) 221,253 222,517 Gain on disposal of loans 24,812 - Gain on foreign transactions
Gain on foreign exchanges translation 85,926 146,543 Gain on foreign currency transactions 12,215 2,021 98,141 148,564
Dividend income 2,831 3,238 Other operating income
Gain on valuation of derivatives 48,874 32,672 Gain on derivatives transactions - 715 Others 31,097 24,676 79,971 58,063
Total operating revenue 916,237 938,817
Operating expenses Interest expenses (Note 20) 229,454 239,921 Lease expenses (Note 21) 123,967 131,570 Bad debts expense (Note 6) 82,996 59,716 Loss on foreign transactions
Loss on foreign exchanges translation 48,876 32,676 Loss on foreign currency transactions - 715
48,876 33,391 General and administrative expenses (Note 22) 136,149 133,186
Hyundai Capital Services, Inc. and Subsidiaries Interim Consolidated Statements of Comprehensive Income Three-Month Periods ended March 31, 2012 and 2011
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(In millions of Korean won, except per share amounts) 2012 2011
Other operating expenses Loss on valuation of derivatives 85,929 146,548 Loss on derivatives transactions 12,222 2,028 Others 15,388 10,583
113,539 159,159 Total operating expenses 734,981 756,943
Operating income 181,256 181,874
Non-operating income
Gain on equity method valuation (Note 4) 2,259 2,885 Non-operating expenses
Loss on equity method valuation (Note 4) 116 30 Income before income taxes 183,399 184,729
Income tax expense (Note 16) 54,329 39,605
Net income \ 129,070 \ 145,124
Net income attributable to: Owners of the parent 129,070 145,124 Non-controlling interests - - 129,070 145,124
Other comprehensive income, net of income taxes (Note 24)
Gain on valuation of available-for-sale financial securities 643 35
Other comprehensive income of equity method investees (22) 102
Gain (Loss) on valuation of derivatives 26,733 62,321 Effect of overseas operation translation (150) (184)
27,204 62,274 Total comprehensive income \ 156,274 \ 207,398
Hyundai Capital Services, Inc. and Subsidiaries Interim Consolidated Statements of Comprehensive Income Three-Month Periods ended March 31, 2012 and 2011
8
(In millions of Korean won, except per share amounts)
2012 2011 Total comprehensive income attributable to:
Owners of the parent 156,274 207,398 Non-controlling interests - - 156,274 207,398
Earnings per share attributable to the
ordinary equity holders of the company (Note 23)
Basic earnings per share \ 1,300 \ 1,461
The accompanying notes are an integral part of these interim consolidated financial statements.
Hyundai Capital Services, Inc. and Subsidiaries Interim Consolidated Statements of Changes in Equity Three-Month Periods ended March 31, 2012 and 2011
9
(In millions of Korean won) Capital
stock Capital surplus
Accumulated other
comprehensive income and expenses
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 - - - 145,124 145,124 - 145,124Other comprehensive income
Gain on valuation of available-for-sale securities - - 35 - 35 - 35
Other comprehensive income of equity method investees - - 102 - 102 - 102
Gain on valuation of derivatives - - 62,321 - 62,321 - 62,321 Effect of overseas operation
translation - - (184) - (184) - (184)
Total comprehensive income - - 62,274 145,124 207,398 - 207,398 Transactions with owners Dividends - - - (104,272) (104,272) - (104,272) Balances as of March 31, 2011 \ 496,537 \ 407,539 \ (5,097) \ 1,440,865 \ 2,339,844 \ 129 \ 2,339,973
Hyundai Capital Services, Inc. and Subsidiaries Interim Consolidated Statements of Changes in Equity Three-Month Periods ended March 31, 2012 and 2011
10
(In millions of Korean won) Capital
stock Capital surplus
Accumulated other
comprehensive income and expenses
Retained earnings
Total attributable to owners of the parent
Non-
controlling interests
Total equity Balances as of January 1, 2012 \ 496,537 \ 407,539 \ (50,840) \ 1,803,144 \ 2,656,380 \ 109 \ 2,656,489 Total comprehensive income Net income - - - 129,070 129,070 - 129,070 Other comprehensive income - - - - - - -
Gain on valuation of available-for-sale securities - - 643 - 643 - 643
Other comprehensive income of equity method investees - - (22) - (22) - (22)
Gain on valuation of derivatives - - 26,733 - 26,733 - 26,733 Effect of overseas operation
translation - - (150) - (150) - (150)
Total comprehensive income - - 27,204 129,070 156,274 - 156,274
Balances as of March 31, 2012 \ 496,537 \ 407,539 \ (23,636) \ 1,932,214 \ 2,812,654 \ 109 \ 2,812,763
The accompanying notes are an integral part of these interim consolidated financial statements.
Hyundai Capital Services, Inc. and Subsidiaries Interim Consolidated Statements of Cash Flows Three-Month Periods ended March 31, 2012 and 2011
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(In millions of Korean won) 2012 2011 Cash flows from operating activities Cash generated from operations (Note 25) \ 506,496 \ (81,391) Interest received 15,144 9,088 Interest paid (217,975) (230,624) Dividends received 2,831 3,238 Income taxes paid (1,451) (36,590)
305,045 (336,279)
Cash flows from investing activities Decrease in deposits - 3 Dividends from equity method investments 733 707 Acquisition of land (34,165) (1,853) Acquisition of building (22,053) (4,785) Acquisition of vehicles (2,055) (78) Acquisition of fixtures and furniture (2,640) (5,820) Acquisition of other tangible assets - (231) Increase in construction in progress (847) (941) Acquisition of intangible assets (796) (2,142) Decrease in leasehold deposits 2,622 107 Increase in leasehold deposits (251) (629) Acquisition of equity method investments (535) -
(59,987) (15,662)
Cash flows from financing activities Proceeds from borrowings 530,000 750,000 Repayments of borrowings (655,000) (1,010,000) Issuance of debentures 1,494,933 1,499,996 Repayments of debentures (1,318,635) (773,671) Payments of dividends - (45,151)
51,298 421,174
Exchange losses on cash and cash equivalents (2) -
Decrease in other cash and cash equivalents (150) (184)
Net increase in cash and cash equivalents
296,204 69,049
Cash and cash equivalents (Note 25)
Beginning of period 1,455,432 1,224,866
End of period \ 1,751,636 \ 1,293,915
The accompanying notes are an integral part of these interim consolidated financial statements.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
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1. General information
Hyundai Capital Services, Inc. was established on December 22, 1993, to engage in installment financing, facilities lease and new technology financing. The Company changed its trade name from Hyundai Auto Finance Co., Ltd. to Hyundai Financial Services Co. on April 21, 1995, and changed its trade name once again to Hyundai Capital Services, Inc. on December 30, 1998. In accordance with the Monopoly Regulation and Fair Trade Act, the Company is incorporated into Hyundai Motor Company Group. As of March 31, 2012, the Company’s operations are headquartered in Yeouido, Seoul. Its major shareholders are Hyundai Motor Company and GE International Holdings Corporation with 56.47% and 43.30% ownership, respectively. The interim consolidated financial statements have been prepared and presented which included the accounts of Hyundai Capital Services, Inc. (the “Company”), as the parent company according to Korean IFRS 1027, and Autopia Thirty-fifth trust and SPC and other subsidiaries (collectively the “Group”), while HK Mutual Saving Bank and four other entities are accounted for using the equity method. Subsidiaries as of March 31, 2012 and December 31, 2011, are as follows. The Company has the substantial power over the subsidiaries established as special purpose entities for asset securitization even though its ownership interests over the subsidiaries do not exceed 50%.
LocationRatio of
ownership March 31, 2012 December 31, 2011 Special Purpose Entities1
Autopia Thirty-fifth SPC(trust) Autopia Thirty-fifth SPC(trust) Korea 0.9% Autopia Thirty-sixth SPC(trust) Autopia Thirty-sixth SPC(trust) Autopia Thirty-seventh SPC(trust) Autopia Thirty-seventh SPC(trust) Autopia Thirty-ninth SPC(trust) Autopia Thirty-ninth SPC(trust) Autopia Fortieth SPC(trust) Autopia Fortieth SPC(trust) Autopia Forty-second SPC(trust) Autopia Forty-second SPC(trust) Autopia Forty-third SPC(trust) Autopia Forty-third SPC(trust) Autopia Forty-fourth SPC(trust) Autopia Forty-fourth SPC(trust) Autopia Forty-fifth SPC(trust) Autopia Forty-fifth SPC(trust) Autopia Forty-sixth SPC(trust) Autopia Forty-sixth SPC(trust) Autopia Forty-seventh SPC(trust) Autopia Forty-seventh SPC(trust)
Stock Company
Germany 100% Hyundai Capital Europe GmbH1 Hyundai Capital Europe GmbH1
1 It holds 100% shares of Hyundai Capital Services Limited Liability Company established during 2011.
2. Summary of Significant Accounting Policies
The Group’s interim consolidated financial statements for the three-month period ended March 31, 2012, have been prepared in accordance Korean IFRS 1034, ‘Interim Financial Reporting’. These interim consolidated financial statements have been prepared in accordance with the Korean IFRS
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
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standards and interpretations issued and effective or issued and early adopted as of March 31, 2012.
New standards, amendments and interpretations issued but not effective for the financial year beginning January 1, 2012, and not early adopted by the Group are as follows: - Amendments to Korean-IFRS1019, Employee Benefits According to the amendments to Korean-IFRS1019, Employee Benefits, the corridor method is no longer permitted. Therefore, actuarial gains and losses on the defined benefit obligation are recognized immediately under other comprehensive income. The amendment requires to recognize immediately all past service costs. And the amendment replaces the interest cost on the defined benefit obligation, and the expected return on plan assets with a net interest cost based on the net defined benefit asset or liability and the discount rate measured at the beginning of the year. This amendment will be effective for the Group as of January 1, 2013. The Group is assessing the impact of application of the amended Korean-IFRS1019 on its consolidated financial statements.
- Enactment of Korean-IFRS1113, Fair value measurement Korean-IFRS1113, Fair value measurement, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across Korean-IFRS. Korean-IFRS1101 does not extend the use of fair value accounting but provides guidance on how it should be applied where its use is already required or permitted by other standards within Korean-IFRS. This amendment will be effective for the Group as of January 1, 2013, and the Group expects that it would not have a material impact on the Group.
The following is a summary of significant accounting policies followed by the Group in the preparation of its interim consolidated financial statements. These policies have been consistently applied to all the periods presented, unless otherwise stated.
Interim period income tax expense is calculated by applying estimated average annual effective tax rate to the interim period’s pre-tax income.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
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3. Restricted Financial Instruments
Restricted financial instruments as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won) Amount
Type Entities 2012 2011 Restriction Deposits Hana Bank
and 1 other \ 10 \ 10 Maintaining deposits for opening account
4. Securities Securities as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won)
Type 2012 2011 Available-for-sale securities
Equity securities Marketable equity
securities \ 6,080 \ 5,687 Unlisted equity
securities 10,893 10,526 16,973 16,213 Debt securities Government and
public bonds 3,477 2,239 Sub-total 20,450 18,452 Equity method investments 53,691 51,768
\ 74,141 \ 70,220
Available-for-sale securities Available-for-sale securities as of March 31, 2012 and December 31, 2011, are as follows:
(1) Marketable equity securities
(in millions of Korean won)
Book value
Number of shares
Ownership (%)
Acquisition cost 2012 2011
Marketable equity securities
NICE Information Service 136,593 2.25 \ 3,312 \ 3,538 \ 3,190
NICE Holdings 49,162 1.42 3,491 2,542 2,497 Unlisted equity securities Hyundai Finance Corp. 1 1,700,000 9.29 9,888 10,793 10,426
Korean Egloan, Inc. 4,000 3.12 100 100 100
\ 16,791 \ 16,973 \ 16,213
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
15
1 The fair value for Hyundai Finance Corp. was valued as the average of valuation prices provided by two external appraisers, KIS Pricing Inc. and Korea Asset Pricing, using the discounted cash flow model. The five-year financial statements, projected based on past performance, were used in measuring the fair value assuming that the operational structure will remain as is for the next five years. Operating income and expenses were estimated based on the past performance, business plan and expected market conditions.
(2) Debt securities (in millions of Korean won)
Book value
Issuer
Interest rate (%)
Acquisition cost 2012 2011
Government and public bonds Metropolitan Rapid
Transit and others 2.50 \ 3,322 \ 3,477 \ 2,239
Equity method investments Equity method investments as of March 31, 2012 and December 31, 2011, are as follows:
(in millions of Korean won)
2012 Number of
shares Ownership (%) Acquisition
cost Net asset value Book value
HK Mutual Saving Bank 1 4,990,438 20.00 \ 45,719 \ 35,623 \ 47,871
HI Network, Inc. 1 13,332 19.99 76 370 370 Korea Credit Bureau 1 140,000 7.00 3,800 2,813 3,850 Hyundai Capital
Germany GmbH2 600,200 30.01 1,065 1,005 1,065 Hyundai Capital UK
Ltd.2 1,000,000 29.99 535 535 535
\ 51,195 \ 40,346 \ 53,691
(in millions of Korean won)
2011 Number of
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 GmbH2
600,200 30.01 1,065 1,065 1,065
\ 50,660 \ 38,483 \ 51,768
1 The Company’s shareholdings in HK Mutual Saving Bank, HI Network, Inc. and Korea Credit Bureau are less than 20%. However, the Company is able to significantly influence such as
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
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involvement in the financial and operating processes, and thus the equity method is applied.
2 The Group’s shareholdings are more than 20%. However, equity method is not applied due to insignificant fluctuation of equity.
Valuations of equity method investments for the three-month periods ended March 31, 2012 and 2011, are as follows: (in millions of Korean won) 2012
Beginning Balance Acquisition Gain (loss)
on valuation
Changes in accumulated
other comprehensive
loss
Dividends Ending Balance
HK Mutual Saving Bank \ 45,735 \ - \ 2,158 \ (22) \ - \ 47,871
HI Network, Inc. 1,003 - 100 - (733) 370 Korea Credit
Bureau 3,965 - (115) - - 3,850 Hyundai Capital
Germany GmbH 1,065 - - - - 1,065 Hyundai Capital
UK Ltd - 535 - - - 535
\ 51,768 \ 535 \ 2,143 \ (22) \ (733) \ 53,691
Beginning Balance Gain (loss)
on valuation
Changes in accumulated
other comprehensive
loss
Dividends Ending Balance
HK Mutual Saving Bank \ 42,849 \ 2,725 \ 103 \ - \ 45,677
HI Network, Inc. 1,055 160 - (707) 508Korea Credit
Bureau 3,514 (30) - - 3,484Hyundai Capital
Germany GmbH 1,065 - - - 1,065
\ 48,483 \ 2,855 \ 103 \ (707) \ 50,734
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
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The difference between the acquired amounts of equity method investments and their corresponding net asset value as of March 31, 2012 and December 31, 2011, follows: (in millions of Korean won)
2012 2011 HK Mutual Saving Bank \ 12,248 \ 12,248 Korea Credit Bureau 1,037 1,037
\ 13,285 \ 13,285
Summary of financial information of investees as of March 31, 2012 and December 31, 2011, for assets and liablities , and for the three-month periods ended March 31, 2012 and 2011, for revenue and income, follows:
(in millions of Korean won)
2012
Assets Liabilities Operating revenue Net income
(loss) HK Mutual Saving
Bank 1 \ 2,500,492 \ 2,322,377 \ 96,428 \ 10,791
HI Network, Inc. 9,011 3,491 3,555 624 Korea Credit Bureau 49,196 9,017 8,694 (1,152) Hyundai Capital
Germany GmbH 4,072 373 147 78
Hyundai Capital UK Ltd. 1,785 - - -
1 Although HK Mutual Savings Bank’s fiscal year is from July 2011 to June 2012, the asset and liability amounts are as of March 31, 2012, and its operating revenue and net income amounts are from January 1, 2012 to March 31, 2012.
2011
Assets Liabilities Operating revenue Net income
(loss) HK Mutual Saving
Bank 1 \ 2,593,289 \ 2,425,855 \ 88,477 \ 13,626
HI Network, Inc. 8,560 3,544 5,075 798
Korea Credit Bureau 51,484 9,650 6,876 (423) Hyundai Capital
Germany GmbH 3,889 341 132 12
1 Although HK Mutual Savings Bank’s fiscal year is from July 2010 to June 2011, the asset and liability amounts are as of December 31, 2011, and its operating revenue and net income amounts are from January 1, 2011 to March 31, 2011.
5. Financial receivables
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
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Financial receivables as of March 31, 2012 and December 31, 2011, are as follows:
(in millions of Korean won) 2012
Principal
Deferred loan origination fees
and costs (Direct profit for leased assets)
Present value discounts
Allowance for doubtful
accounts Carrying
amount
Loan receivables Loans \ 11,248,021 \ (109,707) \ (1,751) \ (275,702) \ 10,860,861
Installment financial assets Auto 4,825,815 (67,459) - (31,252) 4,727,104 Durable goods 740 1 - (77) 664 Mortgage 21,773 48 - (168) 21,653 Machinery 687 - 2 (19) 670
4,849,015 (67,410) 2 (31,516) 4,750,091
Lease receivables Finance lease
receivables 2,388,843 (674) - (23,621) 2,364,548
Cancelled lease receivables 5,275 - - (4,970) 305
2,394,118 (674) - (28,591) 2,364,853
\ 18,491,154 \ (177,791) \ (1,749) \ (335,809) \ 17,975,805
2011
Principal
Deferred loan origination fees
and costs (Direct profit for leased assets)
Present value discounts
Allowance for doubtful
accounts Carrying
amount
Loan receivables Loans \ 11,239,870 \ (108,782) \ (1,842) \ (281,184) \ 10,848,062
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) \ (1,836) \ (344,877) \ 18,147,850
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
19
6. Allowance for Doubtful Accounts Changes in allowance for doubtful accounts for the three-month periods ended March 31, 2012 and 2011, are as follows:
(in millions of Korean won) 2012
Type Loan receivables Installment
financial assets Lease receivables Other assets Total
Beginning balance \ 281,184 \ 38,130 \ 25,563 \ 17,284 \ 362,161
Amounts written off (100,814) (12,139) (30) (1,854) (114,837) Recoveries of amounts
previously written off 20,299 2,648 85 1,958 24,990
Discount unwind (1,886) (70) (47) - (2,003) Additional(reversed)
allowance 76,919 2,947 3,020 86 82,972
Ending balance \ 275,702 \ 31,516 \ 28,591 \ 17,474 \ 353,283
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 (56,556) (6,554) (9) (1,150) (64,269) Recoveries of amounts
previously written off 25,260 3,499 51 1,993 30,803
Discount unwind (1,458) (89) (39) - (1,586) Additional(reversed)
allowance 59,526 1,270 1,269 (2,349) 59,716
Ending balance \ 242,475 \ 26,769 \ 22,303 \ 6,142 \ 297,689
7. Financial instruments a. Fair value of financial instruments The fair values of financial instruments as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won)
Type 2012 2011 Book value Fair value Book value Fair value
Assets Financial assets
Cash and deposits \ 1,751,646 \ 1,751,646 \ 1,455,442 \ 1,455,442 Available-for-sale
securities 20,450 20,450 18,452 18,452
Loan receivables 10,860,861 11,140,488 10,848,063 11,124,599 Installment financial
assets 4,750,091 4,861,804 5,021,194 5,145,837
Derivative assets 271,088 271,088 475,431 475,431
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
20
Other assets 232,567 232,503 234,892 234,810
\ 17,886,703 \ 18,277,979 \ 18,053,474 \ 18,454,571 Liabilities
Financial liabilities Borrowings \ 2,125,000 \ 2,134,616 \ 2,250,000 \ 2,257,918
Debentures 15,472,212 15,914,610 15,522,368 15,886,881
Derivative liabilities 58,808 58,808 58,096 58,096
Other liabilities 1,176,148 1,182,949 1,183,744 1,190,133
\ 18,832,168 \ 19,290,983 \ 19,014,208 \ 19,393,028
b. Fair value hierarchy The fair value hierarchy of financial assets and liabilities carried at fair value as of March 31, 2012 and December 31, 2011, is as follows:
(in millions of Korean won) 2012
Type
Book value
Fair value Fair value hierarchy1
level 1 level 2 level 3
Financial assets Financial assets at fair
value
Available-for-sale securities \ 20,450 \ 20,450 \ 6,080 \ 3,477 \ 10,893
Derivative assets 271,088 271,088 - 271,088 -
291,538 291,538 6,080 274,565 10,893
Financial liabilities
Derivative liabilities \ 58,808 \ 58,808 \ - \ 58,808 \ -
1 The levels of fair value hierarchy have been defined as follows: Level 1: Quoted prices in active markets for identical assets or liabilities. Listed stocks and derivatives Level 2: Inputs for the asset or liability included within valuation techniques that are observable market data. Most bonds issued in Korean won and foreign currency, general unlisted derivatives like swap, forward, option Level 3: Inputs for the asset or the liability that are not based on observable market data. Unlisted stocks, complicated structured bonds, complicated unlisted derivatives.
2011
Type
Book value
Fair value Fair value hierarchy(*)
level 1 level 2 level 3
Financial assets Financial assets at fair
value
Available-for-sale \ 18,452 \ 18,452 \ 5,687 \ 2,239 \ 10,526
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
21
securities
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 \ -
c. Changes in financial instruments of level 3
The changes in financial instruments of level 3 for the three-month periods ended March 31, 2012 and 2011, are as follows:
(in millions of Korean won)
Type Available-for-sale securities 2012 2011
Beginning balance \ 10,526 \ 9,887
Gain on valuation (Other comprehensive income)
367 197
Ending balance \ 10,893 \ 10,084
d. Financial instruments by categories
The carrying amounts of financial instruments by categories as of March 31, 2012 and December 31, 2011, are as follows:
(in millions of Korean won) 2012
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 \ - \ 1,751,646 \ - \ - \ 1,751,646 Available-for- sale
securities - - 20,450 - 20,450
Loan receivables - 10,860,861 - - 10,860,861
Installment financial assets
- 4,750,091 - - 4,750,091
Derivative assets 42 - - 271,046 271,088
Other assets - 232,567 - - 232,567
\ 42 \ 17,595,165 \ 20,450 \ 271,046 \ 17,886,703
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
22
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
Loan receivables - 10,848,063 - - 10,848,063
Installment financial assets
- 5,021,194 - - 5,021,194
Derivative assets 53 - - 475,378 475,431
Other assets - 234,892 - - 234,892
\ 53 \ 17,559,591 \ 18,452 \ 475,378 \ 18,053,474
(in millions of Korean won)
2012 2011
Type Financial
liabilities at amortized
cost
Hedging derivative
instruments Total
Financial liabilities at amortized
cost
Hedging derivative
instruments Total
Financial liabilities Borrowings \ 2,125,000 \ - \ 2,125,000 \ 2,250,000 \ - \ 2,250,000
Debentures 15,472,212 - 15,472,212 15,522,368 - 15,522,368 Derivative
liabilities - 58,808 58,808 - 58,096 58,096
Other liabilities 1,176,148 - 1,176,148 1,183,744 - 1,183,744
\ 18,773,360 \ 58,808 \ 18,832,168 \ 18,956,112 \ 58,096 \ 19,014,208
8. Derecognition of financial assets The Group issued senior and subordinated asset-backed securities based on loans and installment financial assets, and subsidiaries, like Autopia Thirty-fifth SPC, issued securitized debts based on senior beneficiary certificates. Meanwhile, the Group is involved in ongoing securitized financial instruments through credit reinforcement such as acquisitions of subordinated beneficiary certificates. Details of not derecognized financial assets transferred as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won)
Type 2012 2011 Book value of assets Loan receivable \ 2,029,492 \ 2,289,879
Installment financial assets 1,698,431 1,775,534 3,727,833 4,065,413 Book value of related liabilities (2,489,058) (2,748,872)
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
23
Liabilities having right of resource about transferred assets : Fair value of assets 3,820,026 4,167,861 Fair value of related liabilities (2,512,419) (2,772,816) Net position \ 1,307,607 \ 1,395,045 9. Finance lease receivables
a. Total lease investments and present value of minimum lease receipts
Details of total lease investments and present value of minimum lease receipts as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won)
Type 2012 2011
Total lease investments
Present value of minimum lease
receipts Total lease
investments Present value of minimum lease
receipts Less than 1 year \ 1,052,734 \ 881,959 \ 984,475 \ 808,521 1 to 5 years 1,642,845 1,503,812 1,610,089 1,475,991 Over 5 years 104 103 77 76 \ 2,695,683 \ 2,385,874 \ 2,594,641 \ 2,284,588
b. Unearned interest income Details of unearned interest income as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won)
Type 2012 2011
Total lease investments \ 2,695,683 \ 2,594,641 Net lease investments Minimum lease receipts
(present value)
2,385,874 2,284,588
Unguaranteed residual value (present value)
2,295 14,913
sub-total 2,388,169 2,299,501 Unearned interest income \ 307,514 \ 295,140
10. Leased assets
All operating leased assets consist of vehicles as of March 31, 2012 and December 31, 2011, and the details are as follows:
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
24
(in millions of Korean won)
2012 2011
Acquisition cost
Accumulated depreciation Book value
Acquisition cost
Accumulated depreciation Book value
Operating leased assets \ 1,754,776 \ (653,999) \ 1,100,777 \ 1,749,697 \ (630,388) \ 1,119,309
Cancelled leased assets 6,066 (2,226) 3,840 5,995 (2,226) 3,769
\ 1,760,842 \ (656,225) \ 1,104,617 \ 1,755,692 \ (632,614) \ 1,123,078
Future minimum lease receipts under operating lease as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won)
Type 2012 2011 Less than 1 year \ 394,764 \ 403,735
1 to 5 years 329,002 345,238
Over 5 years 4 4
\ 723,770 \ 748,977
11. Property and equipment
a. Details of property and equipment Property and equipment as of March 31, 2012 and December 31, 2011, consist of: (in millions of Korean won)
Type 2012 2011
Acquisition cost Accumulated
depreciation Carrying amount Acquisition
cost Accumulated depreciation
Carrying amount
Land \ 139,590 \ - \ 139,590 \ 105,425 \ - \ 105,425
Buildings 142,908 (23,834) 119,074 120,855 (22,916) 97,939
Structures 2,844 (304) 2,540 2,844 (286) 2,558
Vehicles 3,798 (1,130) 2,668 1,743 (982) 761 Fixture and furniture
156,588 (105,126) 51,462 154,771 (101,001) 53,770
Others 2,000 (9) 1,991 2,001 (7) 1,994 Construction in progress
3,283 - 3,283 2,986 - 2,986
\ 451,011 \ (130,403) \ 320,608 \ 390,625 \ (125,192) \ 265,433
b. Changes in property and equipment Changes in property and equipment for the three-month periods ended March 31, 2012 and 2011, are as follows:
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
25
2012
Type Beginning balance Acquisition Replacement Disposal Depreciation Ending
balance Land \ 105,425 \ 34,165 \ - \ - \ - \ 139,590
Buildings 97,939 22,053 - - (918) 119,074
Structures 2,558 - - - (18) 2,540
Vehicles 761 2,055 - - (148) 2,668 Fixture and furniture
53,770 2,640 523 (351) (5,120) 51,462
Others 1,994 - (1) - (2) 1,991 Construction in progress
2,986 847 (550) - - 3,283
\ 265,433 \ 61,760 \ (28) \ (351) \ (6,206) \ 320,608
2011
Type Beginning balance Acquisition Replacement Depreciation Ending
balance Land \ 101,844 \ 1,853 \ - \ - \ 103,697
Buildings 92,543 4,785 - (757) 96,571
Structures 2,246 - - (15) 2,231
Vehicles 838 78 - (89) 827 Fixture and furniture
35,321 5,820 13 (4,376) 36,778
Others 1,200 231 - (2) 1,429 Construction in progress
8,377 941 (3,264) - 6,054
\ 242,369 \ 13,708 \ (3,251) \ (5,239) \ 247,587
12. Intangible assets
a. Details of Intangible assets Intangible assets as of March 31, 2012 and December 31, 2011, consist of:
(in millions of Korean won)
Type 2012 2011
Acquisition cost Accumulated
depreciation Book value Acquisition
cost Accumulated depreciation Book
value Development costs \ 71,898 \ (44,477) \ 27,421 \ 71,254 \ (42,619) \ 28,635
Rights of trademark 69 (42) 27 69 (39) 30 Other intangible assets
53,347 (17,381) 35,966 53,296 (16,844) 36,452
\ 125,314 \ (61,900) \ 63,414 \ 124,619 \ (59,502) \ 65,117
b. Changes in intangible assets Changes in intangible assets for the three-month periods ended March 31, 2012 and 2011, are as follows:
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
26
(in millions of Korean won)
2012
Type Beginning balance Increase Replacement Amortization Ending balance
Development costs \ 28,635 \ 797 \ 30 \ (2,041) \ 27,421
Rights of trademark 30 - - (3) 27
Other intangible assets 36,452 - (2) (484) 35,966
\ 65,117 \ 797 \ 28 \ (2,528) \ 63,414
2011
Type Beginning balance Increase Replacement Amortization Ending balance
Development costs \ 20,004 \ 199 \ 3,251 \ (1,441) \ 22,013
Rights of trademark 44 - - (4) 40
Other intangible assets 32,564 1,942 - (412) 34,094
\ 52,612 \ 2,141 \ 3,251 \ (1,857) \ 56,147
13. Borrowings
Borrowings as of March 31, 2012 and December 31, 2011, consist of:
(in millions of Korean won)
Types Lender Annual interest rate (%) 2012 2011
Borrowings in won
Commercial paper Shinhan Bank
and 7 others
3.63 ~ 5.10 \ 650,000 \ 750,000
General loans Kookmin Bank
and 12 others
4.16 ~ 5.72 1,475,000 1,500,000
\ 2,125,000 \ 2,250,000 14. Debentures
Debentures issued by the Group and outstanding are as follows:
(in millions of Korean won)
Type Annual
interest rates (%)
` March 31, 2012
December 31, 2011
Debenture Securitized debenture
Total Debenture Securitized debenture
Total
Short-term debenture
Debenture 3.76~5.04 \ 270,000 \ - \ 270,000 \ 100,000 \ - \ 100,000
Less: Discount on debentures
(141) - (141) (29) - (29)
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
27
269,859 - 269,859 99,971 - 99,971
Current portion of debenture
Debenture 2.90~8.76 3,169,516 986,156 4,155,672 4,030,429 996,073 5,026,502
Less: Discount on debentures
(834) (211) (1,045) (1,191) (228) (1,419)
3,168,682 985,945 4,154,627 4,029,238 995,845 5,025,083
Long-term debenture
Debenture 0 ~7.47 9,579,745 1,510,181 11,089,926 8,665,456 1,761,283 10,426,739
Less: Discount on debentures
(35,132) (7,068) (42,200) (21,169) (8,256) (29,425)
9,544,613 1,503,113 11,047,726 8,644,287 1,753,027 10,397,314
\ 12,983,154 \ 2,489,058 \ 15,472,212 \ 12,773,496 \ 2,748,872 \ 15,522,368
Securitized debentures are issued based on loans receivable and installment financial assets (Note 8). 15. Defined benefit liability
a. The amounts of defined benefit plans recognized in the statements of financial position as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won)
Type 2012 2011 Present value of funded obligations \ 52,048 \ 49,709 Fair value of plan assets1 (29,827) (29,347) Defined benefit liability \ 22,221 \ 20,362
1. As of March 31, 2012, contribution to the National Pension Fund of \ 43 million is included (December 31, 2011 : \ 45 million). b. Changes in present value of defined benefit obligations as of March 31, 2012 and 2011: (in millions of Korean won)
Type 2012 2011 Beginning balance \ 49,709 \ 38,732 Current service cost 2,868 2,349 Interest cost 491 442 Actuarial losses (242) - Transfer of severance benefits from
related parties
1,308 366
Transfer of severance benefits to related parties
- (380)
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
28
Benefits paid (2,086) (802) Ending balance \ 52,048 \ 40,707
c. Changes in the fair value of plan assets as of March 31, 2012 and 2011: (in millions of Korean won)
Type 2012 2011 Beginning balance \ 29,347 \ 27,045 Contributions by plan participants - 3,499 Expected return on plan assets 286 263 Actuarial (losses)/gains 21 36 Transfer of severance benefits from
related parties
492 346
Transfer of severance benefits to related parties
- (318)
Benefits paid (319) (559) Ending balance \ 29,827 \ 30,312
d. Details of the amounts recognized in the income statement as of March 31, 2012 and 2011: (in millions of Korean won)
Type 2012 2011 Current service cost \ 2,868 \ 2,349 Interest cost 491 442 Expected return on plan assets (286) (263) Actuarial losses (263) - \ 2,810 \ 2,528
e. Actual return on plan assets as of March 31, 2012 and 2011: (in millions of Korean won)
Type 2012 2011 Actual return on plan assets \ 307 \ 299
f. Details of plan assets consist of : (in millions of Korean won)
Type
March 31, 2012 December 31, 2011
Amount Ratio(%) Amount Ratio(%)
Cash \ 496 1.67 \ 179 0.61
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
29
Deposits 11,680 39.16 11,576 39.45 Interest rate
guaranteed asset for 1-year
17,651 59.17 17,592 59.94
\ 29,827 100 \ 29,347 100
g. Actuarial assumptions Actuarial assumptions required to recognize defined benefit liability are as follows:
Type March 31, 2012
December 31, 2011
Discount rate 4.28% 4.21% Expected return on plan assets 4.15% 4.15% Future salary increases 5.60% 5.60% Assumptions regarding future mortality experience are set based on actuarial advice published by Korea Insurance Development Institute.
16. Income tax a. Income tax expense for the three-month periods ended March 31, 2012 and 2011, consists of (in millions of Korean won)
Type 2012 2011 Current tax1 \ 61,762 \ (16,344) Changes in deferred tax assets(liabilities) (8,838) 73,837 Deferred tax credited directly to equity 1,405 (17,888) Income tax \ 54,329 \ 39,605 1 Income tax for the three-month period ended March 31, 2012, includes changes in tax reconciliation of the previous year.
b. Deferred tax credited directly to equity (in millions of Korean won)
Type 2012 2011 Gain on valuation of available-for-sale
financial securities \ (150) \ 2
Loss on valuation of derivatives 1,555 (17,890) \ 1,405 \ (17,888)
c. Reconciliation between income before income tax and income tax expense
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
30
(in millions of Korean won) Type 2012 2011
Profit before tax \ 183,400 \ 184,729 Current tax (24.2%) 43,921 44,678 Adjustments:
Income not subject to tax (10) (7) Expenses not deductible for tax
purposes 313 83
Others 10,105 (5,149) Income tax \ 54,329 \ 39,605
Effective tax rate (Income tax over net income before tax)
29.6% 21.4%
d. Changes in temporary differences and deferred assets (liabilities)
(in millions of Korean won) 2012
Type Temporary differences Deferred assets (liabilities)
Opening Changes Ending Opening Ending Derivatives
instruments \ (178,437) \ 123,563 \ (54,874) \ (54,421) \ (13,280)
Deferred fee (156,056) 24,755 (131,301) (37,765) (31,774) Direct cost for leased
assets (99,692) (525) (100,217) (24,126) (24,253)
Foreign exchanges translation 174,256 (119,954) 54,302 42,170 13,141
Accrued expenses 25,262 1,819 27,081 6,113 6,554
Depreciation 69,156 (81,199) (12,043) 16,736 (2,914) Present value
discounts (6) - (6) (2) (2)
Unearned revenue - 29,471 29,471 - 7,132
Others (22,415) 49,418 27,003 3,411 6,350
\ (187,932) \ 27,348 \ (160,584) \ (47,884) \ (39,046)
2011
Type Temporary differences Deferred assets (liabilities)
Opening Changes Ending Opening Ending Allowances for
doubtful accounts \ (35,003) \ (173,184) \ (208,187) \ (8,471) \ (50,381)
Derivatives instruments (264,263) 36,348 (227,915) (59,619) (50,770)
Deferred fee (192,524) 51,317 (141,207) (45,647) (31,066) Direct cost for leased
assets (84,109) (2,312) (86,421) (19,057) (19,013)
Foreign exchanges translation 227,514 (74,256) 153,258 55,058 34,356
Accrued expenses 132,116 (102,145) 29,971 31,770 7,253
Unearned revenue 43,532 (43,532) - 10,658 - Present value
discounts (66,457) 66,337 (120) (16,081) (26)
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
31
Others 189,061 (63,376) 125,685 48,772 33,193
\ (50,133) \ (304,803) \ (354,936) \ (2,617) \ (76,454)
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 March 31, 2012, 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 Changes in provisions for unused loan commitments for the three-month periods ended March 31, 2012 and 2011, are as follows: (in millions of Korean won)
Type 2012 2011 Beginning balance \ 10,446 \ 46,624 Additional(Reversal) (594) 987 Ending balance \ 9,852 \ 47,611
18. Derivative financial instruments and hedge accounting a. Trading derivatives Trading derivatives as of March 31, 2012 and December 31, 2011, are as follows:
Type 2012 2011 Assets Liabilities Assets Liabilities
Forward foreign exchange
\ 42 \ - \ 53 \ -
During the three-month periods ended March 31, 2012 and 2011, the Group recognized loss on trading derivatives of \ (-)3 million and \ (-)8 million, relatively. b. Derivatives designated as cash flow hedges Derivatives designated as cash flow hedges as of March 31, 2012 and December 31, 2011, are as follows:
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
32
(in millions of Korean won)
Type 2012 2011
Assets Liabilities Notional Principal amounts
Assets Liabilities Notional Principal amounts
Interest rate swaps \ 998 \ 143 \ 648 \ 12 \ 1,331 \ (1,000) Currency swaps 270,048 58,665 (24,072) 475,366 56,765 (49,157) \ 271,046 \ 58,808 \ (23,424) \ 475,378 \ 58,096 \ (50,157)
The maximum period the Group is exposed to the variability in future cash flows arising from derivatives designated as cash flow hedges, is expected to be until September 12, 2017. There is no ineffective portion recognized related to cash flow hedge for the three-month period ended March 31, 2012 and 2011.
19. Equity
a. Capital stock The Company is authorized to issue 500,000,000 shares. As of March 31, 2012, the Company has 99,307,435 shares issued and outstanding with a par value of 5,000 per share. b. Legal reserve and discretionary reserve Legal reserve and discretionary reserve as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won)
Type March 31
2012 December 31,
2011
Legal reserve Revenue reserve \ 79,699 \ 79,699
Discretionary reserve
Reserve for electronic financial transactions
100 100
Reserve for business rationalization 74 74 Reserve for bad loans 270,220 - 270,394 174
Unappropriated retained earnings (Expected reserve for bad loans March 31, 2012: \ 18,115 million December 31, 2011: \ 270,220 million)
1,582,122 1,723,271
\ 1,932,215 \ 1,803,144
c. Reserve for bad loans
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
33
If allowances for doubtful accounts do not meet the minimum amount calculated in accordance with allowance reserve standards of Regulation on Supervision under 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 for the three-month period ended March 31,
2012 and year ended December 31, 2011, are as follows:
(in millions of Korean won) Type 2012 2011
Appropriated reserve for bad loans \ 270,220 \ - Expected reserve for bad loans 18,115 270,220 \ 288,335 \ 270,220
(2) Transfer to reserve for bad loans and net income in consideration of effect of changes in
reserve for bad loan for the three-month periods ended March 31, 2012 and 2011, are as follows:
(in millions of Korean won, except per share amounts)
Type 2012 2011 Net income \ 129,070 \ 145,124
Transfer to reserve for bad loans1 (18,115) (12,319) Net income in consideration of changes in reserve for
bad loans2 110,955 132,805
Net income per share in consideration of changes in reserve for bad loans (In won)
1,117 1,337
1 The amount transferred to reserve for bad loans was the difference between the balance of reserve for bad loans as of March 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.
20. Net interest income
Net interest income for the three-month periods ended March 31, 2012 and 2011, follows: (in millions of Korean won)
Type 2012 2011 Interest income
Cash and deposits \ 12,602 \ 9,088 Loans receivable 361,736 367,591 Installment financial assets 100,189 112,908 Lease receivables1 56,973 51,897 Other² 44 130
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
34
531,544 541,614 Interest expenses
Borrowings 26,984 25,739 Debentures 191,661 198,628 Other² 10,809 15,554 229,454 239,921
Net interest income \ 302,090 \ 301,693
1 Includes amortization of present value discount for lease guarantee.
² Amortization of present value discount using the effective interest method.
21. Net commission income
Net commission income for the three-month periods ended March 31, 2012 and 2011, follows: (in millions of Korean won)
Type 2012 2011 Commission income
Loans receivable \ 11,675 \ 13,428 Installment financial assets 1,636 1,686 Lease receivables 36,556 27,024 49,867 42,138
Commission expenses Lease expenses 4,258 3,246
Net Commission Income \ 45,609 \ 38,892
22. General and administrative expenses
General and administrative expenses for the three-month periods ended March 31, 2012 and 2011, are as follows: (in millions of Korean won)
Type 2012 2011
Payroll \ 27,969 \ 26,209 Severance benefits 2,811 2,522 Fringe benefits 10,552 8,734 Depreciation 6,206 5,239 Advertising 10,542 9,082 Travel and transportation 1,262 971 Communication 3,643 3,281 Water, lighting and heating 2,517 2,280 Commission 4,055 3,710
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
35
Sales commission 14,170 24,753 Amortization 2,528 1,857 Outsourcing service charges 15,438 15,914 Rent 8,830 8,297 Other expenses 25,626 20,337
\ 136,149 \ 133,186
23. Earnings per share a. Basic earnings per share Basic earnings per share attributable to common stock for the three-month periods ended March 31, 2012 and 2011, follows:
Type 2012 2011 (1) Net income attributable to common stock
(In won) \ 129,070,271,598 \ 145,124,022,668
(2) Weighted average of number of outstanding common shares 99,307,435 99,307,435
(3) Basic earnings per share (In won) (1)÷(2) \ 1,300 \ 1,461
b. Diluted earnings per share As there was no discontinued operation during the three-month periods ended March 31, 2012 and 2011, basic earnings per share is the same as basic earnings per share from continuing operations. There are no potential common stocks as of March 31, 2012 and 2011. Therefore, the diluted earnings per share is the same as basic earnings per share for three-month periods ended March 31, 2012 and 2011.
24. Other comprehensive income Other comprehensive income for the three-month periods ended March 31, 2012 and 2011, consist of:
(in millions of Korean won) 2012
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
\ (388) \ - \ 793 \ (150) \ 255
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
36
Accumulated comprehensive expense of equity method investees
47 - (22) - 25
Loss on valuation of derivatives
(50,157) (522) 25,700 1,555 (23,424) Loss on exchange
differences of foreign operations
(343) - (150) - (493)
\ (50,841) \ (522) \ 26,321 1,405 \ (23,637)
(in millions of Korean won)
2011
Type
Beginning
balance
Changes
Income tax effects Ending
balance Reclassifi-cation of profit or
loss Other
changes
Gain on valuation of available-for-sale financial assets
\ 512 \ - \ 33 \ 2 \ 547
Accumulated comprehensive expense of equity method investees
24 - 102 - 126
Loss on valuation of derivatives
(67,924) 2,548 77,663 (17,890) (5,603)
Loss on exchange differences of foreign operations
17 - (184) - (167)
\ (67,371) \ 2,548 \ 77,614 \ (17,888) \ (5,097)
25. Cash flow statement a. Cash and cash equivalents Cash and cash equivalents in cash flow statements consist of cash in hand, deposits and short-term money-market instruments. Cash and cash equivalents consisting of cash and financial instruments as of March 31, 2012 and December 31, 2011, follow: (in millions of Korean won)
Type 2012 2011 Cash \ 4 \ 4 Ordinary deposits 122,059 135,705 Current deposits 2,473 1,923 Short-term financial instruments 1,627,100 1,317,800 \ 1,751,636 \ 1,455,432
b. Cash generated from operations
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
37
Cash generated from operations for the three-month periods ended March 31, 2012 and 2011, are as follows:
(in millions of Korean won) Type 2012 2011
Net income \ 129,070 \ 145,124 Adjustments
Net interest expenses 216,808 230,703 Dividends (2,831) (3,238) Income tax 54,329 39,605 Gain on disposal of available-for-sale financial assets (305) (367)
Gain on loans receivable (8,842) (10,927) Gain on installment financing (20,341) (25,454) Gain on leased assets (327) (329) Gain on foreign exchange translations (85,926) (146,543) Gain on valuation of derivatives (48,874) (32,671) Gain on equity method valuation (2,259) (2,885) Lease expenses 84,066 97,437 Bad debts expense 82,996 59,716 Loss on foreign exchange translations 48,876 32,675 Severance benefits 2,810 2,528 Depreciation 6,206 5,239 Amortization of intangible assets 2,528 1,857 Loss on valuation of derivatives 85,929 146,548 Losses on disposal of property and equipment 351 - Losses on equity method valuation 116 30 Contribution to provision - 987 Reversal of provision (594) - 414,716 394,911
Changes in operating assets and liabilities (Increase) in available-for-sale financial
Assets (898) (701)
(Increase) in loans receivable (101,195) (514,938) Decrease in installment financing receivables 285,849 18,414 (Increase) in finance lease receivables (155,379) (207,878) Decrease in canceled leased receivables 1,494 1,845 (Increase) in operating leased assets (65,534) (24,928) Decrease in canceled leased assets 64,775 51,266 Increase in allowance for bad debts 24,990 30,804 (Increase) in non-trade receivables (7,400) (1,510) Decrease (increase) in accrued revenues 2,811 (534) Decrease (increase) in advance payments (43,816) 3,930 (Increase) in prepaid expenses (23,082) (15,699) Decrease(Increase) in derivative assets (5,873) 21,729
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
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Increase(decrease) in non-trade payables (17,639) 15,153 Increase(decrease) in accrued expenses (39) 12,751 (Decrease) in unearned revenue (2,645) (4,745) Increase in withholdings 4,773 7,741 (Decrease) in leasehold deposits received (3,412) (154) Payment of severance benefits (2,086) (803) Decrease(increase) in plan assets 319 (2,976) Transfer of severance benefits from related parties 816 20 Transfer of severance benefits to related parties - (62) Increase in derivative liabilities 5,881 (10,151) (37,290) (621,425)
\ 506,496 \ (81,391)
c. Investing and financing activities not affecting cash flows - Significant investing and financing activities not affecting cash flows for the three-month periods ended March 31, 2012 and 2011, are as follows: (in millions of Korean won)
Type 2012 2011
Write-off of financial receivables \ 114,837 \ 64,269 Transferred from construction in progress to
property, equipment and intangible assets 550 3,264
Transferred to legal reserve 270,220 30,785
26. Commitments and Contingencies a. Credit Line Agreement Details of credit line agreements of the Group as of March 31, 2012, are as follows: (in millions of Korean won)
Type Financial institutions March
31, 2012 December
31, 2011 Limit of overdraft Shinhan Bank and 2 other banks \ 41,500 \ 41,500 Limit of daily loan SC Jeil Bank and 2 other banks 45,000 45,000 \ 86,500 \ 86,500
b. Credit Facility Agreement The Group has revolving credit facility agreements with several financial institutions as of March 31, 2012. Details of credit facility agreements are as follows:
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
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(in millions of Korean won) Financial institutions March 31, 2012 December 31, 2011
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 110,000 80,000 Citibank, Seoul 50,000 50,000 Standard Chartered, Seoul Branch 50,000 50,000 Societe Generale, Seoul Branch 55,000 55,000 Bank of China, Seoul Branch 30,000 30,000 DBS Bank, Seoul Branch 50,000 50,000 Credit Agricole, Seoul 26,000 26,000 RBS, Seoul 110,000 110,000 ING Bank, Seoul 100,000 100,000 KDB Bank 30,000 30,000 Kyobo Life Insurance Co., Ltd 50,000 50,000 Kookmin Bank 200,000 - CITIBANK, N.A. USD 200 million USD 200 million The Bank of TOKYO MITSUBISHI UFJ.,
Ltd USD 200 million 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.
There has been no usage of the above credit facility agreements as of March 31, 2012. c. Guarantees Details of guarantees involving third parties are as follows:
(in millions of Korean won)
Guarantor
Details March
31, 2012 December
31, 2011 Hyundai Motor Company
Joint liabilities on finance lease receivables1
\ 9 \ 216
Hyundai Wia Joint liabilities on machinery installment financing receivables1
687 1,674
Seoul Guarantee Insurance Co., Ltd.
Guarantee for debt collection deposit, others
\ 179,331 \ 186,062
1 The amounts represent the guaranteed balances as of March 31, 2012 and December 31, 2011, 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
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
40
loans. The receivables balance carried insurance and residual value guaranteed by the insurance are as follows: (in millions of Korean won)
Type March 31, 2012 December 31, 2011 Receivables balance \ 844,359 \ 865,834 The amount of residual value guaranteed by insurance
315,135 284,470
d. Pending significant litigations Details of pending significant litigations involving the Group as of March 31, 2012, are as follows:
(in millions of Korean won) Type Number of litigations Amount of litigations
Plaintiff 5 \ 247 Defendant 5 128
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 March 31, 2012.
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 three-month periods ended March 31, 2012 and 2011, are as follows:
(in millions of Korean won) 2012 2011 Purchases Disposal Purchases Disposal Parent Company Hyundai Motor Company \ 204,079 \ - \ 234,476 \ -
Others Kia Motors Corp. 55,564 - 63,001 - Autoever Systems Corp. 1,032 - 301 - Glovis Co., Ltd. - 12,530 - 17,540 Hyundai Card Co., Ltd. 41,151 - 26,192 - Hyundai Commercial 8,945 - 4,663 -
106,692 12,530 94,157 17,540
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
41
\ 310,771 \ 12,530 \ 328,633 \ 17,540
Revenue, expenses arising from transactions with related parties for the three-month periods ended March 31, 2012 and 2011, and receivables and payables as of March 31, 2012 and December 31, 2011, are as follows:
(in millions of Korean won) 2012 2011 Receivables Payables Receivables Payables Parent Company Hyundai Motor Company \ 3,802 \ 5,142 \ 3,924 \ 7,279
Others Kia Motors Corp. 435 27,945 19,431 17,867 Hyundai Card Co., Ltd. 2,185 130,212 1,165 137,262
Hyundai Commercial 58 5,522 46 4,268 Other related parties 35,875 - 12,844 -
38,553 163,679 33,486 159,397
\ 42,355 \ 168,821 \ 37,410 \ 166,676
(in millions of Korean won)
2012 2011 Revenues Expenses Revenues Expenses Parent Company Hyundai Motor Company \ 1,272 \ 874 \ 5,204 \ 864
Others Kia Motors Corp. - 2,450 - 133 Hyundai Card Co., Ltd. 11,396 7,161 6,230 2,412 Hyundai Commercial 675 554 227 109 Other related parties 1,514 8,590 934 8,263
13,585 18,755 7,391 10,917
\ 14,857 \ 19,629 \ 12,595 \ 11,781
The Group has been provided with a credit facility by GECC (Note 26).
c. Key management compensation
Compensation to key management for the three-month periods ended March 31, 2012 and 2011, consists of:
Type 2012 2011 Short-term employee benefits \ 360 \ 2,442
Severance benefits 387 280 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 Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
42
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 as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won)
Type 2012 2011 Cash and deposits \ 1,751,642 \ 1,455,438 Available-for-sale securities 3,477 2,239 Loans receivable 10,860,861 10,848,063 Installment financial assets 4,750,091 5,021,194 Lease receivables 2,364,853 2,278,594 Non-trade receivables 90,088 84,983 Accrued revenue 108,878 113,980 Leasehold deposits 33,601 35,929 Derivative assets 271,088 475,431 Unused loan commitments 1,057,430 1,062,198 \ 21,292,009 \ 21,378,049
b. Credit quality of financial assets Credit quality of financial assets exposed to credit risk as of March 31, 2012 and December 31, 2011, follows:
(in millions of Korean won)
Type 2012 2011 Normal Past due Impaired Normal Past due Impaired
Cash and deposits \ 1,751,642 \ - \ - \ 1,455,438 \ - \ - Available-for- sale
securities 3,477 - - 2,239 - -
Financial receivables Loans receivable 10,261,694 508,097 91,070 10,231,927 525,603 90,532 Installment
financial assets 4,605,957 140,635 3,499 4,884,452 133,172 3,570 Lease
receivables 2,316,459 43,724 4,670 2,235,881 38,633 4,080
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
43
17,184,110 692,456 99,239 17,352,260 697,408 98,182 Non-trade
receivables 90,088 - - 84,983 - -
Accrued revenue 108,878 - - 113,980 - - Leasehold
deposits 33,601 - - 35,929 - -
Derivative assets 271,088 - - 475,431 - - Unused loan
commitments 1,057,430 - - 1,062,198 - -
\ 20,500,314 \ 692,456 \ 99,239 \ 20,582,458 \ 697,408 \ 98,182
(1) Financial receivables neither past due nor impaired Credit quality of financial receivables which are neither past due nor impaired as of March 31, 2012 and December 31, 2011, are as follows:
(in millions of Korean won)
Type 2012 Gross amount Allowance Book value
First-rate \ 2,430,606 \ (1,637) \ 2,428,969Second-rate 5,150,159 (7,255) 5,142,904Third-rate 6,020,155 (31,375) 5,988,780Fourth-rate 471,698 (6,650) 465,048Fifth-rate 595,914 (17,467) 578,447Sixth-rate 90,126 (14,994) 75,132No rating 2,593,688 (88,858) 2,504,830
\ 17,352,346 \ (168,236) \ 17,184,110
(in millions of Korean won)
Type 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 The Group classifies financial receivables into six internal credit rating classification based on the rating criteria and the characteristic of the 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 due to lack of research data such as information on new loan accounts of the current month or require additional monitoring. And the Group manages credit quality by
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
44
adopting similar credit ratings based on products and gives internal credit ratings when sufficient analytical information is obtained. (2) Financial receivables past due but not impaired Financial receivables past due but not impaired as of March 31, 2012 and December 31, 2011, are as follows:
(in millions of Korean won) 2012
Types Less than 1 month Between
1 ~ 2 months Between
2~3 months Total
Loan receivables \ 414,825 \ 81,789 \ 47,490 \ 544,104
Installment financial assets 127,237 13,123 4,021 144,381 Lease receivables 37,450 5,487 2,180 45,117 579,512 100,399 53,691 733,602
Allowance (16,202) (9,775) (15,169) (41,146) Book value \ 563,310 \ 90,624 \ 38,522 \ 692,45
6
2011
Types Less than 1 month Between
1 ~ 2 months Between
2~3 months Total
Loan receivables \ 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
(3) Impaired financial receivables (in millions of Korean won)
March 31, 2012 Type Gross amount Allowance Book value
Loans receivable \ 194,699 \ (103,629) \ 91,070Installment financial assets 12,212 (8,713) 3,499Lease receivables 18,755 (14,085) 4,670
\ 225,666 \ (126,427) \ 99,239
(in millions of Korean won)
December 31, 2011
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
45
Type Gross amount Allowance Book value Loans receivable \ 194,964 \ (104,432) \ 90,532Installment financial assets 12,109 (8,539) 3,570Lease receivables 15,695 (11,615) 4,080
\ 222,768 \ (124,586) \ 98,182
(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 deposits1 March 31,
2012 December 31,
2011
AAA \ 677,177 \ 769,485
AA+ 275,042 175,139
AA 370,000 90,000
AA- 50,000 100,000
A+ 200,000 190,000
A 130,000 100,000
No rating 19,423 30,814
\ 1,751,642 \ 1,455,438
1 The average external credit rating of three domestic credit rating agencies is used. (in millions of Korean won)
Derivative assets2 March 31,
2012 December 31,
2011
AA- \ 57,854 \ 20,216
A+ 108,926 275,467
A 86,863 150,554
A- 17,445 29,194
\ 271,088 \ 475,431
2 Derivative assets are classified based on S&P credit rating. (in millions of Korean won)
Unused loan commitments
March 31, 2012
December 31, 2011
First-rate \ 34,413 \ 27,828
Second-rate 18,932 15,757 Third-rate 815,099 782,238
Fourth-rate 147,525 163,369
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
46
Fifth-rate 21,218 31,548
Sixth-rate 4,360 2,764
No rating 15,883 38,694
\ 1,057,430 \ 1,062,198
c. Assets pledges as collateral The assets pledged as collateral for financial receivables as of March 31, 2012 and December 31, 2011, are as follows: (in millions of Korean won)
2012
Type
Impaired Unimpaired
Total Delinquent Non-delinquent
Total financial receivables
\ 99,239 \ 692,456 \ 17,184,110 \ 17,975,805
Collateralized assets Collateralized
vehicles 43,802 299,641 4,365,881 4,709,324
Collateralized real estate
1,311 4,687 109,132 115,130
\ 45,113 \ 304,328 \ 4,475,013 \ 4,824,454
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 estate
1,293 5,578 122,428 129,299
\ 47,377 \ 320,556 \ 4,685,319 \ 5,053,252 d. Credit risk concentration Credit risk concentration of financial receivables by debtors as of March 31, 2012 and December 31, 2011, follows:
(in millions of Korean won)
Type 2012 2011 Including
allowance Ratio Allowance Book value Including allowance Ratio Allowance Book value
Individual \ 15,417,072 84.2% \ (297,645) \15,119,427 \ 15,625,565 84.5% \ (308,056) \ 15,317,509
Corporate
Finance 54,447 0.3% (584) 53,863 43,581 0.2% (484) 43,097
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
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Manufac-turing 847,241 4.6% (11,315) 835,926 881,447 4.8% (11,473) 869,974
Service 858,149 4.7% (10,288) 847,861 847,200 4.6% (9,693) 837,507
Public 6,997 0.0% (18) 6,979 7,545 0.0% (35) 7,510
Others 1,127,708 6.2% (15,959) 1,111,749 1,087,388 5.9% (15,135) 1,072,253
2,894,542 15.8% (38,164) 2,856,378 2,867,161 15.5% (36,820) 2,830,341
\ 18,311,614 100.0% \ (335,809) \17,975,805 \ 18,492,726 100.0% \ (344,876) \ 18,147,850
28.2 Liquidity risk
Cash flows of financial liabilities based on remaining contractual maturities as of March 31, 2012 and December 31, 2011, are as follows:
(in millions of Korean won) March 31, 2012
Type Immediate payment
Up to 3 months 3 months to
1 year 1 to 5 years Over 5 years Total
Borrowings \ - \ 687,743 \ 600,426 \ 931,063 \ - \ 2,219,232
Debentures - 1,286,239 3,714,012 10,753,577 1,520,143 17,273,971
Other liabilities 5,320 303,328 204,852 588,206 - 1,101,706
Net settlement derivative
liabilities
-
17 50 84 - 151
Gross settlement derivative
liabilities
Cash inflow - (211,972) (298,825) (1,036,580) (578,856) (2,126,233)
Cash outflow - 230,494 308,068 1,103,547 577,644 2,219,753
\ 5,320 \2,295,849 \4,528,583 \12,339,897 \ 1,518,931 \ 20,688,580
(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
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 \2,657,163 \4,923,860 \12,238,948 \ 1,018,162 \ 20,842,862
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
48
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 \ 1,057,430 million as of March 31, 2012 (December 31, 2011: \ 1,062,198 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. The interest rate risk using VaR as of March 31, 2012 and December 31, 2011, 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 do not 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 borrowings and debentures 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:
(in millions of Korean won) Type 2012 2011
Interest rate VaR \ 135,866 \ 111,625
(in millions of Korean won) Currency 2012 2011
Cash and deposits USD \ 10 \ 11
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Statements March 31, 2012 and 2011, and December 31, 2011
49
The Group’s exposure to foreign exchange risk is hedged by derivatives. Therefore, foreign exchange risk of the Group is not significant.
28.4 Capital risk management
The objective of the Group’s capital management is to maintain sound capital structure. The Group uses adjusted capital adequacy ratio under the regulation on Supervision of Specialized Credit Financial Business Law as a capital management indicator. This ratio is calculated as adjusted total asset divided by adjusted equity. Adjusted capital adequacy ratios of the Group as of March 31, 2012 and December 31, 2011, are as follows:
The above adjusted capital adequacy ratio is calculated according to Supervision of Specialized Credit Financial Business Law.
EUR 1,290 2,246 RUB 949 833
Others 31 60 2,280 3,150
Borrowings and debentures USD 4,248,612 4,253,083 EUR 537,271 978,635 MYR 605,235 475,478 JPY 483,259 519,806 CHF 1,067,005 796,816
Others 56,715 57,423 \ 6,998,097 \ 7,081,241
(in millions of Korean won) Type 2012 2011
Adjusted total asset (1) \ 19,874,837 \ 20,164,623 Adjusted equity (2) 2,754,811 2,621,593 Adjusted capital adequacy ratio(2)÷(1) 13.86% 13.00%