audit report: hyundai commercial 3q2011
TRANSCRIPT
Hyundai Commercial, Inc. andSubsidiaries
Interim Consolidated Financial Statements
September 30, 2011
Hyundai Commercial, Inc. and SubsidiariesIndexSeptember 30, 2011
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................................................................6-7
Interim Consolidated Statements of Changes in Shareholders’ Equity ................................................ 8-9
Interim Consolidated Statements of Cash Flows ....................................................................................10
Notes to the Interim Consolidated Financial Statements...................................................................11-63
1
Report on Review of Interim Financial Statements
To the Shareholders and Board of Directors of
Hyundai Commercial, Inc.
Reviewed Financial Statements
We have reviewed the accompanying interim consolidated financial statements of Hyundai
Commercial, Inc. (the Company) and subsidiaries. These financial statements consist of the
consolidated statement of financial position of the Company and subsidiaries as of September
30, 2011, and the related consolidated statements of comprehensive income for the three-
month and the nine-month periods ended September 30, 2011, and statements of changes in
equity and cash flows for the nine-month period ended September 30, 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 interim
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 interim 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 interim consolidated financial statements based
on our review.
We conducted our review 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.
2
Conclusion
Based on our review, 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
Without qualifying our opinion, as mentioned in Note 2, we draw attention to the fact that
these interim consolidated financial statements are prepared in accordance with Korean IFRS
and the interpretations which are effective as of this report date. Therefore, there may be
changes in the Korean IFRS and related interpretations adopted in the preparation of these
consolidated financial statements when Company prepares its first full Korean IFRS financial
statements.
Others
The consolidated statement of financial position as of December 31, 2010, and the related
consolidated statements of comprehensive income for the three-month and the nine-month
periods ended September 30, 2010, and statements of changes in equity and cash flows for
the nine-month period ended September 30, 2010, presented herein for comparative
purposes, were not reviewed.
Review standards and their application in practice vary among countries. The procedures and
practices used in the Republic of Korea to review such interim 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
November 25, 2011
This report is effective as of November 25, 2011, 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 Commercial, Inc. and SubsidiariesInterim Consolidated Statements of Financial PositionSeptember 30, 2011 and December 31, 2010
3
(In Korean won)September 30,
2011December 31,
2010(Non-reviewed)
Assets
Cash and deposits
Cash and cash equivalents (Note 24) \ 218,105,096,125 \ 99,938,403,013
Deposits (Note 4) 11,500,000 11,500,000
218,116,596,125 99,949,903,013
Securities (Note 5)
Available-for-sale securities 19,200,000,000 17,657,945,000
Equity method investment 145,266,553,556 133,160,973,077
164,466,553,556 150,818,918,077
Loans receivable (Notes 6 and 7)
Factoring 1,625,298,851 1,185,464,975
Allowance for doubtful accounts (18,665,309) (15,550,313)
Loans 2,315,431,842,907 1,789,237,279,462
Allowance for doubtful accounts (18,909,932,635) (12,780,139,160)
2,298,128,543,814 1,777,627,054,964
Installment financial assets (Notes 6 and 7)
Auto installment financing receivables 427,813,157,856 487,175,195,698
Allowance for doubtful accounts (3,182,159,852) (3,055,399,069)
Durable goods installment financing receivables 74,628,123,313 81,485,373,499
Allowance for doubtful accounts (516,413,946) (553,627,898)
498,742,707,371 565,051,542,230
Lease receivables (Notes 6, 7 and 9) 72,741,134,268 40,950,640,964
Property and equipment (Note 10)
Vehicles 129,646,100 119,066,527
Fixtures and furniture 1,984,541,538 1,986,277,290
Others 410,999,664 410,999,664
2,525,187,302 2,516,343,481
Hyundai Commercial, Inc. and SubsidiariesInterim Consolidated Statements of Financial PositionSeptember 30, 2011 and December 31, 2010
4
(In Korean won)
September 30,2011
December 31,2010
(Non-reviewed)
Other assets
Intangible assets (Note 11) ₩ 2,516,565,361 ₩ 2,481,402,934
Non-trade receivables 33,810,976,180 39,739,949,691
Allowance for doubtful accounts (273,635,309) (279,400,536)
Accrued revenues 16,189,936,027 13,110,214,431
Allowance for doubtful accounts (119,163,614) (93,573,786)
Advance payments 778,132,273 770,372,440
Prepaid expenses 2,817,674,227 8,350,859,781
Leasehold deposits 9,035,008,747 7,233,368,763
Derivative assets (Note 17) 801,711,375 6,151,267,007
Others 4,206,566,420 5,319,566,420
69,763,771,687 82,784,027,145
Total assets ₩3,324,484,494,123 ₩2,719,698,429,874
Liabilities and Shareholders’ Equity
Borrowings
Borrowings (Note 12) ₩ 791,324,613,619 ₩ 774,749,000,000
Debentures (Note 13) 1,859,042,348,791 1,504,362,479,869
Securitized debts (Note 14) 359,288,034,223 199,530,274,091
3,009,654,996,633 2,478,641,753,960
Other liabilities
Non-trade payables 8,976,922,344 4,345,884,784
Accrued expenses 20,095,614,922 22,977,718,513
Unearned revenue 4,687,160,341 2,897,710,421
Advances 151,325,169 216,279,513
Withholdings 3,544,125,001 2,809,860,961
Accrued income taxes 9,523,430,123 10,125,301,190
Defined benefit liability (Note 15) 3,209,275,173 1,681,174,959
Leasehold deposits received 13,133,759,946 2,824,085,004
Deferred income tax liabilities (Note 16) 13,541,654,518 8,472,287,159
Derivative liabilities (Note 17) 2,424,486,286 4,088,617,272
79,287,753,823 60,438,919,776
Total liabilities 3,088,942,750,456 2,539,080,673,736
Hyundai Commercial, Inc. and SubsidiariesInterim Consolidated Statements of Financial PositionSeptember 30, 2011 and December 31, 2010
5
(In Korean won)
September 30,2011
December 31,2010
(Non-reviewed)
Shareholders' equity
Common stock (Notes 1 and 18) ₩100,000,000,000 ₩100,000,000,000
Accumulated other comprehensive income andexpenses (Note 23)
Loss on valuation of derivatives (2,087,104,429) (1,662,559,500)
Gain on valuation of available-for-salesecurities
7,077,033,132 2,180,056,816
Accumulated comprehensive income of equitymethod investee
(2,235,205,518) (1,379,778,772)
2,754,723,185 (862,281,456)
Retained earnings (Note 18) 132,767,200,482 81,470,127,594
Non-controlling interests 19,820,000 9,910,000
Total shareholders' equity 235,541,743,667 180,617,756,138
Total liabilities and shareholders' equity ₩3,324,484,494,123 ₩2,719,698,429,874
The accompanying notes are an integral part of these interim consolidated financial statements.
Hyundai Commercial, Inc. and SubsidiariesInterim Consolidated Statements of Comprehensive IncomeThree-Month and Nine-Month Periods ended September 30, 2011 and 2010
6
(In Korean won)
Three months Nine months
2011 2010(Non-reviewed)
2011 2010(Non-reviewed)
Operating revenue
Interest income ₩1,463,352,131 ₩ 488,395,025 ₩3,850,521,688 ₩1,563,100,490
Income on loans 63,099,307,058 42,813,465,180 176,904,907,139 108,672,193,977
Income on installment financialreceivables
14,604,672,104 16,948,539,741 46,079,748,476 49,050,140,997
Income on leases 1,268,004,041 888,353,190 3,603,492,901 2,912,357,288
Gain on disposal of loans 698,180,192 42,335,462 1,815,211,113 467,311,435
Gain on foreign currency transactions
Gain on foreign currencytransactions
--
3,348,000,000 -
Gain on foreign exchangetranslation
- 6,327,500,000 - 3,765,500,000
- 6,327,500,000 3,348,000,000 3,765,500,000
Dividend income - - 300,000,000 -
Other operating income
Gain on valuation of derivatives 5,577,000,000 - 3,391,000,000 -
Gain on disposal of securities 1,638,531,160 - 1,638,531,160 -
Others 329,443,519 271,323,025 1,083,927,325 832,185,855
7,544,974,679 271,323,025 6,113,458,485 832,185,855
Total operating revenue 88,678,490,205 67,779,911,623 242,015,339,802 167,262,790,042
Operating expenses
Interest expenses 38,051,809,194 29,243,387,478 108,972,256,146 78,928,781,740
Bad debts expense (Note 7) 4,476,291,109 1,954,455,925 15,436,407,844 4,736,666,586
Loss on disposal of loans 428,685,968 1,178,070,180 715,160,437 1,833,478,780
Loss on foreign transactions
Loss on foreign currencytransactions
- - 1,962 -
Loss on foreign exchangetranslation
5,577,000,000 - 3,391,000,000 -
5,577,000,000 - 3,391,001,962 -
General and administrative expenses(Note 21)
13,271,443,099 12,346,812,307 40,336,862,691 32,962,325,276
Other operating expenses
Loss on valuation of derivatives - 6,327,500,000 - 3,765,500,000
Loss on derivatives transactions - - 3,348,000,000 -
Others 984,033,880 147,796,878 2,533,236,714 1,069,465,243
984,033,880 6,475,296,878 5,881,236,714 4,834,965,243
Total operating expenses 62,789,263,250 51,198,022,768 174,732,925,794 123,296,217,625
Operating income 25,889,226,955 16,581,888,855 67,282,414,008 43,966,572,417
Hyundai Commercial, Inc. and SubsidiariesInterim Consolidated Statements of Comprehensive IncomeThree-Month and Nine-Month Periods ended September 30, 2011 and 2010
7
(In Korean won)
Three months Nine months
2011 2010(Non-reviewed)
2011 2010(Non-reviewed)
Non-operating income
Gain on equity method valuation(Note 5)
₩ 4,542,225,051 ₩ 8,868,228,688 ₩13,202,281,435 ₩16,479,176,413
Non-operating expenses
Donations - - - 1,197,915
Income before income taxes 30,431,452,006 25,450,117,543 80,484,695,443 60,444,550,915
Income tax expense (Note 16) 6,212,784,801 4,950,947,410 19,187,622,555 13,412,241,785
Net income ₩24,218,667,205 ₩20,499,170,133 ₩61,297,072,888 ₩47,032,309,130
Net income attributable to:
Owners of the parent 24,218,667,205 20,499,170,133 61,297,072,888 47,032,309,130
Non-controlling interests - - - -
24,218,667,205 20,499,170,133 61,297,072,888 47,032,309,130
Other comprehensive income,net of income taxes (Note 23)
Gain (Loss) on valuation ofderivatives
(1,194,466,843) 874,942,583 (424,544,929) 951,057,432
Gain(Loss) on valuation ofavailable-for-sale financialsecurities
1,060,345,650 302,917,227 4,896,976,316 174,217,227
Other comprehensive income ofequity method investee
(531,244,953) (1,804,778,728) (855,426,746) (1,945,726,807)
(665,366,146) (626,918,918) 3,617,004,641 (820,452,148)
Total comprehensive income ₩23,553,301,059 ₩19,872,251,215 ₩64,914,077,529 ₩46,211,856,982
Total comprehensive incomeattributable to:
Owners of the parent 23,553,301,059 19,872,251,215 64,914,077,529 46,211,856,982
Non-controlling interests - - - -
23,553,301,059 19,872,251,215 64,914,077,529 46,211,856,982
Earnings per share attributable tothe ordinary equity holders of theParent Company (Note 22)
Basic earnings pershare (Note 22)
₩ 1,211 ₩ 1,025 ₩ 3,065 ₩ 2,352
The accompanying notes are an integral part of these interim consolidated financial statements.
Hyundai Commercial, Inc. and SubsidiariesInterim Consolidated Statements of Changes in Shareholders’ EquityNine-Month Periods ended September 30, 2011 and 2010
8
(In Korean won)
Capital stockCapitalsurplus
Accumulatedother
comprehensiveincome andexpenses
Retainedearnings
Totalattributable toowners of the
parent
Non-controllinginterests Total equity
Balances as of January 1, 2010 \100,000,000,000 \(663,810,140) \ (1,931,396,310) \25,005,933,366 \122,410,726,916 \ - \122,410,726,916
Total comprehensive income
Net income - - - 47,032,309,130 47,032,309,130 - 47,032,309,130
Other comprehensive income
Gain on valuation of derivatives - - 951,057,432 - 951,057,432 - 951,057,432Gain on valuation of available-for-
sale securities- - 174,217,227 - 174,217,227 - 174,217,227
Other comprehensive income ofequity method investee
- - (1,945,726,807) - (1,945,726,807) - (1,945,726,807)
Total comprehensive income - - (820,452,148) 47,032,309,130 46,211,856,982 - 46,211,856,982
Transactions with owners
Discount on stock issuance - 663,810,140 - (663,810,140) - - -Establishment of special purpose
entity- - - - - 9,910,000 9,910,000
Other - - - (13,520,488) (13,520,488) - (13,520,488)
Total transactions with owners - 663,810,140 - (677,330,628) (13,520,488) 9,910,000 (3,610,488)
Balances as of September 30, 2010(Non-reviewed) \100,000,000,000 \ - \ (2,751,848,458) \71,360,911,868 \168,609,063,410 \ 9,910,000 \168,618,973,410
Hyundai Commercial, Inc. and SubsidiariesInterim Consolidated Statements of Changes in Shareholders’ EquityNine-Month Periods ended September 30, 2011 and 2010
9
(In Korean won)
Capital stockCapitalsurplus
Accumulatedother
comprehensiveincome andexpenses
Retainedearnings
Total attributableto owners of the
parent
Non-controllinginterests Total equity
Balances as of January 1, 2011 \100,000,000,000 \ - \ (862,281,456) \ 81,470,127,594 \180,607,846,138 \ 9,910,000 \180,617,756,138
Total comprehensive income
Net income - - - 61,297,072,888 61,297,072,888 - 61,297,072,888
Other comprehensive income
Loss on valuation of derivatives - - (424,544,929) - (424,544,929) - (424,544,929)Gain on valuation of available-for-
sale securities- - 4,896,976,316 - 4,896,976,316 - 4,896,976,316
Other comprehensive income ofequity method investee
- - (855,426,746) - (855,426,746) - (855,426,746)
Total comprehensive income - - 3,617,004,641 61,297,072,888 64,914,077,529 - 64,914,077,529
Transactions with ownersEstablishment of special purpose
entity- - - - - 9,910,000 9,910,000
Dividends - - - (10,000,000,000) (10,000,000,000) - (10,000,000,000)
Total transactions with owners - - - (10,000,000,000) (10,000,000,000) 9,910,000 (9,990,090,000)
Balances as of September 30, 2011 \100,000,000,000 \ - \ 2,754,723,185 \132,767,200,482 \235,521,923,667 \ 19,820,000 \235,541,743,667
The accompanying notes are an integral part of these interim consolidated financial statements.
Hyundai Commercial, Inc. and SubsidiariesInterim Consolidated Statements of Cash FlowsNine-Month Periods ended September 30, 2011 and 2010
10
(In Korean won)
2011 2010(Non-reviewed)
Cash flows from operating activities
Cash generated from operations (Note 24) \ (289,762,803,517) \ (577,953,544,447)
Interest received 3,714,417,543 1,198,424,342Interest paid (106,489,312,810) (74,722,178,964)Dividends received 300,000,000 -Income taxes paid (15,721,051,020) (4,519,840,107)
Net cash used in operations (407,958,749,804) (655,997,139,176)
Cash flows from investing activitiesDisposal of available-for-sale securities 6,293,531,160 345,000,000Acquisition of available-for-sale securities - (10,126,880,600)Dividends from equity method investment - 5,778,254,300Disposal of vehicles 27,020,000 -Acquisition of vehicles (79,715,188) -Acquisition of fixtures and furniture (949,359,799) (681,383,816)Acquisition of intangible assets (138,324,876) (967,600,200)Decrease in leasehold deposits - 29,532,250Increase in leasehold deposits (2,036,847,000) (288,400,000)Disposal of other investment assets - 25,000,000
Net cash provided by(used in) investing activities 3,116,304,297 (5,886,478,066)
Cash flows from financing activitiesProceeds from borrowings 649,994,814,251 1,271,400,000,000Repayments of borrowings (633,419,200,632) (1,204,650,000,000)Issuance of debentures 600,707,289,400 649,970,000,000Repayments of debentures (243,740,000,000) (243,787,502,430)Issuance of securitized debts 199,456,325,600 249,316,692,300Repayments of securitized debts (40,000,000,000) (20,000,000,000)Cash inflows of transactions with subsidiaries 9,910,000 9,910,000Payments of dividends (10,000,000,000) -
Net cash provided by financing activities 523,009,138,619 702,259,099,870
Net increase in cash and cash equivalents 118,166,693,112 40,375,482,628
Cash and cash equivalentsBeginning of period 99,938,403,013 26,810,646,159
End of period \ 218,105,096,125 \ 67,186,128,787
The accompanying notes are an integral part of these interim consolidated financial statements.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
11
1. General Information
Hyundai Commercial, Inc. (the Company) was established on March 27, 2007, by taking over all
the assets, liabilities, rights and obligations related with the loans of the industrial product division
of Hyundai Capital Services, Inc. and its installment financing and lease financing division. It is
engaged in installment financing, and leasing of facilities. The Company’s operations are
headquartered in Yeouido, Seoul. Its shareholders are as follows:
Shareholders Ownership
Hyundai Motor Company 50.00%
Myung-yi Chung 33.33%
Tae-young Chung 16.67%
Total 100.00%
2. Summary of Significant Accounting Policies
The consolidated financial statements have been prepared and presented which included the
accounts of Hyundai Commercial, Inc., as the parent company according to the Korean IFRS
1027, and Commercial Auto First trust and SPC and another subsidiary(collectively the “Group”),
while Hyundai Card Co., Ltd. is accounted for under the equity method.
Subsidiaries as of September 30, 2011 and December 31, 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%.
2011 2010
Special
Purpose
Entities
Commercial Auto First Trust and SPC Commercial Auto First Trust and SPC
Commercial Auto Second Trust and SPC
The Company’s interim consolidated financial statements are prepared in the Korean language
(Hangul) in conformity with International Financial Reporting Standards as adopted by the Republic
of Korea (“Korean IFRS”). The Company’s Korean IFRS transition date is January 1, 2010, and the
adoption date is January 1, 2011.
The interim consolidated financial statements are stated at historical cost unless otherwise stated
in the notes.
The reconciliations and descriptions of the effect of the transition from the consolidated financial
statements of the Company prepared in accordance with accounting principles generally accepted
in the Republic of Korea (“K-GAAP”) before the adoption date to Korean IFRS on the Company’s
equity as of January 1, 2010, September 30, 2010, and December 31, 2010, its comprehensive
income and cash flows for the nine-month period ended September 30, 2010 and year ended
December 31, 2010, are provided in Note 3.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
12
The interim consolidated financial statements for the nine-month periods ended September 30,
2011 and 2010, have been prepared in accordance with Korean IFRS 1034. Because these interim
consolidated financial statements are a part of financial statements prepared by Korean IFRS as of
December 31, 2011, these are subject to Korean IFRS 1101, ‘First-time Adoption of Korean IFRS’.
These interim consolidated financial statements have been prepared in accordance with the
Korean IFRS standards and interpretations issued and effective at the reporting date. The Korean
IFRS standards and interpretations that will be applicable at December 31, 2011, including those
that will be applicable on an optional basis, are not known with certainty at the time of preparing
these interim consolidated financial statements.
The legislative and amended standards and interpretations the Group has not adopted earlier,
which have been promulgated but are not yet effective for the fiscal year starting from January 1,
2011, are as follows.
- Amendments to Korean IFRS 1101, ‘Deletion of Hyperinflation and the particular date’
(announced in December, 2010)
The date of prospective application, the exceptions to retrospective application in derecognition of
financial assets, has been changed from the particular date(January 1, 2004) to Korean IFRS
transition date according to the amendment above. Therefore, derecognition transactions that
occurred before the transition date are not restated in accordance with Korean IFRS. The
modification is required to be adopted from July 1, 2011.
- Amendments to Korean IFRS 1012, ‘Income Taxes’
If there is no disproof, investment property measured at fair value when measuring deferred
income tax assets and liabilities should be measured in consideration of recovered tax effects by
selling. This will be effective on January 1, 2011.
- Amendments to Korean IFRS 1107, ‘Financial Instruments: Disclosures’
The financial assets transferred to counterparts but still remained in the financial statements are
required to be disclosed in terms of the nature of the assets, the book value, the risks and rewards.
If an entity is exposed to the particular risks and rewards on the derecognized financial assets,
additional disclosures are required to the understand effects of the risks. The amendments are
applicable from July 1, 2011.
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.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
13
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. Subsidiaries are fully consolidated from the date on which control is transferred to
the Company. They are deconsolidated 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
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.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
14
d. Associates
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.
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
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
15
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 the
market, comparative 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.
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.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
16
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, other short-term
highly liquid investments with original maturities of nine months or less and bank overdrafts.
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.
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 (the date on
which the Group commits to purchase or sell the asset). Investments are initially recognized at fair
value plus transaction costs for all financial assets not carried at fair value through profit or loss.
Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables are
subsequently carried at amortized cost using the effective interest method.
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.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
17
The Group can transfer an asset in statement of financial position but retains parts of or all the risks
and rewards of ownership of the transferred asset substantially. To the extent that a transfer of a
financial asset retains rights and obligations, the Group accounts both asset and liability at the
same time. After the Group transfers a financial asset and still retains control, it shall continue to
recognize the asset to the extent of its continuing involvement in the 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
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 origination 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.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
18
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. And
the interest for impaired assets is recognized through the amortization of present value discounts.
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. The
decision to write off a standard small loan is generally made based on the delinquent status of loan.
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 lesser 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 title is
not transferred, ④at the inception of the lease the present value of the minimum lease payments
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
19
amounts to at least substantially all of the fair value of the leased asset, and 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.
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
Vehicles Straight-line 4 years
Fixtures and furniture Straight-line 4 years
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
recognized 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
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
20
amortization calculated based on using the following amortization method and estimated useful
lives:
Amortization Method Useful life
Software Straight-line 4 years
Other intangible assets Straight-line 5 years
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 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.
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.
2.15 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.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
21
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.
2.16 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.
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
applying hedging accounting, the relative profits or losses are reclassified to interest expenses and
gain or loss on foreign exchange translation.
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 profit or loss.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
22
2.17 Current and deferred income tax
Interim period income tax expense is calculated by applying to an interim period’s pre-tax income
the tax rate that would be applicable to expected total annual earnings.
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 accounted for if they arise
from the 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 date of the statement of financial position 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
and associates, except for deferred income tax liability where the timing of the reversal of the
temporary difference is controlled by the Group and it is probable that the temporary difference will
not reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to
offset current tax assets against current tax liabilities and when the deferred income taxes assets
and liabilities relate to income taxes levied by the same taxation authority on either the same
taxable entity or different taxable entities which intend either to settle current tax liabilities and
assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future
period in which significant amounts of deferred tax liabilities or assets are expected to be settled or
recovered.
2.18 Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the
Company by the weighted average number of ordinary shares in issue during the period excluding
ordinary shares purchased by the Company 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.
3. Transition to Korean IFRS
The interim consolidated financial statements as of September 30, 2011, are prepared according
to Korean IFRS at the adoption date of January 1, 2011. The statements of financial position as of
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
23
December 31, 2010 and as of September 30, 2010, which were prepared previously under K-
GAAP are restated in accordance with Korean IFRS 1101, “First-time adoption of Korean IFRS”,
for the comparative purposes, at the transition date of January 1, 2010.
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
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 K-GAAP as
deemed cost at the date of transition to Korean IFRS.
b. Explanation on the reconciliation of K-GAAP and Korean IFRS
Major reconciliations of the transition between K-GAAP and Korean IFRS are as follows:
(1) Impairment of financial assets (allowance for financial assets)
Under K-GAAP, allowances for financial 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) Accrued revenue for overdue receivables
Under K-GAAP, accrued revenue for receivables which are overdue is not recognized. Under
Korean IFRS, accrued revenue for past due and impaired receivables is recognized.
(3) Measurement of financial assets carried at amortized cost
Under 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.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
24
(4) Depreciation method for property and equipment
Under K-GAAP, depreciation method used 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.
(5) Retirement benefit obligations
Under 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 represent. 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.
(6) Recognition of unused compensated absences
According to 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.
(7) Consolidation
Under K-GAAP, Commercial Auto First 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).
(8) 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 Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
25
c. Effects on assets, liabilities, equity, comprehensive income and net income
(1) Reconciliation of assets, liabilities and equity as of January 1, 2010
(in thousands of Korean won)
Assets Liabilities Equity
K-GAAP \ 1,628,843,966 \ 1,519,996,760 \ 108,847,206
Conversion effects to Korean IFRS
Allowance for doubtful accounts 7,431,968 - 7,431,968
Accrued revenues 1,132,941 - 1,132,941
Measurement of amortized cost (1,378,454) - (1,378,454)
Depreciation 2,001,667 - 2,001,667
Retirement benefit obligations - 5,711 (5,711)
Recognition of unused compensatedabsences
- 229,507 (229,507)
Conversion adjustments of the associates 8,260,061 (92,431) 8,352,492
Others 366,621 33,745 332,876
Deferred income taxes (337,432) 3,737,319 (4,074,751)
Total effect of transition 17,477,372 3,913,851 13,563,521
Korean IFRS \ 1,646,321,338 \ 1,523,910,611 \ 122,410,727
(2) Reconciliation of assets, liabilities and equity as of September 30, 2010
(in thousands of Korean won)
Assets Liabilities Equity
K-GAAP \ 2,175,508,752 \ 2,017,890,077 \ 157,618,675
Conversion effects to Korean IFRS
Allowance for doubtful accounts 9,599,653 - 9,599,653
Accrued revenues 1,864,208 - 1,864,208
Measurement of amortized cost (3,559,980) - (3,559,980)
Depreciation 1,409,455 - 1,409,455
Retirement benefit obligations - (101,796) 101,796
Recognition of unused compensatedabsences
- 363,347 (363,347)
Conversion adjustments of the associates 11,213,262 (442,244) 11,655,506
Others 108,002 17,066 90,936
Scope of consolidation 212,631,483 219,234,433 (6,602,950)
Deferred income taxes - 3,194,978 (3,194,978)
Total effect of transition 233,266,083 222,265,784 11,000,299
Korean IFRS \ 2,408,774,835 \ 2,240,155,861 \ 168,618,974
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
26
(3) Reconciliation of total comprehensive income and net income for the three-month and the nine-
month periods ended September 30, 2010
(in thousands of Korean won)
Three months Nine months
Totalcomprehensive
incomeNet Income
Totalcomprehensive
incomeNet Income
K-GAAP \ 15,363,080 \ 17,204,341 \ 48,771,469 \ 50,714,481
Conversion effects to Korean IFRS
Allowance for doubtfulaccounts
2,332,855 2,332,855 2,167,685 2,167,685
Accrued revenues 584,823 584,823 731,267 731,267
Measurement of amortizedcost
(291,212) (291,212) (2,181,526) (2,181,526)
Depreciation (168,105) (168,105) (592,213) (592,213)
Retirement benefit obligations 32,239 32,239 99,013 99,013
Recognition of unusedcompensated absences
(36,898) (36,898) (133,840) (133,840)
Conversion adjustments ofthe associates
2,060,478 1,768,600 2,924,152 2,773,223
Others 930,680 8,213 1,084,116 112,484
Scope of consolidation 2,540,557 2,540,557 (5,150,359) (5,150,359)
Deferred income taxes (3,476,244) (3,476,244) (1,507,907) (1,507,907)
Total effect of transition 4,509,173 3,294,828 (2,559,612) (3,682,173)
Korean IFRS \ 19,872,253 \ 20,499,169 \ 46,211,857 \ 47,032,308
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
27
(4) Reconciliation of assets, liabilities, equity, total comprehensive income and net income as of
and for the year ended December 31, 2010
(in thousands of Korean won)
Assets Liabilities Total equityTotal
comprehensiveincome
Net Income
K-GAAP \2,534,174,650 \2,359,395,222 \174,779,428 \ 65,932,223 \ 64,833,503
Conversion effects to Korean IFRS
Allowance for doubtfulaccounts
9,071,121 - 9,071,121 1,639,153 1,639,153
Accrued revenues 495,782 - 495,782 (637,159) (637,159)
Measurement ofamortized cost
(4,130,557) - (4,130,557) (2,752,102) (2,752,102)
Depreciation 1,275,895 - 1,275,895 (725,772) (725,772)
Retirement benefitobligations
- 378,378 (378,378) (372,667) (372,667)
Recognition of unusedcompensated absences
- 258,690 (258,690) (29,184) (29,184)
Conversion adjustmentsof the associates
6,603,813 (29,025) 6,632,838 (1,930,262) (1,900,657)
Others - (135,307) 135,307 132,857 132,857
Scope of consolidation 172,207,726 177,075,156 (4,867,430) (4,877,341) (4,877,341)
Deferred income taxes - 2,137,560 (2,137,560) 1,958,632 1,958,632
Total effect of transition 185,523,780 179,685,452 5,838,328 (7,593,845) (7,564,240)
Korean IFRS \ 2,719,698,430 \ 2,539,080,674 \180,617,756 \ 58,338,378 \ 57,269,263
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 K-GAAP. There are no other
significant differences between cash flows under Korean IFRS and K-GAAP.
e. Adjustments of operating income and expenses
The Group reclassified certain non-operating income and expenses under K-GAAP to other
operating income and expenses according to Korean IFRS.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
28
Adjustments for the three-month and the nine-month periods ended September 30, 2011 and
2010, are as follows:
(in thousands of Korean won) 2011 2010
TypeThree
monthsNine
monthsThree
monthsNine
months
Other operating income \ 94,422 \ 337,071 \ 50,659 \ 191,684
Other operating expenses 1,187,056 1,317,200 508,871 558,445
4. Restricted Financial Instruments
Restricted financial instruments as of September 30, 2011 and December 31, 2010, are as follows:
(in thousands of Korean won) Amount
Type Entities 2011 2010 Restriction
DepositsKookmin Bankand 3 others \ 11,500 \ 11,500
Maintaining depositsfor opening accounts
5. Securities
Securities as of September 30, 2011 and December 31, 2010, are as follows:
(in thousands of Korean won)
Type 2011 2010
Available-for-sale securities
Equity securities
Marketable equitysecurities \ 19,200,000 \ 11,518,000
Unlisted equitysecurities
- 6,139,945
Sub-total 19,200,000 17,657,945
Equity method investment 145,266,554 133,160,973
\ 164,466,554 \ 150,818,918
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
29
Available-for-sale securities
Available-for-sale securities as of September 30, 2011 and December 31, 2010, are as follows:
(in thousands of Korean won)
Book value
Number ofshares
Ownership(%)
Acquisitioncost
2011 2010
Marketable equity securities
JNK Heaters Co.,Ltd.
1,000,000 12.5 \10,126,881 \19,200,000 \11,518,000
Unlisted equity securities
West EndCorporateRestructuringCorp.
- - - - 6,139,945
\10,126,881 \19,200,000 \17,657,945
Equity method investment
Equity method investment as of September 30, 2011 and December 31, 2010, is as follows:
(in thousands of Korean won)
2011Number of
sharesOwnership
(%)Acquisition
costNet asset
valueBook value
Hyundai Card Co.,
Ltd.1 8,889,622 5.54 \ 113,820,162 \108,338,706 \145,266,554
(in thousands of Korean won)
2010Number of
sharesOwnership
(%)Acquisition
costNet asset
valueBook value
Hyundai Card Co.,
Ltd.1 8,889,622 5.54 \ 113,820,162 \ 96,233,125 \133,160,973
1The Company’s shareholdings in Hyundai Card Co., Ltd. are less than 20%. However, the
Company is able to participate in the management and significantly influence the financial and
operating processes. Thus, the equity method is applied.
Valuations of equity method investment for the nine-month periods ended September 30, 2011
and 2010, is as follows:
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
30
(in thousands of Korean won)
2011
BeginningBalance
Gain (loss)on valuation
Dividends
Changes inaccumulated
othercomprehensive
income
OthersEndingBalance
Hyundai CardCo., Ltd.
\133,160,973 \13,202,282 \ - \ (1,096,701) \ - \ 145,266,554
(in thousands of Korean won)
2010
BeginningBalance
Gain (loss)on valuation
Dividends
Changes inaccumulated
othercomprehensive
income
Changesin
retainedearnings
EndingBalance
Hyundai CardCo., Ltd.
\127,357,477 \16,479,176 \(5,778,254) \ (2,494,522) \ (13,520) \ 135,550,357
The difference between the acquired amounts of equity method investment and its corresponding
net asset value as of September 30, 2011 and December 31, 2010, follows:
(in thousands of Korean won)
2011 2010
Hyundai Card Co., Ltd. \ 36,926,750 \ 36,926,750
Summary of financial information of investee for the nine-month periods ended September 30,
2011 and for the year ended December 31, 2010, follows:
(in thousands of Korean won)
2011
Assets LiabilitiesOperatingrevenue
Net income
Hyundai Card Co., Ltd. \10,325,096,646 \ 8,369,470,458 \ 1,817,218,582 \ 238,312,480
(in thousands of Korean won)
2010
Assets LiabilitiesOperatingrevenue
Net income
Hyundai Card Co., Ltd. \10,416,574,470 \8,679,464,372 \ 2,316,447,184 \ 284,376,845
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
31
6. Financial Receivables
Financial receivables as of September 30, 2011 and December 31, 2010, are as follows:
(in thousands of Korean won)
2011
Principal
Deferred loanorigination fees and
costs(Initial direct costsfor lease assets)
Presentvalue
discounts
Allowancefor doubtful
accountsBook value
Loan receivables
Factoringreceivables
\ 1,625,299 \ - \ - \ (18,665) \ 1,606,634
Loans 2,301,226,570 14,366,058 (160,785) (18,909,933) 2,296,521,910
2,302,851,869 14,366,058 (160,785) (18,928,598) 2,298,128,544
Installment financial assets
Auto 429,211,658 (1,398,501) - (3,182,159) 424,630,998
Durable goods 75,439,087 (810,964) - (516,414) 74,111,709
504,650,745 (2,209,465) - (3,698,573) 498,742,707
Lease receivables
Finance leasereceivables
73,292,995 (19,719) - (532,142) 72,741,134
\2,880,795,609 \ 12,136,874 \ (160,785) \(23,159,313) \2,869,612,385
(in thousands of Korean won)
2010
Principal
Deferred loanorigination fees and
costs(Initial direct costsfor lease assets)
Presentvalue
discounts
Allowancefor doubtful
accountsBook value
Loan receivables
Factoring \ 1,185,465 \ - \ - \ (15,550) \ 1,169,915
Loans 1,782,518,786 6,898,083 (179,590) (12,780,139) 1,776,457,140
1,783,704,251 6,898,083 (179,590) (12,795,689) 1,777,627,055
Installment financial assets
Auto 493,287,083 (6,111,888) - (3,055,399) 484,119,796
Durable goods 81,961,709 (476,335) - (553,628) 80,931,746
575,248,792 (6,588,223) - (3,609,027) 565,051,542
Lease receivables
Finance leasereceivables
41,206,800 (41,546) - (214,613) 40,950,641
\2,400,159,843 \ 268,314 \ (179,590) \(16,619,329) \2,383,629,238
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
32
7. Allowance for Doubtful Accounts
Changes in allowance for doubtful accounts for the nine-month periods ended September 30, 2011
and 2010, are as follows:
(in thousands of Korean won)
2011
TypeLoan
receivablesInstallment
financial assetsLease
receivablesOther assets Total
Beginning balance \ 12,795,689 \ 3,609,027 \ 214,613 \ 372,974 \ 16,992,303
Amounts written off (1,651,217) (136,040) - - (1,787,257)
Recoveries of amountspreviously written off
(6,037,785) (1,031,878) 90,152 - (6,979,511)
Unwinding of discount (102,787) (6,936) (108) - (109,831)
Additional(reversed)allowance
13,924,698 1,264,400 227,485 19,825 15,436,408
Ending balance \ 18,928,598 \ 3,698,573 \ 532,142 \ 392,799 \ 23,552,112
(in thousands of Korean won)
2010
TypeLoan
receivablesInstallment
financial assetsLease
receivablesOther assets Total
Beginning balance \ 10,110,193 \ 3,420,293 \ 233,056 \ 387,760 \ 14,151,302
Amounts written off (563,514) (57,734) - - (621,248)
Recoveries of amountspreviously written off
(963,372) (290,359) 266,654 - (987,077)
Unwinding of discount (50,287) (8,907) (13,369) - (72,563)
Additional(reversed)allowance
3,158,764 1,342,189 133,744 101,970 4,736,667
Ending balance \ 11,691,784 \ 4,405,482 \ 620,085 \ 489,730 \ 17,207,081
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
33
8. Financial Instruments
The fair values of financial instruments as of September 30, 2011 and December 31, 2010, are as
follows:
(in thousands of Korean won)
Type
2011 2010
Bookvalue
Fairvalue
Bookvalue
Fairvalue
Financial assets
Cash and deposits \ 218,116,596 \ 218,116,596 \ 99,949,903 \ 99,949,903
Available-for-salesecurities
19,200,000 19,200,000 17,657,945 17,657,945
Loans receivable 2,298,128,544 2,298,641,895 1,777,627,055 1,713,240,877
Installment financialassets
498,742,707 499,036,938 565,051,542 576,954,790
Derivative assets 801,711 801,711 6,151,267 6,151,267
Non-trade
receivables33,537,341 33,537,341 39,460,549 39,460,549
Accrued revenues 16,070,772 16,070,772 13,016,641 13,016,641
Leasehold deposits 9,035,009 8,876,874 7,233,369 7,632,659
\ 3,093,632,680 \ 3,094,282,127 \ 2,526,148,271 \ 2,474,064,631
Financial liabilities
Borrowings \ 791,324,614 \ 793,383,501 \ 774,749,000 \ 774,193,924
Debentures 1,859,042,349 1,893,535,914 1,504,362,480 1,543,521,096
Securitized debts 359,288,034 364,002,331 199,530,274 202,500,316
Derivative liabilities 2,424,486 2,424,486 4,088,617 4,088,617
Non-trade payables 8,976,922 8,976,922 4,345,885 4,345,885
Accrued expenses 20,095,615 20,095,615 22,977,719 22,977,719
Withholdings1
3,119,293 3,119,293 2,583,344 2,583,344
Leasehold depositsreceived
13,133,760 13,133,760 2,824,085 2,854,340
\ 3,057,405,073 \ 3,098,742,743 \ 2,515,461,404 \ 2,557,065,241
1Excluding taxes.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
34
The fair value hierarchy of financial assets and liabilities carried at fair value as of September 30,
2011 and December 31, 2010, are as follows:
(in thousands of Korean won)
2011
TypeBookvalue
Fairvalue
Fair value hierarchy1
level 1 level 2 level 3
Financial assets at fair
value
Available-for-salesecurities
\ 19,200,000 \ 19,200,000 \ 19,200,000 \ - \ -
Derivative assets 801,711 801,711 - 801,711 -
\ 20,001,711 \ 20,001,711 \ 19,200,000 \ 801,711 \ -
Financial liabilities at
fair value
Derivative liabilities \ 2,424,486 \ 2,424,486 \ - \2,424,486 \ -
1The 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 thousands of Korean won)
2010
TypeBookvalue
Fairvalue
Fair value hierarchy(*)
level 1 level 2 level 3
Financial assets at fair
value
Available-for-salesecurities
\ 17,657,945 \ 17,657,945 \ - \ - \ 17,657,945
Derivative assets 6,151,267 6,151,267 - 6,151,267 -
\ 23,809,212 \ 23,809,212 \ - \ 6,151,267 \ 17,657,945
Financial liabilities at
fair value
Derivative liabilities \ 4,088,617 \ 4,088,617 \ - \ 4,088,617 \ -
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
35
The changes in financial instruments of level 3 for the nine-month periods ended September 30,
2011 and 2010, are as follows:
(in thousands of Korean won)
TypeAvailable-for-sale securities
2011 2010
Beginning balance \ 17,657,945 \ 5,450,000
Acquisition - 10,126,881
Gains on valuation(Other comprehensive income)
(1,484,945) 1,219,304
Disposal (4,655,000) (345,000)
Reclassification1
(11,518,000) -
Ending balance \ - \ 16,451,185
1The fair value hierarchy of the available-for-sale securities has been reclassified from level 3 to
level 1 as JNK Heaters Co., Ltd. was listed during the current period.
The book value of financial instruments by categories as of September 30, 2011 and December 31,
2010, are as follows:
(in thousands of Korean won)
2011
TypeLoans andreceivables
Available-for-salefinancial assets
Hedgingderivative
instrumentsTotal
Financial assets
Cash and deposits \ 218,116,596 \ - \ - \ 218,116,596
Available-for- salesecurities
- 19,200,000 - 19,200,000
Loans receivable 2,298,128,544 - - 2,298,128,544
Installmentfinancial assets
498,742,707 - - 498,742,707
Derivative assets - - 801,711 801,711
Non-tradereceivables
33,537,341 - - 33,537,341
Accrued revenues 16,070,772 - - 16,070,772
Leaseholddeposits
9,035,009 - - 9,035,009
\ 3,073,630,969 \ 19,200,000 \ 801,711 \ 3,093,632,680
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
36
(in thousands of Korean won)
2010
TypeLoans andreceivables
Available-for-salefinancial assets
Hedgingderivative
instrumentsTotal
Financial assets
Cash and deposits \ 99,949,903 \ - \ - \ 99,949,903
Available-for- salesecurities
- 17,657,945 - 17,657,945
Loans receivable 1,777,627,055 - - 1,777,627,055
Installmentfinancial assets
565,051,542 - - 565,051,542
Derivative assets - - 6,151,267 6,151,267
Non-tradereceivables
39,460,549 - - 39,460,549
Accrued revenues 13,016,641 - - 13,016,641
Leaseholddeposits
7,233,369 - - 7,233,369
\ 2,502,339,059 \ 17,657,945 \ 6,151,267 \ 2,526,148,271
(in thousands of Korean won)
2011 2010
TypeFinancial
liabilities atamortized cost
Hedgingderivative
instrumentsTotal
Financialliabilities at
amortized cost
Hedgingderivative
instrumentsTotal
Financial liabilities
Borrowings \ 791,324,614 \ - \ 791,324,614 \ 774,749,000 \ - \ 774,749,000
Debentures 1,859,042,349 - 1,859,042,349 1,504,362,480 - 1,504,362,480
Securitized debts 359,288,034 359,288,034 199,530,274 199,530,274
Derivativeliabilities
- 2,424,486 2,424,486 - 4,088,617 4,088,617
Non-tradepayables
8,976,922 - 8,976,922 4,345,885 - 4,345,885
Accrued expenses 20,095,615 - 20,095,615 22,977,719 - 22,977,719
Withholdings 3,119,293 - 3,119,293 2,583,344 - 2,583,344
Leaseholddepositsreceived
13,133,760 - 13,133,760 2,824,085 - 2,824,085
\3,054,980,587 \ 2,424,486 \3,057,405,073 \ 2,511,372,787 \ 4,088,617 \ 2,515,461,404
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
37
9. Finance Lease Receivables
Details of total lease investments and present value of minimum lease receipts as of September
30, 2011 and December 31, 2010, are as follows:
(in thousands of Korean won)
Type
2011 2010
Total leaseinvestments
Present value ofminimum lease
receipts
Total leaseinvestments
Present value ofminimum lease
receipts
Less than 1 year \ 33,827,360 \ 29,183,599 \ 21,101,532 \ 18,109,108
1 to 5 years 47,358,632 44,089,677 24,931,950 23,056,146
\ 81,185,992 \ 73,273,276 \ 46,033,482 \ 41,165,254
Details of unearned interest income as of September 30, 2011 and December 31, 2010, are as
follows:
(in thousands of Korean won)
2011
Total lease
investments
Net lease investmentsUnearnedinterestincome
Minimum leasereceipts (present
value)
Unguaranteedresidual value(present value)
Total
\ 81,185,992 \ 73,273,276 \ - \ 73,273,276 \ 7,912,716
2010
Total lease
investments
Net lease investmentsUnearnedinterestincome
Minimum leasereceipts (present
value)
Unguaranteedresidual value(present value)
Total
\ 46,033,482 \ 41,165,254 \ - \ 41,165,254 \ 4,868,228
10. Property and Equipment
Property and equipment as of September 30, 2011 and December 31, 2010, consist of:
(in thousands of Korean won)
Type2011 2010
Acquisitioncost
Accumulateddepreciation
Book valueAcquisition
costAccumulateddepreciation
Book value
Vehicles \ 238,639 \ (108,993) \ 129,646 \ 219,387 \ (100,321) \ 119,066
Fixture andfurniture
6,457,221 (4,472,680) 1,984,541 5,567,947 (3,581,670) 1,986,277
Others 411,000 - 411,000 411,000 - 411,000
\ 7,106,860 \ (4,581,673) \ 2,525,187 \ 6,198,334 \ (3,681,991) \ 2,516,343
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
38
Changes in property and equipment for the nine-month periods ended September 30, 2011 and
2010, are as follows:
(in thousands of Korean won)
2011
Type Beginning balance Acquisition Disposal Depreciation Ending balance
Vehicles \ 119,066 \ 79,715 \ (22,673) \ (46,462) \ 129,646
Fixture andfurniture
1,986,277 949,360 (48,895) (902,201) 1,984,541
Others 411,000 - - - 411,000
\ 2,516,343 \ 1,029,075 \ (71,568) \ (948,663) \ 2,525,187
(in thousands of Korean won)
2010
Type Beginning balance Acquisition Disposal Depreciation Ending balance
Vehicles \ 173,913 \ - \ - \ (41,135) \ 132,778
Fixture andfurniture
2,188,895 681,384 - (897,898) 1,972,381
Others 411,000 - - - 411,000
\ 2,773,808 \ 681,384 \ - \ (939,033) \ 2,516,159
As of September 30, 2011, the Company carries comprehensive property insurance with Hyundai
Marine and Fire Insurance for its other tangible assets and electronic equipment for up to
₩ 2,196,426 thousand, vehicles insurance for its vehicles, and group accident insurance, travel
insurance and business damage insurance for its employees. And the Company carries
comprehensive property insurance with Hyundai Marine and Fire Insurance for its machine tool
installment financial assets and lease assets for up to ₩ 211,209,784 thousand.
11. Intangible Assets
Intangible assets as of September 30, 2011 and December 31, 2010, consist of:
(in thousands of Korean won)
Type2011 2010
Acquisitioncost
Accumulateddepreciation
Bookvalue
Acquisitioncost
Accumulateddepreciation
Bookvalue
Software \ 5,014,047 \ (4,116,035) \ 950,922 \ 4,960,422 \ (3,328,226) \ 1,632,196
Other intangibleassets
1,878,733 (313,090) 1,565,643 915,728 (66,521) 849,207
\ 6,945,690 \ (4,429,125) \ 2,516,565 \ 5,876,150 \ (3,394,747) \ 2,481,403
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
39
Changes in intangible assets for the nine-month periods ended September 30, 2011 and 2010, are
as follows:
(in thousands of Korean won)
2011
Type Beginning balance Increase1
Amortization Ending balance
Software \ 1,632,196 \ 106,535 \ (787,809) \ 950,922
Other intangible assets 849,207 963,005 (246,569) 1,565,643
\ 2,481,403 \ 1,069,540 \ (1,034,378) \ 2,516,565
1Inclusive of transfer from advance payments.
(in thousands of Korean won)
2010
Type Beginning balance Increase1
Amortization Ending balance
Software \ 2,408,636 \ 352,283 \ (876,254) \ 1,884,665
Other intangible assets 13,019 615,316 (15,292) 613,043
\ 2,421,655 \ 967,599 \ (891,546) \ 2,497,708
12. Borrowings
Borrowings as of September 30, 2011 and December 31, 2010, consist of:
(in thousands of Korean won)
Types LenderAnnual
interest rate (%)2011 2010
Borrowings in won
Commercial paperSK Securities
and 4 others3.57 ~ 4.32 \ 230,000,000 \ 323,000,000
General loansShinhan Bank
and 9 others3.71 ~ 6.35 561,324,614 451,749,000
\ 791,324,614 \ 774,749,000
13. Debentures
Debentures issued by the Group and outstanding as of September 30, 2011 and December 31,
2010, are as follows:
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
40
(in thousands of Korean won)
TypeAnnualinterest
rates (%)
2011 2010
Par value Issue price Par value Issue price
Current portion of debenture
Debenture 4.23 ~ 7.50 \ 495,000,000 \ 495,000,000 \ 310,334,000 \ 310,334,000
Less: Discount ondebentures
(228,807) (288,552)
494,771,193 310,045,448
Non-current portion of debenture
Debenture 4.10 ~ 8.00 1,366,154,500 1,366,154,500 1,196,143,500 1,196,143,500
Less: Discount ondebentures
(1,883,344) (1,826,468)
1,364,271,156 1,194,317,032
\ 1,861,154,500 \ 1,859,042,349 \ 1,506,477,500 \ 1,504,362,480
14. Securitized debts
The amounts of securitized debts which are secured by loans and installment financial assets in
accordance with Asset Backed Securitization Act, as of September 30, 2011 and December 31,
2010, are as follows:
(in thousands of Korean won)
TypeAnnualinterest
rates (%)
2011 2010
Par value Issue price Par value Issue price
Current portion of securitized debts
Debenture 4.12 ~ 4.19 \ 30,000,000 \ 30,000,000 \ - \ -
Less: Discount onsecuritized debts
(48,686) -
29,951,314 -
Non-current portion of securitized debts
Debenture 4.23 ~ 5.43 330,000,000 330,000,000 200,000,000 200,000,000
Less: Discount onsecuritized debts
(663,280) (469,726)
329,336,720 199,530,274
\ 360,000,000 \ 359,288,034 \ 200,000,000 \ 199,530,274
15. Defined Benefit Liability
The amounts of defined benefit plans recognized in the statements of financial position as of
September 30, 2011 and December 31, 2010, are as follows:
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
41
(in thousands of Korean won)
Type 2011 2010
Present value of funded obligations \ 6,826,744 \ 5,493,658
Fair value of plan assets (3,617,469) (3,812,483)
Defined benefit liability \ 3,209,275 \ 1,681,175
Changes in present value of defined benefit obligations for the nine-month periods ended
September 30, 2011 and 2010:
(in thousands of Korean won)
Type 2011 2010
Beginning balance \ 5,493,658 \ 4,414,782
Current service cost 1,296,066 966,955
Interest cost 201,235 177,661
Actuarial losses 217,476 -
Transfer of severance benefits from
related parties
412,549 434,606
Transfer of severance benefits to related
parties
- (254,171)
Benefits paid (794,240) (371,750)
Ending balance \ 6,826,744 \ 5,368,083
Changes in the fair value of plan assets for the nine-month periods ended September 30, 2011 and
2010:
(in thousands of Korean
won)
Type 2011 2010
Beginning balance \ 3,812,483 \ 2,678,455
Expected return on plan assets 112,058 94,740
Actuarial (losses)/gains 5,174 10,889
Transfer of severance benefits from
related parties
365,608 327,257
Transfer of severance benefits to
related parties
- (139,945)
Contributions by plan participants - 1,000,000
Benefits paid (677,854) (267,742)
Ending balance \ 3,617,469 \ 3,703,654
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
42
Details of the amounts recognized in the income statement for the nine-month periods ended
September 30, 2011 and 2010:
(in thousands of Korean won)
Type 2011 2010
Current service cost \ 1,296,066 \ 966,955
Interest cost 201,235 177,661
Expected return on plan assets (112,058) (94,740)
Actuarial losses 212,302 (10,889)
\ 1,597,545 \ 1,038,987
Actual return on plan assets for the nine-month periods ended September 30, 2011 and 2010:
(in thousands of Korean won)
Type 2011 2010
Actual return on plan assets \ 117,232 \ 105,629
Details of plan assets as of September 30, 2011 and December 31, 2010:
(in thousands of Korean won)
Type2011 2010
Amount Ratio(%) Amount Ratio(%)
Cash \ 17 0.01 \ 47,125 1.24
Deposits 2,219,772 61.36 2,146,754 56.31
Interest rate guaranteedasset for 1-year
1,397,680 38.63 1,618,604 42.45
\ 3,617,469 100.00 \ 3,812,483 100.00
Actuarial assumptions
Actuarial assumptions required to recognize defined benefit liability as of September 30, 2011 and
December 31, 2010, are as follows:
Type 2011 2010
Discount rate 4.89% 4.90%
Expected return on plan assets 3.82% 4.20%
Future salary increases 5.69% 5.43%
Assumptions regarding future mortality experience are set based on actuarial advice published by
Korea Insurance Development Institute.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
43
16. Income Tax
Income tax expense for the nine-month periods ended September 30, 2011 and 2010, consists of:
(in thousands of Korean won)
Type 2011 2010
Current tax1 \ 15,119,182 \ 8,677,278
Changes in deferred tax assets(liabilities) 5,069,367 4,510,036
Deferred tax credited directly to equity (1,000,926) 224,928
Income tax \ 19,187,623 \ 13,412,2421
Income tax for the nine-month period ended September 30, 2011, includes changes in tax
reconciliation of the previous year.
Deferred tax credited directly to equity
(in thousands of Korean won)
Type 2011 2010
Loss on valuation of derivatives \ 57,879 \ (55,621)
Gain(Loss) on valuation of available-for-sale financial securities
(1,300,079) (268,247)
Accumulated comprehensive income of
equity method investee
241,274 548,796
\ (1,000,926) \ 224,928
Reconciliation between income before income tax and income tax expense
(in thousands of Korean won)
Type 2011 2010
Profit before tax \ 80,483,598 \ 60,444,551
Current tax (24.2%) \ 19,450,630 \ 14,601,181
Adjustments:
Income not subject to tax (25,959) -
Expenses not deductible for taxpurposes
- 71,206
Others (237,048) (1,260,145)
Income tax \ 19,187,623 \ 13,412,242
Effective tax rate
(Income tax over net income before tax)23.8% 22.2%
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
44
Changes in temporary differences and deferred assets (liabilities)
(in thousands of Korean won)
2011
TypeTemporary differences Deferred assets (liabilities)
Beginning Changes Ending Beginning Ending
Deferred loan originationfees and costs
\ (32,402,378) \ 2,332,662 \ (30,069,716) \ (6,963,514) \ (6,615,337)
Allowances for doubtfulaccounts
(9,058,852) (10,387) (9,069,239) (2,192,242) (1,995,233)
Equity methodinvestment
(19,472,745) (11,973,647) (31,446,392) (3,845,072) (6,918,205)
Derivatives (2,062,650) 3,685,425 1,622,775 (499,162) 357,010
Gain on foreigncurrency translation
4,256,000 (3,203,000) 1,053,000 1,029,952 231,660
Goodwill 8,913,333 (5,730,000) 3,183,333 2,157,027 700,333
Accrued expenses 5,284,115 (378,042) 4,906,073 1,278,756 1,079,336
Available-for-salesecurities
(2,876,064) (6,197,055) (9,073,119) (696,007) (1,996,086)
SPC consolidationeffects
6,537,815 (402,004) 6,135,811 1,532,690 1,349,878
Others (1,090,929) 2,295,428 1,204,499 (274,715) 264,990
\ (41,972,355) \ (19,580,620) \ (61,552,975) \ (8,472,287) \ (13,541,654)
(in thousands of Korean won)
2010
TypeTemporary differences Deferred assets (liabilities)
Beginning Changes Ending Beginning Ending
Deferred loan originationfees and costs
\ (20,525,769) \ (7,945,914) \ (28,471,683) \ (4,944,290) \ (6,734,222)
Allowances for doubtfulaccounts
(7,158,030) (2,412,690) (9,570,720) (1,732,243) (2,316,114)
Equity methodinvestment
3,016,018 (13,922,880) (10,906,862) 999,684 (2,399,510)
Derivatives (4,806,544) 1,306,162 (3,500,382) (1,163,184) (847,092)
Gain on foreign currencytranslation
8,316,000 (1,536,000) 6,780,000 2,012,472 1,640,760
Accrued expenses 8,583,263 (1,686,836) 6,896,427 2,077,150 1,668,935
SPC consolidationeffects
- 8,308,313 8,308,313 - 1,827,829
Others (4,148,615) (435,102) (4,583,717) (986,909) (1,087,942)
\ (16,723,677) \(18,324,947) \ (35,048,624) \ (3,737,320) \ (8,247,356)
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.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
45
17. Derivative Financial Instruments and Hedge Accounting
Derivatives designated as cash flow hedges as of September 30, 2011 and December 31, 2010,
are as follows:
(in thousands of Korean won)
Type
2011 2010
Notionalprincipalamounts
Assets LiabilitiesNotionalprincipalamounts
Assets Liabilities
Interest rate swaps \100,000,000 \ 111,516 \ - \ 40,000,000 \ - \ 596,237
Currency swaps 64,872,500 690,195 2,424,486 108,195,500 6,151,267 3,492,380
\164,872,500 \ 801,711 \ 2,424,486 \148,195,500 \ 6,151,267 \ 4,088,617
The amount recognized as other comprehensive income, representing the effective portion related
to cash flow hedge, is \ (-)1,859,171 thousand as of September 30, 2011, and the reclassified
amount from other comprehensive income to profit or loss is \ 1,376,747 thousand. There is no
ineffective portion recognized related to cash flow hedge for the nine-months periods ended
September 30, 2011 and 2010.
18. Shareholders’ Equity
Capital stock
The Company is authorized to issue 80,000,000 shares. As of September 30, 2011, the Company
has 20,000,000 shares issued and outstanding with a par value of \ 5,000 per share.
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.
Discretionary reserve
The Company appropriates a reserve in accordance with Electronic Financial Transactions Act.
Legal reserve and discretionary reserve
Legal reserve and discretionary reserve as of September 30, 2011 and December 31, 2010, are as
follows:
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
46
(in thousands of Korean won)
Type 2011 2010
Legal reserve Revenue reserve \ 1,000,000 \ -
Discretionaryreserve
Reserve for electronic financialtransactions
100,000 -
1,100,000 -
Unappropriated retained earnings
(Expected reserve for bad loans
2011: \ 3,286,975 thousand
2010: \ 2,407,178 thousand)
131,667,200 81,470,128
\ 132,767,200 \ 81,470,128
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 the Specialized Credit
Financial Business Law Article 11, the Group appropriates a reserve for bad loans in an amount
more than the difference between the allowance and the requirement. The reserve for bad loans is
attributed to discretionary reserve for retained earnings. If the existing reserve for bad loans
exceeds the reserve for bad to be reserved, the excess amounts are able to write-back. And if
unappropriated deficit is existing, the reserve for bad loans is able to be reserved after
unappropriated deficit is appropriated.
(1) Appropriated and expected reserves for bad loans as of September 30, 2011 and year ended
December 31, 2010, are as follows:
(in thousands of Korean won)
Type 2011 2010
Appropriated reserve for bad loans \ - \ -
Expected reserve for bad loans 3,286,975 2,407,178
\ 3,286,975 \ 2,407,178
(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 and nine-month periods ended September 30, 2011,
are as follows:
(in thousands of Korean won) Amount
Type Three Months Nine Months
Net income \ 24,218,667 \ 61,297,073
Transfer to reserve for bad loans1
(470,842) (879,797)
Net income in consideration of changes in reserve forbad loans
2 23,747,825 60,417,276
Net income per share in consideration of changes inreserve for bad loans (In won)
1,188 3,021
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
47
1Transfer to reserve for bad loans are subtracted from balance of reserve for bad loans in 2011
to balance in 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.
19. Net Interest Income
Net interest income for the nine-month periods ended September 30, 2011 and 2010, are as
follows:
(in thousands of Korean won)
Type 2011 2010
Interest income
Cash and deposits \ 3,644,697 \ 1,215,163
Loans receivable 167,653,679 102,914,368
Installment financial assets 44,749,777 47,688,786
Lease receivables 3,410,253 2,872,617
Other 205,825 347,938
219,664,231 155,038,872
Interest expenses
Borrowings 28,337,003 21,547,440
Debentures 67,253,045 52,850,460
Securitized debts 13,069,891 4,481,270
Other1
312,317 49,612
108,972,256 78,928,782
\ 110,691,975 \ 76,110,090
1Amortization of present value discount account according to the effective interest method.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
48
20. Net Commission Income
Net commission income for the nine-month periods ended September 30, 2011 and 2010, are as
follows:
(in thousands of Korean won)
Type 2011 2010
Commission income
Loans receivable \ 9,251,228 \ 5,757,826
Installment financial assets 1,329,971 1,361,355
Lease receivables 193,240 39,740
10,774,439 7,158,921
Commission expenses - -
\ 10,774,439 \ 7,158,921
21. General and Administrative Expenses
General and administrative expenses for the three-month and the nine-month periods ended
September 30, 2011 and 2010, are as follows:
(in thousands of Korean won)
Type2011 2010
Three months Nine months Three months Nine months
Payroll \ 4,922,014 \ 13,617,550 \ 4,438,707 \ 10,305,267
Severance benefits 594,967 1,597,555 343,256 1,073,883
Fringe benefits 1,231,654 3,594,521 1,035,902 2,921,170
Outsourcing service charges 797,106 2,306,684 539,488 1,434,594
Sales promotions 2,149,058 7,875,414 2,690,407 7,047,466
Commission 520,369 1,729,053 273,229 1,144,978
Outsourcing service commission 444,236 1,402,242 484,507 2,170,009
Depreciation 276,598 948,663 329,465 939,033
Amortization 323,335 1,034,378 314,075 891,547
Taxes and dues 412,467 1,291,738 238,402 506,562
Electronic expenses 451,273 1,089,285 303,370 917,209
Rent 212,141 641,799 293,668 769,924
Maintenance expenses on
building243,442 704,033 195,967 547,907
Travel and transportation 106,202 417,455 108,637 407,170
Education 97,814 484,136 152,201 349,983
Communication 147,554 394,455 92,892 279,533
Other expenses 341,213 1,207,902 512,639 1,256,090
\ 13,271,443 \ 40,336,863 \ 12,346,812 \ 32,962,325
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
49
22. Earnings Per Share
Basic earnings per share attributable to common stock for the three-month and the nine-month
periods ended September 30, 2011 and 2010, follows:
Type
2011 2010
Three months Nine months Three months Nine months(1) Net income attributable
to common stock(In won)
\ 24,218,667,205 \ 61,297,072,888 \ 20,499,170,133 \ 47,032,309,130
(2) Weighted average ofnumber of outstandingcommon shares
20,000,000 20,000,000 20,000,000 20,000,000
(3) Basic earnings pershare (In won) (1)÷(2)
\ 1,211 \ 3,065 \ 1,025 \ 2,352
As there was no discontinued operation during the nine-month periods ended September 30, 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 September 30, 2011 and 2010. Therefore,
the diluted earnings per share is the same as basic earnings per share for nine-month periods
ended September 30, 2011 and 2010.
23. Other Comprehensive Income
Other comprehensive income for the nine-month periods ended September 30, 2011 and 2010,
consists of:
(in thousands of Korean won)2011
TypeBeginning
balance
ChangesIncome tax
effectsEndingbalance
Reclassifi-cation of
profit or loss
Otherchanges
Loss on valuation ofderivatives
\ (1,662,559) \ 1,376,747 \(1,859,171) \ 57,879 \(2,087,104)
Gain on valuation ofavailable-for-salefinancial assets
2,180,057 (1,638,531) 7,835,586 (1,300,079) 7,077,033
Accumulatedcomprehensiveexpense of equitymethod investee
(1,379,779) - (1,096,701) 241,274 (2,235,206)
\ (862,281) \ (261,784) \ 4,879,714 \(1,000,926) \ 2,754,723
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
50
(in thousands of Korean won)
2010
TypeBeginning
balance
ChangesIncome
tax effectsEndingbalance
Reclassifi-cation of
profit or loss
Otherchanges
Loss on valuation ofderivatives
\ (2,660,167) \ 2,410,956 \ (2,181,118) \ (55,621) \ (2,485,950)
Gain on valuation ofavailable-for-salefinancial assets
351,000 - 1,219,304 (268,247) 1,302,057
Accumulatedcomprehensiveexpense of equitymethod investee
377,771 - (2,494,522) 548,796 (1,567,955)
\ (1,931,396) \ 2,410,956 \ (3,456,336) \ 224,928 \ (2,751,848)
24. Cash Flow Statement
Cash and cash equivalents in cash flow statements as of September 30, 2011 and December 31,
2010, consist of follows:
(in thousands of Korean won)
Type 2011 2010
Cash \ 2,000 \ 2,010
Ordinary deposits 9,329,006 3,922,889
Current deposits 10 10
Short-term financial instruments 208,774,080 96,013,494
\ 218,105,096 \ 99,938,403
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
51
Cash generated from operations for the nine-month periods ended September 30, 2011 and 2010,
are as follows:
(in thousands of Korean won)
2011 2010
Net income \ 61,297,073 \ 47,032,309
Adjustments
Net interest expenses 105,121,734 77,365,681
Dividends (300,000) -
Income tax 19,187,623 13,412,242
Gain on loans receivable 31,413,605 24,459,575
Gain on installment financing (2,528,657) (3,303,940)
Gain on leased assets (109,176) (159,896)
Gain on foreign currency translation - (3,765,500)
Gain on disposal of property and equipment (4,346) -
Gain on valuation of derivatives (3,391,000) -
Gain on disposal of securities (1,638,531) -
Gain on equity method valuation (13,202,282) (16,479,176)
Bad debts expense 15,436,408 4,736,667
Severance benefits 1,597,545 1,038,987
Depreciation 948,663 939,033
Amortization of intangible assets 1,034,378 891,546
Loss on foreign exchange translations 3,391,000 -
Loss on disposal of property and equipment 48,895 -
Impairment loss on investment assets 1,113,000 486,789
Loss on disposal of investment assets - 550
Loss on valuation of derivatives - 3,765,500
158,118,859 103,388,058
Changes in operating assets and liabilities
(Increase) in loans receivable (526,496,920) (630,637,051)
Decrease(increase) in installment financingreceivables
69,730,527 (67,718,220)
Decrease (increase) in finance lease receivables (32,115,586) 5,357,258
(Increase) in deferred loan origination fees andcosts
(40,826,798) (23,158,783)
Increase(decrease) in present value discounts (1,492,701) 103,023
(Decrease) in allowance for bad debts (520,558) (987,078)
Decrease(increase) in non-trade receivables 5,928,974 (12,376,576)
(Increase) in accrued revenues (2,708,410) (3,879,222)
Decrease(increase) in advance payments (938,975) 122,201
Decrease in prepaid expenses 5,533,186 2,635,692
Increase in non-trade payables 4,631,038 2,320,793
(Decrease) in accrued expenses (3,835,716) (1,379,679)
Increase in unearned revenue 1,789,450 615,189
Increase(decrease) in advance receipts (64,954) 157,998
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
52
Increase in withholdings 734,264 1,359,285
Payment of severance benefits (794,240) (371,750)
Decrease(increase) in plan assets 312,246 (919,570)
Transfer of severance benefits from related parties 412,549 434,606
Transfer of severance benefits to related parties - (254,171)
Increase in leasehold deposits received 11,543,889 202,143
(509,178,735) (728,373,912)
\ (289,762,803) \ (577,953,545)
Significant investing and financing activities not affecting cash flows for the nine-month periods
ended September 30, 2011 and 2010, are as follows:
(in thousands of Korean won)
Type 2011 2010
Transferred from advance payments to otherintangible assets
\ 931,215 \ -
Discount on stock issuance - 663,810
Transferred to legal reserve 1,000,000 -Transferred to discretionary reserve 100,000 -
25. Commitments and Contingencies
Details of credit line agreements of the Company as of September 30, 2011, and December 31,
2010, are as follows:
(in thousands of Korean won)
Type Financial institutions 2011 2010
Limit of overdraftWoori Bank and 3 other
banksKRW 130 billion KRW 50 billion
Limit of L/C Shinhan Bank USD 8 million USD 8 million
The amounts of pending significant litigations involving the Company as of September 30, 2011,
total \ 1,289,042 thousand. 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 September 30, 2011.
The Company enters into a financial support agreement with Shinhan Bank for acquisitions of mold
equipments for Hyundai and Kia Motor Company’s component partner companies. The Company
guarantees the loans of the component partner companies. The amount of payment guarantees as of
September 30, 2011, is \ 15,939,278 thousand (2010: \ 27,061,444 thousand).
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
53
Details of guarantees involving third parties as of September 30, 2011, and December 31, 2010,
are as follows:
(in thousands of Korean won)
Guarantor Details Amount
Hyundai WiaGuarantees on machinery installment
financing receivables\ 67,811,845
Hyundai Motor
Company
Guarantees on finance leasereceivables 10,161,266
26. Related Party Transactions
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.
Significant transactions, which occurred in the normal course of business with related companies
for the nine-month periods ended September 30, 2011 and 2010, are as follows:
(in thousands of Korean won) 2011 2010Purchases Sale Purchases Sale
Parent Company
Hyundai Motor Company \ 232,568 \ - \ 1,754,196 \ -
Others
Kia Motors Corp. - - 292,391 -
Hyundai Wia Corp. 43,142,490 - 60,000 -Hyundai Capital Services
Inc. - 24,005,621 - 9,931,606
Hyundai Autoever Corp. 621,571 - 185,717 -
43,764,061 24,005,621 538,108 9,931,606
\ 43,996,629 \ 24,005,621 \ 2,292,304 \ 9,931,606
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
54
Revenues and expenses arising from transactions with related parties for the three-month and the
nine-month periods ended September 30, 2011 and 2010, and receivables and payables as of
September 30, 2011 and December 31, 2010, are as follows:
(in thousands of Korean won) 2011 2010Receivables Payables Receivables Payables
Parent Company
Hyundai Motor Company \ 248,159 \ 296,115 \ 282,173 \ 179,930
Others
Kia Motors Corp. 3,252 - 3,440 -Hyundai Capital Services
Inc. 2,446,162 37,572 2,458,803 9,868
HMC Investment Securities - - - 10,000,000
Hyundai Card Co., Ltd. 3,504,061 1,301,723 3,478,586 741,324
Samwoo Co., Ltd. 21,462,441 118,675 1,797,127 118,675
Haevichi Hotel and Resort - - 12,188 -
Mseat Inc. 15,000,000 - 5,000,000 -
Wia Magna Powertrain - - 2,000,000 -
Employees 1,322,652 - 1,409,292 -
43,738,568 1,457,970 16,159,436 10,869,867
\ 43,986,727 \ 1,754,085 \ 16,441,609 \11,049,797
(in thousands of Korean won)
2011
Revenues Expenses
Three monthsNine
months Three monthsNine
months
Parent Company
Hyundai Motor Company \ 782,869 ₩ 2,385,388 ₩ 2,260 ₩ 8,441
Others
Kia Motors Corp. 16,802 29,439 - -Hyundai Capital Services
Inc.1,143,742 2,579,672 696,031 1,525,890
Hyundai Autoever Corp. - - 529,211 1,507,786
HMC Investment Securities - 21,931 - 82,000
Hyundai Card Co., Ltd. 337,206 573,074 165,311 478,391
Innocean Worldwide Corp. - - 9,900 56,016Samwoo 321,264 513,455 - -Haevichi Hotel and Resort - - - -Mseat Inc. 309,740 521,305 - -Wia Magna Powertrain 25,237 84,654 - -Employees 7,136 22,731 40 95
2,161,127 4,346,261 1,400,493 3,650,178
\ 2,943,996 \ 6,731,649 \ 1,402,753 \ 3,658,619
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
55
(in thousands of Korean won)
2010
Revenues Expenses
Three monthsNine
months Three monthsNine
months
Parent Company
Hyundai Motor Company \ 847,912 \ 2,650,377 \ 47 \ 3,880
Others
Kia Motors Corp. 2,702 9,820 - -Hyundai Capital Services
Inc.502,388 1,046,722 1,786,209 2,417,649
Hyundai Autoever Corp. - - 430,780 1,266,371
HMC Investment Securities - 74,977 53,439 190,241
Hyundai Card Co., Ltd. 49,446 356,821 151,250 350,658
Innocean Worldwide Corp. - - 44,000 127,092Haevichi Hotel and Resort - - 330 880Employees 1,631 20,263 - -
556,167 1,508,603 2,466,008 4,352,891
\ 1,404,079 \ 4,158,980 \ 2,466,055 \ 4,356,771
The Company has been provided with guarantees by the related parties.
Compensation for key management for the nine-month periods ended September 30, 2011 and
2010, consists of:
(in thousands of Korean won)
Type 2011 2010
Short-term employee benefits \ 970,859 \ 1,064,326
Severance benefits 516,045 442,893
The key management above consists of directors (including non permanent directors), who have
significant authority and responsibilities for planning, operating and controlling the Group.
27. Financial Risk Management
The Group is exposed to credit risk, liquidity risk and market 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.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
56
27.1 Credit risk
Exposures to credit risk as of September 30, 2011 and December 31, 2010, are as follows:
(in thousands of Korean won)
Type 2011 2010
Cash and deposits \ 218,114,596 \ 99,947,893
Loans receivable 2,298,128,544 1,777,627,055
Installment financial assets 498,742,707 565,051,542
Financial lease receivables 72,741,134 40,950,641
Non-trade receivables 33,537,341 39,460,549
Accrued revenue 16,070,772 13,016,641
Leasehold deposits 9,035,009 7,233,369
Derivative assets 801,711 6,151,267
Payment guarantee agreement 15,939,278 27,061,444
\ 3,163,111,092 \ 2,576,500,401
Credit quality of financial assets exposed to credit risk as of September 30, 2011 and December
31, 2010, follows:
(in thousands of Korean won)
Type2011 2010
Normal Past due Impaired Normal Past due Impaired
Cash and deposits \ 218,114,596 \ - \ - \ 99,947,893 \ - \ -
Financial receivables
Loans receivable 2,176,115,859 116,966,100 5,046,585 1,705,904,173 69,971,081 1,751,801
Installmentfinancial assets
468,133,374 30,116,100 493,233 532,706,801 32,099,772 244,969
Leasereceivables
65,864,327 6,876,807 - 31,798,795 9,145,323 6,523
2,710,113,560 153,959,007 5,539,818 2,270,409,769 111,216,176 2,003,293
Non-tradereceivables
33,537,341 - - 39,460,549 - -
Accrued revenue 16,070,772 - - 13,016,641 - -
Leaseholddeposits
9,035,009 - - 7,233,369 - -
Derivative assets 801,711 - - 6,151,267 - -
\2,987,672,989 \153,959,007 \5,539,818 \2,436,219,488 \111,216,176 \2,003,293
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
57
Credit quality according to internal credit rating of financial receivables which are neither past due
nor impaired as of September 30, 2011 and December 31, 2010, are as follows:
(in thousands of Korean won)
Type2011 2010
Gross amount Allowance Book value Gross amount Allowance Book value
First-rate \ 256,058,109 \ (175,709) \255,882,400 \ 610,115,997 \ (265,721) \609,850,276
Second-rate 1,023,046,907 (1,371,515) 1,021,675,392 524,819,937 (729,173) 524,090,764
Third-rate 897,377,538 (5,685,774) 891,691,764 640,914,070 (3,791,269) 637,122,801
Fourth-rate 183,637,754 (2,253,273) 181,384,481 158,778,521 (1,978,523) 156,799,998
Fifth-rate 63,517,625 (1,794,001) 61,723,624 51,196,723 (1,477,666) 49,719,057
Sixth-rate 31,644,264 (2,047,866) 29,596,398 22,117,745 (1,473,724) 20,644,021
No rating 269,828,847 (1,669,346) 268,159,501 273,666,029 (1,483,177) 272,182,852
\2,725,111,044 \(14,997,484) \2,710,113,560 \2,281,609,022 \(11,199,253) \2,270,409,769
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.
Financial receivables past due but not impaired as of September 30, 2011 and December 31, 2010,
are as follows:
(in thousands of Korean won)
2011
TypesLess than1 month
Between1 ~ 2 months
Between2~3 months
Over
3 months1 Total
Loans receivable \103,321,411 \ 16,729,857 \ - \ - \120,051,268
Installment financial assets 27,318,993 2,917,319 332,609 201,960 30,770,881
Lease receivables 1,632,632 75,614 155,106 5,039,032 6,902,384
132,273,036 19,722,790 487,715 5,240,992 157,724,533
Allowance (2,768,466) (991,284) (2,311) (3,465) (3,765,526)
Carrying amount \129,504,570 \ 18,731,506 \ 485,404 \ 5,237,527 \153,959,007
1The Group does not include the receivables provided with guarantees from the related parties in
the receivables which are past due for over 3 months (Note 25).
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
58
(in thousands of Korean won)
2010
TypesLess than1 month
Between1 ~ 2 months
Between2~3 months
Over3 months
1 Total
Loans receivable \ 62,812,645 \ 9,455,118 \ - \ - \ 72,267,763
Installment financial assets 26,546,419 4,568,769 927,797 826,468 32,869,453
Lease receivables 1,359,514 349,231 309,449 7,173,387 9,191,581
90,718,578 14,373,118 1,237,246 7,999,855 114,328,797
Allowance (2,263,883) (830,854) (6,396) (11,488) (3,112,621)
Carrying amount \ 88,454,695 \ 13,542,264 \ 1,230,850 \ 7,988,367 \111,216,176
Impaired financial receivables as of September 30, 2011 and December 31, 2010, are as follows:
(in thousands of Korean won)
2011 2010
Type Gross amount Allowance Book value Gross amount Allowance Book value
Loans receivable \ 8,944,550 \(3,897,965) \ 5,046,585 \ 3,675,662 \(1,923,861) \ 1,751,801
Installmentfinancial assets
991,571 (498,338) 493,233 679,999 (435,030) 244,969
Lease receivables - - - 10,255 (3,732) 6,523
\ 9,936,121 \(4,396,303) \ 5,539,818 \ 4,365,916 \(2,362,623) \ 2,003,293
Credit quality according to external credit rating of other assets except for financial receivables
which are neither past due nor impaired as of September 30, 2011 and December 31, 2010, are as
follows:
(in thousands of Korean won)
Cash and deposits1
2011 2010
AAA \ 83,114,596 \ 49,947,893
AA+ 5,000,000 -
AA 70,000,000 20,000,000
AA- 20,000,000 -
A+ 20,000,000 10,000,000
A 20,000,000 10,000,000
No rating - 10,000,000
\ 218,114,596 \ 99,947,893
1The average external credit rating of three domestic credit rating agencies is used.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
59
(in thousands of Korean won)
Derivative assets2
2011 2010
AA \ - \ 6,151,267
AA- 76,478 -
A+ 725,233 -
\ 801,711 \ 6,151,267
2Derivative assets are classified based on S&P credit rating.
The assets pledged as collaterals for financial receivables as of September 30, 2011 and
December 31, 2010, are as follows:
(in thousands of Korean won)
2011
Type ImpairedUnimpaired
TotalDelinquent Non-delinquent
Total financialreceivables
\ 5,539,818 \ 153,959,007 \ 2,710,113,560 \ 2,869,612,385
Collateralized assets
Collateralizedvehicles
7,115,764 140,705,686 2,002,069,300 2,149,890,750
Collateralized realestate
- - 94,121,831 94,121,831
Collateralizedothers
- - 65,500,000 65,500,000
\ 7,115,764 \ 140,705,686 \2,161,691,131 \2,309,512,581
(in thousands of Korean won)
2010
Type ImpairedUnimpaired
TotalDelinquent Non-delinquent
Total financialreceivables
\ 2,003,293 \ 111,216,176 \2,270,409,769 \2,383,629,238
Collateralized assets
Collateralizedvehicles
2,997,154 94,484,215 1,741,813,504 1,839,294,873
Collateralizedreal estate
- - 15,442,164 15,442,164
Others - - 65,500,000 65,500,000
\ 2,997,154 \ 94,484,215 \1,822,755,668 \1,920,237,037
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
60
Credit risk concentration of financial receivables by debtors as of September 30, 2011 and
December 31, 2010, are as follows:
(in thousands of Korean won)
Type
2011 2010
Includingallowance
Ratio Allowance Book valueIncludingallowance
Ratio Allowance Book value
Finance \ 33,707,712 1.17% \ (80,613) \ 33,627,099 \ 38,147,620 1.59% \ (276,412) \ 37,871,208
Manufacturing 133,211,627 4.60% (1,246,729) 131,964,898 113,422,784 4.73% (1,190,223) 112,232,561
Service 2,547,394,644 88.06% (17,751,006) 2,529,643,638 2,035,575,575 84.81% (12,105,812) 2,023,469,763
Others 178,457,716 6.17% (4,080,965) 174,376,751 213,102,587 8.87% (3,046,881) 210,055,706
\2,892,771,699 100.0% \(23,159,313) \ 2,869,612,386 \2,400,248,566 100.0% \(16,619,328) \2,383,629,238
27.2 Liquidity risk
Cash flows of financial liabilities based on remaining contractual maturities as of September 30,
2011 and December 31, 2010, are as follows:
(in thousands of Korean won)2011
TypeImmediatepayment
Up to 3months
3 months to1 year
1 to 5 years Over 5 years Total1
Borrowings \ - \ 207,396,236 \ 257,469,646 \ 363,646,214 \ - \ 828,512,096
Debentures - 81,767,344 453,741,170 1,322,639,583 41,170,000 1,899,318,097
Securitized
debts- 4,428,867 43,204,097 360,646,648 - 408,279,612
Other liabilities 1,703,214 18,069,117 1,110,503 13,328,140 - 34,210,974
Payment
guarantee
agreements
15,939,278 - - - - 15,939,278
Derivative
liabilities2
Cash inflow - (306,086) (1,000,269) (42,627,916) - (43,934,271)
Cash outflow - 542,264 1,626,791 44,368,554 - 46,537,609
\17,642,492 \311,897,742 \ 756,151,938 \2,062,001,223 \ 41,170,000 \3,188,863,395
1The 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.2Gross settlement derivatives and contractual undiscounted cash flows.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
61
(in thousands of Korean won)2010
TypeImmediatepayment
Up to 3months
3 months to1 year
1 to 5 years Over 5 years Total1
Borrowings \ - \ 395,342,116 \ 256,239,605 \ 134,049,847 \ - \ 785,631,568
Debentures - 101,244,390 190,626,623 1,214,931,753 40,216,000 1,547,018,766
Securitized
debts- 2,560,500 7,681,500 226,693,000 - 236,935,000
Other
liabilities1,511,379 17,400,384 581,331 2,601,385 - 22,094,479
Payment
guarantee
agreement
s
27,061,444 - - - - 27,061,444
Derivative
liabilities2
Cash inflow - (131,179) (2,024,005) (42,786,883) - (44,942,067)
Cash
outflow- 243,500 3,441,727 45,995,345 - 49,680,572
\28,572,823 \516,659,711 \ 456,546,781 \1,581,484,447 \ 40,216,000 \2,623,479,762
The Group has to comply with certain conditions of securitized debts. If these conditions are not met,
the Group should redeem the securitized debts before maturity.
27.3 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 September 30, 2011 and December 31, 2010, follows:
(in thousands of Korean won)
Type 2011 2010
Interest rate VaR \ 6,457,535 \ 3,523,795
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
62
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 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 as of September 30, 2011 and December 31,
2010, 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.
c. Price risk
Marketable equity securities which are classified into available-for-sale securities are exposed to
price risk. The effects of 10% price variation for comprehensive income and shareholders' equity
are as follows:
(in thousands of Korean won)
Type 2011
Comprehensive income \ 1,497,600
Shareholders' equity 1,497,600
27.4 Capital risk management
The objective of the Group’s capital management is to maintain a 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.
(in thousands of Korean won)
Currency 2011 2010
USD \ 64,872,500 \ 108,195,500
Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010
63
Adjusted capital adequacy ratio of the Group as of September 30, 2011 and December 31, 2010, is
as follows:
The above adjusted capital adequacy ratio is calculated according to Supervision of Specialized
Credit Financial Business Law.
28. Subsequent Events
a. Capital increase
The Company’s Board of Directors decided on November 7, 2011, to increase its capital by
offering to third parties the following:
b. Acquisition of Green Cross Life Insurance’s stock
The Company’s Board of Directors decided on October 21, 2011, to acquire the shares of Green
Cross Life Insurance Co., Ltd. from Green Cross Holdings Corp.
(in thousands of Korean won)
Type 2011 2010
Adjusted total assets (1) \ 3,103,092,423 \ 2,619,760,027
Adjusted equity (2) 354,159,023 249,439,164
Adjusted capital adequacy ratio (2)÷(1) 11.41% 9.52%
Capital increase Description
Type Preferred stock
Shares to be issued 5,000,000 shares
Par value per share \ 5,000
Price per share \ 20,000
Stock acquisition Description
Number of shares to beacquired
5,517,944 shares
Purchase price \ 71.7 billion
Ownership afteracquisition
28.1%