Audit Report: Hyundai Capital 2011 (English)

Hyundai Capital Services, Inc. and Subsidiaries

Consolidated Financial Statements December 31, 2011 and 2010

Hyundai Capital Services, Inc. and Subsidiaries Index December 31, 2011 and 2010

Report of Independent Auditors ......................................................................................................... 1-2

Consolidated Financial Statements

Consolidated Statements of Financial Position...................................................................................... 3-5

Consolidated Statements of Comprehensive Income ............................................................................ 6-8

Consolidated Statements of Changes in Shareholders’ Equity .......................................................... 9-10

Consolidated Statements of Cash Flows ................................................................................................ 11

Notes to the Consolidated Financial Statements .............................................................................. 12-73

1

Report of Independent Auditors

To the Shareholders and Board of Directors of Hyundai Capital Services, Inc. We have audited the accompanying consolidated statements of financial position of Hyundai Capital Services, Inc.(the “Company”) and its subsidiaries as of December 31, 2011 and 2010, and January 1, 2010, and the related statements of comprehensive income, changes in shareholders’ equity and cash flows for the years ended December 31, 2011 and 2010, expressed in Korean won. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements, referred to above, present fairly, in all material respects, the financial position of Hyundai Capital Services, Inc. and its subsidiaries as of December 31, 2011 and 2010, and January 1, 2010, and their financial performance and cash flows for the years ended December 31, 2011 and 2010, in conformity with International Financial Reporting Standards as adopted by the Republic of Korea (“Korean-IFRS”).

Auditing standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report is for use by those who are informed about Korean auditing standards and their application in practice.

Seoul, Korea February 24, 2012

2

This report is effective as of February 24, 2012, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

Hyundai Capital Services, Inc. and Subsidiaries Consolidated Statements of Financial Position December 31, 2011 and 2010, and January 1, 2010

3

(In millions of Korean won)

December 31, 2011 December 31,

2010 January 1,

2010 Assets

Cash and deposits

Cash and cash equivalents (Note 25) \ 1,455,432 \ 1,224,866 \ 990,836

Deposits (Note 4) 10 25 1,938 1,455,442 1,224,891 992,774

Securities (Note 5)

Available-for-sale securities 18,452 20,577 15,867 Equity method investments 51,768 48,483 40,055

70,220 69,060 55,922

Loans receivable (Notes 6 and 7) 11,129,247 10,434,141 8,862,145 Allowances for doubtful accounts (281,184) (215,703) (175,933)

10,848,063 10,218,438 8,686,212

Installment financial assets (Notes 6 and 7)

Auto installment financing receivables 5,030,541 5,023,945 4,668,702 Allowances for doubtful accounts (36,748) (27,489) (31,368) Durable goods installment financing receivables 1,422 6,801 16,297

Allowances for doubtful accounts (141) (633) (292) Mortgage installment financing receivables 25,679 40,025 70,191

Allowances for doubtful accounts (1,204) (403) (463) Machinery installment financing receivables 1,682 14,653 44,229 Allowances for doubtful accounts (37) (117) (394)

5,021,194 5,056,782 4,766,902

Lease receivables (Notes 6 and 7)

Finance lease receivables (Note 9) 2,278,383 1,777,477 1,253,352 Cancelled lease receivables 211 961 452

2,278,594 1,778,438 1,253,804

Leased assets (Note 10)

Operating leased assets 1,119,309 1,282,845 1,406,453 Cancelled leased assets 3,769 3,192 3,036

1,123,078 1,286,037 1,409,489


4



2010 January 1,

2010 Property and equipment (Note 11) 265,433 242,369 238,683 Other assets

Intangible assets (Note 12) 65,117 52,612 38,934 Non-trade receivables 87,895 76,569 83,961

Allowances for doubtful accounts (2,913) (4,176) (3,207) Accrued revenues 128,351 115,278 102,730 Allowances for doubtful accounts (14,371) (3,472) (3,790) Advance payments 55,013 64,106 44,225 Prepaid expenses 26,434 18,186 25,575 Leasehold deposits 35,929 31,954 30,474 Derivative assets (Note 18) 475,431 521,530 1,278,570

856,886 872,587 1,597,472

Total assets \ 21,918,910 \ 20,748,602 ₩ 19,001,258

Liabilities and Shareholders’ Equity Borrowings

Borrowings (Note 13) \ 2,250,000 \ 2,646,945 \ 2,452,978

Debentures (Note 14) 15,522,368 14,396,741 13,034,855

17,772,368 17,043,686 15,487,833

Other liabilities Non-trade payables 345,089 362,539 281,652 Accrued expenses 135,083 110,225 108,746 Unearned revenue 61,095 69,338 68,899 Withholdings 24,140 21,939 20,446 Defined benefit liability (Note 15) 20,362 11,687 9,242 Leasehold deposits received 787,858 746,532 663,195 Deferred income tax liabilities (Note 16) 47,884 2,617 39,734 Provisions (Note 17) 10,446 46,624 26,416 Derivative liabilities (Note 18) 58,096 96,568 78,174

1,490,053 1,468,069 1,296,504

Total liabilities 19,262,421 18,511,755 16,784,337


5



2010 January 1,

2010 Shareholders' equity

Common stock (Notes 1 and 19) 496,537 496,537 496,537

Capital surplus Paid-in capital in excess of par value 369,339 369,339 369,339 Other capital surplus 38,200 38,200 38,200

407,539 407,539 407,539 Accumulated other comprehensive income and

expenses (Note 24) Gain(Loss) on valuation of available-for-sale

securities (388)

512

(1,835)

Accumulated comprehensive income of equity method investees

47

24

(69)

Loss on valuation of derivatives (50,156) (67,924) (3,566) Cumulative effect of overseas operation translation

(343)

17

-

(50,840) (67,371) (5,470)

Retained earnings (Note 19) 1,803,144 1,400,013 1,318,186

Non-controlling interests 109 129 129

Total shareholders' equity 2,656,489 2,236,847 2,216,921

Total liabilities and shareholders' equity \ 21,918,910 \ 20,748,602 \ 19,001,258

The accompanying notes are an integral part of these consolidated financial statements.

Hyundai Capital Services, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income Years Ended December 31, 2011 and 2010

6

(In millions of Korean won, except per share amounts)

2011 2010

Operating revenue Interest income (Note 20)

Interest on bank deposits \ 41,991 \ 25,755

Other interest income 385 1,208

42,376 26,963 Gain on valuation and disposal of

securities

Gain on disposal of available-for-sale securities

4,169 5,122

Reversal of impairment loss on available-for-sale securities - 1,078

4,169 6,200

Income on loans (Notes 20 and 21) 1,548,557 1,387,421 Income on installment financial

receivables (Notes 20 and 21) 436,247 492,202

Income on leases (Notes 20 and 21) 871,572 875,137

Gain on disposal of loans 72,040 14,857

Gain on foreign transactions Gain on foreign exchanges translation 21,235 188,938 Gain on foreign currency transactions 46,301 29,696

67,536 218,634

Dividend income 5,990 6,742

Other operating income Gain on valuation of derivatives 134,197 92,630 Gain on derivatives transactions 3,887 73,964 Others 144,908 79,485

282,992 246,079

Total operating revenue 3,331,479 3,274,235


7


2011 2010

Operating expenses

Interest expenses (Note 20) \ 956,039 \ 890,180

Lease expenses (Note 21) 505,187 557,288

Bad debts expense (Note 7) 354,220 145,478

Loss on foreign transactions Loss on foreign exchange translation 134,211 92,639 Loss on foreign currency transactions 3,887 65,401

138,098 158,040

General and administrative expenses

(Note 22) 603,367 585,953

Other operating expenses

Loss on valuation of derivatives 21,229 188,949 Loss on derivatives transactions 46,326 37,721 Others 47,590 80,880

115,145 307,550

Total operating expenses 2,672,056 2,644,489

Operating income 659,423 629,746

Non-operating income

Gain on equity method valuation (Note 5)

3,968 9,663

3,968 9,663

Non-operating expenses Loss on equity method valuation

- 197

- 197

Income before income taxes 663,391 639,212

Income tax expense (Note 16) 155,987 150,227

Net income \ 507,404 \ 488,985

Net income attributable to:

Owners of the parent 507,404 488,985 Non-controlling interests - -

507,404 488,985


8


2011 2010 Other comprehensive income, net of income taxes (Note 24)

Gain(Loss) on valuation of available-for-sale financial securities

(900) 2,347

Other comprehensive income of equity method investees(Note 5)

23 93

Gain (Loss) on valuation of derivatives

17,768 (64,359)

Effect of overseas operation translation

(360) 18

16,531 (61,901)

Total comprehensive income \ 523,935 \ 427,084

Total comprehensive income

attributable to:

Owners of the parent 523,935 427,084 Non-controlling interests - -

523,935 427,084 Earnings per share attributable to the

ordinary equity holders of the company (Note 23)

Basic earnings per share

\ 5,109 \ 4,924

Diluted earnings per share

5,109 4,924


Hyundai Capital Services, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders’ Equity Years Ended December 31, 2011 and 2010

9

(In millions of Korean won) Capital

stock Capital surplus

Accumulated other

comprehensive income and expense s

Retained earnings

Total attributable to owners of the parent

Non-

controlling interests

Total equity

Balances as of January 1, 2010 \ 496,537 \ 407,539 \ (5,470) \ 1,318,186 \ 2,216,792 \ 129 \ 2,216,921

Total comprehensive income Net income - - - 488,985 488,985 - 488,985 Other comprehensive income

Gain on valuation of available-for-sale securities - - 2,347 - 2,347 - 2,347

Other comprehensive income of equity method investees - - 93 - 93 - 93

Loss on valuation of derivatives - - (64,359) - (64,359) - (64,359) Effect of overseas operation

translation - - 18 - 18 - 18

Total comprehensive income - - (61,901) 488,985 427,084 - 427,084

Transactions with owners Year-end dividends - - - (203,580) (203,580) - (203,580) Transfer from dividends payable - - - 2 2 - 2 Interim dividends - - - (203,580) (203,580) - (203,580)

Total transactions with owners - - - (407,158) (407,158) - (407,158)

Balances as of December 31 , 2010 \ 496,537 \ 407,539 \ (67,371) \ 1,400,013 \ 2,236,718 \ 129 \ 2,236,847

Hyundai Capital Services, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders’ Equity Years Ended December 31, 2011 and 2010

10

(In millions of Korean won) Capital

stock Capital surplus

Accumulated other

comprehensive income and expense s

Retained earnings

Total attributable to owners of the parent

Non-

controlling interests

Total equity

Balances as of January 1, 2011 \ 496,537 \ 407,539 \ (67,371) \ 1,400,013 \ 2,236,718 \ 129 \ 2,236,847

Total comprehensive income Net income - - - 507,404 507,404 - 507,404 Other comprehensive income

Loss on valuation of available-for-sale securities - - (900) - (900) - (900)

Other comprehensive income of equity method investees - - 23 - 23 - 23

Gain on valuation of derivatives - - 17,768 - 17,768 - 17,768 Effect of overseas operation

translation - - (360) - (360) - (360)

Total comprehensive income - - 16,531 507,404 523,935 - 523,935

Transactions with owners Year-end Dividends - - - (104,273) (104,273) - (104,273) Liquidation of special purpose entity - - - - - (20) (20)

Total transactions with owners - - - (104,273)

(104,273)

(20)

(104,293)

Balances as of December 31 , 2011 \ 496,537 \ 407,539 \ (50,840) \ 1,803,144 \ 2,656,380 \ 109 \ 2,656,489


Hyundai Capital Services, Inc. and Subsidiaries Consolidated Statements of Cash Flows Years Ended December 31, 2011 and 2010

11

(In millions of Korean won) 2011 2010 Cash flows from operating activities

Cash generated from operations (Note 25) \ 630,961 \ (498,303) Interest received 37,090 23,479 Interest paid (864,563) (829,726) Dividends received 5,990 6,742 Income taxes paid (154,724) (169,620)

(345,246) (1,467,428)

Cash flows from investing activities Decrease in deposits 16 1,913 Dividends from equity method investments 707 1,227 Acquisition of land (3,581) (3,065) Acquisition of building (8,549) (2,968) Acquisition of structures (379) (172) Disposal of vehicles 37 11 Acquisition of vehicles (328) (224) Disposal of fixtures and furniture 626 58 Acquisition of fixtures and furniture (37,712) (19,412) Acquisition of other tangible assets (801) (114) Increase in construction in progress (8,079) (13,812) Disposal of intangible assets 71 29 Acquisition of intangible assets (8,152) (4,860) Decrease in leasehold deposits 4,012 5,665 Increase in leasehold deposits (7,609) (6,481) Establish of special purpose entity 20 10 Liquidation of special purpose entity (40) (10)

(69,741) (42,205)

Cash flows from financing activities Proceeds from borrowings 2,990,000 3,895,650 Repayments of borrowings (3,390,650) (3,645,849) Issuance of debentures 5,119,021 5,802,014 Repayments of debentures (3,968,170) (3,900,992) Payments of dividends (104,273) (407,158)

645,928 1,743,665

Exchange losses on cash and cash equivalents (15) (19) Increase(decrease) in other cash and cash equivalen ts (360) 17 Net increase in cash and cash equivalents 230,566 234,030 Cash and cash equivalents

Beginning of period 1,224,866 990,836

End of period \ 1,455,432 \ 1,224,866


Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010

12

1. General Information

Hyundai Capital Services, Inc. (the “Company”) was established on December 22, 1993, to engage

in installment financing, facilities lease and new technology financing. The Company changed its

trade name from Hyundai Auto Finance Co., Ltd. to Hyundai Financial Services Co. on April 21,

1995, and changed its trade name once again to Hyundai Capital Services, Inc. on December 31,

1998. In accordance with the Monopoly Regulation and Fair Trade Act, the Company is

incorporated into the Hyundai Motor Company Group. As of December 31, 2011, the Company’s

operations are headquartered in Yeouido, Seoul. Its major shareholders are Hyundai Motor

Company and GE International Holdings Corporation with 56.47% and 43.30% ownership,

respectively.

2. Summary of Significant Accounting Policies

The consolidated financial statements have been prepared and presented which included the

accounts of Hyundai Capital Services, Inc., as the parent company according to Korean IFRS

1027, and Autopia Thirty-fifth SPC(trust) and other subsidiaries(collectively the “Group”), while HK

Mutual Saving Bank and three other entities are accounted for using the equity method.

Subsidiaries as of December 31, 2011 and 2010, and January 1, 2010, are as follows. The

Company has the substantial power over the subsidiaries established as special purpose entities

for asset securitization even though its ownership interests over the subsidiaries do not exceed

50%.

Location

Ratio of

ownership December 31, 2011 December 31, 2010 January 1, 2010

Special

Purpose

Entities1

Autopia Thirty-fifth SPC(trust) Autopia Thirty-third SPC(trust) Autopia Thirty- second SPC(trust)

Korea 0.9% Autopia Thirty-sixth SPC(trust) Autopia Thirty-fourth SPC(trust) Autopia Thirty-third SPC(trust)

Autopia Thirty-seventh SPC(trust) Autopia Thirty-fifth SPC(trust) Autopia Thirty-fourth SPC(trust)

Autopia Thirty-ninth SPC(trust) Autopia Thirty-sixth SPC(trust) Autopia Thirty-fifth SPC(trust)

Autopia Fortieth SPC(trust) Autopia Thirty-seventh SPC(trust) Autopia Thirty-sixth SPC(trust)

Autopia Forty-second SPC(trust) Autopia Thirty-eighth SPC(trust) Autopia Thirty-seventh SPC(trust)

Autopia Forty-third SPC(trust) Autopia Thirty-ninth SPC(trust) Autopia Thirty-eighth SPC(trust)

Autopia Forty-fourth SPC(trust) Autopia Fortieth SPC(trust) Autopia Thirty-ninth SPC(trust)

Autopia Forty-fifth SPC(trust) Autopia Forty-first SPC(trust) Autopia Fortieth SPC(trust)

Autopia Forty-sixth SPC(trust) Autopia Forty-second SPC(trust) Autopia Forty-first SPC(trust)

Autopia Forty-seventh SPC(trust) Autopia Forty-third SPC(trust) Autopia Forty-second SPC(trust)

Autopia Forty-fourth SPC(trust) Autopia Forty-third SPC(trust)

Autopia Forty-fifth SPC(trust)

Stock

Company Germany 100% Hyundai Capital Europe GmbH

2 Hyundai Capital Europe GmbH

1 Autopia Thirty-third, Thirty-fourth, Thirty-eighth and Forty-first SPC(trust) have been liquidated during the

2011, and Autopia Forty sixth and Forty-seventh SPC(trust) have been established during 2011. ² It holds 100% shares of Hyundai Capital Services Limited Liability Company established during 2011.


13

The Group maintains its accounting records in Korean won and prepares statutory financial

statements in the Korean language (Hangul) in conformity with the International Financial

Reporting Standards as adopted by the Republic of Korea (“Korean-IFRS”). The accompanying

consolidated financial statements have been condensed, restructured and translated into English

from the Korean language financial statements.

The Group’s financial statements for the annual period beginning on January 1, 2011, have been

prepared in accordance with Korean-IFRS. These are the standards, subsequent amendments

and related interpretations issued by the International Accounting Standards Board ("IASB") that

have been adopted by the Republic of Korea.

The consolidated financial statements of the Group were prepared in accordance with Korean-

IFRS and are subject to Korean-IFRS1101, ‘First-time Adoption of Korean-IFRS’.

The transition date, according to Korean-IFRS1101, from the previous accounting principles

generally accepted in the Republic of Korea (“Previous K-GAAP”) to Korean-IFRS is January 1,

2010. Reconciliations and descriptions of the effect of the transition from Previous K-GAAP to

Korean-IFRS on the Group’s equity, comprehensive income and cash flows are described in Note

3.

The preparation of financial statements requires the use of certain critical accounting estimates. It

also requires management to exercise judgment in the process of applying the Group’s accounting

policies. The areas involving a higher degree of judgment or complexity, or areas where

assumptions and estimates are significant to the consolidated financial statements are disclosed in

Note 3.

New standards, amendments and interpretations issued but not effective for the financial year

beginning January 1, 2011, and not early adopted by the Group are as follows:

- Amendments to Korean-IFRS1101, Hyperinflation and Removal of Fixed Dates for first-time

adopters(announced in December, 2010)

As an exception to retrospective application requirements, this amendment to Korean-IFRS1101

allows a prospective application of derecognition of financial assets for transactions occurring on

or after the date of transition to Korean-IFRS, instead of fixed date (January 1, 2004). Accordingly,

the Group is not required to restate and recognize those assets or liabilities that were

derecognized as a result of a transaction that occurred before the dated of transition to Korean-

IFRS. This amendment will be effective for the Group as of January 1, 2012. The Group expects

that the application of this amendment would not have material impact on its consolidated financial

statements.

- Amendments to Korean-IFRS1012, Income Taxes

According to the amendments to Korean-IFRS1012, Income Taxes, for the investment property

that is measured using the fair value model, the measurement of deferred tax liability and deferred


14

tax asset should reflect the tax consequences of recovering the carrying amount of the investment

property entirely through sale, unless evidences support otherwise. This amendment will be

effective for the Group as of January 1, 2012. The Group expects that the application of this

amendment would not have material impact on its consolidated financial statements.

- Amendments to Korean-IFRS1019, Employee Benefits

According to the amendments to Korean-IFRS1019, Employee Benefits, the corridor method is no

longer permitted. Therefore, actuarial gains and losses on the defined benefit obligation are

recognized immediately under other comprehensive income. The amendment requires to

recognize immediately all past service costs. And the amendment replaces the interest cost on the

defined benefit obligation, and the expected return on plan assets with a net interest cost based on

the net defined benefit asset or liability and the discount rate measured at the beginning of the

year. This amendment will be effective for the Group as of January 1, 2013. The Group is

assessing the impact of application of the amended Korean-IFRS1019 on its consolidated financial

statements.

- Amendments to Korean-IFRS1107, Financial Instruments: Disclosures

According to the amendment, an entity should provide the required disclosures of nature, carrying

amount, risk and rewards associated with all transferred financial instruments that are not

derecognized from an entity’s financial statements. In addition, an entity is required to disclose

additional information related to transferred and derecognized financial instruments for any

continuing involvement in transferred assets. This amendment will be effective for the Group as of

January 1, 2012. The Group is assessing the impact of application of the amended Korean-

IFRS1107 on its consolidated financial statements.

- Enactment of Korean-IFRS1113, Fair value measurement

Korean-IFRS1113, Fair value measurement, aims to improve consistency and reduce complexity

by providing a precise definition of fair value and a single source of fair value measurement and

disclosure requirements for use across Korean-IFRS. Korean-IFRS1101 does not extend the use

of fair value accounting but provides guidance on how it should be applied where its use is already

required or permitted by other standards within Korean-IFRS. This amendment will be effective for

the Group as of January 1, 2013, and the Group expects that it would not have a material impact

on the Group.

The following is a summary of significant accounting policies followed by the Group in the

preparation of its consolidated financial statements. These policies have been consistently applied

to all the periods presented, unless otherwise stated.

Certain accounts of the prior period financial statements were reclassified to conform with the

December 31, 2011 financial statement presentation. These reclassifications have no impact on

the previously reported net income or shareholders’ equity.


15

2.1 Consolidation

a. Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the Company has the

power to govern the financial and operating policies generally accompanying a shareholding of

more than one-half of the voting rights. The existence and effect of potential voting rights that are

currently exercisable or convertible are considered when assessing whether the Company controls

another entity. The Group also assesses existence of control where it does not have more than 50%

of the voting power but is able to govern the financial and operating policies by virtue of de-facto

control. De-facto control may arise in circumstances where the size of the Group’s voting rights

relative to the size and dispersion of holdings of other shareholders give the Group the power to

govern the financial and operating policies and others.

Subsidiaries are fully consolidated from the date on which control is transferred to the Company.

They are de-consolidated from the date that control ceases.

The Group uses the acquisition method to account for business combinations. The consideration

transferred is measured as the fair values of the assets transferred, equity interests issued and

liabilities incurred or assumed at the acquisition date. Acquisition-related costs are expensed as

incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business

combination are measured initially at their fair values at the acquisition date. On an acquisition-by-

acquisition basis, the Group recognizes any non-controlling interest in the acquiree at the non-

controlling interest’s proportionate share of the acquiree’s net assets.

The excess of the consideration transferred and the amount of any non-controlling interest in the

acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the

fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this

is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain

purchase, the difference is recognized directly in the statement of comprehensive income.

Intercompany transactions, balances and unrealized gains on transactions between Group

companies are eliminated.

b. Special purpose entities

The Group established several SPEs for the purpose of asset-backed securitization, but owns none

of the shares directly or indirectly. The Group consolidates the SPEs when the risks, rewards and

substance of the relationship indicated that the Group consolidates the SPEs. SPEs controlled by

the Group are created with conditions that impose strict limits on the decision-making power over

the operations therefore the Group obtains all benefits from the SPEs’ operation and net assets,

and that the Group may be exposed to risks incident to the activities of the SPEs or the Group

retains the majority of the residual or ownership risks related to the SPEs’ assets.

c. Transactions with non-controlling interests


16

The Group treats transactions with non-controlling interests as transactions with equity owners of

the Group. For purchases from non-controlling interests, the difference between any consideration

paid and the relevant share acquired of the carrying value of net assets of the subsidiary is

recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in

equity.

d. Associates and joint ventures

Associates are all entities over which the Group has significant influence but not control, generally

accompanying a shareholding of between 20% and 50% of the voting rights. Investments in

associates are accounted for using the equity method of accounting and are initially recognized at

cost. The Group’s investment in associates includes goodwill identified on acquisition, net of any

accumulated impairment loss.

The Group’s share of its associates’ post-acquisition profits or losses is recognized in the income

statement, and its share of post-acquisition movements in other comprehensive income is

recognized in other comprehensive income. The cumulative post-acquisition movements are

adjusted against the carrying amount of the investment. When the Group’s share of losses in an

associate equals or exceeds its interest in the associate, including any other unsecured

receivables, the Group does not recognize further losses, unless it has incurred obligations or made

payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent

of the Group’s interest in the associates. Unrealised losses are also eliminated unless the

transaction provides evidence of an impairment of the asset transferred. Accounting policies of

associates have been changed where necessary to ensure consistency with the policies adopted by

the Group.

2.2 Foreign currency translation

a. Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the

currency of the primary economic environment in which the entity operates (the “functional

currency”). The consolidated financial statements are presented in Korean won, which is the

Group’s functional currency.

b. Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates

prevailing at the dates of the transactions or valuation where items are remeasured. Foreign

exchange gains and losses resulting from the settlement of such transactions and from the

translation at year-end exchange rates of monetary assets and liabilities denominated in foreign

currencies are recognized in the income statement, except when deferred in other comprehensive

income as qualifying cash flow hedges.


17

2.3 Critical accounting estimates and assumptions

Estimates and judgments are continually evaluated and are based on historical experience and

other factors, including expectations of future events that are believed to be reasonable under the

circumstances. The resulting accounting estimates will, by definition, seldom equal the related

actual results. The estimates and assumptions that have a significant risk of causing a material

adjustment to the carrying amounts of assets and liabilities within the next financial year are

addressed below.

a. Allowance for doubtful accounts

The Group presents the allowance for doubtful accounts calculated based on the best estimates

that are necessary to reflect the impairment incurred at each reporting date. Allowance for doubtful

accounts is recognized as individual and collective units considering the financial circumstances of

customers, net realizable value, credit quality, size of portfolio, concentrativeness, economic factors

and others. According to the change in these factors, the allowance for doubtful accounts will be

changed in a future period.

b. Fair value of financial instruments

Fair value of financial assets and liabilities is based on quoted market prices, exchange-broker

prices of financial instruments traded in an active market. If there is no quoted price for a financial

instrument, the Group establishes fair value by using valuation techniques and advanced self-

valuation techniques.

Valuation techniques include the Discount Cash Flow method using variables observable in market,

comparison method with similar instruments that have observable market transactions, and option

pricing model. For more complicated financial instruments, the Group uses advanced self-valuation

techniques. Parts of or all the variables used in this valuation technique may not be observable in

market, or may be derived from quoted prices and market ratio, or may be measured based on

specific assumption.

At initial recognition if the difference between the fair value of valuation technique and transaction

price occurs, then the transaction price as the best estimate of fair value is recognized as fair value.

This fair value difference presents in profit immediately on any available observable market data

according to individual factors and changes of environment.

2.4 Revenue recognition

The Group recognizes capital lent to customers as loans receivable, when installment payments or

deferred payments on services and goods are made. While installment financial capital paid by the

Group to manufacturers or sellers on behalf of customers is recognized as installment financial

assets. Financial lease receivables classified as financial leases are recognized as lease

receivables.


18

The expected future cash flows from loans receivable, installment financial assets and lease

receivables (“Financial receivables”) described above are amortized under the effective interest

method over the period of the financial receivables being used by customers.

2.5 Statements of cash flows

The Group prepares statements of cash flows using indirect method.

2.6 Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-

term highly liquid investments with original maturities of three months or less.

2.7 Financial assets

a. Classification

The Group classifies its financial assets as financial assets at fair value through profit or loss, loans

and receivables and available-for-sale financial assets. Management determines the classification

of its financial assets at initial recognition.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. A financial

asset is classified in this category if acquired principally for the purpose of selling in the short term.

Derivatives are also categorized as held for trading unless they are designated as hedges.

Meanwhile, the Group has no financial asset at fair value through profit or loss other than financial

assets held for trading.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that

are not quoted in an active market.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or

not classified in any of the other categories.

b. Recognition and measurement

Regular purchases and sales of financial assets are recognized on the trade-date. Investments are

initially recognized at fair value plus transaction costs for all financial assets not carried at fair value

through profit or loss. Financial assets carried at fair value through profit or loss are initially

recognized at fair value, and transaction costs are expensed in the income statement. Available-for-


19

sale financial assets and financial assets at fair value through profit or loss are subsequently carried

at fair value. Loans and receivables are subsequently carried at amortized cost using the effective

interest method.

Changes in the fair value of financial assets at fair value through profit or loss are recognized in

income statement as gain or loss.

When securities classified as available-for-sale are sold or impaired, the accumulated fair value

adjustments recognized in equity are transferred to the income statement as gain or loss on

disposal of securities. Interest on available-for-sale securities calculated using the effective interest

method is recognized in the income statement as part of interest income. Dividends on available-for

sale equity instruments are recognized in the income statement as dividend income when the

Group’s right to receive payments is established.

c. Derecognition of financial assets

A financial asset is derecognized only if the contractual rights on cash flow of the financial asset

terminate or all the risks and rewards of ownership of the financial asset are substantially

transferred.

If the Group transfers substantially all the risks and rewards of ownership of the financial asset, the

Group shall derecognise the financial asset and recognise separately as assets or liabilities any

rights and obligations created or retained in the transfer. If the Group retains substantially all the

risks and rewards of ownership of the financial asset, the Group shall continue to recognise the

financial asset.

d. Impairment of financial assets

(1) Assets carried at amortized cost

The Group assesses at the end of each reporting period whether there is objective evidence that a

financial asset is impaired. Impairment losses are incurred only if there is objective evidence of

impairment and that loss event has an impact on the estimated future cash flows of the financial

asset. The amount of the loss is measured as the difference between the asset’s carrying amount

and the present value of estimated future cash flows discounted at the financial asset’s original

effective interest rate.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be

related objectively to an event occurring after the impairment was recognized, the reversal of the

previously recognized impairment loss is recognized in the income statement.

(2) Available-for-sale financial assets

The Group assesses at the end of each reporting period whether there is objective evidence that a

financial asset or a group of financial assets is impaired. For equity securities classified as

available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is


20

also evidence that the assets are impaired. If any such evidence exists for available-for-sale

financial assets, the difference between carrying amount and current fair value is recognized in

profit or loss. Impairment losses recognized in profit or loss for an investment in an equity

instrument classified as available for sale are not be reversed through profit or loss. If, in a

subsequent period, the fair value of a debt instrument classified as available-for-sale increases and

the increase can be objectively related to an event occurring after the impairment loss was

recognized in profit or loss, the impairment loss is reversed.

2.8 Deferral of loan origination fee and loan origi nation cost

Loan origination fee, which is a processing fee in relation to the loan origination process such as

upfront fee, is deferred and deducted from the loan account, adjusted over the life of the loan based

on the effective interest rate method. Loan origination cost, which relates to activities performed by

the lender such as soliciting potential borrowers, is deferred and added to the loan account,

adjusted over the life of the loan based on the effective interest rate method when the future

economic benefit in connection with the cost incurred can be identified on a per loan basis.

2.9 Allowances for financial receivables

a. Calculation of allowances for doubtful accounts

The Group recognizes the impairment of receivables as an allowance for doubtful accounts. It is

based on the impairment estimates made through impairment assessment of receivables carried at

amortized cost. Allowance for doubtful accounts consists of impairments related to individually

material financial receivables and allowances of collective assessment for impairment incurred in

homogeneous assets.

Individually material receivables undertake the individual assessment of the difference between the

assets’ carrying amount and the present value of estimated future cash flows. Unimpaired assets

from individual assessments and individually immaterial assets undertake the collective assessment

classified by asset groups that have analogous risk attributes. The Group uses statistical model in

the collective assessment based on the expected probability of default, periodic collect amounts,

loss-given default based on the past losses, loss emergency period, and management’s decision

about the current economy and credit circumstances. The material factors used in statistical model

for the collective assessment are evaluated to compare with actual data regularly.

The amount of impairment loss is reflected in allowance for doubtful accounts as profit or loss.

b. Write-off policy

The Group writes off the doubtful receivables when the assets are deemed unrecoverable. This

decision considers the information about significant changes of financial position such that a

borrower or an obligor is in default, or the amount recoverable from security is not enough. Write-off

decision of standard small loan is generally made based on the delinquent status of loan.


21

2.10 Leases

a. Classification

The Group classifies leases based on the extent to which risks and rewards incidental to ownership

of a leased asset lie with the lessor or the lessee.

The lease arrangement classified as a financial lease is where: ①the lease transfers ownership of

the asset to the lessee by the end of the lease term, ②the lessee has the option to purchase the

asset at a price that is expected to be sufficiently lower than the fair value at the date the option

becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will

be exercised, ③the lease term is for the major part of the economic life of the asset even if the title

is not transferred, ④at the inception of the lease the present value of the minimum lease payments

amounts to at least substantially all of the fair value of the leased asset, or ⑤the leased assets are

of such a specialized nature that only the lessee can use them without major modifications.

Minimum lease payments include that part of the residual value that is guaranteed by the lessee,

by a party related to the lessee or by a third party unrelated to the Group that is financially capable

of discharging the obligations under the guarantee.

b. Finance leases

Where the Group has substantially all the risks and rewards of ownership, leases of property, plant

and equipment are classified as finance lease. An amount equal to the net investment in the lease

is presented as a receivable. Expenses that are incurred with regard to the lease contract made but

not executed at the date of the statement of financial position are accounted for as prepaid leased

assets and are reclassified as finance lease receivables at the inception of the lease. Lease

receivables include amounts such as commissions, legal fees and internal costs that are

incremental and directly attributable to negotiating and arranging a lease. Each lease payment is

allocated between principal and finance income. Financial income on an uncollected part of net

investment shall be allocated to each period during the lease term so as to produce a constant

periodic rate of interest on the remaining balance of the liability.

If a lease agreement is cancelled in the middle of lease term, the Group reclassifies the amount of

financial lease receivables into cancelled leased receivables, while the amount of financial lease

receivables not yet due is reclassified as cancelled leased assets.

c. Operating leases

The property on operating leases is stated at acquisition cost, net of accumulated depreciation.

Expenditures that are incurred for the lease contract made but not executed at the date of the

statement of financial position are accounted for as prepaid leased assets and are reclassified as

operating leased assets at the inception of the lease term. Rentals from operating lease other than

any guaranteed residual value are reported as revenues on a straight-line basis over the lease

term. Initial direct costs incurred during the period of preparing the lease contract are recognized as


22

operating leased assets and are amortized over the lease term in proportion to the recognition of

income on leased assets.

If a lease agreement is cancelled in the middle of lease term, the balance of operating leased

assets is substituted for cancelled leased assets. The cancelled leased assets are depreciated over

its residual useful life, but are mostly disposed of in the month of cancellation.

2.11 Property and equipment

Property and equipment are stated at historical cost less accumulated depreciation and

accumulated impairment losses. Historical cost includes expenditure that is directly attributable to

the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or

recognized as a separate asset, as appropriate, only when it is probable that future economic

benefits associated with the item will flow to the Group and the cost of the item can be measured

reliably.

Depreciation method and estimated useful lives used by the Group are as follows:

Depreciation Method Useful life

Buildings Straight-line 40 years

Structures Straight-line 40 years

Fixtures and furniture Straight-line 3-4 years

Vehicles Straight-line 4 years

Other tangible assets Straight-line 5 years

Work of art classified under other tangible assets are not amortized due to their indefinite useful life

in nature.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of

each reporting period. An asset’s carrying amount is written down immediately to its recoverable

amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and

losses on disposals are determined by comparing the proceeds with the carrying amount and are

recognised within other operating income (expenses) in the income statement.

2.12 Intangible assets

Intangible assets are stated at cost, which includes acquisition cost and directly related costs

required to prepare the asset for its intended use. Intangible assets are stated net of accumulated

amortization calculated based on using the following amortization method and estimated useful

lives:

Amortization Method Useful life

Development costs Straight-line 5 years

Rights of trademark Straight-line 5 years

Other intangible assets Straight-line 5 years


23

Memberships classified under other intangible assets are not amortized over their indefinite useful

life.

2.13 Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortization and are tested annually for

impairment. Assets that are subject to amortization are reviewed for impairment whenever events

or changes in circumstances indicate that the carrying amount may not be recoverable. An

impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its

recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell

and value in use. For the purposes of assessing impairment, assets are grouped at the lowest

levels for which there are separately identifiable cash flows (cash-generating units). Non-financial

assets that are subject to amortization suffered impairment are reviewed for possible reversal of the

impairment at each reporting date.

2.14 Financial Liabilities

(a) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss are financial instruments held for trading.

Financial liabilities are classified as financial liabilities at fair value through profit or loss when

incurred principally for the purpose of repurchasing it in the near term. Derivatives or embedded

derivatives are also categorized as this category unless they are designated as hedges.

(b) Financial liabilities carried at amortized cost

The Group classifies non-derivative financial liabilities, except for financial liabilities at fair value

through profit or loss and financial liabilities that arise when a transfer of a financial asset does not

qualify for derecognition, as financial liabilities carried at amortized cost and as ‘trade payables’,

‘borrowings’, and ‘other financial liabilities’ in the statement of financial position. In case when a

transfer of a financial asset does not qualify for derecognition, the transferred asset is continuously

recognized as asset and the consideration received is recognized as financial liabilities.

2.15 Pension obligations

The Group operates a defined benefit plan. The liability recognized in the statement of financial

position in respect of defined benefit pension plans is the present value of the defined benefit

obligation at the end of the reporting period less the fair value of plan assets, together with

adjustments for unrecognized past-service costs. The defined benefit obligation is calculated

annually by independent actuaries using the projected unit credit method. The present value of the

defined benefit obligation is determined by discounting the estimated future cash outflows using

interest rates of high-quality corporate bonds that are denominated in the currency in which the

benefits will be paid, and that have terms to maturity approximating to the terms of the related

pension obligation.


24

Actuarial gains and losses arising from experience adjustments and changes in actuarial

assumptions are recognized in profits or losses in the period in which they arise.

2.16 Provisions and contingent liabilities

When there is a probability that an outflow of economic benefits will occur due to a present

obligation resulting from a present legal or as a result of past events, and whose amount is

reasonably estimable, a corresponding amount of provision is recognized in the financial

statements. Where there are a number of similar obligations, the likelihood that an outflow will be

required in settlement is determined by considering the class of obligations as a whole. A provision

is recognized even if the likelihood of an outflow with respect to any one item included in the same

class of obligations may be small.

Provisions are the best estimate of the expenditure required to settle the present obligation that

consider the risks and uncertainties inevitably surround many events and circumstances at the

reporting date. Where the effect of the time value of money is material, the amount of a provision is

the present value of the expenditures expected to be required to settle the obligation.

A possible obligation that arises from past events and whose existence will be confirmed only by

the occurrence or non-occurrence of uncertain future events, or a present obligation that arises

from past events but is not certain to occur, or cannot be reliably estimated, a disclosure regarding

the contingent liability is made in the notes to the financial statements.

2.17 Derivative financial instruments

The Group has applied hedging policies using derivatives to deal with the risk of changes in foreign

currency exchange rates and interest rates arising from liabilities. The Group has contracted

currency swap and interest swap derivative financial instruments to deal with the risk of changes in

foreign currency exchange rates arising from foreign currency liabilities and the risk of changes in

interest rates arising from floating-rate liabilities.

Derivatives are initially recognized at fair value on the date a derivative contract is entered into and

are subsequently re-measured at their fair value. The method of recognizing the resulting gain or

loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature

of the item being hedged. The Group applies cash flow hedge, which are hedges of a particular risk

associated with a recognized asset or liability or a highly probable forecast transaction.

The Group documents at the inception of the transaction the relationship between hedging

instruments and hedged items, as well as its risk management objectives and strategy for

undertaking various hedging transactions to apply hedging accounting. The Group also documents

its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that

are used in hedging transactions are highly effective in offsetting changes in fair values or cash

flows of hedged items.


25

The effective portion of changes in the fair value of derivatives that are designated and qualify as

cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the

ineffective portion is recognized immediately in profits or losses. The cumulative gain or loss that

was reported in equity is recognized when the hedged items affect profits and losses.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for

hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and

is recognized when the forecast transaction is ultimately recognized in the income statement. When

a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported

in equity is immediately transferred to profits or losses.

2.18 Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognized in the income

statement, except to the extent that it relates to items recognized in other comprehensive income or

directly in equity. In this case, the tax is also recognized in other comprehensive income or directly

in equity.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively

enacted at the statement of financial position date in the countries where the Group operates and

generates taxable income. Management periodically evaluates positions taken in tax returns with

respect to situations in which applicable tax regulation is subject to interpretation. It establishes

provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognized, using the liability method, on temporary differences arising

between the tax bases of assets and liabilities and their carrying amounts in the consolidated

financial statements. However, deferred tax assets and liabilities are not recognized if they arise

from initial recognition of an asset or liability in a transaction other than a business combination that

at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income

tax is determined using tax rates and laws that have been enacted or substantially enacted by the

statement of financial position date and are expected to apply when the related deferred income tax

asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable

profit will be available against which the temporary differences can be utilized.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries,

associates and joint ventures except for deferred income tax liability where the timing of the

reversal of the temporary difference is controlled by the Group and it is probable that the temporary

difference will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to

offset current tax assets against current tax liabilities and when the deferred income taxes assets

and liabilities relate to income taxes levied by the same taxation authority on either the same


26

taxable entity or different taxable entities where there is an intention to settle the balances on a net

basis.

2.19 Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the

Group by the weighted average number of ordinary shares in issue during the period excluding

ordinary shares purchased by the Group and held as treasury shares.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary

shares outstanding to assume conversion of all dilutive potential ordinary shares. Only dilutive

potential ordinary shares are dilutive, they are added to the number of ordinary shares outstanding

in the calculation of diluted earnings per share.

2.20 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the

chief operating decision-maker. The chief operating decision-maker is responsible for allocating

resources and assessing performance of the operating segments.

2.21 Dividend Distribution Dividend distribution to the Company’s shareholders is recognized as a liability in the financial

statements in the period in which the dividends are approved by the Company’s shareholders.

2.22 Approval of Issuance of the Financial Statemen ts The issuance of the December 31, 2011 financial statements of the Group was approved by the

Board of Directors on January 31, 2012.

3. Transition to Korean-IFRS

The Group's transition date to Korean-IFRS is January 1, 2010, and adoption date is January 1, 2011.

In preparing consolidated financial statements in accordance with Korean-IFRS 1101 ‘First-time

Adoption of Korean International Financial Reporting Standards’, the Group has applied the

mandatory exceptions and certain optional exemptions allowed by Korean-IFRS.

a. Exemptions of Korean-IFRS 1101 elected by the Group

The Group has elected to apply the following optional exemptions from full retrospective

application.

(1) Business combination


27

The Group has not retrospectively applied Korean-IFRS 1103 ‘Business combination’ to the

business combinations that took place prior to the transition date.

(2) Deemed cost of property and equipment

The Group has elected to use the carrying amount of property and equipment under Previous K-

GAAP as deemed cost at the date of transition to Korean-IFRS.

b. Explanation on the reconciliation of Previous K-GAAP and Korean-IFRS

Major reconciliations of the transition between Previous K-GAAP and Korean-IFRS are as follows:

(1) Impairment of financial assets (allowance for financial assets)

Under Previous K-GAAP, allowances for financial receivables (loans receivable, installment

financial assets and lease receivables) are calculated based on the long-term average expected

loss. In case the allowance calculated based on the expected loss is smaller than the allowance

calculated in accordance to the guidelines provided in the Act on the Specialized Credit Financial

Business, the Group recognizes an allowance in accordance to the guidelines provided in the Act

on the Specialized Credit Financial Business. Under Korean-IFRS, impairment losses are

recognized where there is evidence that impairment occurred. Allowance for financial receivables

is measured individually for assets that are individually significant and on a collective basis for

portfolios with similar risk characteristics.

(2) Provision for unused loan commitment

Under Previous K-GAAP, provision for unused loan commitment is not recognised. Under Korean-

IFRS, the expected losses of unused loan commitment are recognized as provision for unused

credit lines.

(3) Accrued revenue for overdue receivables

Under Previous K-GAAP, accrued revenue for receivables which are overdue is not recognized.

Under Korean-IFRS, accrued revenue for past due and impaired receivables and the interests on

impaired receivable are recognized using expected cash flow after impairments.

(4) Measurement of financial assets carried at amortized cost

Under Previous K-GAAP, non-marketable loan and receivables are measured at nominal value if

the difference between nominal value and discounted value is not substantial. Under Korean-IFRS,

loan and receivables are initially measured at fair value and subsequently carried at amortized cost

using the effective interest method.

(5) Recognition of unused compensated absences


28

According to Previous K-GAAP, unused compensated absences given to employees are

recognized as liabilities at the end of the reporting period only when the right to be paid has been

established. Under Korean-IFRS, the Group recognizes liabilities when an employee has provided

service in exchange for compensated absences.

(6) Depreciation method for property and equipment

Under Previous K-GAAP, depreciation method for certain property and equipment was the

declining-balance method. Under Korean-IFRS, the Group uses the straight-line method to reflect

properly the matching of the future economic benefits.

(7) Retirement benefit obligations

Under Previous K-GAAP, the Group recognizes the amount which would be payable assuming all

eligible employees and directors were to terminate their employment as of the statement of

financial position date as accrued severance benefits. Under Korean-IFRS, the Group recognizes

the estimated amount using the projected unit credit method which is on an actuarial basis as the

defined benefit obligation.

(8) Reclassification of memberships as intangible assets

Under Previous K-GAAP, memberships are classified as investments. Under Korean-IFRS, the

Group reclassifies memberships held for operating purposes as an intangible asset with an infinite

useful life.

(9) Consolidation

Under Previous K-GAAP, Autopia Thirty-fifth SPC, trust and other subsidiaries were previously

excluded from consolidation in accordance with Article 1.3, Clause 1 of Enforcement Decree of the

Act on External Audit of Stock Companies. Under Korean-IFRS, they are consolidated (Note 2).

(10) Income tax effects

The Group recognized changes in deferred tax representing the impact of deferred taxes on the

adjustments for the transition to Korean-IFRS.


29

c. Effects on the consolidated assets, liabilities and equity, total comprehensive income and net

income

(1) Reconciliation of assets, liabilities and equity as of January 1, 2010

(in millions of Korean won)

Assets Liabilities Shareholders ’ equity

Previous K-GAAP \ 15,854,426 \ 13,698,696 \ 2,155,730

Conversion effects to Korean-IFRS

Allowance for doubtful accounts 220,443 - 220,443

Provision for unused loan commitments - 26,416 (26,416)

Accrued revenues 21,259 - 21,259

Measurement of amortized cost (6,395) - (6,395)

Recognition of unused compensated absences

- 2,267 (2,267)

Depreciation 11,748 - 11,748

Retirement benefit obligations - 91 (91)

Others (3,945) 3,335 (7,280)

Scope of consolidation 2,903,721 2,998,859 (95,138)

Deferred income taxes - 54,672 (54,672)

Total effect of transition 3,146,831 3,085,640 61,191

Korean-IFRS \ 19,001,257 \ 16,784,336 \ 2,216,921

(2) Reconciliation of assets, liabilities and equity as of December 31, 2010 and total

comprehensive income and net income for the year ended December 31, 2010


Assets Liabilities Shareholders’ equity

Total comprehensive

income

Net income

Previous K-GAAP \ 17,931,200 \ 15,727,686 \ 2,203,514 \ 454,942 \ 511,545

Conversion effects to Korean-IFRS

Allowance for doubtful accounts 208,187 - 208,187 (12,256) (12,256)

Provision for unused loan commitments - 46,624 (46,624) (20,208) (20,208)

Accrued revenues 22,771 - 22,771 1,512 1,512

Measurement of amortized cost 2,168 150 2,018 8,413 8,413

Recognition of unused compensated absences - 2,524 (2,524) (257) (257)

Depreciation 1,113 - 1,113 (10,635) (10,635)

Retirement benefit obligations - 3,823 (3,823) (3,732) (3,732)

Others (131) 476 (607) 6,673 6,673

Scope of consolidation 2,585,543 2,655,916 (70,373) 24,765 30,063

Deferred income taxes (2,249) 74,556 (76,805) (22,133) (22,133)

Total effect of transition 2,817,402 2,784,069 33,333 (27,858) (22,560)

Korean-IFRS \ 20,748,602 \ 18,511,755 \ 2,236,847 \ 427,084 \ 488,985


30

d. Adjustments of cash flows in 2010

According to Korean-IFRS, cash flows of the related income (expenses) and assets (liabilities) are

adjusted to separately disclose the cash flows from interest received, interest paid and cash

payments of income taxes that were not presented separately under Previous K-GAAP. And the

effects of the change in exchange rate on cash and cash equivalents held or due in a foreign

currency are presented separately from cash flows from operating, investing and financing

activities. There are no other significant differences between cash flows under Korean-IFRS and

Previous K-GAAP.

e. Adjustments of operating income and expenses

The Group reclassified certain non-operating income and expenses under Previous K-GAAP to

other operating income and expenses according to Korean-IFRS.

Adjustments are as follows:


Type 2011 2010

Other operating income 29,300 26,749

Other operating expenses 20,267 20,199

4. Restricted Financial Instruments

Restricted financial instruments are as follows:

Amount

Type

Entities December

31, 2011

December

31, 2010

January 1,

2010

Restriction

Deposits

Hana Bank and Nonghyup \ 10 \ 25 \ 25

Maintaining deposits for checking account

SC Bank - - \ 1,913 Guarantee for interest expense of debentures

\ 10 \ 25 \ 1,938


31

5. Securities

Securities are as follows:


Type December 31,

2011

December 31,

2010

January 1,

2010

Available-for-sale securities

Equity securities Marketable equity

securities \ 5,687 \ 7,318 \ 3,951

Unlisted equity securities 10,526 9,887 8,802

16,213 17,205 12,753

Debt securities Government and public bonds 2,239 3,372 3,114

Sub-total 18,452 20,577 15,867 Equity method investments 51,768 48,483 40,055

\ 70,220 \ 69,060 \ 55,922

Available-for-sale securities

Available-for-sale securities are as follows:

(1) Equity securities

(in millions of Korean won) Book value

Number of shares

Ownership (%)

Acquisition cost

December

31, 2011

December

31, 2010

January

1, 2010

Marketable equity securities

Korea Information Service1 - - \ - \ - \ - \ 3,951

NICE Information Service1 136,593 2.25 3,312 3,190 4,221 -

NICE Holdings1 49,162 1.42 3,491 2,497 3,097 - Unlisted equity securities

Hyundai Finance Corp. 2 1,700,000 9.29 9,888 10,426 9,887 8,726

HI Network, Inc. (Common stock) - - - - - 59

HI Network, Inc. (Preferred stock) - - - - - 17

Korean Egloan, Inc. 4,000 3.12 100 100 - -

\ 16,791 \ 16,213 \ 17,205 \ 12,753

1 Korea Information Service was divided into NICE Information Service and NICE Holdings. In this

transaction, the Group recognized gain on disposal of available-for-sale securities amounting to \ 1,550

million.

²The fair value for Hyundai Finance Corp. was valued as the average of valuation prices provided by two

external appraisers, KIS Pricing Inc. and Korea Asset Pricing, using the discounted cash flow model. The

five-year financial statements, projected based on past performance, were used in measuring the fair value


32

assuming that the operational structure will remain as is for the next five years. Operating income and

expenses were estimated based on the past performance, business plan and expected market conditions.

(2) Debt securities (in millions of Korean won)

Book value

Issuer Interest rate (%)

Acquisition cost

December

31, 2011

December

31, 2010

January

1, 2010 Government and

public bonds Metropolitan Rapid Transit and others 2.50 \ 2,118 \ 2,239 \ 3,372 \ 3,114

Equity method investments

Equity method investments are as follows:

(in millions of Korean won) December 31, 2011

Number of shares Ownership

(%) Acquisition cost Net asset

value Book value

HK Mutual Saving Bank 1 4,990,438 20.00 \ 45,719 \ 33,487 \ 45,735

HI Network, Inc. 1 13,332 19.99 76 1,003 1,003

Korea Credit Bureau 1 140,000 7.00 3,800 2,928 3,965 Hyundai Capital

Germany GmbH 2 600,200 30.01 1,065 1,065 1,065

\ 50,660 \ 38,483 \ 51,768




value Book value


HI Network, Inc. 1 13,332 19.99 76 1,055 1,055


Germany GmbH 2 600,200 30.01 1,065 908 1,065

\ 50,660 \ 35,041 \ 48,483

(in millions of Korean won) January 1, 2010



value Book value



Germany GmbH 2 600,200 30.01 1,065 1,065 1,065

\ 50,584 \ 26,770 \ 40,055


33

1 The Group’s shareholdings in HK Mutual Saving Bank, HI Network, Inc. and Korea Credit Bureau are less

than 20%. However, the Group is able to significantly influence such involvement in the financial and

operating processes, and thus the equity method is applied.

2 The Group’s shareholdings are more than 20%. However, equity method is not applied due to insignificant

fluctuation of equity.

Valuations of equity method investments are as follows:


2011

Beginning Balance Acquisition Gain (loss)

on valuation

Changes in accumulated

other comprehensive

income

Dividends Ending Balance

HK Mutual Saving Bank \ 42,849 \ - \ 2,863 \ 23 \ - \ 45,735

HI Network, Inc. 1,055 - 654 - (706) 1,003

Korea Credit Bureau 3,514 - 451 - - 3,965

Hyundai Capital Germany GmbH 1,065 - - - - 1,065

\ 48,483 \ - \ 3,968 \ 23 \ (706) \ 51,768

(in millions of Korean won) 2010

Beginning Balance Acquisition Gain (loss)

on valuation

Changes in accumulated

other comprehensive

income

Dividends Ending Balance

HK Mutual Saving Bank \ 35,799 \ - \ 6,937 \ 113 \ - \ 42,849

HI Network, Inc ¹ - 76 2,206 - (1,227) 1,055

Korea Credit Bureau 3,191 - 323 - - 3,514

Hyundai Capital Germany GmbH 1,065 - - - - 1,065

\ 40,055 \ 76 \ 9,466 \ 113 \ (1,227) \ 48,483

¹The Group reclassified available-for-sale securities into equity method investments after transition date.


34

The difference between the acquired amounts of equity method investments and their

corresponding net asset value are as follows:


December 31,

2011

December 31,

2010

January 1,

2010

HK Mutual Saving Bank \ 12,248 \ 12,248 \ 12,248

Korea Credit Bureau 1,037 1,037 1,037

\ 13,285 \ 13,285 \ 13,285

Summary of financial information of investees are as follows:


2011

Assets Liabilities Operating revenue Net income

HK Mutual Saving Bank 1 \ 2,593,289 \ 2,425,855 \ 372,233 \ 14,313

HI Network, Inc. 8,560 3,544 21,835 3,314

Korea Credit Bureau 51,484 9,650 40,535 6,380 Hyundai Capital Germany

GmbH 3,889 341 1,171 503

1 HK Mutual Saving Bank is a corporation with fiscal year ending on June 30. But its assets and liabilities

above are as of December 31, 2011, and the results of its operations are for the year ended December 31,

2011.


2010

Assets Liabilities Operating revenue Net income

(loss)

HK Mutual Saving Bank 1 \ 2,439,109 \ 2,286,106 \ 332,117 \ 34,683

HI Network, Inc. 8,734 3,458 20,706 4,733

Korea Credit Bureau 45,301 9,914 33,190 4,338 Hyundai Capital

Germany GmbH 3,145 117 540 43

1 HK Mutual Saving Bank is a corporation with fiscal year ending on June 30. But its assets and liabilities

above are as of December 31, 2010, and the results of its operations are for the year ended December 31,

2010.


35

6. Financial Receivables

Financial receivables are as follows:


Principal

Deferred loan origination fees and

costs (Initial direct costs for lease assets)

Present value discounts

Allowance for doubtful

accounts Book value

Loan receivables

Loans \ 11,239,870 \ (108,782) \ (1,841) \ (281,184) \ 10,848,063

Installment financial assets

Auto 5,109,299 (78,757) - (36,748) 4,993,794 Durable goods 1,419 3 - (141) 1,281 Mortgage 25,620 60 - (1,204) 24,476 Machinery 1,674 - 6 (37) 1,643

5,138,012 (78,694) 6 (38,130) 5,021,194

Lease receivables Finance lease

receivables 2,300,204 (703) - (21,118) 2,278,383

Cancelled lease receivables 4,656 - - (4,445) 211

2,304,860 (703) - (25,563) 2,278,594

\ 18,682,742 \ (188,179) \ (1,835) \ (344,877) \ 18,147,851


Principal





accounts Book value

Loan receivables

Loans \ 10,545,431 \ (110,263) \ (1,027) \ (215,703) \ 10,218,438

Installment financial assets Auto 5,123,219 (99,271) (3) (27,489) 4,996,456 Durable goods 6,762 39 - (633) 6,168 Mortgage 39,915 111 - (404) 39,622 Machinery 14,595 - 58 (117) 14,536

5,184,491 (99,121) 55 (28,643) 5,056,782


receivables 1,797,372 (622) - (19,273) 1,777,477


1,800,091 (622) - (21,031) 1,778,438

\ 17,530,013 \ (210,006) \ (972) \ (265,377) \ 17,053,658


36

(in millions of Korean won) January 1, 2010

Principal





accounts Book value

Loan receivables

Loans \ 8,977,097 \ (113,437) \ (1,514) \ (175,934) \ 8,686,212

Installment financial assets Auto 4,766,715 (97,945) (67) (31,368) 4,637,335 Durable goods 16,159 138 - (292) 16,005 Mortgage 69,952 239 - (463) 69,728 Machinery 43,906 - 322 (394) 43,834

4,896,732 (97,568) 255 (32,517) 4,766,902


receivables 1,265,203 (410) - (11,441) 1,253,352


1,266,744 (410) - (12,530) 1,253,804

\ 15,140,573 \ (211,415) \ (1,259) \ (220,981) \ 14,706,918

7. Allowance for Doubtful Accounts

Changes in allowance for doubtful accounts for the years ended December 31, 2011 and 2010, are

as follows:


2011

Type Loan

receivables Installment

financial assets Lease

receivables Other assets Total

Beginning balance \ 215,703 \ 28,643 \ 21,031 \ 7,648 \ 273,025

Amounts written off (331,061) (30,839) (1,049) (5,683) (368,632)

Recoveries of amounts previously written off

90,411 11,842 282 8,225 110,760

Discount unwind (6,702) (326) (159) - (7,187) Additional(reversed)

allowance 312,833 28,810 5,458 7,094 354,195

Ending balance \ 281,184 \ 38,130 \ 25,563 \ 17,284 \ 362,161


2010

Type Loan

receivables Installment financial assets Lease

receivables Other assets Total

Beginning balance \ 175,934 \ 32,517 \ 12,529 \ 6,997 \ 227,977

Amounts written off (191,927) (28,888) (332) (3,728) (224,875)

Recoveries of amounts previously written off

104,982 15,861 366 8,673 129,882

Unwinding of discount (4,972) (411) (54) - (5,437)


37

Additional(reversed) allowance

131,686 9,564 8,522 (4,294) 145,478

Ending balance \ 215,703 \ 28,643 \ 21,031 \ 7,648 \ 273,025

8. Financial Instruments

a. Fair value of financial instruments

The fair values of financial instruments are as follows:


Type

December 31, 2011 December 31, 2010 January 1, 2010

Book value Fair

value Book value Fair

value Book

value Fair value

Assets

Financial assets

Cash and deposits \ 1,455,442 \ 1,455,442 \ 1,224,891 \ 1,224,891 \ 992,774 \ 992,774Available-for-sale

securities 18,452 18,452 20,577 20,577 15,867 15,867

Loans receivable 10,848,063 11,124,599 10,218,438 10,571,397 8,686,212 9,037,365

Installment financial assets

5,021,194 5,145,837 5,056,782 5,218,322 4,766,902 4,960,643

Derivative assets 475,431 475,431 521,530 521,530 1,278,570 1,278,570

Non-trade receivables 84,983 84,983 72,393 72,393 80,754 80,754

Accrued revenues 113,980 113,980 111,806 111,806 98,939 98,939

Leasehold deposits 35,929 35,847 31,955 31,821 30,473 30,653

\ 18,053,474 \ 18,454,571 \ 17,258,372 \ 17,772,737 \ 15,950,491 \ 16,495,565

Liabilities

Financial liabilities

Borrowings \ 2,250,000 \ 2,257,918 \ 2,646,945 \ 2,652,759 \ 2,452,978 \ 2,458,590

Debentures 15,522,368 15,886,881 14,396,741 14,795,749 13,034,854 13,929,019

Derivative liabilities 58,096 58,096 96,568 96,568 78,174 78,174

Non-trade payables1 249,236 249,236 240,414 240,414 210,615 210,615

Accrued expenses 135,083 135,083 110,225 109,943 108,746 108,746

Withholdings1 11,567 11,567 10,791 10,791 11,407 11,407Leasehold deposits

received 787,858 794,247 746,531 763,718 663,195 670,409

\ 19,014,208 \ 19,393,028 \ 18,248,215 \ 18,669,942 \ 16,559,969 \ 17,466,960

1 Excluding taxes.


38

b. Fair value hierarchy

The fair value hierarchy of financial assets and liabilities carried at fair value are as follows: (in millions of Korean won)

December 31, 2011

Type Book

value Fair

value Fair value hierarchy 1

level 1 level 2 level 3

Financial assets Available-for-sale securities \ 18,452 \ 18,452 \ 5,687 \ 2,239 \ 10,526

Derivative assets 475,431 475,431 - 475,431 -

493,883 493,883 5,687 477,670 10,526


Derivative liabilities \ 58,096 \ 58,096 \ - \ 58,096 \ -

1 The levels of fair value hierarchy have been defined as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities. Listed stocks and derivatives

Level 2: Inputs for the asset or liability included within valuation techniques that are observable market

data. Most bonds issued in Korean won and foreign currency, general unlisted derivatives like swap,

forward, option

Level 3: Inputs for the asset or the liability that are not based on observable market data. Unlisted

stocks, complicated structured bonds, complicated unlisted derivatives and others.


December 31, 2010

Type Book

value Fair




Derivative assets 521,530 521,530 - 521,530 -

542,107 542,107 7,318 524,902 9,887




39


January 1, 2010

Type Book

value Fair




Derivative assets 1,278,570 1,278,570 - 1,278,570 -

\ 1,294,437 \ 1,294,437 \ 3,951 \ 1,281,684 \ 8,802



c. Changes in financial instruments of level 3

The changes in financial instruments of level 3 for the years ended December 31, 2011 and 2010,

are as follows:


Type Available-for-sale securities 2011 2010

Beginning balance \ 9,887 \ 8,802

Acquisition 100 -

Gain on valuation (Other comprehensive income)

539 1,161

Replacement - (76)

Ending balance \ 10,526 \ 9,887

d. Financial instruments by categories

The book value of financial instruments by categories are as follows:


December 31, 2011

Type



Available-for-sale financial

assets

Hedging derivative

instruments

Total

Financial assets

Cash and deposits \ - \ 1,455,442 \ - \ - \ 1,455,442 Available-for- sale

securities - - 18,452 - 18,452

Loans receivable - 10,848,063 - - 10,848,063 Installment

financial assets - 5,021,194 - - 5,021,194

Derivative assets 53 - - 475,378 475,431 Non-trade

receivables - 84,983 - - 84,983

Accrued revenues - 113,980 - - 113,980


40

Leasehold deposits

- 35,929 - - 35,929

\ 53 \ 17,559,591 \ 18,452 \ 475,378 \ 18,053,474


December 31, 2010

Type




assets

Hedging derivative

instruments

Total

Financial assets

Cash and deposits \ - \ 1,224,891 \ - \ - \ 1,224,891 Available-for- sale

securities - - 20,577 - 20,577



Derivative assets 72 - - 521,458 521,530 Non-trade

receivables - 72,393 - - 72,393

Accrued revenues - 111,806 - - 111,806 Leasehold

deposits - 31,955 - - 31,955

\ 72 \ 16,716,265 \ 20,577 \ 521,458 \ 17,258,372


January 1, 2010

Type




assets

Hedging derivative

instruments

Total

Financial assets

Cash and deposits \ - \ 992,774 \ - \ - \ 992,774 Available-for- sale

securities - - 15,867 - 15,867



Derivative assets 72,506 - - 1,206,064 1,278,570 Non-trade

receivables - 80,754 - - 80,754

Accrued revenues - 98,939 - - 98,939 Leasehold

deposits - 30,473 - - 30,473

\ 72,506 \ 14,656,054 \ 15,867 \ 1,206,064 \ 15,950,491


41


December 31, 2011

Type Financial liabilities

at amortized cost Hedging derivative instruments Total


Borrowings \ 2,250,000 \ - \ 2,250,000

Debentures 15,522,368 - 15,522,368 Derivative

liabilities - 58,096 58,096

Non-trade payables 249,236 - 249,236

Accrued expenses 135,083 - 135,083 Withholdings 11,567 - 11,567 Leasehold deposits received 787,858 - 787,858

\ 18,956,112 \ 58,096 \ 19,014,208


December 31, 2010




Borrowings \ 2,646,945 \ - \ 2,646,945





\ 18,151,647 \ 96,568 \ 18,248,215


January 1, 2010




Borrowings \ 2,452,978 \ - \ 2,452,978





\ 16,481,795 \ 78,174 \ 16,559,969


42

9. Finance Lease Receivables

a. Total lease investments and present value of minimum lease receipts

Details of total lease investments and present value of minimum lease receipts are as follows:


Type


Total lease investments

Present value of minimum lease

receipts Total lease

investments Present value of minimum lease

receipts

Total lease

investments Present value of minimum lease

receipts

Less than 1 year \ 984,475 \ 808,521 \ 765,722 \ 633,321 \ 549,958 \ 454,001

1 to 5 years 1,610,089 1,475,991 1,272,610 1,149,144 893,871 797,404

Over 5 years 77 76 - - - -

\ 2,594,641 \ 2,284,588 \ 2,038,332 \ 1,782,465 \ 1,443,829 \ 1,251,405

b. Unearned interest income

Details of unearned interest income as of December 31, 2011 and December 31, 2010, are as

follows:


Type December 31,

2011

December 31,

2010

January 1,

2010

Total lease investments \ 2,594,641 \ 2,038,332 \ 1,443,829

Net lease investments

Minimum lease receipts

(present value)

2,284,588 1,782,465 1,251,405

Unguaranteed residual value (present value)

14,913 14,285 13,388

sub-total 2,299,501 1,796,750 1,264,793 Unearned interest income \ 295,140 \ 241,582 \ 179,036

10. Leased Assets

All operating leased assets consist of vehicles and the details are as follows:


December 31, 2011

Acquisition cost Accumulated depreciation Book value

Operating leased assets \ 1,749,697 \ (630,388) \ 1,119,309 Cancelled leased assets 5,995

(2,226)

3,769

\ 1,755,692 \ (632,614) \ 1,123,078


43


December 31, 2010


Operating leased assets \ 1,991,961 \ (709,116) \ 1,282,845 Cancelled leased assets 3,234 (42) 3,192

\ 1,995,195 \ (709,158) \ 1,286,037


January 1, 2010


Operating leased assets \ 2,112,300 \ (705,847) \ 1,406,453 Cancelled leased assets 3,211

(175)

3,036

\ 2,115,511 \ (706,022) \ 1,409,489

Future minimum lease receipts under operating lease are as follows:


Type December 31,

2011

December 31,

2010

January 1,

2010

Less than 1 year \ 403,735 \ 423,307 \ 501,195

1 to 5 years 345,238 414,181 430,194

Over 5 years 4 - -

\ 748,977 \ 837,488 \ 931,389

11. Property and Equipment

a. Details of property and equipment

Property and equipment consist of:


Type December 31, 2011

Acquisition cost Accumulated

depreciation Book value

Land \ 105,425 \ - \ 105,425

Buildings 120,855 (22,916) 97,939

Structures 2,844 (286) 2,558

Vehicles 1,743 (982) 761 Fixture and furniture 154,771 (101,001) 53,770

Others 2,001 (7) 1,994 Construction in progress

2,986 - 2,986

\ 390,625 \ (125,192) \ 265,433


44





Land \ 101,844 \ - \ 101,844

Buildings 112,305 (19,762) 92,543

Structures 2,466 (220) 2,246


Others 1,200 - 1,200 Construction in progress

8,377 - 8,377

\ 344,771 \ (102,402) \ 242,369


Type January 1, 2010



Land \ 98,778 \ - \ 98,778

Buildings 109,337 (16,963) 92,374

Structures 2,295 (161) 2,134


Others 1,086 - 1,086 Construction in progress

11,070 - 11,070

\ 332,250 \ (93,567) \ 238,683

b. Changes in property and equipment

Changes in property and equipment for the years ended December 31, 2011 and 2010, are as

follows:


2011

Type Beginning

balance Acquisition Replacement Disposal Depreciation Ending balance

Land \ 101,844 \ 3,581 \ - \ - \ - \ 105,425

Buildings 92,543 8,549 - - (3,153) 97,939

Structures 2,246 379 - - (67) 2,558

Vehicles 838 328 - (30) (375) 761 Fixture and furniture

35,321 37,712 688 (597) (19,354) 53,770

Others 1,200 801 - - (7) 1,994 Construction in progress

8,377 8,079 (13,470) - - 2,986

\ 242,369 \ 59,429 \ (12,782) \ (627) \ (22,956) \ 265,433


45


2010

Type Beginning

balance Acquisition Replacement Disposal Depreciation Ending balance

Land \ 98,778 \ 3,066 \ - \ - \ - \ 101,844

Buildings 92,374 2,968 - - (2,799) 92,543

Structures 2,134 171 - - (59) 2,246

Vehicles 960 223 - - (345) 838 Fixture and furniture

32,281 19,412 353 (109) (16,616) 35,321

Others 1,086 114 - - - 1,200 Construction in progress

11,070 13,811 (16,504) - - 8,377

\ 238,683 \ 39,765 \ (16,151) \ (109) \ (19,819) \ 242,369

As of December 31, 2011, the Company carries comprehensive asset insurance for its buildings for

up to ￦215,210 million (December 31, 2010: ￦209,783 million, January 1, 2010: ￦184,307

million). Comprehensive movable property insurance for fixture and furniture covers up to ￦20,195 million (December 31, 2010: ￦18,812 million, January 1, 2010: ￦21,315 million). Other

leased office buildings and vehicles are covered with liability and general insurance.

12. Intangible Assets

a. Details of Intangible assets

Intangible assets consist of:





Development costs \ 71,254 \ (42,619) \ 28,635

Rights of trademark 69 (39) 30 Other intangible assets 53,296 (16,844) 36,452

\ 124,619 \ (59,502) \ 65,117







\ 103,756 \ (51,144) \ 52,612


46


Type January 1, 2010





\ 83,050 \ (44,116) \ 38,934

b. Changes in intangible assets

Changes in intangible assets for the years ended December 31, 2011 and 2010, are as follows:


2011

Type Beginning balance Increase 1 Disposal Amortization Ending balance

Development costs \ 20,004 \ 15,162 \ (50) \ (6,481) \ 28,635

Rights of trademark 44 - - (14) 30

Other intangible assets 32,564 5,772 (21) (1,863) 36,452

\ 52,612 \ 20,934 \ (71) \ (8,358) \ 65,117 1 Inclusive of transfer from construction in progress


2010

Type Beginning balance Increase 1 Disposal Amortization Ending balance

Development costs \ 7,691 \ 17,529 \ - \ (5,216) \ 20,004

Rights of trademark 57 - - (13) 44

Other intangible assets 31,186 3,205 (28) (1,799) 32,564

\ 38,934 \ 20,734 \ (28) \ (7,028) \ 52,612

13. Borrowings

Borrowings consist of:


Types Lender Annual interest rate (%)

December 31,

2011

December 31,

2010

January 1,

2010

Borrowings in won

Commercial paper SK Securities

and 7 others

3.75 ~ 5.11 \ 750,000 \ 1,410,000

\ 971,300

General loans Kookmin Bank

and 12 others

4.16 ~ 5.98 1,500,000 1,170,000

910,000

2,250,000 2,580,000 1,881,300


47

Borrowings in foreign currency

General loans - - - 56,945 326,678

Securitized borrowings

Commercial paper - - - 10,000 245,000

\ 2,250,000 \ 2,646,945 \ 2,452,978

Securitized borrowings are issued based on loans receivable and installment financial assets.

14. Debentures

Debentures issued by the Group and outstanding are as follows:


Type Annual

interest rates (%)


Debenture Securitized debenture

Total Debenture Securitized

debenture

Total

Debenture Securitized debenture Total

Short-term debenture

Debenture 3.92 ~ 5.04 \ 100,000 \ - \ 100,000 \ 659,397 \ - \ 659,397 \ 155,000 \ - \ 155,000

Less: Discount on debentures (29) - (29) (259) - (259)

(23) - (23)

99,971 - 99,971 659,138 - 659,138

154,977 - 154,977

Current portion of debenture

Debenture 2.44 ~ 8.76 4,030,429 996,073 5,026,502 2,428,128 956,425 3,384,553

3,594,431 562,832 4,157,263

Less: Discount on debentures (1,191) (228) (1,419) (5,849) (314) (6,163)

(1,952) (177) (2,129)

4,029,238 995,845 5,025,083 2,422,279 956,111 3,378,390

3,592,479 562,655 4,155,134

Long-term debenture

Debenture 2.44 ~ 8.76 8,665,456 1,761,283 10,426,739 8,401,694 1,980,229 10,381,923

6,464,582 2,282,377 8,746,959

Less: Discount on debentures (21,169) (8,256) (29,425) (15,726) (6,984) (22,710)

(17,799) (4,416) (22,215)

8,644,287 1,753,027 10,397,314 8,385,968 1,973,245 10,359,213

6,446,783 2,277,961 8,724,744

\ 12,773,496 \ 2,748,872 \ 15,522,368 \ 11,467,385 \ 2,929,356 \ 14,396,741 \ 10,194,239 \ 2,840,616 \ 13,034,855

Securitized debentures are issued based on loans receivable and installment financial assets.


48

15. Defined Benefit Liability

a. The amounts of defined benefit plans recognized in the statements of financial position are as

follows:


Type December 31,

2011

December 31,

2010

January 1,

2010

Present value of funded obligations \ 49,709 \ 38,732 \ 37,337

Fair value of plan assets¹ (29,347) (27,045) (28,095)

Defined benefit liability \ 20,362 \ 11,687 \ 9,242

¹ As of December 31, 2011, contribution to the National Pension Fund of \ 45 million is included

( December 31, 2010 : \ 51 million, January1, 2010: \ 76 million.)

b. Changes in present value of defined benefit obligations for the years ended December 31, 2011

and 2010:


Type 2011 2010


Current service cost 9,800 8,260

Interest cost 1,860 2,006

Actuarial losses 5,699 5,453

Transfer of severance benefits from

related parties

2,263 1,729

Transfer of severance benefits to related

parties

(2,941) (1,883)

Benefits paid (5,704) (14,170)


c. Changes in the fair value of plan assets for the years ended December 31, 2011 and 2010:


Type 2011 2010


Contributions by plan participants 3,500 -

Expected return on plan assets 1,075 1,325

Actuarial (losses)/gains 98 (157)

Transfer of severance benefits from

related parties

1,527 1,255

Transfer of severance benefits to

related parties

(1,661) (1,104)


49

Benefits paid (2,237) (2,369)


d. Details of the amounts recognized in the income statement for the years ended

December 31, 2011 and 2010:


Type 2011 2010

Current service cost \ 9,800 \ 8,260

Interest cost 1,860 2,006

Expected return on plan assets (1,075) (1,325)

Actuarial losses 5,601 4,375

\ 16,186 \ 13,316

e. Actual return on plan assets for the years ended December 31, 2011 and 2010:


Type 2011 2010

Actual return on plan assets \ 1,173 \ 1,168

f. Details of plan assets consist of :


Type December 31, 2011 December 31, 2010 January 1, 2010

Amount Ratio(%) Amount Ratio(%) Amount Ratio(%)

Cash \ 179 0.61 \ 96 0.36 \ - -

Deposits 11,576 39.45 12,053 44.56 28,095 100.00 Interest rate guaranteed

asset for 1-year 17,592 59.94 14,896 55.08 - -

\ 29,347 100.00 \ 27,045 100.00 \ 28,095 100.00

g. Actuarial assumptions

Actuarial assumptions required to recognize defined benefit liability are as follows:

Type December 31,

2011

December 31,

2010

January 1,

2010

Discount rate 4.21% 4.90% 5.90%

Expected return on plan assets 4.15% 4.20% 4.73%

Future salary increases 5.60% 5.39% 5.31%

Assumptions regarding future mortality experience are set based on actuarial advice published by

Korea Insurance Development Institute.


50

h. Adjustments for the differences

Adjustments for the differences between initial assumptions and actual figures as of December 31,

2011 and 2010, are as follows :


Type 2011 2010

Defined benefit obligations \ 3,271 \ 2,013 Plan assets 98 (157)

16. Income Tax

a. Income tax expense for the years ended December 31, 2011 and 2010, consists of:


Type 2011 2010

Current tax \ 124,239 \ 170,855 Changes in deferred tax assets(liabilities) 45,267 (37,117) Deferred tax credited directly to equity (13,519) 16,489

Income tax \ 155,987 \ 150,227

b. Deferred tax credited directly to equity


Type 2011 2010 Loss(Gain) on valuation of available-for-

sale financial securities \ 218 \ (663)

Accumulated comprehensive income of equity method investees

- (20)

Loss(Gain) on valuation of derivatives (13,737) 17,172

\ (13,519) \ 16,489

c. Reconciliation between income before income tax and income tax expense


Type 2011 2010

Profit before tax \ 663,391 \ 639,211

Current tax 160,493 154,664

Adjustments:

Income not subject to tax 881 (89) Expenses not deductible for tax

purposes 23,877 362

Changes in tax reconciliation of the previous year

- 1,237


51

Additional tax payments(refunds) (18,884) 4,051

Others (SPC consolidation, others) (10,380) (9,998)

Income tax \ 155,987 \ 150,227

Effective tax rate (Income tax over net income before tax)

23.5% 23.5%

d. Changes in temporary differences and deferred assets (liabilities)


2011

Type Temporary differences Deferred assets (liabilities)

Beginning Changes Ending Beginning Ending Allowances for doubtful

accounts \ 173,184 \ (173,184) \ - \ 41,911 \ -

Derivatives (264,264) 50,049 (214,215) (59,235) (51,840)

Deferred fees (154,491) (1,564) (156,055) (33,988) (37,765)

Initial direct costs for lease assets

(82,713) (16,979) (99,692) (18,197) (24,126)

Gain on foreign exchanges translation

227,514 (53,258) 174,256 51,246 42,170

Non-trade payables 69,374 (44,112) 25,262 16,789 6,113

Depreciation 375 68,781 69,156 83 16,736

Present value discounts (120) 114 (6) (26) (2)

Others 18,959 (5,596) 13,363 3,668 3,411

Consolidation effects (37,951) 2,173 (35,778) (4,868) (2,581)

\ (50,133) \ (173,576) \ (223,709) \ (2,617) \ (47,884)


2010

Type Temporary differences Deferred assets (liabilities)

Beginning Changes Ending Beginning Ending Allowances for doubtful

accounts \ 142,605 \ 30,579 \ 173,184 \ 34,510 \ 41,911

Derivatives (995,442) 731,178 (264,264) (232,117) (59,235)

Deferred fees (124,557) (29,934) (154,491) (27,403) (33,988)

Initial direct costs for lease assets

(65,709) (17,004) (82,713) (14,456) (18,197)

Gain on foreign exchanges translation

836,404 (608,890) 227,514 194,862 51,246

Non-trade payables 80,201 (10,827) 69,374 19,409 16,789

Depreciation 176 199 375 39 83

Present value discounts (280) 160 (120) (62) (26)

Others 38,224 (19,265) 18,959 8,820 3,668

Consolidation effects (82,880) 44,929 (37,951) (23,336) (4,868)

\ (171,258) \ 121,125 \ (50,133) \ (39,734) \ (2,617)


52

e. Realization of the deferred tax assets and basic judgment

Realization of the future tax benefits related to the deferred tax assets is dependent on many

factors, including the Group’s ability to generate taxable income within the period during which the

temporary differences reverse, the outlook of the Korean economic environment, and the overall

future industry outlook. Management periodically considers these factors in reaching its conclusion

and recognized the deferred income tax asset based on future realization.

As of December 31, 2011, the Group recognizes deferred income tax assets excluding certain

temporary differences which may not be realized. The amount above may change if the estimation

of future taxable income changes.

17. Provisions for Unused Loan Commitments

The Group has loan commitments. Changes in provisions for unused loan commitments for the

years ended December 31, 2011 and 2010, are as follows:


Type 2011 2010


Additional (Reversal) (36,178) 20,208


18. Derivative Financial Instruments and Hedge Acco unting

a. Trading derivatives

Trading derivatives are as follows: (in millions of Korean won)

Type


Notional principal amounts 1

Assets Liabilities Notional principal amounts 1

Assets Liabilities Notional

principal amounts 1

Assets Liabilities

Forward foreign exchange \ 398 \ 53 \ - \ 578 \ 72 \ - \ 127,969 \ 27,552 \ -

Currency swaps - - - - - - 126,282 44,954 -

\ 398 \ 53 \ - \ 578 \ 72 \ - \ 254,251 \ 72,506 \ -

1 Notional principal amounts are the amounts of foreign currency contracts for the Korean won against

foreign currency transaction, and the amount of foreign currency purchase contracts for the foreign currency

against the foreign currency transaction translated in the exchange rate as of December 31, 2011 and 2010,

and January 1, 2010.

The Group recognized gain on trading derivatives of \ 6 million during the year ended December

31, 2011 (2010 : \ 555 million).


53

b. Derivatives designated as cash flow hedges

Derivatives designated as cash flow hedges are as follows:


Type


Notional principal amounts

Assets Liabilities Notional principal amounts

Assets Liabilities Notional

principal amounts

Assets Liabilities

Interest rate swaps \ 360,000 \ 12 \ 1,331 \ 280,000 \ 9 \ 2,073 \ 1,185,000 \ - \ 11,926

Currency swaps 7,081,241 475,366 56,765 6,616,568 521,449 94,495 6,699,386 1,206,064 66,248

\ 7,441,241 \ 475,378 \ 58,096 \ 6,896,568 \ 521,458 \96,568 \ 7,884,386 \ 1,206,064 \ 78,174

The maximum period the Company is exposed to the variability in future cash flows arising from

derivatives designated as cash flow hedges, is expected to be until August 18, 2016.

There is no ineffective portion recognized related to cash flow hedge for the years ended

December 31, 2011 and 2010.

19. Shareholders’ Equity

a. Capital stock

The Company is authorized to issue 500,000,000 shares. As of December 31, 2011, the Company

has 99,307,435 shares issued and outstanding with a par value of \ 5,000 per share.

b. Legal reserve

The Korean Commercial Law requires the Company to appropriate, as a legal reserve, an amount

equal to a minimum of 10% of annual cash dividends declared, until the reserve equals 50% of its

issued capital stock. This reserve is not available for the payment of cash dividends, but may be

transferred to capital stock or used to reduce accumulated deficit, if any.

c. Discretionary reserve

The Company appropriates a reserve in accordance with Electronic Financial Transactions Act and

a reserve for business rationalization in accordance with Restriction of Special Taxation Act.

d. Legal reserve and discretionary reserve

Legal reserve and discretionary reserve are as follows:


Type

December 31

2011

December 31,

2010

January 1,

2010

Legal reserve Revenue reserve \ 79,699 \ 48,914 \ 28,556


54

Discretionary reserve

Reserve for electronic financial transactions

100 100 100

Reserve for business rationalization 74 74 74

174 174 174

Unappropriated retained earnings

(Expected reserve for bad loans

December 31, 2011: \ 270,220 million

December 31, 2010: \ 208,187 million

January 1, 2010: \ - million)

1,723,271 1,350,925 1,289,456

\1,803,144 \1,400,013 \ 1,318,186

e. Reserve for bad loans

If allowances for doubtful accounts do not meet the minimum amount calculated in accordance

with allowance reserve standards of Regulation on Supervision under Article 11 of the Specialized

Credit Financial Business Law, the Group appropriates a reserve for bad loans in an amount more

than the difference between the allowance and the requirement.

(1) Appropriated and expected reserves for bad loans as of December 31, 2011 and 2010, are as

follows:


Type 2011 2010

Appropriated reserve for bad loans \ - \ -

Expected reserve for bad loans 270,220 208,187

\ 270,220 \ 208,187

(2) Transfer to reserve for bad loans and net income in consideration of effect of changes in

reserve for bad loans for the year ended December 31, 2011, are as follows:


Type Amounts

Net income \ 507,404

Transfer to reserve for bad loans1 (62,033)

Net income in consideration of changes in reserve for bad loans2

445,371

Net income per share in consideration of changes in reserve for bad loans (In won)

4,485

1 The amount transferred to reserve for bad loans was the difference between the balance of reserve for

bad loans as of December 31, 2011, and the balance as of December 31, 2010. 2 Net income in consideration of changes in reserve for bad loans is not accordance with K-IFRS, and the

amount is the sum of the transfer to reserve for bad loans before income tax and net income.


55

f. Dividends

The Group does not plan to declare dividends for fiscal year of 2011, and dividends for fiscal year

of 2010 are as follows :


Type Amounts

Interim

dividends

Number of shares eligible for

dividends

99,307,435

Par value for share (won) \ 5,000

Dividends rate 41.00%

Dividends 203,580

Year-end

dividends

Number of shares eligible for

dividends

99,307,435

Par value for share (won) \ 5,000

Dividends rate 21.00%

Dividends 104,273

Total dividends \ 307,853

Net income 488,986

Dividends payout ratio (Dividends/ Net income) 62.96%

20. Net Interest Income

Net interest income for the years ended December 31, 2011 and 2010, is as follows:


Type 2011 2010

Interest income

Cash and deposits \ 41,991 \ 25,755

Loans receivable 1,497,749 1,342,333

Installment financial assets 429,931 485,241

Lease receivables1 216,551 175,901

Other² 385 1,207

2,186,607 2,030,437

Interest expenses

Borrowings 103,222 102,918

Debentures 804,002 743,545

Other² 48,815 43,717

956,039 890,180

Net interest income \ 1,230,568 \ 1,140,257

1 Includes amortization of present value discount for lease guarantee.

²Amortization of present value discount using the effective interest method.


56

21. Net Commission Income

Net commission income for the years ended December 31, 2011 and 2010, is as follows:


Type 2011 2010

Commission income

Loans receivable \ 50,808 \ 45,089

Installment financial assets 6,316 6,961

Lease receivables 121,879 83,504

179,003 135,554

Commission expenses

Lease expenses 13,521 10,017

Net Commission Income \ 165,482 \ 125,537

22. General and Administrative Expenses

General and administrative expenses for the years ended December 31, 2011 and 2010, are as

follows:


Type

2011 2010

Payroll \ 154,968 \ 141,156

Severance benefits 16,139 13,318

Fringe benefits 33,285 31,884

Depreciation 22,957 19,819

Advertising 52,957 78,514

Travel and transportation 4,658 4,000

Communication 13,145 12,396

Water, lighting and heating 9,104 8,557

Outsourcing service

commission

47,281 31,941

Commission 17,613 16,940

Sales commission 69,357 77,780

Amortization 8,359 7,028

Outsourcing service charges 68,479 65,408

Rent 34,699 32,693

Other expenses 50,366 44,519

\ 603,367 \ 585,953


57

23. Earnings Per Share

a. Basic earnings per share

Basic earnings per share attributable to common stock for the years ended December 31, 2011

and 2010, is as follows:

Type 2011 2010

(1) Net income attributable to common stock (In won)

\ 507,403,611,674 \ 488,985,560,819

(2) Weighted average of number of outstanding common shares

99,307,435 99,307,435

(3) Basic earnings per share (In won) (1)÷(2)

\ 5,109 \ 4,924

b. Diluted earnings per share

As there was no discontinued operation during the years ended December 31, 2011 and 2010,

basic earnings per share is the same as basic earnings per share from continuing operations.

There are no potential common stocks as of December 31, 2011 and 2010. Therefore, the diluted

earnings per share is the same as basic earnings per share for years ended December 31, 2011

and 2010.

24. Other Comprehensive Income

Other comprehensive income for the years ended December 31, 2011 and 2010, consists of:


2011

Type

Beginning balance

Changes

Income

tax effects

Ending balance

Reclassifi -cation of profit or

loss

Other changes

Gain(Loss) on valuation of available-for-sale financial assets

\ 512 \ - \ (1,118) \ 218 \ (388)

Accumulated comprehensive expense of equity method investees

24 - 23 - 47

Loss on valuation of derivatives

(67,925) 2,942 28,563 (13,737) (50,157)

Gain on exchange differences of foreign operations

17 - (360) - (343)

\ (67,372) \ 2,942 \ 27,108 \(13,519) \ (50,841)

(in millions of Korean won) 2010

Type Beginning Changes Income Ending


58

balance Reclassifi -cation of profit or

loss

Other changes

tax effects

balance

Gain(Loss) on valuation of available-for-sale financial assets

\ (1,835) \ - \ 3,010 \ (663) \ 512

Accumulated comprehensive expense of equity method investees

(69) - 113 (20) 24

Loss on valuation of derivatives

(3,566) 2,995 (84,526) 17,172 (67,925)

Gain on exchange differences of foreign operations

- - 17 - 17

\ (5,470) \ 2,995 \ (81,386) \ 16,489 \ (67,372)

25. Cash Flow Statement

a. Cash and cash equivalents

Cash and cash equivalents in cash flow statements consisting of cash in hand, deposits and short-

term money-market instruments are as follows:


Type December 31,

2011

December 31,

2010

January 1,

2010

Cash \ 4 \ 4 \ 7

Ordinary deposits 135,706 182,321 235,167

Current deposits 1,923 3,241 1,343

Short-term financial

instruments

1,317,800 1,039,300

754,319

\ 1,455,433 \ 1,224,866 \ 990,836

b. Cash generated from operations

Cash generated from operations for the years ended December 31, 2011 and 2010 are as follows:


Type 2011 2010

Net income \ 507,404 \ 488,985

Adjustments

Net interest expenses 913,663 863,216

Income tax 155,988 150,226 Gain on disposal of available-for-sale financial assets

(1,589) (3,367)

Gain on loans receivable (40,806) (53,334)

Gain on installment financing (93,230) (99,316)


59

Gain on leased assets (1,234) (846)

Gain on foreign exchange translations (21,235) (188,938)

Dividends (5,990) (6,742)

Gain on valuation of derivatives (134,197) (92,630)

Other operating income (36,214) (14,681)

Gain on equity method valuation (3,968) (9,466)

Lease expenses 361,521 486,184

Bad debts expense 354,220 145,478

Loss on foreign exchange translations 134,211 92,639


Depreciation 22,956 19,819

Amortization of intangible assets 8,358 7,028

Loss on valuation of derivatives 21,229 188,949

Other operating expenses 17 33,741

1,649,886 1,531,276

Changes in operating assets and liabilities Decrease in available-for-sale financial

assets 2,597 1,591

(Increase) in loans receivable (1,025,499) (1,760,261) Decrease(Increase) in installment financing receivables 15,641 (316,647)

(Increase) in finance lease receivables (736,817) (712,184)

Decrease in canceled leased receivables 7,382 5,330

(Increase) in operating leased assets (195,802) (337,235)

Decrease in canceled leased assets 220,857 147,679

Decrease in deferred loan origination fees and costs 105,653 145,856

(Increase) in present value discounts (38,912) (42,840)

Increase in allowance for bad debts 110,759 129,883

Decrease(Increase) in non-trade receivables (17,010) 7,388

Increase in accrued revenues (8,167) (10,273)

Decrease (increase) in advance payments 9,093 (23,606)

Decrease (increase) in prepaid expenses (8,248) 7,389

Decrease(Increase) in derivative assets (13,769) 79,832

Increase (decrease) in non-trade payables 13,035 81,062

(Decrease) in accrued expenses (241) (787)

Increase(decrease) in unearned revenue (8,244) 439

Increase in withholdings 2,201 1,493

Increase in leasehold deposits received 32,896 83,789

Payment of severance benefits (5,704) (14,115)

Decrease(increase) in plan assets (1,130) 2,219

Transfer of severance benefits to related parties (678) 1,081

Increase in derivative liabilities 13,778 4,353

(1,526,329) (2,518,564)

\ 630,961 \ (498,303)


60

c. Investing and financing activities not affecting cash flows

Significant investing and financing activities not affecting cash flows for the years ended December

31, 2011 and 2010 are as follows:


Type 2011 2010

Write-off of financial receivables \ 368,632 \ 224,875 Transferred from construction in progress to

intangible assets 13,451 15,875

Transferred to legal reserve 30,785 20,358 26. Commitments and Contingencies

a. Credit Line Agreement

Details of credit line agreements of the Group are as follows:


Type Financial institutions December

31, 2011

December

31, 2010

Limit of overdraft Shinhan Bank and 2 other banks \ 41,500 \ 51,500

Limit of daily loan SC Jeil Bank and 2 other banks 45,000 49,400 Limit of purchasing

commercial paper - - 10,000

Limit of credit line (SPC) - - 61,200

\ 86,500 \ 172,100

b. Credit Facility Agreement

The Group has revolving credit facility agreements with several financial institutions. Details of

credit facility agreements are as follows:


Financial institutions December 31, 2011 December 31, 2010

GE Capital Corporation1 Euro currency for

USD 1 billion

Euro currency for

USD 1 billion

Mizuho Corporate Bank, Seoul Branch \ 65,000 \ 65,000

JPMorgan, Seoul Branch 80,000 34,000

Citibank, Seoul2 50,000 50,000

Standard Chartered, Seoul Branch 50,000 50,000

Societe Generale, Seoul Branch 55,000 -

Bank of China, Seoul Branch 30,000 -

DBS Bank, Seoul Branch 50,000 -

Credit Agricole, Seoul 26,000 -

RBS, Seoul 110,000 -


61

ING Bank, Seoul 100,000 -

KDB Bank 30,000 -

Kyobo Life Insurance Co., Ltd 50,000 -

CITIBANK, N.A. USD 200 million - The Bank of TOKYO MITSUBISHI UFJ.,

Ltd USD 200 million -

1 GE Capital Corporation (the “GECC”) and Hyundai Motor Company entered into a support agreement

which includes the provision of debt-to-equity swap for the unredeemed amount and the put/call option of

the converted stocks. 2 Comprehensive limit including overdraft of ￦ 10 billion.

There has been no usage of the above credit facility agreements as of December 31, 2011 and

December 31, 2010.

c. Guarantees

Details of guarantees involving third parties are as follows:


Guarantor

Details December

31, 2011

December

31, 2010

Hyundai Motor

Company

Joint liabilities on finance lease

receivables1

\ 216

\ 3,092

Hyundai Wia Joint liabilities on machinery installment financing receivables1

1,674 14,730

Seoul Guarantee Insurance Co., Ltd.

Guarantee for debt collection deposit, others

186,062 204,560

1 The amounts represent the guaranteed balances as of December 31, 2011 and 2010, as defined under

the joint liability agreement.

The Group carries residual value guarantee insurance with Hyundai Marine & Fire Insurance Co., Ltd.

against loss in case unredeemed mortgage loans exceed recoverable amount from the collateral of the

loans. The receivables balance carried insurance and residual value guaranteed by the insurance

are as follows:


Type December 31, 2011 December 31, 2010

Receivables balance \ 865,834 \ 1,102,921

The amount of residual value guaranteed by insurance

284,470 369,321

d. Pending significant litigations

Details of pending significant litigations involving the Group as of December 31, 2011, are as

follows:


62

(in millions of Korean won) Type Number of litigations Amount of litigations

Plaintiff 4 \ 1,082

Defendant 5 157

In addition, the Group has filed lawsuits against a number of debtors to collect receivables. As of

report date, the outcome of these cases cannot be reasonably determined and no adjustments are

reflected on the consolidated financial statements of the Group as of December 31, 2011. 27. Related Party Transactions

a. Relationships between parents and subsidiaries

The parent company is Hyundai Motor Company. Related parties include associates, joint

ventures, post-employment benefit plans, members of key management personnel and entities

which the Group controls directly or indirectly, has joint control or significant influence over them.

b. Transaction between related parties

Significant transactions, which occurred in the normal course of business with related companies

for the years ended December 31, 2011 and 2010, are as follows:

(in millions of Korean won) 2011 2010 Purchases Disposal Purchases Disposal Parent Company

Hyundai Motor Company \ 905,992 \ - \ 839,417 \ -

Others

Kia Motors Corp. 220,001 - 289,834 -

Hyundai Autoever Corp. 6,471 - 7,251 -

Hyundai Glovis Co.,Ltd. - 63,800 - 30,321

Hyundai Card Co., Ltd. 147,915 - 70,612 -

Hyundai Commercial 27,586 - 10,658 -

401,973 63,800 378,355 30,321

\ 1,307,965 \ 63,800 \ 1,217,772 \ 30,321

Revenues and expenses arising from transactions with related parties for the years ended

December 31, 2011 and 2010, and receivables and payables as of December 31, 2011 and

December 31, 2010, are as follows:

(in millions of Korean won) December 31, 2011 December 31, 2010 Receivables Payables Receivables Payables Parent Company

Hyundai Motor Company \ 3,924 \ 7,279 \ 5,188 \ 9,662


63

Others

Kia Motors Corp. 19,431 17,867 422 10,643

Hyundai Card Co., Ltd. 1,165 137,262 1,681 106,061

Hyundai Commercial 46 4,268 24 2,346

Other related parties 12,844 - 27,315 10

33,486 159,397 29,442 119,060

\ 37,410 \ 166,676 \ 34,630 \ 128,722

(in millions of Korean won) 2011 2010

Revenues Expenses Revenues Expenses Parent Company

Hyundai Motor Company \ 15,803 \ 2,453 \ 27,616 \ 2,073

Others

Kia Motors Corp. - 5,090 1,794 626

Hyundai Card Co., Ltd. 26,914 15,600 21,428 18,053 Hyundai Commercial 1,075 922 772 759 Other related parties 15,881 33,353 3,177 41,510

43,870 54,965 27,171 60,948

\ 59,673 \ 57,418 \ 54,787 \ 63,021

The Group has been provided with a credit facility by GECC (Note 26).

c. Key management compensation

Compensation for key management for the years ended December 31, 2011 and 2010, consists

of:


Type 2011 2010

Short-term employee benefits \ 10,786 \ 7,021


The key management above consists of directors (including nonpermanent directors), who have

significant authority and responsibilities for planning, operating and controlling the Group.


64

28. Financial Risk Management

The Group is exposed to credit risk, liquidity risk and market risk (exchange and rate risk). In order

to manage these factors, the Group operates risk management policies and programs that monitor

closely and respond to each of the risk factors. The Group uses derivatives to manage specific

risks.

28.1 Credit risk

a. Exposure to credit risk

Exposures to credit risk are as follows:


Type December 31,

2011

December 31,

2010

January 1,

2010

Cash and deposits \ 1,455,438 \ 1,224,887 \ 992,767

Available-for-sale securities 2,239 3,372 3,114

Loans receivable 10,848,063 10,218,438 8,686,212

Installment financial assets 5,021,194 5,056,782 4,766,902

Lease receivables 2,278,594 1,778,438 1,253,804

Non-trade receivables 84,983 72,393 80,754

Accrued revenue 113,980 111,806 98,939

Leasehold deposits 35,929 31,955 30,473

Derivative assets 475,431 521,530 1,278,570

Unused loan commitments 1,062,198 1,071,419 635,461

\ 21,378,049 \ 20,091,020 \ 17,826,996

b. Credit quality of financial assets

Credit quality of financial assets exposed to credit risk are as follows: (in millions of Korean won)

Type December 31, 2011 December 31, 2010 January 1, 2010

Normal Past due Impaired Normal Past due Impaired Normal Past due Impaired

Cash and deposits \ 1,455,438 \ - \ - \ 1,224,887 \ - \ - \ 992,767 \ - \ -

Available-for- sale securities 2,239 - - 3,372 - - 3,114 - -

Financial receivables

Loans receivable 10,231,927 525,603 90,532 9,638,971 499,519 79,948 8,145,096 461,750 79,366

Installment financial assets 4,884,452 133,172 3,570 4,881,495 168,567 6,720 4,534,141 225,884 6,877

Lease receivables 2,235,881 38,633 4,080 1,724,271 51,037 3,130 1,216,064 36,756 984

17,352,260 697,408 98,182 16,244,737 719,123 89,798 13,895,301 724,390 87,227

Non-trade receivables 84,983 - - 72,393 - - 80,754 - -

Accrued revenue 113,980 - - 111,806 - - 98,939 - -

Leasehold deposits 35,929 - - 31,955 - - 30,473 - -


65

Derivative assets 475,431 - - 521,530 - - 1,278,570 - -

Unused loan commitments 1,062,198 - - 1,071,419 - - 635,461 - -

\ 20,582,458 \ 697,408 \ 98,182 \ 19,282,099 \ 719,123 \ 89,798 \ 17,015,379 \ 724,390 \ 87,227

(1) Financial receivables neither past due nor impaired

Credit quality according to internal credit rating of financial receivables which are neither past due

nor impaired are as follows:


Type December 31, 2011 Gross amount Allowance Book value

First-rate \ 2,451,862 \ (1,654) \ 2,450,208

Second-rate 5,018,855 (7,250) 5,011,605

Third-rate 6,201,583 (32,518) 6,169,065

Fourth-rate 495,853 (7,126) 488,727

Fifth-rate 713,174 (21,651) 691,523

Sixth-rate 83,792 (13,834) 69,958

No rating 2,561,475 (90,301) 2,471,174

\ 17,526,594 \ (174,334) \ 17,352,260


Type December 31, 2010 Gross amount Allowance Book value

First-rate \ 1,398,614 \ (598) \ 1,398,016

Second-rate 4,973,898 (7,823) 4,966,075

Third-rate 6,200,694 (32,099) 6,168,595

Fourth-rate 1,002,305 (16,129) 986,176

Fifth-rate 986,277 (32,442) 953,835

Sixth-rate 485,733 (51,885) 433,848

No rating 1,360,428 (22,236) 1,338,192

\ 16,407,949 \ (163,212) \ 16,244,737


Type January 1, 2010 Gross amount Allowance Book value

First-rate \ 2,995,272 \ (4,538) \ 2,990,734

Second-rate 3,045,099 (9,804) 3,035,295

Third-rate 2,388,224 (13,126) 2,375,098

Fourth-rate 1,953,147 (22,306) 1,930,841

Fifth-rate 471,802 (8,173) 463,629

Sixth-rate 799,876 (27,892) 771,984

No rating 2,359,268 (31,548) 2,327,720


66

\ 14,012,688 \ (117,387) \ 13,895,301

The Group classifies financial receivables into six internal credit rating based on the rating criteria

and the characteristic of receivables. The internal credit rating is assessed based on the expected

probability of default in the previous month. Meanwhile, some financial receivables are not given

credit rating for reason of lacking in research data such as information on new loan accounts of the

current month or requiring additional management.

(2) Financial receivables past due but not impaired

Financial receivables past due but not impaired as of are as follows:


December 31, 2011

Types Less than 1 month Between

1 ~ 2 months Between

2~3 months Total

Loans receivable \ 429,678 \ 82,150 \ 49,813 \ 561,641

Installment financial assets 126,482 11,124 4,379 141,985

Lease receivables 34,481 3,727 1,530 39,738

590,641 97,001 55,722 743,364

Allowance (21,391) (9,466) (15,099) (45,956)

Book value \ 569,250 \ 87,535 \ 40,623 \ 697,408


December 31, 2010



2~3 months Total



Lease receivables 47,422 2,978 1,877 52,277

631,627 75,765 40,838 748,230

Allowance (14,104) (5,427) (9,576) (29,107)

Book value \ 617,523 \ 70,338 \ 31,262 \ 719,123


January 1, 2010



2~3 months Total



Lease receivables 34,286 2,593 982 37,861

650,498 71,597 31,839 753,934

Allowance (18,765) (6,017) (4,762) (29,544)


67

Book value \ 631,733 \ 65,580 \ 27,077 \ 724,390

(3) Impaired financial receivables


December 31, 2011 Type Gross amount Allowance Book value

Loans receivable \ 194,964 \ (104,432) \ 90,532

Installment financial assets 12,109 (8,539) 3,570

Lease receivables 15,695 (11,615) 4,080

\ 222,768 \ (124,586) \ 98,182


December 31, 2010 Type Gross amount Allowance Book value



Lease receivables 11,355 (8,225) 3,130

\ 162,855 \ (73,057) \ 89,798


January 1, 2010 Type Gross amount Allowance Book value



Lease receivables 6,077 (5,093) 984

\ 161,275 \ (74,048) \ 87,227

(4) Credit quality of other assets

Credit quality according to external credit rating of other assets, excluding financial receivables,

which are neither past due nor impaired are as follows:


Cash and deposits 1

December 31,

2011

December 31,

2010

January 1,

2010

AAA \ 769,485 \ 767,370 \ 645,270

AA+ 175,139 11,384 16,857

AA 90,000 140,000 110,000

AA- 100,000 95,000 80,000

A+ 190,000 150,000 30,000

A 100,000 - 50,000

A- - 20,000 20,039


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No rating 30,814 41,133 40,598

\ 1,455,438 \ 1,224,887 \ 992,764

1 The average external credit rating of three domestic credit rating agencies is used.


Derivative assets 2

December 31,

2011

December 31,

2010

January 1,

2010

AA \ - \ 19,326 \ 14,252

AA- 20,216 94,114 247,567

A+ 275,467 267,156 597,466

A 150,554 123,027 281,680

A- 29,194 - -

BBB+ - 17,907 131,905

BBB - - 5,700

\ 475,431 \ 521,530 \ 1,278,570

2 Derivative assets are classified based on S&P credit rating.


Unused loan

commitments

December 31,

2011

December 31,

2010

January 1,

2010

First-rate \ 27,828 \ 7,590 \ 42

Second-rate 15,757 5,783 1,097

Third-rate 782,238 633,715 428,845

Fourth-rate 163,369 246,446 117,527

Fifth-rate 31,548 87,848 46,162

Sixth-rate 2,764 21,789 6,048

No rating 38,694 68,248 35,740

\ 1,062,198 \ 1,071,419 \ 635,461

c. Assets pledges as collateral

The assets pledged as collateral for financial receivables are as follows:


December 31, 2011

Type

Impaired Unimpaired

Total Delinquent Non-delinquent

Total financial receivables

\ 98,182 \ 697,408 \ 17,352,260 \ 18,147,850

Collateralized assets Collateralized

vehicles 46,084 314,978 4,562,891 4,923,953

Collateralized real 1,293 5,578 122,428 129,299


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estate

\ 47,377 \ 320,556 \ 4,685,319 \ 5,053,252


December 31, 2010

Type

Impaired Unimpaired



\ 89,798 \ 719,123 \ 16,244,737 \ 17,053,658


vehicles 25,580 335,495 4,576,957 4,938,032

Collateralized real estate

328 2,739 127,734 130,801

\ 25,908 \ 338,234 \ 4,704,691 \ 5,068,833


January 1, 2010

Type

Impaired Unimpaired



\ 87,227 \ 724,390 \ 13,895,301 \ 14,706,918


vehicles 24,015 342,834 4,041,776 4,408,625

Collateralized real estate

136 1,389 60,713 62,238

Collateralized other assets

- - 2 2

\ 24,151 \ 344,223 \ 4,102,491 \ 4,470,865

d. Credit risk concentration

Credit risk concentration of financial receivables by debtors are as follows:


Type December 31, 2011 Including allowance Ratio Allowance Book value

Individual \ 15,625,565 84.5% \ (308,056) \ 15,317,509

Corporate

Finance 43,581 0.2% (484) 43,097

Manufacturing 881,447 4.8% (11,473) 869,974

Service 847,200 4.6% (9,693) 837,507

Public 7,545 0.0% (35) 7,510

Others 1,087,388 5.9% (15,135) 1,072,253

2,867,161 15.5% (36,820) 2,830,341


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\ 18,492,726 100.0% \ (344,876) \ 18,147,850


Type December 31, 2010 Including allowance Ratio Allowance Book value

Individual \ 14,902,141 86.0% \ (236,824) \ 14,665,317

Corporate

Finance 38,098 0.2% (296) 37,802

Manufacturing 737,970 4.3% (10,444) 727,526

Service 721,722 4.2% (6,854) 714,868

Public 6,270 0.1% (54) 6,216

Others 912,833 5.2% (10,904) 901,929

2,416,893 14.0% (28,552) 2,388,341

\ 17,319,034 100.0% \ (265,376) \ 17,053,658


Type January 1, 2010 Including allowance Ratio Allowance Book value

Individual \ 13,036,416 87.2% \ (197,359) \ 12,839,057

Corporate

Finance 29,513 0.2% (260) 29,253

Manufacturing 613,349 4.1% (7,351) 605,998

Service 545,776 3.7% (6,466) 539,310

Public 4,034 0.1% (18) 4,016

Others 698,810 4.7% (9,526) 689,284

1,891,482 12.8% (23,621) 1,867,861

\ 14,927,898 100.0% \ (220,980) \ 14,706,918

28.2 Liquidity risk

Cash flows of financial liabilities based on remaining contractual maturities are as follows:


Type Immediate payment

Up to 3 months 3 months to

1 year 1 to 5 years Over 5 years Total

Borrowings \ - \ 673,265 \ 665,329 \ 1,005,538 \ - \ 2,344,132

Debentures - 1,690,963 4,034,987 10,540,078 1,018,160 17,284,188

Other liabilities 4,729 290,381 188,498 625,188 2 1,108,798

Net settlement derivative

liabilities

-

61 (264) (1,175) - (1,378)


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Gross settlement derivative

liabilities

Cash inflow - (19,064) (499,630) (1,767,979) - (2,286,673)

Cash outflow - 21,679 534,412 1,834,948 - 2,391,039

\ 4,729 \2,657,285 \ 4,923,332 \12,236,598 \ 1,018,162 \ 20,840,106


Type Immediate payment

Up to 3 months 3 months to

1 year 1 to 5 years Over 5 years Total

Borrowings \ - \ 1,024,716 \ 1,130,162 \ 557,869 \ - \ 2,712,747

Debentures - 958,326 3,728,696 10,882,286 408,872 15,978,180

Other liabilities 4,545 351,093 162,139 548,020 - 1,065,797

Net settlement derivative

liabilities

- 1,353 1,211 (68) - 2,496

Gross settlement derivative

liabilities

Cash inflow - (10,023) (400,276) (1,565,978) - (1,976,277)

Cash outflow - 12,849 427,425 1,644,488 - 2,084,762

\ 4,545 \ 2,338,314 \ 5,049,357 \12,066,617 \ 408,872 \ 19,867,705

The above amounts including the principal and future interest payments are contractual

undiscounted cash flows and are not equal to the amounts in the statement of financial position

based on the discounted cash flows.

The unused agreement of limited loan products amounts to a maximum of \ 1,062,198 million as of

December 31, 2011 (2010: \ 1,071,419 million). The unused loan agreement above may have to

be paid immediately on customers’ request.

28.3 Market risk

a. Interest rate risk

The Group manages the interest rate risk through Value at Risk(VaR), Earning at Risk(EaR)

measurement and Interest Rate Gap Analysis that analyze the maturity between the interest

revenue-generating assets and the interest-bearing liabilities.

VaR is calculated using the standard framework of the Bank for International Settlements(BIS). The

VaR model uses the proxy of modified duration per expiration interval proposed by the BIS and

expected interest rate volatility of expiration interval by reason of interest rate fluctuation of 100bp.


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The interest rate risk using VaR are as follows:

VaR is a commonly used market risk measurement techniques but has some limitations. VaR

estimates the expected loss under the specific reliability based on the historical changes in the

market data. However, the past changes in market cannot reflect all conditions and environments

that may occur in the future. Therefore, in the process of calculating, the timing and size of the

actual loss may vary according to changes in assumptions.

b. Foreign exchange risk

The Group holds fianancial instruments and borrowings that are denominated in foreign currencies

and is exposed to foreign exchange risk arising from various currency exposures. The Group

undertakes hedging strategies with hedge accounting being applied to manage these foreign

exchange risks.

Foreign exchange position exposures of the Group are as follows:

The Group’s exposure to foreign exchange risk is hedged by derivatives. Therefore, foreign

exchange risk of the Group is not significant.


Type December 31,

2011

December 31,

2010

January 1,

2010

Interest rate VaR \ 111,625 \ 78,614 \ 52,510


Currency December 31,

2011

December 31,

2010

January 1,

2010

Cash and deposits USD \ 11 \ 14 \ 24 EUR 2,246 721 43

RUB 833 1 25

Others 60 37 30

3,150 773 122

Borrowings and Debentures

USD 4,253,083 3,802,165 3,366,191

EUR 978,635 991,408 1,133,981

MYR 475,478 497,145 291,393

JPY 519,806 514,125 1,187,051

CHF 796,816 426,304 -

Others 57,423 150,671 13,063

\ 7,081,241 \ 6,381,818 \ 5,991,679


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28.4 Capital risk management

The objective of the Group’s capital management is to maintain sound capital structure. The Group

uses the adjusted capital adequacy ratio under the Supervision of Specialized Credit Financial

Business Law as a capital management indicator. This ratio is calculated as adjusted total assets

divided by adjusted equity.

Adjusted capital adequacy ratios of the Group are as follows:

The above adjusted capital adequacy ratio is calculated according to Supervision of Specialized

Credit Financial Business Law.


Type December 31,

2011

December 31,

2010

January 1,

2010

Adjusted total assets (1) \ 20,164,623 \ 19,295,545 \ 18,114,010

Adjusted equity (2) 2,621,593 2,243,382 2,262,984

Adjusted capital adequacy ratio (2)÷(1) 13.00% 11.63% 12.49%

Audit Report: Hyundai Capital 2011 (English)

Investor Relations

Transcript of Audit Report: Hyundai Capital 2011 (English)