Audit Report: Hyundai Capital 3Q2011

Hyundai Capital Services, Inc. and Subsidiaries

Interim Consolidated Financial Statements September 30, 2011 and 2010

Hyundai Capital Services, Inc. and Subsidiaries Index September 30, 2011

Report on Review of Interim Financial Statements .......................................................................... 1-2

Interim Consolidated Financial Statements

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

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

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

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

Notes to the Interim Consolidated Financial Statements .................................................................. 12-71

1

Report on Review of Interim Financial Statements

To the Shareholders and Board of Directors of Hyundai Capital Services, Inc.

Reviewed Financial Statements

We have reviewed the accompanying interim consolidated financial statements of Hyundai Capital Services, Inc. and its subsidiaries. These financial statements consist of consolidated statements of financial position of the Company and subsidiaries as of September 30, 2011 and December 31, 2010, and the related consolidated statements of comprehensive income for the three-month and the nine-month periods ended September 30, 2011 and 2010, and statements of changes in equity and cash flows for the nine-month periods ended September 30, 2011 and 2010, and a summary of significant accounting policies and other explanatory notes, expressed in Korean won.

Management's Responsibility for the Financial State ments

Management is responsible for the preparation and fair presentation of these interim consolidated financial statements in accordance with the International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS) 1034, Interim Financial Reporting, and for such internal control as management determines is necessary to enable the preparation of interim consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to issue a report on these interim consolidated financial statements based on our reviews. We conducted our reviews in accordance with the quarterly and semi-annual review standards established by the Securities and Futures Commission of the Republic of Korea. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the Republic of Korea and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

2

Conclusion

Based on our reviews, nothing has come to our attention that causes us to believe the accompanying interim consolidated financial statements do not present fairly, in all material respects, in accordance with the Korean IFRS 1034, Interim Financial Reporting.

Emphasis of Matter

Without qualifying our opinion, as mentioned in Note 2, we draw attention to the fact that these interim consolidated financial statements are prepared in accordance with Korean IFRS and the interpretations which are effective as of this report date. Therefore, there may be changes in the Korean IFRS and related interpretations adopted in the preparation of these consolidated financial statements when Company prepares its first full Korean IFRS financial statements.

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

Seoul, Korea November 11, 2011 This report is effective as of November 11, 2011, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying consolidated interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

Hyundai Capital Services, Inc. and Subsidiaries Interim Consolidated Statements of Financial Positi on September 30, 2011 and December 31, 2010

3

(In millions of Korean won)

2011 2010

Assets Cash and deposits

Cash and cash equivalents (Note 25) \ 1,393,204 \ 1,224,866

Deposits (Note 4) 23 25

1,393,227 1,224,891

Securities (Note 5) Available-for-sale securities 19,444 20,577 Equity method investments 51,976 48,483

71,420 69,060

Loans receivable (Notes 6 and 7) 11,236,190 10,434,141 Allowances for doubtful accounts (268,670) (215,703)

10,967,520 10,218,438

Installment financial assets (Notes 6 and 7)

Auto installment financing receivables 4,873,737 5,023,945 Allowances for doubtful accounts (30,787) (27,489) Durable goods installment financing receivables 2,168 6,801

Allowances for doubtful accounts (139) (633) Mortgage installment financing receivables 29,065 40,025

Allowances for doubtful accounts (333) (403) Machinery installment financing receivables 3,157 14,653 Allowances for doubtful accounts (28) (117)

4,876,840 5,056,782

Lease receivables (Notes 6 and 7)

Finance lease receivables (Note 9) 2,201,595 1,777,477 Cancelled lease receivables 1,488 961

2,203,083 1,778,438

Leased assets (Note 10)

Operating leased assets 1,140,108 1,282,845 Cancelled leased assets 4,742 3,192

1,144,850 1,286,037


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2011 2010

Property and equipment (Note 11) 261,832 242,369 Other assets

Intangible assets (Note 12) 59,612 52,612 Non-trade receivables 36,708 40,833

Allowances for doubtful accounts (941) (964) Accrued revenues 113,192 115,278 Allowances for doubtful accounts (4,268) (3,472) Advance payments 90,355 99,842 Allowances for doubtful accounts (1,612) (3,212) Prepaid expenses 25,831 18,186 Leasehold deposits 36,238 31,954 Derivative assets (Note 18) 691,691 521,530

1,046,806 872,587

Total assets \ 21,965,578 \ 20,748,602

Liabilities and Shareholders’ Equity Borrowings

Borrowings (Note 13) \ 2,080,000 \ 2,646,945

Debentures (Note 14) 15,927,850 14,396,741

18,007,850 17,043,686

Other liabilities Non-trade payables 306,375 362,539 Accrued expenses 123,319 110,225 Unearned revenue 63,924 69,338 Withholdings 26,282 21,939 Defined benefit liability (Note 15) 14,646 11,687 Leasehold deposits received 771,276 746,532 Deferred income tax liabilities (Note 16) 21,106 2,617 Provisions (Note 17) 10,428 46,624 Derivative liabilities (Note 18) 60,198 96,568

1,397,554 1,468,069

Total liabilities 19,405,404 18,511,755


5


2011 2010

Shareholders' equity Common stock (Notes 1 and 19) 496,537 496,537

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

407,539 407,539 Accumulated other comprehensive income and

expenses (Note 24)

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

(17)

512

Accumulated comprehensive income of equity method investees

50

24

Loss on valuation of derivatives (102,356) (67,924) Cumulative effect of overseas operation translation

487

17

(101,836) (67,371)

Retained earnings (Note 19) 1,757,825 1,400,013

Non-controlling interests 109 129

Total shareholders' equity 2,560,174 2,236,847

Total liabilities and shareholders' equity \ 21,965,578 \ 20,748,602

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

Hyundai Capital Services, Inc. and Subsidiaries Interim Consolidated Statements of Comprehensive In come Three-Month and Nine-Month Periods ended September 30, 2011 and 2010

6

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

Three months Nine months

2011 2010 2011 2010

Operating revenue Interest income (Note 20)

Interest on bank deposits \ 10,636 \ 6,619 \ 29,484 \ 18,899

Other interest income 83 301 337 983

10,719 6,920 29,821 19,882 Gain on valuation and disposal of

securities

Gain on disposal of available-for-sale securities

1,755 478 3,839 1,746

Reversal of impairment loss on available-for-sale securities

- - - 1,078

1,755 478 3,839 2,824

Income on loans (Notes 20 and 21) 390,758 355,201 1,164,096 1,012,324 Income on installment financial

receivables (Notes 20 and 21) 106,833 119,856 331,122 374,268

Income on leases (Notes 20 and 21) 216,141 220,148 654,208 651,755

Gain on disposal of loans - 14,859 72,041 14,859

Gain on foreign currency transactions Gain on foreign exchanges

translation - 218,442 6 166,016

Gain on foreign currency transactions

13,534 452 43,355 9,218

13,534 218,894 43,361 175,234

Dividend income 2,729 3,062 5,979 6,742

Other operating income Gain on valuation of derivatives 546,168 - 374,363 52,108 Gain on derivatives transactions 468 54,262 1,184 73,964 Others 26,670 29,551 107,780 58,441

573,306 83,813 483,327 184,513

Total operating revenue 1,315,775 1,023,231 2,787,794 2,442,401


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2011 2010 2011 2010

Operating expenses

Interest expenses (Note 20) \ 239,087 \ 223,222 \ 717,008 \ 662,473

Lease expenses (Note 21) 123,790 135,600 379,146 422,600

Bad debts expense (Note 7) 89,932 40,229 229,357 74,603

Loss on foreign transactions Loss on foreign exchange translation 546,136 - 374,363 52,101 Loss on foreign currency transactions 468 46,458 1,183 65,402

546,604 46,458 375,546 117,503

General and administrative expenses

(Note 22) 145,223 147,271 406,400 389,485

Other operating expenses

Loss on valuation of derivatives - 219,933 - 166,023 Loss on derivatives transactions 13,541 6,617 43,379 17,242 Others 11,295 12,578 32,853 40,812

24,836 239,128 76,232 224,077

Total operating expenses 1,169,472 831,908 2,183,689 1,890,741

Operating income 146,303 191,323 604,105 551,660

Non-operating income

Gain on equity method valuation (Note 5)

- 2,430 4,174 8,693

- 2,430 4,174 8,693 Non-operating expenses

Loss on equity method valuation

576 - - -

576 - - -

Income before income taxes 145,727 193,753 608,279 560,353

Income tax expense (Note 16) 37,691 39,955 146,194 130,903

Net income \ 108,036 \ 153,798 \ 462,085 \ 429,450

Net income attributable to:

Owners of the parent 108,036 153,798 462,085 429,450 Non-controlling interests - - - -

108,036 153,798 462,085 429,450


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

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

(123) 1,046 \ (529) \ 2,069

Other comprehensive income of equity method investees(Note 5)

41 141 26 76

Gain (Loss) on valuation of derivatives

(62,040) 11,348 (34,432) (37,857)

Effect of overseas operation translation

646 29 470 51

(61,476) 12,564 (34,465) (35,661)

Total comprehensive income 46,560 166,362 \ 427,620 \ 393,789

Total comprehensive income attributable

to:

Owners of the parent 46,560 166,362 427,620 393,789 Non-controlling interests - - - -

46,560 166,362 427,620 393,789 Earnings per share attributable to the

ordinary equity holders of the company (Note 23)

Basic earnings per share

\ 1,088 \ 1,549 \ 4,653 \ 4,324

Diluted earnings per share

1,088 1,549 4,653 4,324


Hyundai Capital Services, Inc. and Subsidiaries Interim Consolidated Statements of Changes in Share holders’ Equity Nine-Month Periods ended September 30, 2011 and 201 0

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 - - - 429,450 429,450 - 429,450 Other comprehensive income

Gain on valuation of available-for-sale securities - - 2,069 - 2,069 - 2,069

Other comprehensive income of equity method investees - - 76 - 76 - 76

Loss on valuation of derivatives - - (37,857) - (37,857) - (37,857) Effect of overseas operation

translation - - 51 - 51 - 51

Total comprehensive income - - (35,661) 429,450 393,789 - 393,789

Transactions with owners Transfer from dividends payable - - - 3 3 - 3 Dividends - - - (203,580) (203,580) - (203,580)

Total transactions with owners - - - (203,577) (203,577) - (203,577)

Balances as of September 30, 2010 \ 496,537 \ 407,539 \ (41,131) \ 1,544,059 \ 2,407,004 \ 129 \ 2,407,133

Hyundai Capital Services, Inc. and Subsidiaries Interim Consolidated Statements of Changes in Share holders’ Equity Nine-Month Periods ended September 30, 2011 and 201 0

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 - - - 462,085 462,085 - 462,085 Other comprehensive income

Loss on valuation of available-for-sale securities - - (529) - (529) - (529)

Other comprehensive income of equity method investees - - 26 - 26 - 26

Loss on valuation of derivatives - - (34,432) - (34,432) - (34,432) Effect of overseas operation

translation - - 470 - 470 - 470

Total comprehensive income - - (34,465) 462,085 427,620 - 427,620

Transactions with owners 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 September 30, 2011 \ 496,537 \ 407,539 \ (101,836) \ 1,757,825 \ 2,560,065 \ 109 \ 2,560,174


Hyundai Capital Services, Inc. and Subsidiaries Interim Consolidated Statements of Cash Flows Nine-Month Periods ended September 30, 2011 and 201 0

11

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

Cash generated from operations (Note 25) \ 376,726 \ 248,272 Interest received 27,144 17,275 Interest paid (652,629) (616,011) Dividends received 5,979 6,742 Income taxes paid (76,789) (168,735)

(319,569) (512,457)

Cash flows from investing activities Decrease in deposits 3 1,913 Dividends from equity method investments 707 1,226 Acquisition of land (3,580) (3,066) Acquisition of building (8,546) (2,968) Acquisition of structures (379) - Disposal of vehicles 37 - Acquisition of vehicles (206) (91) Disposal of fixtures and furniture 32 12 Acquisition of fixtures and furniture (26,406) (7,578) Acquisition of other tangible assets (803) - Increase in construction in progress (3,408) (8,063) Disposal of intangible assets 70 29 Acquisition of intangible assets (6,030) (719) Decrease in leasehold deposits 3,249 3,225 Increase in leasehold deposits (7,201) (3,155) Liquidation of special purpose entity (20) -

(52,481) (19,235)

Cash flows from financing activities Proceeds from borrowings 2,240,000 2,525,650 Repayments of borrowings (2,806,945) (2,925,849) Issuance of debentures 4,390,133 3,981,185 Repayments of debentures (3,178,991) (2,818,744) Payments of dividends (104,273) (203,577)

539,924 558,665

Exchange losses on cash and cash equivalents (6) (14) Increase in other cash and cash equivalents 470 51 Net increase in cash and cash equivalents 168,338 27,010 Cash and cash equivalents

Beginning of period 1,224,866 990,835

End of period \ 1,393,204 \ 1,017,845


Hyundai Capital Services, Inc. and Subsidiaries Notes to the Interim Consolidated Financial Stateme nts September 30, 2011 and 2010, and December 31, 2010

12

1. General Information

Hyundai Capital Services, Inc. was established on December 22, 1993, to engage in installment

financing, facilities lease and new technology financing. The Company changed its trade name

from Hyundai Auto Finance Co., Ltd. to Hyundai Financial Services Co. on April 21, 1995, and

changed its trade name once again to Hyundai Capital Services, Inc. on December 31, 1998. In

accordance with the Monopoly Regulation and Fair Trade Act, the Company is incorporated into

Hyundai Motor Company Group. As of September 30, 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. (the “Company”), 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 September 30, 2011 and December 31, 2010, are as follows. The Company has

the substantial power over the subsidiaries established as special purpose entities for asset

securitization even though its ownership interests over the subsidiaries do not exceed 50%.

2011 2010

Special

Purpose

Entities

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

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

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

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

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

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

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

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

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

Autopia Forty-sixth SPC(trust) Autopia Forty-fifth SPC(trust)

Stock

Company Hyundai Capital Europe GmbH1 Hyundai Capital Europe GmbH

1 It holds 100% shares of Hyundai Capital Services Limited Liability Company established during

the first half of 2011.

The Group financial statements are prepared in the Korean language (Hangul) in conformity with

International Financial Reporting Standards as adopted by the Republic of Korea (“Korean IFRS”).


13

The Group’s Korean IFRS transition date is January 1, 2010, and the adoption date is January 1,

2011.

The interim consolidated financial statements are stated at historical cost unless otherwise stated

in the notes.

The reconciliations and descriptions of the effect of the transition from the consolidated financial

statements of the Group prepared in accordance with accounting principles generally accepted in

the Republic of Korea (“K-GAAP”) before the adoption date to Korean IFRS on the Group’s equity

as of January 1, 2010, September 30, 2010, and December 31, 2010, its comprehensive income

and cash flows for the nine-month period ended September 30, 2010 and year ended December

31, 2010, are provided in Note 3.

The interim consolidated financial statements for the nine-month periods ended September 30,

2011 and 2010, have been prepared in accordance with Korean IFRS 1034. Because these interim

consolidated financial statements are a part of financial statements prepared by Korean IFRS as of

December 31, 2011, these are subject to Korean IFRS 1101, ‘First-time Adoption of Korean IFRS’.

These interim consolidated financial statements have been prepared in accordance with the

Korean IFRS standards and interpretations issued and effective at the reporting date. The Korean

IFRS standards and interpretations that will be applicable at December 31, 2011, including those

that will be applicable on an optional basis, are not known with certainty at the time of preparing

these interim consolidated financial statements.

The legislative and amended standards and interpretations the Group has not adopted earlier,

which have been promulgated but are not yet effective for the fiscal year starting from January 1,

2011, are as follows.

- Amendments to Korean IFRS 1101, ‘Deletion of Hyperinflation and the particular date’

(announced in December, 2010)

The date of prospective application, the exceptions to retrospective application in derecognition of

financial assets, has been changed from the particular date(January 1, 2004) to Korean IFRS

transition date according to the amendment above. Therefore, derecognition transactions that

occurred before the transition date are not restated in accordance with Korean IFRS. The

modification is required to be adopted from July 1, 2011.

- Amendments to Korean IFRS 1012, ‘Income Taxes’

If there is no disproof, investment property measured at fair value when measuring deferred

income tax assets and liabilities should be measured in consideration of recovered tax effects by

selling. This will be effective on January 1, 2012.

- Amendments to Korean IFRS 1107, ‘Financial Instruments: Disclosures’

The financial assets transferred to counterparts but still remained in the financial statements are

required to be disclosed in terms of the nature of the assets, the book value, the risks and rewards.

If an entity is exposed to the particular risks and rewards on the derecognized financial assets,


14

additional disclosures are required to the understand effects of the risks. The amendments are

applicable from July 1, 2011.

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

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

to all the periods presented, unless otherwise stated.

2.1 Consolidation

a. Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the Group 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 Group controls another

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

They are deconsolidated from the date that control ceases.

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

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

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

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

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

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

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

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

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

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

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

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

Intercompany transactions, balances and unrealized gains on transactions between Group

companies are eliminated.

b. Special purpose entities

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

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

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

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

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

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

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


15

c. Transactions with non-controlling interests

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

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

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

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

equity.

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


16

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

income as qualifying cash flow hedges.

2.3 Critical accounting estimates and assumptions

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

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

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

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


17

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

receivables.

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

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

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

2.5 Statements of cash flows

The Group prepares statements of cash flows using indirect method.

2.6 Cash and cash equivalents

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

highly liquid investments with original maturities of three months or less and bank overdrafts.

2.7 Financial assets

a. Classification

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

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

of its financial assets at initial recognition.

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 (the date on

which the Group commits to purchase or sell the asset). Investments are initially recognized at fair

value plus transaction costs for all financial assets not carried at fair value through profit or loss.

Financial assets carried at fair value through profit or loss are initially recognized at fair value, and


18

transaction costs are expensed in the income statement. Available-for-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 profit and 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.

The Group can transfer an asset in statement of financial position but retains parts of or all the risks

and rewards of ownership of the transferred asset substantially. To the extent that a transfer of a

financial asset retains rights and obligations, the Group accounts both asset and liability at the

same time. After the Group transfers a financial asset and still retains control, it shall continue to

recognize the asset to the extent of its continuing involvement in the asset.

d. Impairment of financial assets

(1) Assets carried at amortized cost

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

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

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

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

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

effective interest rate.

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

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

previously recognized impairment loss is recognized in the income statement.

(2) Available-for-sale financial assets

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

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


19

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

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

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

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

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

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

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

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

2.8 Deferral of loan origination fee and loan 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.


20

2.10 Leases

a. Classification

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

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

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

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

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

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

be exercised, ③the lease term is for the major part of the economic life of the asset even if 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, and ⑤the leased assets

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

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

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

of discharging the obligations under the guarantee.

b. Finance leases

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

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

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

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

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

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

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

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

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

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

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


21

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

Others - Indefinite useful life

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

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

life.


22

2.13 Impairment of non-financial assets

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

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

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

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

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

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

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

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

impairment at each reporting date.

2.14 Pension obligations

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

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

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

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

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

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

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

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

pension obligation.

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

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

2.15 Provisions and contingent liabilities

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

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

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

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

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

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

class of obligations may be small.

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


23

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

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

2.16 Derivative financial instruments

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

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

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

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

interest rates arising from floating-rate liabilities.

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

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

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

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

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

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

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

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

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

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

flows of hedged items.

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

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

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

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

When 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.

2.17 Current and deferred income tax

Interim period income tax expense is calculated by applying to an interim period’s pre-tax income

the tax rate that would be applicable to expected total annual earnings.

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

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

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

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

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


24

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

by the date of the statement of financial position and are expected to apply when the related

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

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

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

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

and associates, except for deferred income tax liability where the timing of the reversal of the

temporary difference is controlled by the Group and it is probable that the temporary difference will

not reverse in the foreseeable future.

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

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

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

taxable entity or different taxable entities which intend either to settle current tax liabilities and

assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future

period in which significant amounts of deferred tax liabilities or assets are expected to be settled or

recovered.

2.18 Earnings per share

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

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.

2.19 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.

3. Transition to Korean IFRS

The interim consolidated financial statements as of September 30, 2011, are prepared according

to Korean IFRS at the adoption date of January 1, 2011. The statements of financial position as of

December 31, 2010 and as of September 30, 2010, which were prepared previously under K-

GAAP are restated in accordance with Korean IFRS 1101, “First-time adoption of Korean IFRS”,

for the comparative purposes at the transition date of January 1, 2010.


25

a. Exemptions of Korean IFRS 1101 elected by the Group

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

application.

(1) Business combination

The Group has not retrospectively applied Korean IFRS 1103 (Business combination) to the

business combinations that took place prior to the transition date.

(2) Deemed cost of property and equipment

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

deemed cost at the date of transition to Korean IFRS.

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

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

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

Under K-GAAP, allowances for financial receivables (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 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 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


26

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

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

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

using the effective interest method.

(5) Recognition of unused compensated absences

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

liabilities at the end of the reporting period only when the right to be paid has been established.

Under Korean IFRS, the Group recognizes liabilities when an employee has provided service in

exchange for compensated absences.

(6) Depreciation method for property and equipment

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

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

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

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

defined benefit obligation.

(8) Reclassification of memberships as intangible assets

Under 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 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.


27

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

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 September 30, 2010


Assets Liabilities Shareholders ’ equity

K-GAAP \ 16,834,090 \ 14,481,808 \ 2,352,282


Allowance for doubtful accounts 209,059 - 209,059

Provision for unused loan commitments - 21,052 (21,052)

Accrued revenues 23,670 - 23,670

Measurement of amortized cost 1,631 - 1,631


- 2,451 (2,451)

Depreciation 729 - 729

Retirement benefit obligations - (1,946) 1,946

Others (19,106) (7,879) (11,227)

Scope of consolidation 2,455,022 2,562,512 (107,490)

Deferred income taxes - 39,965 (39,965)

Total effect of transition 2,671,005 2,616,155 54,850

Korean IFRS \ 19,505,095 \ 17,097,963 \ 2,407,132


28

(3) Reconciliation of total comprehensive income and net income for the three-month and the nine-

month periods ended September 30, 2010



Total

comprehensive income

Net Income Total


Net Income

K-GAAP \ 146,538 \ 143,851 \ 400,129 \ 431,873


Allowance for doubtful accounts

(6,676) (6,676) (11,384) (11,384)

Provision for unused loan commitments

11,537 11,537 5,364 5,364

Accrued revenues 2,272 2,272 2,411 2,411 Measurement of amortized

cost 2,074 2,074 8,026 8,026


890 890 (184) (184)

Depreciation 265 265 (11,019) (11,019)

Retirement benefit obligations 955 901 2,037 1,815

Others (10,877) (10,877) (3,947) (3,947)

Scope of consolidation 28,790 18,967 (12,351) (8,212)

Deferred income taxes (9,406) (9,406) 14,707 14,707

Total effect of transition 19,824 9,947 (6,340) (2,423)

Korean IFRS \ 166,362 \ 153,798 \ 393,789 \ 429,450


29

(4) Reconciliation of assets, liabilities, equity, total comprehensive income and net income as of

and for the year ended December 31, 2010


Assets Liabilities Total equity Total


Net Income

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


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 22,471 - 22,471 1,212 1,212 Measurement of

amortized cost 2,443 - 2,443 8,838 8,838


- 2,524 (2,524) (257) (257)

Depreciation 1,113 - 1,113 (10,636) (10,636) Retirement benefit

obligations - 3,823 (3,823) (2,299) (2,299)

Others 39,865 39,926 (61) 8,645 8,645

Scope of consolidation 2,543,323 2,604,768 (61,445) (15,673) (10,375)

Deferred income taxes - 86,404 (86,404) 14,776 14,776

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

d. Adjustments of cash flows in 2010

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

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

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

e. Adjustments of operating income and expenses

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

operating income and expenses according to Korean IFRS.


30

Adjustments for the three-month and the nine-month periods ended September 30, 2011 and

2010, are as follows:

(in millions of Korean won) 2011 2010

Type Three

months Nine

months Three

months Nine

months Other operating income 7,040 20,947 5,995 18,484

Other operating expenses 5,422 12,507 4,138 15,085

4. Restricted Financial Instruments

Restricted financial instruments as of September 30, 2011 and December 31, 2010, are as follows:

(in millions of Korean won) Amount

Type Entities 2011 2010 Restriction

Deposits Kookmin Bank

and 5 others \ 23 \ 25 Maintaining deposits

for opening account

5. Securities

Securities as of September 30, 2011 and December 31, 2010, are as follows:


Type 2011 2010

Available-for-sale securities

Equity securities Marketable equity

securities \ 5,898 \ 7,318

Unlisted equity securities 10,632 9,887

16,530 17,205 Debt securities Government and

public bonds 2,914 3,372

Sub-total 19,444 20,577 Equity method investments 51,976 48,483

\ 71,420 \ 69,060


31

Available-for-sale securities

Available-for-sale securities as of September 30, 2011 and December 31, 2010, are as follows:

(1) Equity securities

(in millions of Korean won) Book value

Number of shares

Ownership (%)

Acquisition cost 2011 2010

Marketable equity securities

NICE Information Service 136,593 2.25 \ 3,312 \ 3,401 \ 4,221

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

Hyundai Finance Corp. 1 1,700,000 9.29 9,888 10,632 9,887

\ 16,691 \ 16,530 \ 17,205

1 The fair value for Hyundai Finance Corp. was valued as the average of valuation prices

provided by two external appraisers, KIS Pricing Inc. and Korea Asset Pricing, using the

discounted cash flow model. The five-year financial statements, projected based on past

performance, were used in measuring the fair value assuming that the operational structure will

remain as is for the next five years. Operating income and expenses were estimated based on

the past performance, business plan and expected market conditions.

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

Book value

Issuer

Interest rate (%)

Acquisition cost 2011 2010

Government and public bonds Metropolitan Rapid

Transit and others 2.50 \ 2,771 \ 2,914 \ 3,372

Equity method investments

Equity method investments as of September 30, 2011 and December 31, 2010, are as follows:

(in millions of Korean won) 2011

Number of shares Ownership

(%) Acquisition cost Net asset

value Book value

HK Mutual Saving Bank 1 4,990,438 20.00 \ 45,719 \ 33,968 \ 46,216

HI Network, Inc. 1 13,332 19.99 76 766 766

Korea Credit Bureau 1 140,000 7.00 3,800 2,892 3,929 Hyundai Capital

Germany GmbH 2 600,200 30.01 1,065 1,005 1,065

\ 50,660 \ 38,631 \ 51,976


32


Number of shares Ownership

(%) Acquisition cost Net asset

value Book value

HK Mutual Saving Bank 1 4,990,438 20.00 \ 45,719 \ 30,601 \ 42,849

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

Korea Credit Bureau 1 140,000 7.00 3,800 2,477 3,514 Hyundai Capital

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

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

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 for the nine-month periods ended September 30, 2011

and 2010, 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 \ - \ 3,341 \ 26 \ - \ 46,216

HI Network, Inc. 1,055 - 418 - (707) 766

Korea Credit Bureau 3,514 - 415 - - 3,929

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

\ 48,483 \ - \ 4,174 \ 26 \ (707) \ 51,976


Beginning Balance Acquisition Gain (loss)

on valuation

Changes in accumulated

other comprehensive

income

Dividends Ending Balance

HK Mutual Saving Bank \ 35,799 \ - \ 6,526 \ 96 \ - \ 42,421

HI Network, Inc. - 76 1,936 - (1,227) 785

Korea Credit Bureau 3,191 - 231 - - 3,422

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

\ 40,055 \ 76 \ 8,693 \ 96 \ (1,227) \ 47,693


33

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

corresponding net asset value as of September 30, 2011 and December 31, 2010, follow:


2011 2010

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

Korea Credit Bureau 1,037 1,037

\ 13,285 \ 13,285

Summary of financial information of investees as of September 30, 2011 and December 31, 2010,

follows:


2011

Assets Liabilities Operating revenue Net income

HK Mutual Saving Bank 1 \ 2,600,383 \ 2,430,544 \ 275,790 \ 16,706

HI Network, Inc. 6,649 2,817 15,774 2,132

Korea Credit Bureau 48,960 7,651 28,847 5,856 Hyundai Capital Germany

GmbH 3,529 179 473 103

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

liabilities above are as of September 30, 2011, and the results of its operations are for the nine-

month period ended September 30, 2011.


2010

Assets Liabilities Operating revenue Net income

(loss)

HK Mutual Saving Bank 1 \ 2,439,109 \ 2,286,106 \ 245,934 \ 32,780

HI Network, Inc. 8,734 3,458 14,719 3,383

Korea Credit Bureau 45,301 9,914 23,468 3,028 Hyundai Capital

Germany GmbH 3,145 117 282 (52)


34

6. Financial Receivables

Financial receivables as of September 30, 2011 and December 31, 2010, 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 \ 11,349,089 \ (112,127) \ (772) \ (268,670) \ 10,967,520

Installment financial assets

Auto 4,952,028 (78,291) - (30,787) 4,842,950 Durable goods 2,161 7 - (139) 2,029 Mortgage 28,994 71 - (333) 28,732 Machinery 3,146 - 11 (28) 3,129

4,986,329 (78,213) 11 (31,287) 4,876,840

Lease receivables Finance lease

receivables 2,221,743 (721) - (19,427) 2,201,595

Cancelled lease receivables 4,254 - - (2,766) 1,488

2,225,997 (721) - (22,193) 2,203,083

\ 18,561,415 \ (191,061) \ (761) \ (322,150) \ 18,047,443


Principal

Deferred loan origination fees and

costs (Initial direct costs for lease assets)

Present value discounts

Allowance for doubtful

accounts Book value

Loan receivables

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

Installment financial assets Auto 5,123,218 (99,271) (2) (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

5,184,490 (99,121) 56 (28,643) 5,056,782

Lease receivables Finance lease

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

Cancelled lease receivables 2,719 - - (1,758) 961

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

\ 17,530,012 \ (210,006) \ (971) \ (265,377) \ 17,053,658


35

7. Allowance for Doubtful Accounts

Changes in allowance for doubtful accounts for the nine-month periods ended September 30, 2011

and 2010, are as follows:


2011

Type Loan

receivables Installment

financial assets Lease

receivables Other assets Total

Beginning balance \ 215,703 \ 28,643 \ 21,031 \ 7,649 \ 273,026

Amounts written off (226,069) (21,476) (860) (4,074) (252,479)

Recoveries of amounts previously written off

68,790 9,198 182 6,002 84,172

Discount unwind (4,763) (240) (102) - (5,105) Additional(reversed)

allowance 215,009 15,162 1,942 (2,756) 229,357

Ending balance \ 268,670 \ 31,287 \ 22,193 \ 6,821 \ 328,971


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 (139,534) (22,914) (196) (2,667) (165,311)

Recoveries of amounts previously written off

76,737 11,573 162 6,404 94,876

Discount unwind (3,689) (314) (36) - (4,039) Additional(reversed)

allowance 70,891 6,093 2,259 (4,640) 74,603

Ending balance \ 180,339 \ 26,955 \ 14,718 \ 6,094 \ 228,106


36

8. Financial Instruments

a. Fair value of financial instruments

The fair values of financial instruments as of September 30, 2011 and December 31, 2010, are as

follows:


Type 2011 2010

Book value Fair

value Book value Fair

value

Assets

Financial assets

Cash and deposits \ 1,393,227 \ 1,393,227 \ 1,224,891 \ 1,224,891 Available-for-sale

securities 19,444 19,444 20,577 20,577

Loans receivable 10,967,520 11,207,878 10,218,438 10,571,397 Installment financial

assets 4,876,840 4,981,047 5,056,782 5,218,322

Derivative assets 691,691 691,691 521,530 521,530

Non-trade receivables 35,767 35,767 39,869 39,869

Accrued revenues 108,924 108,924 111,806 111,806

Advance payments1 37,210 37,210 34,092 34,092

Leasehold deposits 36,238 33,995 31,955 31,872

\ 18,166,861 \ 18,509,183 \ 17,259,940 \ 17,774,356

Liabilities

Financial liabilities

Borrowings \ 2,080,000 \ 2,081,464 \ 2,646,945 \ 2,652,759

Debentures 15,927,850 16,251,610 14,396,741 14,795,749

Derivative liabilities 60,198 60,198 96,568 96,568

Non-trade payables2 214,602 214,602 240,414 240,414

Accrued expenses 123,319 123,319 110,225 109,943

Withholdings2 12,787 12,787 10,791 10,791

Leasehold deposits received

771,276 774,717 746,531 763,718

\ 19,190,032 \ 19,518,697 \ 18,248,215 \ 18,669,942

1 Certain portion of advance payments for customers. 2 Excluding taxes.


37

b. Fair value hierarchy

The fair value hierarchy of financial assets and liabilities carried at fair value as of September 30,

2011 and December 31, 2010, are as follows:


2011

Type Book

value Fair

value Fair value hierarchy 1

level 1 level 2 level 3

Financial assets Financial assets at fair

value

Available-for-sale securities \ 19,444 \ 19,444 \ 5,898 \ 2,914 \ 10,632

Derivative assets 691,691 691,691 - 691,691 -

711,135 711,135 5,898 694,605 10,632


Derivative liabilities \ 60,198 \ 60,198 \ - \ 60,198 \ -

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.


2010

Type Book

value Fair

value Fair value hierarchy(*)

level 1 level 2 level 3

Financial assets Financial assets at fair

value

Available-for-sale securities \ 20,577 \ 20,577 \ 7,318 \ 3,372 \ 9,887

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

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


Derivative liabilities \ 96,568 \ 96,568 \ - \ 96,568 \ -


38

c. Changes in financial instruments of level 3

The changes in financial instruments of level 3 for the nine-month periods ended September 30,

2011 and 2010, are as follows:


Type Available-for-sale securities 2011 2010

Beginning balance \ 9,887 \ 8,802

Gain on valuation (Other comprehensive income)

745 855

Disposal - (76)

Ending balance \ 10,632 \ 9,581

d. Financial instruments by categories

The book value of financial instruments by categories as of September 30, 2011 and December 31,



2011

Type



Available-for-sale financial

assets

Hedging derivative

instruments

Total

Financial assets

Cash and deposits \ - \ 1,393,227 \ - \ - \ 1,393,227 Available-for- sale

securities - - 19,444 - 19,444

Loans receivable - 10,967,520 - - 10,967,520 Installment

financial assets - 4,876,840 - - 4,876,840

Derivative assets 61 - - 691,630 691,691 Non-trade

receivables - 35,767 - - 35,767

Accrued revenues - 108,924 - - 108,924

Advance payments - 37,210 - - 37,210 Leasehold

deposits - 36,238 - - 36,238

\ 61 \ 17,455,726 \ 19,444 \ 691,630 \ 18,166,861


39


2010

Type



Available-for-sale financial

assets

Hedging derivative

instruments

Total

Financial assets

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

securities - - 20,577 - 20,577

Loans receivable - 10,218,438 - - 10,218,438 Installment

financial assets - 5,056,782 - - 5,056,782

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

receivables - 39,869 - - 39,869

Accrued revenues - 111,806 - - 111,806

Advance payments - 34,092 - - 34,092 Leasehold

deposits - 31,955 - - 31,955

\ 72 \ 16,717,833 \ 20,577 \ 521,458 \ 17,259,940


2011 2010

Type Financial

liabilities at amortized cost

Hedging

derivative instruments

Total Financial

liabilities at amortized cost

Hedging

derivative instruments

Total


Borrowings \ 2,080,000 \ - \ 2,080,000 \ 2,646,945 \ - \ 2,646,945

Debentures 15,927,850 - 15,927,850 14,396,741 - 14,396,741 Derivative

liabilities - 60,198 60,198 - 96,568 96,568

Non-trade payables

214,602 - 214,602 240,414 - 240,414

Accrued expenses

123,319 - 123,319 110,225 - 110,225

Withholdings 12,787 - 12,787 10,791 - 10,791 Leasehold

deposits received

771,276 - 771,276 746,531 - 746,531

\ 19,129,834 \ 60,198 \ 19,190,032 \ 18,151,647 \ 96,568 \ 18,248,215


40

9. Finance Lease Receivables

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

Details of total lease investments and present value of minimum lease receipts as of September

30, 2011 and December 31, 2010, are as follows:


Type

2011 2010

Total lease investments

Present value of minimum lease

receipts Total lease

investments Present value of minimum lease

receipts

Less than 1 year \ 937,142 \ 568,016 \ 765,722 \ 457,513

1 to 5 years 1,577,360 605,024 1,272,610 504,344

Over 5 years 86 4 - -

\ 2,514,588 \ 1,173,044 \ 2,038,332 \ 961,857

b. Unearned interest income

Details of unearned interest income as of September 30, 2011 and December 31, 2010, are as

follows:


2011 2010


Net lease investments

Unearned interest income


Net lease investments

Unearned interest income

Minimum lease

receipts (present value)

Unguaranteed residual value

(present value)

Total

Minimum lease

receipts (present value)

Unguaranteed residual value

(present value)

Total

\ 2,514,588 \ 1,173,044 \ 1,047,978 \ 2,221,022 \ 293,566 \ 2,038,332 \ 961,857 \ 834,893 \1,796,750 \ 241,582

c. The amounts of doubtful finance lease receivables and related allowance as of September 30,



Type 2011 2010

Finance lease receivables \ 3,192 \ 3,889

Allowance (3,192) (3,889)


41

10. Leased Assets

All operating leased assets consist of vehicles as of September 30, 2011 and December 31, 2010,

and the details are as follows:


2011 2010

Acquisition cost

Accumulated depreciation

Carrying amount

Acquisition cost

Accumulated depreciation

Carrying amount

Operating leased assets \1,748,533 \ (608,425) \1,140,108 \1,991,961 \ (709,116) \ 1,282,845

Cancelled leased assets 4,784 (42) 4,742 3,234 (42) 3,192

\1,753,317 \ (608,467) \1,144,850 \1,995,195 \ (709,158) \ 1,286,037

Future minimum lease receipts under operating lease as of September 30, 2011 and December

31, 2010, are as follows:


Type 2011 2010

Less than 1 year \ 414,746 \ 423,307

1 to 5 years 363,765 414,181

Over 5 years 5 -

\ 778,516 \ 837,488

11. Property and Equipment

a. Details of property and equipment

Property and equipment as of September 30, 2011 and December 31, 2010, consist of:


Type 2011 2010

Acquisition

cost Accumulated depreciation Book value Acquisition

cost Accumulated depreciation Book value

Land \ 105,424 \ - \ 105,424 \ 101,844 \ - \ 101,844

Buildings 120,851 (22,110) 98,741 112,305 (19,762) 92,543

Structures 2,845 (268) 2,577 2,466 (220) 2,246

Vehicles 1,739 (1,004) 735 1,608 (770) 838 Fixture and furniture

143,346 (95,684) 47,662 116,971 (81,650) 35,321

Others 1,998 - 1,998 1,200 - 1,200 Construction in progress

4,695 - 4,695 8,377 - 8,377

\ 380,898 \ (119,066) \ 261,832 \ 344,771 \ (102,402) \ 242,369


42

The value of land based on the published prices announced by the Korean government as of

September 30, 2011, is \ 95,211 million (2010: \ 91,633 million).

b. Changes in property and equipment

Changes in property and equipment for the nine-month periods ended September 30, 2011 and



2011

Type Beginning

balance Acquisition Replacement Disposal Depreciation Ending balance

Land \ 101,844 \ 3,580 \ - \ - \ - \ 105,424

Buildings 92,543 8,546 - - (2,348) 98,741

Structures 2,246 379 - - (48) 2,577

Vehicles 838 206 - (30) (279) 735 Fixture and furniture

35,321 26,406 19 (32) (14,052) 47,662

Others 1,200 803 - - (5) 1,998 Construction in progress

8,377 3,408 (7,090) - - 4,695

\ 242,369 \ 43,328 \ (7,071) \ (62) \ (16,732) \ 261,832


2010

Type Beginning

balance Acquisition Replacement Disposal Depreciation Ending balance

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

Buildings 92,374 2,968 - - (2,092) 93,250

Structures 2,134 - - - (43) 2,091

Vehicles 960 91 - - (257) 794 Fixture and furniture

32,281 7,578 - (34) (12,218) 27,607

Others 1,087 - - - - 1,087 Construction in progress

11,070 8,063 (7,430) - - 11,703

\ 238,684 \ 21,766 \ (7,430) \ (34) \ (14,610) \ 238,376

As of September 30, 2011, the Company carries comprehensive asset insurance for its buildings

for up to ￦215,976 million (2010: ￦209,783 million). Comprehensive movable property insurance

for fixture and furniture covers up to ￦20,195 million (2010: ￦18,812 million). Other leased office

buildings and vehicles are covered with liability and general insurance.


43

12. Intangible Assets

a. Details of Intangible assets

Intangible assets as of September 30, 2011 and December 31, 2010, consist of:


Type 2011 2010

Acquisition

cost Accumulated depreciation Book

value Acquisition cost Accumulated

depreciation Book value

Development costs \ 63,476 \ (40,776) \ 22,700 \ 56,142 \ (36,138) \ 20,004

Rights of trademark 69 (36) 33 69 (25) 44 Other intangible assets

53,241 (16,362) 36,879 47,545 (14,981) 32,564

\ 116,786 \ (57,174) \ 59,612 \ 103,756 \ (51,144) \ 52,612

b. Changes in intangible assets

Changes in intangible assets for the nine-month periods ended September 30, 2011 and 2010, are

as follows:


2011

Type Beginning balance Increase 1 Disposal Amortization Ending balance

Development costs \ 20,004 \ 7,384 \ (50) \ (4,638) \ 22,700

Rights of trademark 44 - - (11) 33

Other intangible assets 32,564 5,718 (21) (1,382) 36,879

\ 52,612 \ 13,102 \ (71) \ (6,031) \ 59,612 1 Inclusive of transfer from construction in progress


2010

Type Beginning balance Increase 1 Disposal Amortization Ending balance

Development costs \ 7,691 \ 7,013 \ - (4,175) 10,529

Rights of trademark 57 - - (10) 47

Other intangible assets 31,186 1,090 (29) (1,450) 30,797

\ 38,934 \ 8,103 \ (29) (5,635) 41,373


44

13. Borrowings

Borrowings as of September 30, 2011 and December 31, 2010, consist of:


Types Lender Annual interest rate (%) 2011 2010

Borrowings in won

Commercial paper SK Securities

and 5 others

3.22 ~ 4.97 \ 610,000 \ 1,410,000

General loans Kookmin Bank

and 12 others

4.18 ~ 5.98 1,470,000 1,170,000

2,080,000 2,580,000

Borrowings in foreign currency

General loans - - - 56,945

Securitized borrowings

Commercial paper - - - 10,000

\ 2,080,000 \ 2,646,945

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

14. Debentures

Debentures issued by the Group and outstanding as of September 30, 2011 and December 31,



Type Annual

interest rates (%)

2011 2010

Debenture Securitized debenture

Total Debenture Securitized

debenture

Total

Short-term debenture

Debenture 3.22 ~ 5.19 \ 170,000 \ - \ 170,000 \ 659,397 \ - \ 659,397 Less: Discount on

debentures (47) - (47) (253) - (253)

169,953 - 169,953 659,144 - 659,144

Current portion of debenture

Debenture 2.90 ~ 8.76 3,948,334 1,008,406 4,956,740 2,428,128 956,425 3,384,553 Less: Discount on

debentures (2,073) (3,953) (6,026) (5,849) (314) (6,163)

3,946,261 1,004,453 4,950,714 2,422,279 956,111 3,378,390

Long-term debenture

Debenture 2.44 ~ 8.76 9,102,975 1,732,283 10,835,258 8,401,694 1,980,229 10,381,923 Less: Discount on

debentures (23,071) (5,004) (28,075) (15,732) (6,984) (22,716)

9,079,904 1,727,279 10,807,183 8,385,962 1,973,245 10,359,207

\ 13,196,118 \ 2,731,732 \ 15,927,850 \ 11,467,385 \ 2,929,356 \ 14,396,741


45

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

15. Defined Benefit Liability

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

September 30, 2011 and December 31, 2010, are as follows:


Type 2011 2010

Present value of funded obligations \ 43,845 \ 38,732

Fair value of plan assets (29,199) (27,045)

Defined benefit liability \ 14,646 \ 11,687

b. Changes in present value of defined benefit obligations for the nine-month periods ended

September 30, 2011 and 2010:


Type 2011 2010


Current service cost 7,249 6,195

Interest cost 1,372 1,505

Actuarial losses 1,805 -

Transfer of severance benefits from

related parties

1,889 1,349

Transfer of severance benefits to related

parties

(2,391) (1,439)

Benefits paid (4,811) (4,988)



46

c. Changes in the fair value of plan assets for the nine-month periods ended September 30, 2011

and 2010:


Type 2011 2010


Contributions by plan participants 3,500 -

Expected return on plan assets 800 994

Actuarial (losses)/gains 97 (294)

Transfer of severance benefits from

related parties

1,246 956

Transfer of severance benefits to

related parties

(1,365) (1,036)

Benefits paid (2,124) (2,127)


d. Details of the amounts recognized in the income statement for the nine-month periods ended

September 30, 2011 and 2010:


Type 2011 2010

Current service cost \ 7,249 \ 6,195

Interest cost 1,372 1,505

Expected return on plan assets (800) (994)

Actuarial losses 1,708 294

\ 9,529 \ 7,000

e. Actual return on plan assets for the nine-month periods ended September 30, 2011 and 2010:


Type 2011 2010

Actual return on plan assets \ 897 \ 700


47

f. Details of plan assets as of September 30, 2011 and December 31, 2010:


Type 2011 2010

Amount Ratio(%) Amount Ratio(%)

Cash \ 5 0.02 \ 96 0.36

Deposits 11,565 39.61 12,053 44.56 Interest rate guaranteed

asset for 1-year 17,629 60.37 14,896 55.08

\ 29,199 100.00 \ 27,045 100.00

g. Actuarial assumptions

Actuarial assumptions required to recognize defined benefit liability as of September 30, 2011 and

December 31, 2010, are as follows:

Type 2011 2010

Discount rate 4.66% 4.90%

Expected return on plan assets 3.97% 4.20%

Future salary increases 5.64% 5.39%

Assumptions regarding future mortality experience are set based on actuarial advice published by

Korea Insurance Development Institute.

16. Income Tax

a. Income tax expense for the nine-month periods ended September 30, 2011 and 2010, consists of:


Type 2011 2010

Current tax1 \ 118,714 \ 156,287 Changes in deferred tax assets(liabilities) 18,489 (34,745) Deferred tax credited directly to equity 8,991 9,361

Income tax \ 146,194 \ 130,903 1 Income tax for the nine-month period ended September 30, 2011, includes changes in tax

reconciliation of the previous year.


48

b. Deferred tax credited directly to equity


Type 2011 2010 Gain on valuation of available-for-sale

financial securities \ 149 \ (580)

Accumulated comprehensive income of equity method investees

- (20)

Loss on valuation of derivatives 8,842 9,961

\ 8,991 \ 9,361

c. Reconciliation between income before income tax and income tax expense


Type 2011 2010

Profit before tax \ 608,279 \ 560,353

Current tax \ 147,177 \ 135,579

Adjustments:

Income not subject to tax (51) (1) Expenses not deductible for tax

purposes 192 208

Others (SPC consolidation, others) (1,124) (4,883)

Income tax \ 146,194 \ 130,903

Effective tax rate (Income tax over net income before tax)

24.03% 23.36%

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 \ (35,003) \ 35,003 \ - \ (8,471) \ -

Derivatives (264,264) (144,064) (408,328) (59,619) (89,847)

Deferred fees (192,524) 50,273 (142,251) (45,647) (31,295)

Initial direct costs for lease assets

(84,109) (15,852) (99,961) (19,057) (21,992)

Gain on foreign exchanges translation

227,514 231,328 458,842 55,058 101,016

Non-trade payables 132,116 (111,713) 20,403 31,770 4,938

Unearned revenue 43,532 (68,142) (24,610) 10,658 (5,414)

Present value discounts (66,457) 66,337 (120) (16,081) (26)

Others 63,997 (70,335) (6,338) 15,272 (1,219)

Consolidation effects 125,064 (73,239) 51,825 33,500 22,733

\ (50,134) \ (100,404) \ (150,538) \ (2,617) \ (21,106)


49


2010

Type Temporary differences Deferred assets (liabilities)

Beginning Changes Ending Beginning Ending Allowances for doubtful

accounts \ (79,850) \ 20,856 \ (58,994) \ (19,324) \ (14,277)

Derivatives (988,057) 701,554 (286,503) (230,538) (64,014)

Deferred fees (105,075) (14,990) (120,065) (25,071) (28,437)

Initial direct costs for lease assets

(65,368) (15,694) (81,062) (14,932) (18,440)

Gain on foreign exchanges translation

863,000 (549,410) 313,590 200,985 75,889

Non-trade payables 79,135 (210,966) (131,831) 19,151 (31,040)

Unearned revenue 52,001 (3,139) 48,862 12,362 11,948

Present value discounts (65,053) (3,828) (68,881) (15,495) (16,669)

Others 13,468 12,947 26,415 2,368 6,295

Consolidation effects 124,541 167,477 292,018 30,760 73,756

\ (171,258) \ 104,807 \ (66,451) \ (39,734) \ (4,989)

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 September 30, 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

nine-month periods ended September 30, 2011 and 2010, are as follows:


Type 2011 2010


Additional (Reversal) (36,196) (5,364)



50

18. Derivative Financial Instruments and Hedge Acco unting

a. Trading derivatives

Trading derivatives as of September 30, 2011 and December 31, 2010, are as follows: (in millions of Korean won)

Type

2011 2010

Notional principal amounts 1

Assets Liabilities Notional principal amounts 1

Assets Liabilities

Forward foreign exchange

\ 461 \ 61 \ - \ 578 \ 72 \ -

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 September 30, 2010 and December 31, 2010.

The Group recognized gain on trading derivatives of \ 13 million during the nine-month period

ended September 30, 2011.

b. Derivatives designated as cash flow hedges

Derivatives designated as cash flow hedges as of September 30, 2011 and December 31, 2010,

are as follows:


Type

2011 2010

Notional principal amounts

Assets Liabilities Notional principal amounts

Assets Liabilities

Interest rate swaps \ 260,000 \ 186 \ 492 \ 280,000 \ 9 \ 2,073

Currency swaps 7,668,998 691,444 59,706 6,616,568 521,449 94,495

\ 7,928,998 \ 691,630 \ 60,198 \ 6,896,568 \ 521,458 \ 96,568

There is no ineffective portion recognized related to cash flow hedge for the nine-months periods

ended September 30, 2011 and 2010.


51

19. Shareholders’ Equity

a. Capital stock

The Company is authorized to issue 500,000,000 shares. As of September 30, 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 as of September 30, 2011 and December 31, 2010 are as

follows:


Type 2011 2010

Legal reserve Revenue reserve \ 79,699 \ 48,914

Discretionary reserve

Reserve for electronic financial transactions

100 100

Reserve for business rationalization 74 74

174 174

Unappropriated retained earnings

(Expected reserve for bad loans 2011: \ 271,872million

2010: \ 208,187million)

1,677,952 1,350,925

\ 1,757,825 \ 1,400,013

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 the Specialized Credit

Financial Business Law Article 11, the Group appropriates a reserve for bad loans in an amount

more than the difference between the allowance and the requirement.


52

(1) Appropriated and expected reserves for bad loans as of September 30, 2011 and year ended



Type 2011 2010

Appropriated reserve for bad loans \ - \ -

Expected reserve for bad loans 271,872 208,187

\ 271,872 \ 208,187

(2) Transfer to reserve for bad loans and net income in consideration of effect of changes in

reserve for bad loan for the nine-month period ended September 30, 2011, are as follows:

(in millions of Korean won) Amount

Type Three Months Nine Months

Net income \ 108,036 \ 462,085

Transfer to reserve for bad loans1 (68,533) (63,685) Net income in consideration of changes in reserve for

bad loans2 39,503

398,400

Net income per share in consideration of changes in reserve for bad loans (In won)

398

4,012

1 The amount transferred to reserve for bad loans was the difference between the balance of

reserve for bad loans as of September 30, 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.


53

20. Net Interest Income

Net interest income for the nine-month periods ended September 30, 2011 and 2010, is as follows:


Type 2011 2010

Interest income

Cash and deposits \ 29,484 \ 18,899

Loans receivable 1,125,051 980,093

Installment financial assets 326,313 369,004

Lease receivables 122,262 96,317

Other 1 337 984

1,603,447 1,465,297

Interest expenses

Borrowings 76,591 77,494

Debentures 602,621 552,530

Other 1 37,796 32,449

717,008 662,473

Net interest income \ 886,439 \ 802,824

1Amortization of present value discount using the effective interest method.

21. Net Commission Income

Net commission income for the nine-month periods ended September 30, 2011 and 2010, is as

follows:


Type 2011 2010

Commission income

Loans receivable \ 39,044 \ 32,231

Installment financial assets 4,809 5,264

Lease receivables 88,455 59,010

132,308 96,505

Commission expenses

Lease expenses 43,307 31,037

Net Commission Income \ 89,001 \ 65,468


54

22. General and Administrative Expenses

General and administrative expenses for the three-month and the nine-month periods ended

September 30, 2011 and 2010, are as follows:


Type 2011 2010

Three months Nine months Three months Nine months

Payroll \ 36,291 \ 88,388 \ 33,185 \ 78,821

Severance benefits 3,387 9,506 2,314 7,042

Fringe benefits 8,440 24,964 7,659 23,699

Depreciation 5,889 16,732 4,930 14,610

Advertising 11,675 29,825 20,902 53,691

Travel and transportation 1,019 3,045 1,016 2,810

Communication 3,308 9,769 3,055 9,098

Water, lighting and heating 2,378 6,768 2,284 6,571

Outsourcing service

commission

13,268 33,077 9,876 20,052

Commission 4,268 12,844 4,180 11,830

Sales commission 14,168 53,009 19,408 53,103

Amortization 2,139 6,031 1,773 5,635

Outsourcing service charges 17,496 49,995 16,280 47,099

Rent 8,368 26,295 8,155 24,327

Other expenses 13,129 36,152 12,254 31,097

\ 145,223 \ 406,400 \ 147,271 \ 389,485

23. Earnings Per Share

a. Basic earnings per share

Basic earnings per share attributable to common stock for the three-month and the nine-month

periods ended September 30, 2011 and 2010, follows:

Type 2011 2010 Three months Nine months Three months Nine months

(1) Net income attributable to common stock (In won)

\108,036,036,963 \462,084,953,681 \153,798,373,478 \429,449,814,664

(2) Weighted average of number of outstanding common shares

99,307,435 99,307,435 99,307,435 99,307,435

(3) Basic earnings per share (In won) (1)÷(2)

\ 1,088 \ 4,653 \ 1,549 \ 4,324


55

b. Diluted earnings per share

As there was no discontinued operation during the nine-month periods ended September 30, 2011

and 2010, basic earnings per share is the same as basic earnings per share from continuing

operations. There are no potential common stocks as of September 30, 2011 and 2010. Therefore,

the diluted earnings per share is the same as basic earnings per share for nine-month periods

ended September 30, 2011 and 2010.

24. Other Comprehensive Income

Other comprehensive income for the nine-month periods ended September 30, 2011 and 2010,

consists of:


2011

Type

Beginning balance

Changes

Income

tax effects

Ending balance

Reclassifi -cation of profit or

loss

Other changes

Loss on valuation of available-for-sale financial assets

\ 512 \ (660) \ (18) \ 149 \ (17)

Accumulated comprehensive expense of equity method investees

24 - 26 - 50

Loss on valuation of derivatives

(67,924) 12,905 (56,179) 8,842 (102,356)

Gain on exchange differences of foreign operations

17 - 470 - 487

\ (67,371) \ 12,245 \ (55,701) \ 8,991 \ (101,836)


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

\ (1,835) \ (114) \ 2,763 \ (580) \ 234

Accumulated comprehensive expense of equity method investees

(69) - 96 (20) 7

Loss on valuation of derivatives

(3,566) 14,056 (61,874) 9,961 (41,423)

Gain on exchange differences of foreign operations

- - 51 - 51

\ (5,470) \ 13,942 \ (58,964) \ 9,361 \ (41,131)


56

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 as of September 30, 2011 and December 31, 2010, follows:


Type 2011 2010

Cash \ 4 \ 4

Ordinary deposits 159,815 182,321

Current deposits 4,885 3,241

Short-term financial instruments 1,228,500 1,039,300

\ 1,393,204 \ 1,224,866

b. Cash generated from operations

Cash generated from operations for the nine-month periods ended September 30, 2011 and 2010,

are as follows:


Type 2011 2010

Net income \ 462,085 \ 429,450

Adjustments

Net interest expenses 687,187 642,591

Income tax 146,194 130,903 Gain on disposal of available-for-sale financial assets

(3,839) (1,386)

Gain on loans receivable (31,715) (40,163)

Gain on installment financing (70,935) (73,164)

Gain on leased assets (986) (510)

Gain on foreign exchange translations (6) (166,016)

Dividends (5,979) (6,742)

Gain on valuation of derivatives (374,363) (52,108)

Other operating income (36,203) (14,675)

Gain on equity method valuation (4,174) (8,693)

Lease expenses 273,683 370,736

Bad debts expense 229,357 74,603

Loss on foreign exchange translations 374,363 52,101

Severance benefits 9,529 7,000

Depreciation 16,732 14,610

Amortization of intangible assets 6,031 5,635

Loss on valuation of derivatives - 166,023

Other operating expenses 16 9,361


57

1,214,892 1,110,106

Changes in operating assets and liabilities Decrease in available-for-sale financial

assets 4,294 1,120

(Increase) in loans receivable (1,029,726) (1,115,130) Decrease in installment financing receivables 176,685 130,728 (Increase) in finance lease receivables (600,625) (546,140)

Decrease in canceled leased receivables 4,011 3,825

(Increase) in operating leased assets (130,949) (278,120)

Decrease in canceled leased assets 168,299 108,024

Decrease in deferred loan origination fees and costs 79,111 104,192

Increase in present value discounts (32,026) (34,358)

Increase in allowance for bad debts 84,252 88,548

Decrease in non-trade receivables 4,125 17,938

Decrease (increase) in accrued revenues 4,433 (3,213)

Decrease (increase) in advance payments 5,413 (13,151)

Decrease (increase) in prepaid expenses (7,645) 712

Decrease in derivative assets 77,261 105,510

Increase (decrease) in non-trade payables (98,089) 57,680

(Decrease) in accrued expenses (304) (799)

Increase(decrease) in unearned revenue (5,414) 3,061

Increase in withholdings 4,343 3,362

Increase in leasehold deposits received 19,178 73,004

Payment of severance benefits (4,811) (4,988)

Decrease(increase) in plan assets (1,257) 2,207

Transfer of severance benefits from related parties 1,889 1,349

Transfer of severance benefits to related parties (2,391) (1,439)

Increase (decrease) in derivative liabilities (20,308) 4,794

(1,300,251) (1,291,284)

\ 376,726 \ 248,272

c. Investing and financing activities not affecting cash flows

Significant investing and financing activities not affecting cash flows for the nine-month periods

ended September 30, 2011 and 2010, are as follows:


Type 2011 2010

Write-off of financial receivables \ 252,479 \ 165,311 Transferred from construction in progress to

intangible assets 7,071 7,384

Transferred from construction in progress to fixture and furniture

19 -

Transferred to legal reserve 30,785 20,358


58

26. Commitments and Contingencies

a. Credit Line Agreement

Details of credit line agreements of the Group as of September 30, 2011, and December 31, 2010,

are as follows:


Type Financial institutions 2011 2010

Limit of overdraft Shinhan Bank and 3 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 as of

September 30, 2011 and December 31, 2010. Details of credit facility agreements are as follows:

(in millions of Korean won) Financial institutions 2011 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 -

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.


59

There has been no usage of the above credit facility agreements as of September 30, 2011 and

December 31, 2010.

c. Guarantees

Details of guarantees involving third parties as of September 30, 2011, and December 31, 2010,

are as follows:


Guarantor Details 2011 2010

Hyundai Motor

Company

Joint liabilities on finance lease

receivables1

\ 678

\ 3,092

Hyundai Wia Joint liabilities on machinery installment financing receivables1

3,146 14,730

Seoul Guarantee Insurance Co., Ltd.

Guarantee for debt collection deposit, others

192,024 204,560

1 The amounts represent the guaranteed balances as of September 30, 2011 and December 31,

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

as of September 30, 2011 and December 31, 2010, are as follows:

(in millions of Korean won) Type 2011 2010

Receivables balance \ 891,086 \ 1,102,921

The amount of residual value guaranteed by insurance

288,608 369,321

d. Pending significant litigations

Details of pending significant litigations involving the Group as of September 30, 2011, are as

follows:

(in millions of Korean won) Type Number of litigations Amount of litigations

Plaintiff 2 \ 1,102

Defendant 3 84

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 September 30, 2011.


60

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 nine-month periods ended September 30, 2011 and 2010, are as follows:

(in millions of Korean won) 2011 2010 Purchases Disposal Purchases Disposal Parent Company

Hyundai Motor Company \ 720,086 \ - \ 665,364 \ -

Others

Kia Motors Corp. 169,678 - 222,750 -

Hyundai Card Co., Ltd. 104,149 - 49,058 -

Hyundai Commercial 17,508 - 6,423 -

Other related parties 2,474 50,602 4,872 14,659

293,809 50,602 283,103 14,659

\ 1,013,895 \ 50,602 \ 948,467 \ 14,659

Revenues and expenses arising from transactions with related parties for the three-month and the

nine-month periods ended September 30, 2011 and 2010, and receivables and payables as of

September 30, 2011 and December 31, 2010, are as follows:

(in millions of Korean won) 2011 2010 Receivables Payables Receivables Payables Parent Company

Hyundai Motor Company \ 4,548 \ 7,582 \ 5,188 \ 9,662

Others

Kia Motors Corp. 19,679 9,067 422 10,643

Hyundai Card Co., Ltd. 143 130,147 1,681 106,061

Hyundai Commercial 29 4,194 24 2,346

Other related parties 26,832 - 27,315 10

46,683 143,408 29,442 119,060

\ 51,231 \ 150,990 \ 34,630 \ 128,722


61

(in millions of Korean won) 2011 Revenues Expenses

Three months Nine months Three months Nine months Parent Company

Hyundai Motor Company \ 3,770 \ 13,938 \ 845 \ 2,000

Others Kia Motors Corp. - - 1,447 2,731 Hyundai Card Co., Ltd. 6,881 18,886 4,078 10,436 Hyundai Commercial 252 742 445 718 Other related parties 1,098 3,485 7,010 24,582

8,231 23,113 12,980 38,467

\ 12,001 \ 37,051 \ 13,825 \ 40,467

(in millions of Korean won) 2010 Revenues Expenses

Three months Nine months Three months Nine months Parent Company

Hyundai Motor Company \ 4,352 \ 20,138 \ 275 \ 1,788

Others Kia Motors Corp. (377) 2,946 155 379 Hyundai Card Co., Ltd. 4,846 13,999 3,491 12,773 Hyundai Commercial 215 533 118 579 Other related parties 891 2,489 10,653 31,292

5,575 19,967 14,417 45,023

\ 9,927 \ 40,105 \ 14,692 \ 46,811

The Group has been provided with a credit facility by GECC (Note 26).

c. Key management compensation

Compensation for key management for the nine-month periods ended September 30, 2011 and

2010, consists of:


Type 2011 2010

Short-term employee benefits \ 5,253 \ 3,073

Severance benefits 1,682 743

The key management above consists of directors (including nonpermanent directors), who have

significant authority and responsibilities for planning, operating and controlling the Group.


62

28. Financial Risk Management

The Group is exposed to credit risk, liquidity risk and market risk (exchange and rate risk). In order

to manage these factors, the Group operates risk management policies and programs that monitor

closely and respond to each of the risk factors. The Group uses derivatives to manage specific

risks.

28.1 Credit risk

a. Exposure to credit risk

Exposures to credit risk as of September 30, 2011 and December 31, 2010, are as follows:


Type 2011 2010

Cash and deposits \ 1,393,223 \ 1,224,887

Available-for-sale securities 2,914 3,372

Loans receivable 10,967,520 10,218,438

Installment financial assets 4,876,840 5,056,782

Lease receivables 2,203,083 1,778,438

Non-trade receivables 35,767 39,869

Accrued revenue 108,924 111,806

Advance payments1 37,210 34,092

Leasehold deposits 36,238 31,955

Derivative assets 691,691 521,530

Unused loan commitments 1,031,234 1,071,419

\ 21,384,644 \ 20,092,588

1 Certain portion of advance payments for customers.

b. Credit quality of financial assets

Credit quality of financial assets exposed to credit risk as of September 30, 2011 and December

31, 2010, follows: (in millions of Korean won)

Type 2011 2010

Normal Past due Impaired Normal Past due Impaired Cash and deposits \ 1,393,223 \ - \ - \ 1,224,887 \ - \ - Available-for- sale

securities 2,914 - - 3,372 - -

Financial receivables

Loans receivable 10,222,734 655,092 89,694 9,638,971 499,519 79,948 Installment

financial assets 4,683,269 188,815 4,756 4,881,495 168,567 6,720

Lease receivables 2,123,172 73,948 5,963 1,724,271 51,037 3,130


63

17,029,175 917,855 100,413 16,244,737 719,123 89,798 Non-trade

receivables 35,767 - - 39,869 - -

Accrued revenue 108,924 - - 111,806 - - Advance

payments 37,210 - - 34,092 - -

Leasehold deposits 36,238 - - 31,955 - -

Derivative assets 691,691 - - 521,530 - - Unused loan

commitments 1,031,234 - - 1,071,419 - -

\ 20,366,376 \ 917,855 \ 100,413 \19,283,667 \ 719,123 \ 89,798

(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 as of September 30, 2011 and December 31, 2010, are as follows:


Type 2011 2010 Gross amount Allowance Book value Gross amount Allowance Book value

First-rate \ 2,416,519 \ (1,631) \ 2,414,888 \ 1,398,614 \ (598) \ 1,398,016

Second-rate 4,829,201 (7,050) 4,822,151 4,973,898 (7,823) 4,966,075

Third-rate 6,129,017 (32,327) 6,096,690 6,200,694 (32,099) 6,168,595

Fourth-rate 508,071 (7,591) 500,480 1,002,305 (16,129) 986,176

Fifth-rate 742,431 (23,021) 719,410 986,277 (32,442) 953,835

Sixth-rate 85,944 (13,187) 72,757 485,733 (51,885) 433,848

No rating 2,489,614 (86,815) 2,402,799 1,360,428 (22,236) 1,338,192

\ 17,200,797 \ (171,622) \ 17,029,175 \16,407,949 \ (163,212) \ 16,244,737

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.


64

(2) Financial receivables past due but not impaired

Financial receivables past due but not impaired as of September 30, 2011 and December 31, 2010,

are as follows:


2011

Types Less than 1 month Between

1 ~ 2 months Between

2~3 months Total

Loans receivable \ 545,797 \ 94,010 \ 54,511 \ 694,318

Installment financial assets 176,706 11,806 4,323 192,835

Lease receivables 70,330 4,036 1,245 75,611

792,833 109,852 60,079 962,764

Allowance (20,095) (9,088) (15,726) (44,909)

Book value \ 772,738 \ 100,764 \ 44,353 \ 917,855


2010

Types Less than 1 month Between

1 ~ 2 months Between

2~3 months Total

Loans receivable \ 426,165 \ 62,167 \ 35,782 \ 524,114

Installment financial assets 158,040 10,620 3,179 171,839

Lease receivables 47,422 2,978 1,877 52,277

631,627 75,765 40,838 748,230

Allowance (14,104) (5,427) (9,576) (29,107)

Book value \ 617,523 \ 70,338 \ 31,262 \ 719,123

(3) Impaired financial receivables


2011 2010 Type Gross amount Allowance Book value Gross amount Allowance Book value

Loans receivable \ 179,267 \ (89,573) \ 89,694 \ 138,877 \ (58,929) \ 79,948 Installment

financial assets 12,533 (7,777) 4,756 12,623 (5,903) 6,720

Lease receivables 14,232 (8,269) 5,963 11,355 (8,225) 3,130

\ 206,032 \ (105,619) \ 100,413 \ 162,855 \ (73,057) \ 89,798

(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 as of September 30, 2011 and December 31, 2010, are as

follows:


65


Cash and deposits 1 2011 2010

AAA \ 745,980 \ 767,370

AA+ 35,796 11,384

AA 200,000 140,000

AA- 90,000 95,000

A+ 200,000 190,257

A 90,000 462

A- - 20,000

No rating 31,447 414

\ 1,393,223 \ 1,224,887

1 The average external credit rating of three domestic credit rating agencies is used.


Derivative assets 2 2011 2010

AA \ 28,937 \ 19,326

AA- 125,256 93,379

A+ 435,740 267,891

A 70,514 123,027

BBB+ 31,244 17,907

\ 691,691 \ 521,530

2 Derivative assets are classified based on S&P credit rating.

c. Assets pledges as collateral

The assets pledged as collateral for financial receivables as of September 30, 2011 and December

31, 2010, are as follows:


2011

Type

Impaired Unimpaired

Total Delinquent Non-delinquent

Total financial receivables

\ 100,413 \ 917,855 \ 17,029,175 \ 18,047,443

Collateralized assets Collateralized

vehicles \ 46,113 \ 415,826 \ 4,607,512 \ 5,069,451

Collateralized real estate

785 5,381 126,868 133,034

\ 46,898 \ 421,207 \ 4,734,380 \ 5,202,485


66


2010

Type

Impaired Unimpaired

Total Delinquent Non-delinquent

Total financial receivables

\ 89,798 \ 719,123 \ 16,244,737 \ 17,053,658

Collateralized assets Collateralized

vehicles \ 25,580 \ 335,495 \ 4,576,957 \ 4,938,032

Collateralized real estate

328 2,739 127,734 130,801

\ 25,908 \ 338,234 \ 4,704,691 \ 5,068,833

d. Credit risk concentration

Credit risk concentration of financial receivables by debtors as of September 30, 2011 and



Type 2011 2010 Including

allowance Ratio Allowance Book value Including allowance Ratio Allowance Book value

Individual \ 15,546,257 84.6% \ (288,684) \ 15,257,573 \ 14,902,141 86.0% \ (236,824) \ 14,665,317

Corporate

Finance 45,848 0.2% (430) 45,418 38,098 0.2% (296) 37,802

Manufac-turing 894,435 4.9% (10,561) 883,874 737,970 4.3% (10,444) 727,526

Service 832,524 4.5% (9,210) 823,314 721,722 4.2% (6,854) 714,868

Public 7,783 0.1% (21) 7,762 6,270 0.1% (54) 6,216

Others 1,042,746 5.7% (13,244) 1,029,502 912,833 5.2% (10,904) 901,929

2,823,336 15.4% (33,466) 2,789,870 2,416,893 14.0% (28,552) 2,388,341

\ 18,369,593 100.0% \ (322,150) \ 18,047,443 \ 17,319,034 100.0% \ (265,376) \ 17,053,658


67

28.2 Liquidity risk

Cash flows of financial liabilities based on remaining contractual maturities as of September 30,



Type Immediate payment

Up to 3 months 3 months to

1 year 1 to 5 years Over 5 years Total

Borrowings \ - \ 598,558 \ 591,253 \ 991,602 \ - \ 2,181,413

Debentures - 1,039,410 4,691,675 11,007,140 1,024,143 17,762,368

Other liabilities 5,336 253,945 161,483 640,773 2 1,061,539

Net settlement

derivative

liabilities

-

(2) 53 459 - 510

Gross settlement

derivative

liabilities

Cash inflow - (151,268) (434,037) (1,922,197) - (2,507,502)

Cash outflow - 156,171 451,176 1,930,822 - 2,538,169

\ 5,336 \ 1,896,814 \ 5,461,603 \ 12,648,599 \ 1,024,145 \ 21,036,497


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 of statement of financial position based

on the discounted cash flows.


68

The unused agreement of limited loan products amounts to maximum of \ 1,031,234 million as of

September 30, 2011 (2010: \ 1,071,419 million). The unused loan agreement above might be paid

immediately on customers’ request.

28.3 Market risk

a. Interest rate risk

The Group manages the interest rate risk through Value at Risk(VaR), Earning at Risk(EaR)

measurement and Interest Rate Gap Analysis that analyze the maturity between the interest

revenue-generating assets and the interest-bearing liabilities.

VaR is calculated using the standard framework of the Bank for International Settlements(BIS). The

VaR model uses the proxy of modified duration per expiration interval proposed by the BIS and

expected interest rate volatility of expiration interval by reason of interest rate fluctuation of 100bp.

The interest rate risk using VaR as of September 30, 2011 and December 31, 2010, 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 as of September 30, 2011 and December 31,



Type 2011 2010

Interest rate VaR \ 119,674 \ 78,614


Currency 2011 2010

Cash and deposits USD \ 11 \ 14 EUR 1,854 721 RUB 746 1


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The Group’s exposure to foreign exchange risk is hedged by derivatives. Therefore, foreign

exchange risk of the Group is not significant.

28.4 Capital risk management

The objective of the Group’s capital management is to maintain sound capital structure. The Group

uses adjusted capital adequacy ratio under the regulation on Supervision of Specialized Credit

Financial Business Law as a capital management indicator. This ratio is calculated as adjusted total

asset divided by adjusted equity.

Adjusted capital adequacy ratio of the Group as of September 30, 2011 and December 31, 2010, is

as follows:

The above adjusted capital adequacy ratio is calculated according to Supervision of Specialized

Credit Financial Business Law.

29. Segment Information

Management has determined the operating segments based on the management’s reports in

conformity with nature of goods and services. Operating segments are segregated into auto

financing service and other service.

Others 21 37 2,632 773

Borrowings and Debentures USD 4,559,179 3,802,165 EUR 1,048,884 991,408 MYR 610,830 497,145 JPY 537,814 514,125 CHF 853,710 426,304

Others 58,580 150,671 \ 7,668,997 \ 6,381,818


Type 2011 2010

Adjusted total assets (1) \ 20,277,803 \ 19,295,545

Adjusted equity (2) 2,555,350 2,227,114

Adjusted capital adequacy ratio (2)÷(1) 12.60% 11.54%

Operating segments Description

Auto financing service segment

Assets, liabilities, incomes and expenses from auto installment financing and auto leasing

Other service segment Assets, liabilities, incomes and expenses from personal loan and mortgage installment financing other than auto related products.


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Segments’ assets and profits or losses are measured by management accounting policies of the

Group. Non-operating and nonrecurring incomes/expenses are not classified into segments, but

only financial receivables are allocated into operating segments.

Segment information for the nine-month periods ended September 30, 2011 and 2010, follows:


2011

Type Auto Others Total Unallocated others Financial

statements

Operating revenue Interest income \ 1,140,648 \ 461,941 \ 1,602,589 Non-interest

income 708,127 74,378 782,505

1,848,775 536,319 2,385,094 \ 402,700 \ 2,787,794

Operating expenses Interest expenses 505,867 111,623 617,490 Non-interest

expenses 705,253 265,759 971,012

Depreciation (including lease)

287,277 3,140 290,417

1,498,397 380,522 1,878,919 304,770 2,183,689

Segment operating profits(pre-tax)

350,378 155,797 506,175 97,930 604,015

Segment assets2

Loans receivable

and Installment

financial assets

13,014,422 3,321,898 16,336,320 (491,960) 15,844,360

Lease Receivables 2,138,877 4,220 2,143,097 59,986 2,203,083

\ 15,153,299 \ 3,326,118 \ 18,479,417 \ (431,974) \ 18,047,443

1 Unallocated and reclassification

•Income and expense unallocated – Income/expenses related to interest income on bank

deposits, foreign exchange translation, derivatives and others.

•Assets unallocated – Initial direct cost for finance lease receivables, cancelled lease receivables

and others

2 Loan principal and present value discounts


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2010

Type Auto Others Total Unallocated others Financial

statements

Operating revenue Interest income \ 1,056,310 \ 389,440 \ 1,445,750 Non-interest

income 652,802 68,704 721,506

1,709,112 458,144 2,167,256 \ 275,145 \ 2,442,401

Operating expenses Interest expenses 522,074 118,677 640,751 Non-interest

expenses 508,656 191,151 699,807

Depreciation (including lease)

326,887 2,547 329,434

1,357,617 312,375 1,669,992 220,749 1,890,741

Segment operating profits(pre-tax)

351,495 145,769 497,264 54,396 551,660

Segment assets2 Loans receivable and Installment financial assets

11,440,708 3,257,300 14,698,008 (416,444) 14,281,564

Lease Receivables 1,605,259 13,321 1,618,580 48,986 1,667,566

\ 13,045,967 \ 3,270,621 \ 16,316,588 \ (367,458) \ 15,949,130

30. Subsequent Events

Determination of paid-in capital increase The Company decided to increase its capital by offering to its shareholders at the shareholders’

meeting on October 10, 2011, the following:

Acquisition of GECK’s stock The Company decided to acquire the stocks of GE Capital Korea Ltd. (GECK) by December

2011 and offer GECK a credit line of \ 240 billion, as approved by the Board of Directors on

October 21, 2011.

Shareholder Description

GE

GE International Holdings and its associates are able to request issuance of redeemable preferred stocks with voting rights for a total 50.5% ownership.

HMC

Hyundai Motor Company and its associates are able to request issuance of redeemable preferred stocks with voting rights for the same percentage of ownership before the issuance of stocks to GE, only when the above issuance of stocks for GE occurs.

Audit Report: Hyundai Capital 3Q2011

Investor Relations

Transcript of Audit Report: Hyundai Capital 3Q2011