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Transcript of Hci con audit_report_2012_final
Hyundai Commercial, Inc. andSubsidiaries
Consolidated Financial Statements
December 31, 2012 and 2011
Hyundai Commercial, Inc. and SubsidiariesIndexDecember 31, 2012 and 2011
Report of Independent Auditors .........................................................................................................1-2
Consolidated Financial Statements
Consolidated Statements of Financial Position......................................................................................3-5
Consolidated Statements of Comprehensive Income............................................................................6-7
Consolidated Statements of Changes in Equity ................................................................................... 8-9
Consolidated Statements of Cash Flows ................................................................................................10
Notes to the Consolidated Financial Statements ...............................................................................11-62
1
Report of Independent Auditors
To the Shareholders and Board of Directors of
Hyundai Commercial, Inc.
We have audited the accompanying consolidated statements of financial position of Hyundai
Commercial, Inc. (the ”Company”) and its subsidiaries as of December 31, 2012 and 2011,
and the related statements of comprehensive income, changes in equity and cash flows for
the years then ended, expressed in Korean won. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the
Republic of Korea. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements, referred to above, present fairly, in all
material respects, the financial position of Hyundai Commercial, Inc. and its subsidiaries as of
December 31, 2012 and 2011, and their financial performance and cash flows for the years
then ended, in conformity with International Financial Reporting Standards as adopted by the
Republic of Korea (“Korean IFRS”).
2
Auditing standards and their application in practice vary among countries. The procedures and
practices used in the Republic of Korea to audit such financial statements may differ from
those generally accepted and applied in other countries. Accordingly, this report is for use by
those who are informed about Korean auditing standards and their application in practice.
Seoul, Korea
March 19, 2013
This report is effective as of March 19, 2013, the audit report date. Certain subsequent
events or circumstances, which may occur between the audit report date and the time of
reading this report, could have a material impact on the accompanying consolidated
financial statements and notes thereto. Accordingly, the readers of the audit report should
understand that there is a possibility that the above audit report may have to be revised to
reflect the impact of such subsequent events or circumstances, if any.
Hyundai Commercial, Inc. and SubsidiariesConsolidated Statements of Financial PositionDecember 31, 2012 and 2011
3
(In Korean won)
Notes 2012 2011
Assets
Cash and deposits
Cash and cash equivalents 24 \ 282,825,795,422 \ 276,009,118,714
Deposits 3 9,000,000 9,000,000
282,834,795,422 276,018,118,714
Securities 4
Available-for-sale securities 26,984,327,193 26,848,232,720
Investments in associates 285,401,945,483 147,539,965,125
312,386,272,676 174,388,197,845
Loans receivable 5,6
Factoring 108,000,000 575,109,250
Allowance for doubtful accounts (270,108) (3,163,206)
Loans 2,800,613,129,940 2,408,864,450,819
Allowance for doubtful accounts (19,258,899,976) (18,165,997,032)
2,781,461,959,856 2,391,270,399,831
Installment financial assets 5,6
Auto installment financing receivables 333,721,265,726 402,435,731,643
Allowances for doubtful accounts (2,351,089,917) (2,700,210,858)Durable goods installment financing
receivables 25,624,608,935 68,855,356,831
Allowances for doubtful accounts (176,228,378) (475,143,590)
356,818,556,366 468,115,734,026
Lease receivables 5,6
Finance lease receivables 9 131,329,553,468 84,053,398,124
Property and equipment 10
Vehicles 69,799,497 114,731,133
Fixtures and furniture 2,701,927,277 2,382,936,140
Others 410,999,664 410,999,664
3,182,726,438 2,908,666,937
Hyundai Commercial, Inc. and SubsidiariesConsolidated Statements of Financial PositionDecember 31, 2012 and 2011
4
Notes 2012 2011
Other assets
Intangible assets 11 3,453,010,248 3,072,304,012
Non-trade receivables 15,919,893,264 29,912,441,707
Allowance for doubtful accounts (106,582,840) (218,049,341)
Accrued revenues 16,979,241,639 18,075,550,289
Allowance for doubtful accounts (120,891,875) (112,338,978)
Advance payments 1,157,855,722 635,365,367
Prepaid expenses 3,258,141,295 3,383,242,667
Leasehold deposits 11,083,913,915 9,963,176,364
Derivative assets 17 137,774,538 1,369,008,885
Others 3,885,995,860 3,885,995,860
55,648,351,766 69,966,696,832
Total assets \ 3,923,662,215,992 \ 3,466,721,212,309
Liabilities and Equity
Borrowings
Borrowings 12 \ 723,883,961,368 \ 725,523,723,026
Debentures 13 2,428,295,638,414 1,937,737,884,950
Securitized debts 14 309,637,147,861 359,361,741,945
3,461,816,747,643 3,022,623,349,921
Other liabilities
Non-trade payables 15,199,624,950 7,907,799,257
Accrued expenses 27,995,752,026 26,857,795,596
Unearned revenue 4,660,074,481 4,869,902,233
Advances 245,291,834 231,248,416
Withholdings 3,470,180,556 3,073,415,790
Accrued income taxes 9,539,343,812 14,047,411,098
Defined benefit liability 15 2,056,215,563 2,232,465,895
Leasehold deposits received 33,014,098,305 16,493,405,207
Deferred income tax liabilities 16 20,052,096,124 16,336,206,889
Derivative liabilities 17 7,505,990,273 2,691,394,681
123,738,667,924 94,741,045,062
Total liabilities 3,585,555,415,567 3,117,364,394,983
Hyundai Commercial, Inc. and SubsidiariesConsolidated Statements of Financial PositionDecember 31, 2012 and 2011
5
Notes 2012 2011
Equity
Capital stock 1,18
Common stock 100,000,000,000 100,000,000,000
Preferred stock 25,000,000,000 25,000,000,000
125,000,000,000 125,000,000,000
Capital surplus 18
Paid-in capital in excess of par value 74,608,059,537 74,608,059,537
Accumulated other comprehensiveincome and expenses
23
Gain(loss) on valuation of derivatives (1,914,821,981) (1,082,947,513)
Gain(loss) on valuation of available-for-sale securities
713,160,297 6,047,837,848
Accumulated comprehensiveincome(expense) of equity methodinvestee
3,811,298,060 (1,702,584,378)
2,609,636,376 3,262,305,957
Retained earnings 18 135,869,284,512 146,466,631,832
Non-controlling interests 19,820,000 19,820,000
Total equity 338,106,800,425 349,356,817,326
Total liabilities and equity \ 3,923,662,215,992 \ 3,466,721,212,309
The accompanying notes are an integral part of these consolidated financial statements.
Hyundai Commercial, Inc. and SubsidiariesConsolidated Statements of Comprehensive IncomeYears Ended December 31, 2012 and 2011
6
(In Korean won)
Notes 2012 2011
Operating revenue
Interest income ₩ 11,194,567,834 ₩ 6,385,667,020
Income on loans 272,663,892,191 241,502,294,832
Income on installment financialreceivables
42,262,441,366 59,443,408,359
Income on leases 7,957,875,306 5,075,932,880
Gain on disposal of loans 6,163,108,697 3,068,122,478
Gain on foreign transactions
Gain on foreign currency transactions - 3,348,000,000
Gain on foreign exchanges translation 4,521,000,000 -
4,521,000,000 3,348,000,000
Dividend income 250,000,000 300,000,000
Other operating income
Gain on valuation of derivatives - 1,950,000,000
Gain on disposal of securities - 1,638,531,160
Others 1,678,784,874 1,238,686,585
1,678,784,874 4,827,217,745
Total operating revenue 346,691,670,268 323,950,643,314
Operating expenses
Interest expenses 163,476,708,039 148,412,645,722
Bad debts expense 6 21,565,121,705 19,453,710,768
Loss on disposal of loans 3,302,529,161 1,530,676,971
Loss on foreign transactions
Loss on foreign currency transactions - 1,962
Loss on foreign exchange translation - 1,950,000,000
- 1,950,001,962
General and administrative expenses 21 66,024,037,995 59,362,164,162
Other operating expenses
Loss on valuation of derivatives 4,948,370,220 65,894,204
Loss on derivatives transactions - 3,348,000,000
Others 4,566,451,085 1,608,626,717
9,514,821,305 5,022,520,921
Total operating expenses 263,883,218,205 235,731,720,506
Operating income 82,808,452,063 88,218,922,808
Hyundai Commercial, Inc. and SubsidiariesConsolidated Statements of Comprehensive IncomeYears Ended December 31, 2012 and 2011
7
(In Korean won)Notes 2012 2011
Non-operating income 2
Gain on equity method valuation 4 ₩ 10,609,149,548 ₩ 13,220,845,753
Gain on disposal of property andequipment
2,856,483 4,346,390
Miscellaneous income 659,947,262 409,288,746
11,271,953,293 13,634,480,889
Non-operating expenses 2
Loss on equity method valuation 4 18,716,248,681 -
Loss on disposal of property andequipment
113,850,242 50,146,430
Impairment loss on other investmentassets
- 1,433,570,560
Contribution 50,000,000 250,186,484
Miscellaneous losses 534,359,600 -
Other non-operating expenses 8,582,824,000 -
27,997,282,523 1,733,903,474
Income before income taxes 66,083,122,833 100,119,500,223
Income tax expense 16 22,435,670,215 26,366,919,900
Net income ₩ 43,647,452,618 ₩ 73,752,580,323
Net income attributable to:
Owners of the parent 43,647,452,618 73,752,580,323
Non-controlling interests - -
43,647,452,618 73,752,580,323
Other comprehensive income,net of income taxes
23
Gain(Loss) on valuation of derivatives (831,874,468) 579,611,987
Gain(Loss) on valuation of available-for-sale financial securities
(5,334,677,551) 3,867,781,032
Other comprehensive income of equitymethod investees
5,513,882,438 (322,805,606)
Actuarial losses (729,564,515) (392,526,703)
(1,382,234,096) 3,732,060,710
Total comprehensive income ₩ 42,265,218,522 ₩ 77,484,641,033
Total comprehensive incomeattributable to:
Owners of the parent 42,265,218,522 77,484,641,033
Non-controlling interests - -
42,265,218,522 77,484,641,033
Earnings per share attributable to theordinary equity holders of thecompany
22
Basic earnings per share ₩ 1,882 ₩ 3,388
Diluted earnings per share 1,746 3,388
The accompanying notes are an integral part of these consolidated financial statements.
Hyundai Commercial, Inc. and SubsidiariesConsolidated Statements of Changes in EquityYears Ended December 31, 2012 and 2011
8
(In Korean won)
Capital stock Capital surplus
Accumulatedother
comprehensiveincome andexpenses Retained earnings
Total attributableto owners of the
parent
Non-controllinginterests Total equity
Balances as of January 1,2011 \ 100,000,000,000 \ - \ (862,281,456) \ 81,470,127,594 \ 180,607,846,138 \ 9,910,000 \ 180,617,756,138
Total comprehensive income
Net income - - - 73,752,580,323 73,752,580,323 - 73,752,580,323
Other comprehensive income
Gain(loss) on valuation ofderivatives
- - 579,611,987 - 579,611,987 - 579,611,987
Gain(loss) on valuation ofavailable-for-sale securities
- - 3,867,781,032 - 3,867,781,032 - 3,867,781,032
Other comprehensiveincome(expense) of equitymethod investees
- - (322,805,606) 1,636,450,618 1,313,645,012 - 1,313,645,012
Actuarial losses - - - (392,526,703) (392,526,703) - (392,526,703)
Total comprehensive income - - 4,124,587,413 74,996,504,238 79,121,091,651 - 79,121,091,651
Transactions with owners
Capital increase(preferred stock) 25,000,000,000 74,608,059,537 - - 99, 608,059,537 - 99, 608,059,537
Establishment of specialpurpose entity
- - - - - 9,910,000 9,910,000
Year-end dividends - - - (10,000,000,000) (10,000,000,000) - (10,000,000,000)
Total transactions with owners 25,000,000,000 74,608,059,537 - (10,000,000,000) 89,608,059,537 9,910,000 89,617,969,537
Balances as of December 31,
2011\ 125,000,000,000 \ 74,608,059,537 \ 3,262,305,957 \ 146,466,631,832 \ 349,336,997,326 \ 19,820,000 \ 349,356,817,326
Hyundai Commercial, Inc. and SubsidiariesConsolidated Statements of Changes in EquityYears Ended December 31, 2012 and 2011
9
(In Korean won)
Capital stock Capital surplus
Accumulatedother
comprehensiveincome andexpenses Retained earnings
Total attributableto owners of the
parent
Non-controllinginterests Total equity
Balances as of January 1,2012 \ 125,000,000,000 \74,608,059,537 \ 3,262,305,957 \ 146,466,631,832 \ 349,336,997,326 \ 19,820,000 \ 349,356,817,326
Total comprehensive income
Net income - - - 43,647,452,618 43,647,452,618 - 43,647,452,618
Other comprehensive income
Gain(loss) on valuation ofderivatives
- - (831,874,468) - (831,874,468) - (831,874,468)
Gain(loss) on valuation ofavailable-for-sale securities
- - (5,334,677,551) - (5,334,677,551) - (5,334,677,551)
Other comprehensiveincome(expense) of equitymethod investees
- - 5,513,882,438 1,484,764,577 6,998,647,015 - 6,998,647,015
Actuarial losses - - - (729,564,515) (729,564,515) (729,564,515)
Total comprehensive income - - (652,669,581) 44,402,652,680 43,749,983,099 - 43,749,983,099
Transactions with owners
Year-end dividends - - - (30,000,000,000) (30,000,000,000) - (30,000,000,000)
Interim dividends - - - (25,000,000,000) (25,000,000,000) - (25,000,000,000)
Total transactions with owners - - - (55,000,000,000) (55,000,000,000) - (55,000,000,000)
Balances as of December 31,
2012 \ 125,000,000,000 \ 74,608,059,537 \ 2,609,636,376 \ 135,869,284,512 \ 338,086,980,425 \ 19,820,000 \ 338,106,800,425
The accompanying notes are an integral part of these consolidated financial statements.
Hyundai Commercial, Inc. and SubsidiariesConsolidated Statements of Cash FlowsYears Ended December 31, 2012 and 2011
10
(In Korean won)
2012 2011Cash flows from operating activities
Cash generated from operations (Note 24) \ (62,299,924,616) \ (298,750,493,285)
Interest received 9,681,332,266 5,225,913,229Interest paid (158,384,342,272) (143,239,155,283)Dividends received 250,000,000 300,000,000Income taxes paid (21,083,558,210) (15,721,051,020)
Net cash used in operating activities (231,836,492,832) (452,184,786,359)
Cash flows from investing activitiesDisposal of available-for-sale securities - 6,293,531,160Acquisition of available-for-sale securities (6,302,089,113) (9,229,761,600)Acquisition of investments in associates (138,913,060,000) -Disposal of vehicles 63,107,858 27,020,000Acquisition of vehicles (76,172,300) (79,715,188)Disposal of fixtures and furniture 1,360,000 -Acquisition of fixtures and furniture (1,418,127,063) (1,591,801,249)Acquisition of intangible assets (1,030,108,684) (926,643,626)Decrease in leasehold deposits 1,106,291,200 -Increase in leasehold deposits (2,005,013,700) (2,993,535,000)Decrease in deposits - 2,500,000
Net cash used in investing activities (148,573,811,802) (8,498,405,503)
Cash flows from financing activitiesProceeds from borrowings 757,578,850,000 989,336,265,307Repayments of borrowings (759,218,611,658) (1,031,967,542,281)Issuance of debentures 1,128,866,743,000 740,644,889,400Repayments of debentures (635,000,000,000) (310,334,000,000)Issuance of securitized debts - 199,456,325,600Repayments of securitized debts (50,000,000,000) (40,000,000,000)Cash inflows of transactions with subsidiaries - 9,910,000Payments of dividends (55,000,000,000) (10,000,000,000)Capital increase through preferred stock issuance - 99,608,059,537
Net cash generated from financing activities 387,226,981,342 636,753,907,563
Net increase in cash and cash equivalents 6,816,676,708 176,070,715,701
Cash and cash equivalents(Note 24)Beginning of year 276,009,118,714 99,938,403,013
End of year \ 282,825,795,422 \ 276,009,118,714
The accompanying notes are an integral part of these consolidated financial statements.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
11
1. General Information
Hyundai Commercial, Inc. (the “Company”) was established on March 27, 2007, by taking over all
the assets, liabilities, rights and obligations related with the loans of the industrial product division
of Hyundai Capital Services, Inc. and its installment financing and lease financing division. It is
engaged in installment financing, and leasing of facilities. The Company’s operations are
headquartered in Yeouido, Seoul. Its shareholders of common stock are as follows:
Shareholders2012
Ownership
2011
Ownership
Hyundai Motor Company 50.00% 50.00%
Myung-yi Chung 33.33% 33.33%
Tae-young Chung 16.67% 16.67%
Total 100.00% 100.00%
2. Summary of Significant Accounting Policies
The consolidated financial statements have been prepared and presented which included the
accounts of Hyundai Commercial, Inc., as the parent company according to the Korean IFRS
1027, and Commercial Auto First SPC(trust) and another subsidiary(collectively the “Group”), while
Hyundai Card Co., Ltd. and Hyundai Life Insurance Co., Ltd. are accounted for under the equity
method.
Subsidiaries as of December 31, 2012 and 2011 are as follows. The Company has the substantial
power over the subsidiaries established as special purpose entities for asset securitization even
though its ownership interests over the subsidiaries do not exceed 50%.
2012 2011
Special Purpose
Entities
Commercial Auto First SPC(trust) Commercial Auto First SPC(trust)
Commercial Auto Second
SPC(trust)
Commercial Auto Second
SPC(trust)
The Group’s financial statements for the annual period beginning on January 1, 2011, have been
prepared in accordance with Korean IFRS. These are the standards and related interpretations
issued by the International Accounting Standards Board ("IASB") that have been adopted by the
Republic of Korea.
The preparation of financial statements requires the use of certain critical accounting estimates. It
also requires management to exercise judgment in the process of applying the Group’s accounting
policies. The areas involving a higher degree of judgment or complexity, or areas where
assumptions and estimates are significant to the consolidated financial statements are disclosed in
Note 2.3.
The Group has adopted the method of calculating operating income retroactively in accordance
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
12
with amendment of Korean IFRS 1001, Presentation of financial statements, and the related
consolidated statements of comprehensive income was rewritten with reflecting changed facts as
Korean IFRS 1001 has been adopted.
Effects on change of the Group’s accounting policies for the years ended December 31, 2012 and
2011, are as follows:
(In thousands of
Korean won, except
earnings per share) 2012 2011
Before Effect1
After Before Effect1
After
Operating income2 \81,810,559 \ 35,407 \81,845,966 \86,380,810 \1,320,268 \87,701,078
Net income2 42,917,888 - 42,917,888 73,360,054 - 73,360,054
Earnings per share2 1,846 1,846 3,368 3,368
1The amounts of effect previously classified as operating income(loss) before amendment of Korean IFRS
1001, and excluded from operating income(loss) after amendment of Korean IFRS 1001 are as follows:
Type 2012 2011
Non-operating income
Gain on disposal of property andequipment
\ 2,856 \ 4,346
Miscellaneous income 659,947 409,289
662,803 413,635
Non-operating income
Loss on disposal of property andequipment
113,850 50,146
Impairment loss on other investmentassets
- 1,433,571
Contribution 50,000 -
Miscellaneous loss 534,360 250,186
698,210 1,733,9032The amendments to Korean IFRS 1019 are not applied.
The amendments to K-IFRS 1019, Employee Benefits were early adopted in 2012. The approach
for the recognition of actuarial gains and losses has changed and the effects on financial
statements are as follows. The Group has recognized the effects incurred from the amendments
retroactively.
The consolidated statement of comprehensive income for year ended December 31, 2011, has
been restated to reflect all the changes comparatively.
(In thousands of
Korean won) 2012 2011
Before Effect After Before Effect After
Operating income1 \81,845,966 \ 962,486 \82,808,452 \87,701,078 \ 517,845 \ 88,218,923
Income tax expense1 22,202,749 232,921 22,435,670 26,241,601 125,319 26,366,920
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
13
Net income1 42,917,888 729,565 43,647,453 73,360,054 392,526 73,752,580
Retained earnings 135,869,285 - 135,869,285 146,466,632 - 146,466,6321
The amendments to Korean IFRS 1001, Presentation of financial statements, are applied.
New standards, amendments and interpretations issued but not effective for the financial year
beginning January 1, 2012, and not early adopted by the Group are as follows:
- Amendment of Korean IFRS 1001, Presentation of financial statements
Korean IFRS 1001, Presentation of financial statements, was amended to require the other
comprehensive income items to be presented into two groups on the basis of whether they are
potentially reclassificable to profit or loss subsequently. An entity shall apply those amendments
for annual periods beginning on or after July 1, 2012. Earlier application is permitted. The Group
expects the application of the above amended Korean IFRS requirement would not have a
material impact on its consolidated financial statements.
- Enactment of Korean IFRS 1113, Fair value measurement
Korean IFRS 1113, Fair value measurement, aims to improve consistency and reduce complexity
by providing a precise definition of fair value and a single source of fair value measurement and
disclosure requirements for use across Korean IFRS. Korean IFRS1113 does not extend the use
of fair value accounting but provides guidance on how it should be applied where its use is already
required or permitted by other standards within Korean IFRS. This amendment will be effective for
the Group as of January 1, 2013, and the Group is assessing the impact of application of the
amended Korean IFRS 1113 on its consolidated financial statements.
- Enactment of Korean IFRS 1110, Consolidated Financial Statements
Korean IFRS 1110, Consolidated Financial Statements, builds on existing principles by identifying
the concept of control as the determining factor in whether an entity should be included in the
consolidated financial statements of the Parent Company. An investor controls an investee when it
is exposed, or has rights, to variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee. The standard provides additional
guidance to assist in the determination of control where this is difficult to assess. This enactment
will be effective for annual periods beginning on or after January 1, 2013, and the Group is
reviewing the impact of this standard.
- Enactment of Korean IFRS 1112, Disclosures of Interests in Other Entities
Korean IFRS 1112, Disclosures of Interests in Other Entities, provides the disclosure requirements
for all forms of interests in other entities, including a subsidiary, a joint arrangement, an associate,
a consolidated structured entity and an unconsolidated structured entity. This enactment will be
effective for annual periods beginning on or after January 1, 2013, and the Group is reviewing the
impact of this standard.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
14
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 Company has the
power to govern the financial and operating policies generally accompanying a shareholding of
more than one-half of the voting rights. The existence and effect of potential voting rights that are
currently exercisable or convertible are considered when assessing whether the Company controls
another entity. The Group also assesses existence of control where it does not have more than 50%
of the voting power but is able to govern the financial and operating policies by virtue of de-facto
control. De-facto control may arise in circumstances where the size of the Group’s voting rights
relative to the size and dispersion of holdings of other shareholders give the Group the power to
govern the financial and operating policies and others. Subsidiaries are fully consolidated from the
date on which control is transferred to the Company. They are de-consolidated from the date that
control ceases.
The Group uses the acquisition method to account for business combinations. The consideration
transferred is measured as the fair values of the assets transferred, equity interests issued and
liabilities incurred or assumed at the acquisition date. Acquisition-related costs are expensed as
incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition date. On an acquisition-by-
acquisition basis, the Group recognizes any non-controlling interest in the acquiree at the non-
controlling interest’s proportionate share of the acquiree’s net assets.
The excess of the consideration transferred and the amount of any non-controlling interest in the
acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the
fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this
is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain
purchase, the difference is recognized directly in the statement of comprehensive income.
Intercompany transactions, balances and unrealized gains on transactions between Group
companies are eliminated.
b. Special purpose entities
The Group established several SPEs for the purpose of asset-backed securitization, but owns none
of the shares directly or indirectly. The Group consolidates the SPEs when the risks, rewards and
substance of the relationship indicated that the Group consolidates the SPEs. SPEs controlled by
the Group are created with conditions that impose strict limits on the decision-making power over
the operations therefore the Group obtains all benefits from the SPEs’ operation and net assets,
and that the Group may be exposed to risks incident to the activities of the SPEs or the Group
retains the majority of the residual or ownership risks related to the SPEs’ assets.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
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
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.
Unrealized gains on transactions between the Group and its associates are eliminated to the extent
of the Group’s interest in the associates. Unrealized 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
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
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.
c. Defined benefit liability
The present value of the defined benefit liability depends on a number of factors that are
determined on an actuarial basis using a number of assumptions. The assumptions used in
determining the net cost (income) for pensions include the discount rate. Any changes in these
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
17
assumptions will impact the carrying amount of the defined benefit liability. The Group determines
the appropriate discount rate at the end of each year. This is the interest rate that is used to
determine the present value of estimated future cash outflows expected to be required to settle the
defined benefit liability. In determining the appropriate discount rate, the Group considers the
interest rates of high-quality corporate bonds that are denominated in the currency in which the
pension benefits will be paid, and that have terms to maturity approximating to the terms of the
related pension liability. Other key assumptions for defined benefit liability are based in part on
current market conditions. Additional information is disclosed in Note 2.16.
2.4 Revenue recognition
The Group recognizes capital lent to customers as loans receivable. While installment financial
capital paid by the Group to manufacturers or sellers on behalf of customers is recognized as
installment financial assets. Financial lease receivables classified as financial leases are
recognized as lease receivables.
The expected future cash flows from loans receivable, installment financial assets and lease
receivables (“Financial receivables”) described above are amortized under the effective interest
method over the period of the financial receivables being used by customers.
2.5 Statements of cash flows
The Group prepares statements of cash flows using indirect method.
2.6 Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-
term highly liquid investments with original maturities of three months or less.
2.7 Financial assets
a. Classification
The Group classifies its financial assets as financial assets at fair value through profit or loss, loans
and receivables and available-for-sale financial assets. Management determines the classification
of its financial assets at initial recognition.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading. A financial
asset is classified in this category if acquired principally for the purpose of selling in the short term.
Derivatives are also categorized as held for trading unless they are designated as hedges.
Meanwhile, the Group has no financial asset at fair value through profit or loss other than financial
assets held for trading.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
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Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or
not classified in any of the other categories.
b. Recognition and measurement
Regular purchases and sales of financial assets are recognized on the trade-date. Investments are
initially recognized at fair value plus transaction costs for all financial assets not carried at fair value
through profit or loss. Financial assets carried at fair value through profit or loss are initially
recognized at fair value, and transaction costs are expensed in the income statement. Available-for-
sale financial assets and financial assets at fair value through profit or loss are subsequently carried
at fair value. Loans and receivables are subsequently carried at amortized cost using the effective
interest method.
Changes in the fair value of financial assets at fair value through profit or loss are recognized in
income statement as gain or loss. When securities classified as available-for-sale are sold or
impaired, the accumulated fair value adjustments recognized in equity are transferred to the income
statement as gain or loss on disposal of securities. Interest on available-for-sale securities
calculated using the effective interest method is recognized in the income statement as part of
interest income. Dividends on available-for sale equity instruments are recognized in the income
statement as dividend income when the Group’s right to receive payments is established.
c. Derecognition of financial assets
A financial asset is derecognized only if the contractual rights on cash flow of the financial asset
terminate or all the risks and rewards of ownership of the financial asset are substantially
transferred.
If the Group transfers substantially all the risks and rewards of ownership of the financial asset, the
Group shall derecognize the financial asset and recognize separately as assets or liabilities any
rights and obligations created or retained in the transfer. If the Group retains substantially all the
risks and rewards of ownership of the financial asset, the Group shall continue to recognize the
financial asset.
d. Impairment of financial assets
(1) Assets carried at amortized cost
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
19
The Group assesses at the end of each reporting period whether there is objective evidence that a
financial asset is impaired. Impairment losses are incurred only if there is objective evidence of
impairment and that loss event has an impact on the estimated future cash flows of the financial
asset. The amount of the loss is measured as the difference between the asset’s carrying amount
and the present value of estimated future cash flows discounted at the financial asset’s original
effective interest rate.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized, the reversal of the
previously recognized impairment loss is recognized in the income statement.
(2) Available-for-sale financial assets
The Group assesses at the end of each reporting period whether there is objective evidence that a
financial asset or a group of financial assets is impaired. For equity securities classified as
available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is
also evidence that the assets are impaired. If any such evidence exists for available-for-sale
financial assets, the difference between carrying amount and current fair value is recognized in
profit or loss. Impairment losses recognized in profit or loss for an investment in an equity
instrument classified as available for sale are not be reversed through profit or loss. If, in a
subsequent period, the fair value of a debt instrument classified as available-for-sale increases and
the increase can be objectively related to an event occurring after the impairment loss was
recognized in profit or loss, the impairment loss is reversed.
2.8 Deferral of loan origination fee and loan origination cost
Loan origination fee, which is a processing fee in relation to the loan origination process such as
upfront fee, is deferred and deducted from the loan account, adjusted over the life of the loan based
on the effective interest rate method. Loan origination cost, which relates to activities performed by
the lender such as soliciting potential borrowers, is deferred and added to the loan account,
adjusted over the life of the loan based on the effective interest rate method when the future
economic benefit in connection with the cost incurred can be identified on a per loan basis.
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
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
20
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.
2.10 Leases
a. Classification
The Group classifies leases based on the extent to which risks and rewards incidental to ownership
of a leased asset lie with the lessor or the lessee.
The lease arrangement classified as a financial lease is where: ①the lease transfers ownership of
the asset to the lessee by the end of the lease term, ②the lessee has the option to purchase the
asset at a price that is expected to be sufficiently lower than the fair value at the date the option
becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will
be exercised, ③the lease term is for the major part of the economic life of the asset even if the title
is not transferred, ④at the inception of the lease the present value of the minimum lease payments
amounts to at least substantially all of the fair value of the leased asset, or ⑤the leased assets are
of such a specialized nature that only the lessee can use them without major modifications.
Minimum lease payments include that part of the residual value that is guaranteed by the lessee,
by a party related to the lessee or by a third party unrelated to the Group that is financially capable
of discharging the obligations under the guarantee.
b. Finance leases
Where the Group has substantially all the risks and rewards of ownership, leases of property, 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
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
21
allocated between principal and finance income. Financial income on an uncollected part of net
investment shall be allocated to each period during the lease term so as to produce a constant
periodic rate of interest on the remaining balance of the liability.
2.11 Property and equipment
Property and equipment are stated at historical cost less accumulated depreciation and
accumulated impairment losses. Historical cost includes expenditure that is directly attributable to
the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or
recognized as a separate asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the Group and the cost of the item can be measured
reliably.
Depreciation method and estimated useful lives used by the Group are as follows:
Depreciation Method Useful life
Vehicles Straight-line 4 years
Fixtures and furniture Straight-line 4 years
Works of art classified under other tangible assets are not amortized due to their indefinite useful
life in nature.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of
each reporting period. An asset’s carrying amount is written down immediately to its recoverable
amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and
losses on disposals are determined by comparing the proceeds with the carrying amount and are
recognized within other operating income (expenses) in the consolidated statements of
comprehensive income.
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
Software Straight-line 4 years
Other intangible assets Straight-line 5 years
2.13 Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to amortization and are tested annually for
impairment. Assets that are subject to amortization are reviewed for impairment whenever events
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
22
or changes in circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell
and value in use. For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (cash-generating units). Non-financial
assets that are subject to amortization suffered impairment are reviewed for possible reversal of the
impairment at each reporting date.
2.14 Financial Liabilities
(a) Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss are financial instruments held for trading.
Financial liabilities are classified as financial liabilities at fair value through profit or loss when
incurred principally for the purpose of repurchasing it in the near term. Derivatives or embedded
derivatives are also categorized as this category unless they are designated as hedges.
(b) Financial liabilities carried at amortized cost
The Group classifies non-derivative financial liabilities, except for financial liabilities at fair value
through profit or loss and financial liabilities that arise when a transfer of a financial asset does not
qualify for derecognition, as financial liabilities carried at amortized cost and as ‘trade payables’,
‘borrowings’, and ‘other financial liabilities’ in the statement of financial position. In case when a
transfer of a financial asset does not qualify for derecognition, the transferred asset is continuously
recognized as asset and the consideration received is recognized as financial liabilities.
2.15 Financial Guarantee Contract
Financial guarantee contracts are contracts that require the issuer to make specified payments to
reimburse the holder for a loss it incurs because a specified debtor fails to make payments when
due, in accordance with the terms of a debt instrument.
Financial guarantees are initially recognized in the financial statements at fair value on the date the
guarantee was given. Subsequent to initial recognition, the Group’s liabilities under such
guarantees are measured at the higher of the amounts below. Any increase in the liability relating
to guarantees is reported as other financial liabilities.
- The amount calculated in accordance with Korean IFRS 1037, Provisions, Contingent
Liabilities and Contingent Assets; or
- The initial amount, less accumulated amortization recognized in accordance with Korean
IFRS 1018, Revenue.
2.16 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
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
23
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 other comprehensive income or loss in the period in which they
arise.
2.17 Provisions and contingent liabilities
When there is a probability that an outflow of economic benefits will occur due to a present
obligation resulting from a present legal or as a result of past events, and whose amount is
reasonably estimable, a corresponding amount of provision is recognized in the financial
statements. Where there are a number of similar obligations, the likelihood that an outflow will be
required in settlement is determined by considering the class of obligations as a whole. A provision
is recognized even if the likelihood of an outflow with respect to any one item included in the same
class of obligations may be small.
Provisions are the best estimate of the expenditure required to settle the present obligation that
consider the risks and uncertainties inevitably surround many events and circumstances at the
reporting date. Where the effect of the time value of money is material, the amount of a provision is
the present value of the expenditures expected to be required to settle the obligation.
A possible obligation that arises from past events and whose existence will be confirmed only by
the occurrence or non-occurrence of uncertain future events, or a present obligation that arises
from past events but is not certain to occur, or cannot be reliably estimated, a disclosure regarding
the contingent liability is made in the notes to the financial statements.
2.18 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.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
24
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 and profits and losses reclassified
from equity. The gain or loss relating to the ineffective portion is recognized immediately in profits
or losses. The cumulative gain or loss that was reported in equity is recognized when the hedged
items affect profits and losses. When applying hedging accounting, the relative profits or losses are
reclassified to interest expenses and gain or loss on foreign exchange translation.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and
is recognized when the forecast transaction is ultimately recognized in the income statement. When
a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported
in equity is immediately transferred to profits or losses.
2.19 Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognized in the income
statement, except to the extent that it relates to items recognized in other comprehensive income or
directly in equity. In this case, the tax is also recognized in other comprehensive income or directly
in equity.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively
enacted at the statement of financial position date in the countries where the Group operates and
generates taxable income. Management periodically evaluates positions taken in tax returns with
respect to situations in which applicable tax regulation is subject to interpretation. It establishes
provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognized, using the liability method, on temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts in the consolidated
financial statements. However, deferred tax assets and liabilities are not recognized if they arise
from initial recognition of an asset or liability in a transaction other than a business combination that
at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income
tax is determined using tax rates and laws that have been enacted or substantially enacted by the
statement of financial position date and are expected to apply when the related deferred income tax
asset is realized or the deferred income tax liability is settled.
Deferred income tax assets are recognized only to the extent that it is probable that future taxable
profit will be available against which the temporary differences can be utilized.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
25
Deferred income tax is provided on temporary differences arising on investments in subsidiaries,
associates and joint ventures except for deferred income tax liability where the timing of the
reversal of the temporary difference is controlled by the Group and it is probable that the temporary
difference will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to
offset current tax assets against current tax liabilities and when the deferred income taxes assets
and liabilities relate to income taxes levied by the same taxation authority on either the same
taxable entity or different taxable entities where there is an intention to settle the balances on a net
basis.
2.20 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.
2.21 Dividend Distribution
Dividend distribution to the Company’s shareholders is recognized as a liability in the financial
statements in the period in which the dividends are approved by the Company’s shareholders.
2.22 Approval of Issuance of the Financial Statements
The issuance of the December 31, 2012 consolidated financial statements of the Group was
approved by the Board of Directors on February 28, 2013.
3. Restricted Financial Instruments
Restricted financial instruments are as follows:
(in thousands of Korean won)
Type Entities 2012 2011 Restriction
DepositsKookmin Bankand 2 others
\ 9,000 \ 9,000Maintaining deposits forchecking account
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
26
4. Securities
Securities are as follows:
(in thousands of Korean won)
Type 2012 2011
Available-for-sale securities
Equitysecurities
Marketable equitysecurities
\ 10,650,000 \ 18,200,000
Unlisted equitysecurities
5,607,645 3,083,604
16,257,645 21,283,604
Debt securities 10,726,682 5,564,629
26,984,327 26,848,233
Investments in associates 285,401,945 147,539,965
\ 312,386,272 \ 174,388,198
Available-for-sale securities
Available-for-sale securities are as follows:
(in thousands of Korean won)
Book Value
Number ofshares
Ownership(%)
Acquisitioncost
2012 2011
Marketable equity securities
JNK Heaters Co., Ltd. 1,000,000 12.5 \ 10,126,881 \ 10,650,000 \ 18,200,000
Unlisted equity securities
Leehan Corp.1
136,000 12.3 3,199,762 3,304,936 3,082,984
Anyang KDC Project Corp. 389,999 15.0 2,293,275 2,293,275 -
Anyang KDC Asset
Management Corp.1,499 15.0 8,814 8,814 -
Isung Eng, Corp. 24 - 620 620 620
5,502,471 5,607,645 3,083,604
Debt securities
Leehan Corp.2
- - 5,469,801 6,726,682 5,564,629
Commercial Auto Third SPC - - 4,000,000 4,000,000 -
9,469,801 10,726,682 5,564,629
\ 25,099,153 \ 26,984,327 \ 26,848,233
1The fair value of the securities of Leehan Corp. is the valuation price provided by an external appraiser,
Korea Asset Pricing. The external appraisers valuated the fair value as the average of valuation prices
using the discounted cash flow model and the imputed market value model.2
The debt security is a convertible bond issued by Leehan Corp. The fair value of the convertible bond for
Leehan Corp. is the valuation price provided by an external appraiser, Korea Asset Pricing. The difference
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
27
between the fair value of convertible bond and the book value of normal bond by effective interest rate is
recognized in the gain or loss on valuation of debt securities, and the fluctuation of conversion right and
advanced redemption right is recognized in the gain or loss on embedded derivatives.
Investments in associates
Investments in associates are as follows:
(in thousands of Korean won)
2012Number of
sharesOwnership
(%)Acquisition
costNet asset
valueBook value
Hyundai CardCo., Ltd.
1 8,889,622 5.54 \ 113,820,162 \ 121,460,539 \ 158,386,190
Hyundai LifeInsuranceCo., Ltd.
10,685,620 39.07 138,913,060 102,391,658 127,015,755
\ 252,733,222 \ 223,852,197 \ 285,401,945
(in thousands of Korean won)
2011Number of
sharesOwnership
(%)Acquisition
costNet asset
valueBook value
Hyundai CardCo., Ltd.
1 8,889,622 5.54 \ 113,820,162 \ 110,613,215 \ 147,539,965
1The Group’s shareholding in Hyundai Card Co., Ltd. is less than 20%. However, the Group is able to
participate in the management and significantly influence the financial and operating processes. Thus, the
equity method is applied.
Valuations of equity method investment are as follows:
(in thousands of Korean won)
2012
BeginningBalance
AcquisitionGain (loss)
on valuation
Changes inaccumulated
othercomprehen-sive income
1
Changes inretainedearnings
EndingBalance
Hyundai CardCo., Ltd.
\147,539,965 \ - \10,609,150 \ 237,075 \ - \158,386,190
Hyundai LifeInsuranceCo., Ltd.
- 138,913,060 (18,716,249) 5,334,179 1,484,765 127,015,755
\147,539,965 \138,913,060 \(8,107,099) \5,571,254 \1,484,765 \285,401,945
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
28
(in thousands of Korean won)2011
BeginningBalance
Gain (loss) onvaluation
Changes inaccumulated
othercomprehen-sive income
1
Changes inretainedearnings
Others Ending Balance
Hyundai CardCo., Ltd.
\133,160,973 \13,220,846 \ (477,206) \1,636,450 \ (1,098) \147,539,965
1Tax effects are not deducted.
Summary of financial information of investees follows:
(in thousands of Korean won)
2012
Closingmonth
Assets LiabilitiesOperatingrevenue
Net income(loss)
Hyundai CardCo., Ltd.
December \ 11,252,488,244 \9,060,021,557 \ 2,524,941,896 \ 191,504,230
Hyundai LifeInsuranceCo., Ltd.
1March 3,824,606,629 3,562,563,039 885,330,384 (6,045,704)
1Hyundai Life Insurance Co., Ltd. is a corporation with fiscal year ending on March 31. But its assets and
liabilities above are as of December 31, 2012, and the results of its operations are for the nine-month period
ended December 31, 2012. The recognition of deemed cost was on February 29, 2012.
2011
Closingmonth
Assets LiabilitiesOperatingrevenue
Net income
Hyundai CardCo., Ltd.
December \ 10,851,933,716 \ 8,855,250,685 \ 2,407,597,301 \ 238,647,582
5. Financial Receivables
Financial receivables are as follows:
(in thousands of Korean won)
2012
Principal
Deferred loanoriginationfees and
costs
Present valuediscounts
Allowance fordoubtfulaccounts
Book value
Loans receivable
FactoringReceivables
\ 108,000 \ - \ - \ (270) \ 107,730
Loans 2,764,943,740 35,870,003 (200,613) (19,258,900) 2,781,354,230
2,765,051,740 35,870,003 (200,613) (19,259,170) 2,781,461,960
Installment financial assets
Auto 331,018,925 2,702,341 - (2,351,090) 331,370,176Durable goods 25,765,456 (140,848) - (176,228) 25,448,380
356,784,381 2,561,493 - (2,527,318) 356,818,556
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
29
Lease receivables
Finance leasereceivables
132,355,777 687 - (1,026,911) 131,329,553
\ 3,254,191,898 \ 38,432,183 \ (200,613) \ (22,813,399) \ 3,269,610,069
2011
Principal
Deferred loanoriginationfees and
costs
Present valuediscounts
Allowance fordoubtfulaccounts
Book value
Loans receivable
FactoringReceivables
\ 575,109 \ - \ - \ (3,163) \ 571,946
Loans 2,390,384,894 18,629,791 (150,234) (18,165,997) 2,390,698,454
2,390,960,003 18,629,791 (150,234) (18,169,160) 2,391,270,400
Installment financial assets
Auto 402,751,465 (315,733) - (2,700,211) 399,735,521Durable goods 69,532,615 (677,259) - (475,143) 68,380,213
472,284,080 (992,992) - (3,175,354) 468,115,734
Lease receivables
Finance leasereceivables
84,693,337 (19,542) - (620,397) 84,053,398
\ 2,947,937,420 \ 17,617,257 \ (150,234) \ (21,964,911) \ 2,943,439,532
6. Allowance for Doubtful Accounts
Changes in allowance for doubtful accounts for the years ended December 31, 2012 and 2011, are
as follows:
(in thousands of Korean won)
2012
Loansreceivable
Installmentfinancial assets
Leasereceivables
Other assets Total
Beginning balance \ 18,169,160 \ 3,175,354 \ 620,397 \ 330,388 \ 22,295,299
Amounts written off (4,168,839) (396,392) - - (4,565,231)
Recoveries of amountspreviously written off
772,833 86,527 - - 859,360
Disposal of receivables (14,903,755) (1,921,390) (34,163) - (16,859,308)
Unwinding of discount (226,349) (28,019) - - (254,368)
Additional(reversed)allowance
19,616,120 1,611,238 440,677 (102,913) 21,565,122
Ending balance \ 19,259,170 \ 2,527,318 \ 1,026,911 \ 227,475 \ 23,040,874
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
30
(in thousands of Korean won)
2011
Loansreceivable
Installmentfinancial assets
Leasereceivables
Other assets Total
Beginning balance \ 12,795,689 \ 3,609,027 \ 214,613 \ 372,974 \ 16,992,303
Amounts written off (2,091,482) (213,575) - - (2,305,057)
Recoveries of amountspreviously written off
374,021 12 119,541 - 493,574
Disposal of receivables (10,613,501) (1,556,907) (977) - (12,171,385)
Unwinding of discount (151,126) (16,612) (108) - (167,846)
Additional(reversed)allowance
17,855,559 1,353,409 287,328 (42,586) 19,453,710
Ending balance \ 18,169,160 \ 3,175,354 \ 620,397 \ 330,388 \ 22,295,299
7. Financial Instruments
The fair values of financial instruments are as follows:
(in thousands of Korean won)
2012 2011
Book value Fair value Book value Fair value
Assets
Financial assets
Cash and deposits \ 282,834,795 \ 282,834,795 \ 276,018,119 \ 276,018,119
Available-for-sale securities 26,984,327 26,984,327 26,848,233 26,848,233
Loans receivable 2,781,461,960 2,775,937,581 2,391,270,400 2,398,975,565
Installment financial assets 356,818,556 357,631,944 468,115,734 473,294,235
Lease receivables 131,329,553 132,353,718 84,053,398 85,401,075Derivative assets 137,775 137,775 1,369,009 1,369,009Non-trade receivables 15,813,310 15,813,310 29,694,392 29,694,392Accrued revenues 16,858,350 16,858,350 17,963,211 17,963,211Leasehold deposits 11,083,914 11,201,215 9,963,176 9,861,028
\ 3,623,322,540 \ 3,619,753,015 \ 3,305,295,672 \ 3,319,424,867
Liabilities
Financial liabilities
Borrowings \ 723,883,961 \ 730,188,793 \ 725,523,723 \ 730,010,502
Debentures 2,428,295,638 2,494,275,095 1,937,737,885 1,983,599,328
Securitized debts 309,637,148 319,737,569 359,361,742 367,266,231
Derivative liabilities 7,505,990 7,505,990 2,691,395 2,691,395
Non-trade payables 15,199,625 15,199,625 7,907,799 7,907,799
Accrued expenses 27,995,752 27,995,752 26,857,796 26,857,796
Withholdings1
3,045,893 3,045,893 2,731,628 2,731,628
Leasehold deposits received 33,014,098 33,618,900 16,493,405 16,677,090
\ 3,548,578,105 \ 3,631,567,617 \ 3,079,305,373 \ 3,137,741,769
1Excluding taxes.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
31
The fair value hierarchy of financial assets and liabilities carried at fair value are as follows:
(in thousands of Korean won)
2012
TypeBookvalue
Fairvalue
Fair value hierarchy1
level 1 level 2 level 3
Financial assets
Available-for-salesecurities
\ 26,984,327 \ 26,984,327 \ 10,650,000 \ - \ 16,334,327
Derivative assets 137,775 137,775 - 137,775 -
27,122,102 27,122,102 10,650,000 137,775 16,334,327
Financial liabilities
Derivative liabilities \ 7,505,990 \ 7,505,990 \ - \ 7,505,990 \ -
1The levels of fair value hierarchy have been defined as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities. Listed stocks and derivatives
Level 2: Inputs for the asset or liability included within valuation techniques that are observable market
data. Most bonds issued in Korean won and foreign currency, general unlisted derivatives like swap,
forward, option
Level 3: Inputs for the asset or liability that are not based on observable market data. Unlisted stocks,
complicated structured bonds, complicated unlisted derivatives and others.
(in thousands of Korean won)
2011
TypeBookvalue
Fairvalue
Fair value hierarchy1
level 1 level 2 level 3
Financial assets
Available-for-salesecurities
\ 26,848,233 \ 26,848,233 \ 18,200,000 \ - \ 8,648,233
Derivative assets 1,369,009 1,369,009 - 1,369,009 -
28,217,242 28,217,242 18,200,000 1,369,009 8,648,233
Financial liabilities
Derivative liabilities \ 2,691,395 \ 2,691,395 \ - \ 2,691,395 \ -
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
32
The changes in financial instruments of level 3 for the years ended December 31, 2012 and 2011,
are as follows:
(in thousands of Korean won)
Available-for-sale securities
2012 2011
Beginning balance \ 8,648,233 \ 17,657,945
Acquisition 6,302,089 8,670,183
Interest revenues 871,838 72,492
Gain on valuation(Other comprehensive income)
512,167 (1,579,387)
Disposal - (4,655,000)
Reclassification1
- (11,518,000)
Ending balance \ 16,334,327 \ 8,648,233
1The fair value hierarchy of the available-for-sale securities has been reclassified from level 3 to level 1 as
JNK Heaters Co., Ltd. was listed during the previous period.
The book values of financial instruments by categories are as follows:
(in thousands of Korean won)
2012
Financialassets at fairvalue throughprofit or loss
Loans andreceivables
Available-for-salefinancial assets
Hedgingderivative
instrumentsTotal
Financial assets
Cash and deposits \ - \ 282,834,795 \ - \ - \ 282,834,795
Available-for- salesecurities
- - 26,984,327 - 26,984,327
Loans receivable - 2,781,461,960 - - 2,781,461,960
Installmentfinancial assets
- 356,818,556 - - 356,818,556
Lease receivables - 131,329,553 - - 131,329,553
Derivative assets 74,423 - - 63,352 137,775
Non-tradereceivables
- 15,813,310 - - 15,813,310
Accrued revenues - 16,858,350 - - 16,858,350
Leaseholddeposits
- 11,083,914 - - 11,083,914
\ 74,423 \ 3,596,200,438 \ 26,984,327 \ 63,352 \ 3,623,322,540
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
33
(in thousands of Korean won)
2011
Financialassets at fairvalue throughprofit or loss
Loans andreceivables
Available-for-salefinancial assets
Hedgingderivative
instrumentsTotal
Financial assets
Cash and deposits \ - \ 276,018,119 \ - \ - \ 276,018,119
Available-for- salesecurities
- - 26,848,233 - 26,848,233
Loans receivable - 2,391,270,400 - - 2,391,270,400
Installmentfinancial assets
- 468,115,734 - - 468,115,734
Lease receivables - 84,053,398 - - 84,053,398
Derivative assets 501,793 - - 867,216 1,369,009
Non-tradereceivables
- 29,694,392 - - 29,694,392
Accrued revenues - 17,963,211 - - 17,963,211
Leaseholddeposits
- 9,963,176 - - 9,963,176
\ 501,793 \ 3,277,078,430 \ 26,848,233 \ 867,216 \ 3,305,295,672
(in thousands of Korean won)
2012
Financial liabilitiesat amortized cost
Hedging derivativeinstruments
Total
Financial liabilities
Borrowings \ 723,883,961 \ - \ 723,883,961
Debentures 2,428,295,638 - 2,428,295,638
Securitized debts 309,637,148 - 309,637,148
Derivativeliabilities
- 7,505,990 7,505,990
Non-trade payables 15,199,625 - 15,199,625
Accrued expenses 27,995,752 - 27,995,752
Withholdings 3,045,893 - 3,045,893
Leasehold deposits received 33,014,098 - 33,014,098
\ 3,541,072,115 \ 7,505,990 \ 3,548,578,105
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
34
2011
Financial liabilitiesat amortized cost
Hedging derivativeinstruments
Total
Financial liabilities
Borrowings \ 725,523,723 \ - \ 725,523,723
Debentures 1,937,737,885 - 1,937,737,885
Securitized debts 359,361,742 - 359,361,742
Derivativeliabilities
- 2,691,395 2,691,395
Non-trade payables 7,907,799 - 7,907,799
Accrued expenses 26,857,796 - 26,857,796
Withholdings 2,731,628 - 2,731,628
Leasehold deposits received 16,493,405 - 16,493,405
\ 3,076,613,978 \ 2,691,395 \ 3,079,305,373
8. Transfer of financial assets
The financial assets that are not entirely derecognized are as follows:
The Group issued senior and subordinated asset-backed securities based on loans and the
associated securitized debts and has recourse only to the transferred assets.
Details of financial assets transferred and not derecognized as of December 31, 2012 and 2011,
are as follows:
(in thousands of Korean won)
Type 2012 2011
Book value of assets
Loans receivable \ 539,978,100 \ 463,531,752
Installment assets 35,652,795 96,910,381
575,630,895 560,442,133
Book value of related liabilities 309,637,148 359,361,742
Liabilities having right of resource on transferred assets :
Fair value of assets 574,639,694 563,007,792
Fair value of related liabilities (319,737,569) (367,266,231)
Net position \ 254,902,125 \ 195,741,561
The financial assets that are entirely derecognized are as follows:
The Group derecognized loans receivable from the consolidated financial statements by transferring
them for \ 101,598,233 thousand to Commercial Auto Third SPC(Trustee Bank : Citibank Korea, Inc.)
on December 18, 2012. The gains related to the transaction amounted to \ 2,450,829 thousand.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
35
Meanwhile, the Group has continuing involvement in the transferred asset after taking over debt
securities issued by Commercial Auto Third SPC.
Details of continuing involvement are as follows:
(in thousands of Korean won)
Book value of
Continuing involvementMaximum
exposure to lossAvailable-for-sale securities
Acquisition on debt
securities4,000,000 4,000,000
9. Finance Lease Receivables
Details of total lease investments and present value of minimum lease receipts are as follows:
(in thousands of Korean won)
Type
2012 2011
Total leaseinvestments
Present valueof minimum
leasereceipts
Total leaseinvestments
Present valueof minimum
leasereceipts
Less than 1 year \ 55,614,516 \ 48,968,100 \ 38,319,151 \ 33,136,156
1 to 5 years 88,188,405 83,388,364 55,204,893 51,537,639
\ 143,802,921 \ 132,356,464 \ 93,524,044 \ 84,673,795
Details of unearned interest income are as follows:
(in thousands of Korean won)
Type 2012 2011
Total lease investments \ 143,802,921 \ 93,524,044
Net lease investments
Minimum lease receipts (present value) 132,356,464 84,673,795
Unguaranteed residual value(present value) - -
132,356,464 84,673,795
Unearned interest income \ 11,446,457 \ 8,850,249
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
36
10. Property and Equipment
Property and equipment consist of:
(in thousands of Korean won)
Type2012
Acquisitioncost
Accumulateddepreciation
Book value
Vehicles \ 235,096 \ (165,297) \ 69,799
Fixtures and furniture 7,965,357 (5,263,430) 2,701,927
Others 411,000 - 411,000
\ 8,611,453 \ (5,428,727) \ 3,182,726
(in thousands of Korean won)
Type2011
Acquisitioncost
Accumulateddepreciation
Book value
Vehicles \ 238,639 \ (123,908) \ 114,731
Fixtures and furniture 7,065,590 (4,682,654) 2,382,936
Others 411,000 - 411,000
\ 7,715,229 \ (4,806,562) \ 2,908,667
Changes in property and equipment for the years ended December 31, 2012 and 2011, are as
follows:
(in thousands of Korean won)
2012
Beginningbalance
Acquisition Disposal DepreciationEndingbalance
Vehicles \ 114,731 \ 76,172 \ (61,447) \ (59,657) \ 69,799
Fixtures andfurniture
2,382,936 1,418,127 (114,015) (985,121) 2,701,927
Others 411,000 - - - 411,000
\ 2,908,667 \ 1,494,299 \ (175,462) \ (1,044,778) \ 3,182,726
(in thousands of Korean won)
2011
Beginningbalance
Acquisition Disposal DepreciationEndingbalance
Vehicles \ 119,066 \ 79,715 \ (22,673) \ (61,377) \ 114,731
Fixtures andfurniture
1,986,277 1,591,801 (50,146) (1,144,996) 2,382,936
Others 411,000 - - - 411,000
\ 2,516,343 \ 1,671,516 \ (72,819) \ (1,206,373) \ 2,908,667
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
37
As of December 31, 2012, the Group carries comprehensive property insurance with Hyundai
Marine and Fire Insurance for its fixtures and furniture, and other tangible assets for up to
₩ 4,008,254 thousand (2011: \ 2,196,426 thousand), vehicle insurance for its vehicles, and
group accident insurance, travel insurance and business damage insurance for its employees. And
the Group carries comprehensive property insurance with Hyundai Marine and Fire Insurance for
its machine tool installment financial assets and lease assets for up to ₩ 92,452,845 thousand
(2011: \ 74,430,948 thousand) thousand.
11. Intangible Assets
Intangible assets consist of:
(in thousands of Korean won)
2012
Acquisitioncost
Accumulateddepreciation
Bookvalue
Development costs \ 2,847,793 \ (869,745) \ 1,978,048
Software 6,422,131 (4,947,389) 1,474,742
Other intangible assets 25,851 (25,631) 220
\ 9,295,775 \ (5,842,765) \ 3,453,010
(in thousands of Korean won)
2011
Acquisitioncost
Accumulateddepreciation
Bookvalue
Development costs \ 2,153,280 \ (390,261) \ 1,763,019
Software 5,637,719 (4,331,112) 1,306,607
Other intangible assets 25,851 (23,173) 2,678
\ 7,816,850 \ (4,744,546) \ 3,072,304
Changes in intangible assets for the years ended December 31, 2012 and 2011, are as follows:
(in thousands of Korean won)
2012
Beginning balance Increase1
Amortization Ending balance
Development costs \ 1,763,019 \ 694,513 \ (479,484) \ 1,978,048
Software 1,306,607 784,411 (616,276) 1,474,742
Other intangible assets 2,678 - (2,458) 220
\ 3,072,304 \ 1,478,924 \ (1,098,218) \ 3,453,010
1Inclusive of transfer from advance payments.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
38
(in thousands of Korean won)
2011
Beginning balance Increase1
Amortization Ending balance
Development costs \ 841,359 \ 1,263,403 \ (341,743) \ 1,763,019
Software 1,632,196 677,297 (1,002,886) 1,306,607
Other intangible assets 7,848 - (5,170) 2,678
\ 2,481,403 \ 1,940,700 \ (1,349,799) \ 3,072,304
12. Borrowings
Borrowings consist of:
(in thousands of Korean won)
LenderAnnual
interest rate (%)2012 2011
Borrowings in won
Commercial paperSK Securities
and 7 others2.91 ~ 4.17 \ 210,000,000 \ 140,000,000
General loansWoori Bank and
8 others3.22 ~ 5.80 513,883,961 585,523,723
\ 723,883,961 \ 725,523,723
13. Debentures
Debentures issued by the Group and outstanding are as follows:
(in thousands of Korean won)Annualinterest
rates (%)
2012 2011
Par value Issue price Par value Issue price
Current portion of debenture
Debenture 3.05 ~ 6.00 \ 847,488,500 \ 847,488,500 \ 635,000,000 \ 635,000,000
Less: Discount ondebentures
- (313,409) - (253,677)
847,488,500 847,175,091 635,000,000 634,746,323
Non-current portion of debenture
Debenture 3.10 ~ 8.00 1,582,704,000 1,582,704,000 1,304,713,500 1,304,713,500
Less: Discount ondebentures
- (1,583,453) - (1,721,938)
1,582,704,000 1,581,120,547 1,304,713,500 1,302,991,562
\ 2,430,192,500 \ 2,428,295,638 \ 1,939,713,500 \ 1,937,737,885
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
39
14. Securitized debts
The amounts of securitized debts which are secured by loans and installment financial assets in
accordance with Asset Backed Securitization Act are as follows:
(in thousands of Korean won)Annualinterest
rates (%)
2012 2011
Par value Issue price Par value Issue price
Current portion of securitized debts
Securitized debts 4.78 ~ 4.92 \ 50,000,000 \ 50,000,000 \ 50,000,000 \ 50,000,000
Less: Discount onsecuritized debts
- (33,752) - (62,214)
50,000,000 49,966,248 50,000,000 49,937,786
Non-current portion of securitized debts
Securitized debts 4.76 ~ 5.43 260,000,000 260,000,000 310,000,000 310,000,000
Less: Discount onsecuritized debts
- (329,100) - (576,044)
260,000,000 259,670,900 310,000,000 309,423,956
\ 310,000,000 \ 309,637,148 \ 360,000,000 \ 359,361,742
15. Defined Benefit Liability
The amounts of defined benefit plans recognized in the statements of financial position are as follows:
(in thousands of Korean won)
2012 2011
Present value of funded obligations \ 10,602,378 \ 7,596,812
Fair value of plan assets (8,546,162) (5,364,346)
Defined benefit liability \ 2,056,216 \ 2,232,466
Changes in present value of defined benefit obligations for the years ended December 31, 2012 and
2011:
(in thousands of Korean won)
2012 2011
Beginning balance \ 7,596,812 \ 5,493,658
Current service cost 2,065,107 1,785,154
Interest cost 312,346 277,272
Actuarial losses 966,673 513,811
Transfer of severance benefits from
related parties1,301,233 452,920
Transfer of severance benefits to related
parties(1,230,543) (522,962)
Benefits paid (409,250) (403,041)
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
40
Ending balance \ 10,602,378 \ 7,596,812
Changes in the fair value of plan assets for the years ended December 31, 2012 and 2011:
(in thousands of Korean won)
2012 2011
Beginning balance \ 5,364,346 \ 3,812,483
Expected return on plan assets 220,433 148,352
Actuarial gains/(losses) 4,187 (4,034)
Transfer of severance benefits from
related parties600,148 386,412
Transfer of severance benefits to
related parties(294,075) (487,862)
Contributions by plan participants 3,000,000 1,800,000
Benefits paid (348,877) (291,005)
Ending balance \ 8,546,162 \ 5,364,346
Details of the amounts recognized in the income statement for the years ended December 31,
2012 and 2011:
(in thousands of Korean won)
2012 2011
Current service cost \ 2,065,107 \ 1,785,154
Interest cost 312,346 277,272
Expected return on plan assets (220,433) (148,352)
\ 2,157,020 \ 1,914,074
Actual return on plan assets for the years ended December 31, 2012 and 2011:
(in thousands of Korean won)
2012 2011
Actual return on plan assets \ 224,620 \ 144,318
Details of plan assets consist of :
(in thousands of Korean won)
2012 2011
Amount Ratio(%) Amount Ratio(%)
Cash \ 26,399 0.31 \ 821,162 15.30
Deposits¹ 5,061,344 59.22 2,165,895 40.38
Interest rate guaranteed assetfor 1-year
3,458,419 40.47 2,377,289 44.32
\ 8,546,162 100.00 \ 5,364,346 100.00
¹ As of December 31, 2012, contribution to the National Pension Fund of \ 5,321 thousand is included
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
41
( December 31, 2011 : \ 5,321 thousand).
Actuarial assumptions required to recognize defined benefit liability are as follows:
2012 2011
Discount rate 3.43% 4.28%
Expected return on plan assets 2.79% 3.97%
Future salary increases 5.60% 5.65%
Assumptions regarding future mortality experience are set based on actuarial advice published by
Korea Insurance Development Institute.
Adjustments for the differences
Adjustments for the differences between initial assumptions and actual figures for the years ended
December 31, 2012 and 2011, are as follows :
(in thousands of Korean won)
2012 2011
Defined benefit obligations \ 483,119 \ 207,271
Plan assets (4,187) 4,034
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
42
16. Income Tax
Income tax expense for the years ended December 31, 2012 and 2011, consists of:
(in thousands of Korean won)
2012 2011
Current tax \ 16,380,716 \ 19,643,160
Changes in deferred tax assets(liabilities) 3,715,889 7,863,920
Deferred tax credited directly to equity 2,144,291 (1,140,160)
Supplementary pay of corporation tax 194,774 -
Income tax \ 22,435,670 \ 26,366,920
Deferred tax credited directly to equity
(in thousands of Korean won)
2012 2011
Gain(loss) on valuation of derivatives \ 265,585 \ (185,048)
Gain(loss) on valuation of available-for-sale financial securities
1,703,156 (1,234,832)
Accumulated comprehensiveincome(expense) of equity methodinvestees
(57,372) 154,401
Actuarial losses 232,922 125,319
\ 2,144,291 \ (1,140,160)
Reconciliation between income before income tax and income tax expense :
(in thousands of Korean won)
2012 2011
Profit before tax \ 66,083,123 \ 100,119,500
Current tax \ 15,530,117 \ 23,766,919
Adjustments:
Income not subject to tax 83,818 -
Expenses not deductible for taxpurposes
- 1,382,045
Unrecognized deferred tax 6,415,522 -
Supplementary payment of corporatetax
194,774 -
Others 211,439 1,217,956
Income tax \ 22,435,670 \ 26,366,920
Effective tax rate
(Income tax over net income before tax)34.0% 26.3%
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
43
Changes in temporary differences and deferred assets (liabilities)
(in thousands of Korean won)
2012
TypeTemporary differences Deferred assets (liabilities)
Beginning Changes Ending Beginning Ending
Deferred loan originationfees and costs
\ (35,993,974) \ (10,203,343) \ (46,197,317) \ (8,710,542) \ (11,179,751)
Allowances for doubtfulaccounts
(1,451,636) 1,451,636 - (351,296) -
Investments inassociates
(33,719,804) 9,633,904 (24,085,900) (8,160,192) (10,784,979)
Derivatives 1,428,819 1,583,237 3,012,056 345,774 728,917
Goodwill 1,273,333 (1,273,333) - 308,147 -
Accrued expenses 4,707,815 (552,293) 4,155,522 1,139,291 1,005,636
Available-for-salesecurities
(7,992,763) 6,107,588 (1,885,175) (1,934,249) (456,212)
Others 4,243,223 (1,622,180) 2,621,043 1,026,860 634,293
\ (67,504,987) \ 5,125,216 \ (62,379,771) \ (16,336,207) \ (20,052,096)
(in thousands of Korean won)
2011
TypeTemporary differences Deferred assets (liabilities)
Beginning Changes Ending Beginning Ending
Deferred loan originationfees and costs
\ (32,402,378) \ (3,591,596) \ (35,993,974) \ (6,963,514) \ (8,710,542)
Allowances for doubtfulaccounts
(9,058,852) 7,607,216 (1,451,636) (2,192,242) (351,296)
Investments inassociates
(19,472,745) (14,247,059) (33,719,804) (3,845,072) (8,160,192)
Derivatives 2,193,350 (764,531) 1,428,819 530,790 345,774
Goodwill 8,913,333 (7,640,000) 1,273,333 2,157,027 308,147
Accrued expenses 5,284,115 (576,300) 4,707,815 1,278,756 1,139,291
Available-for-salesecurities
(2,876,064) (5,116,699) (7,992,763) (696,007) (1,934,249)
Others 5,446,886 (1,203,663) 4,243,223 1,257,975 1,026,860
\ (41,972,355) \ (25,532,632) \ (67,504,987) \ (8,472,287) \ (16,336,207)
Realization of the future tax benefits related to the deferred tax assets is dependent on many
factors, including the Group’s ability to generate taxable income within the period during which the
temporary differences reverse, the outlook of the Korean economic environment, and the overall
future industry outlook. Management periodically considers these factors in reaching its conclusion
and recognized the deferred income tax asset based on future realization.
As of December 31, 2012, the Group did not recognize deferred income tax assets of
\ 27,299,073 thousand related to temporary differences in investments in associates which may
not be realized (2011: nil).
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
44
17. Derivative Financial Instruments and Hedge Accounting
The Group acquired the convertible bonds issued by Leehan Corp. in 2011, and recorded the
difference between the acquisition cost of convertible bond and the fair value of bond without
convertible right as derivative assets. The Group recognized derivatives assets of \ 74,423
thousand as of December 31, 2012 (2011: \ 501,793 thousand), and net losses on trading
derivatives of \ 427,370 thousand during the year ended December 31, 2012 (2011 : \ 58,406
thousand).
Derivatives designated as cash flow hedges as of December 31, 2012 and 2011, are as follows:
(in millions of Korean won)
Type
2012 2011
Assets LiabilitiesOther
comprehen-sive income
Assets LiabilitiesOther
comprehen-sive income
Interest rate
swaps63,352 2,084,383 (1,531,844) - 241,837 (899,733)
Currency swaps - 5,421,607 (382,978) 867,216 2,449,558 (183,215)
\ 63,352 \ 7,505,990 \ (1,914,822) \ 867,216 \ 2,691,395 \ (1,082,948)
The amount recognized as other comprehensive income, representing the effective portion related
to cash flow hedge, is \ (-)831,874 thousand for the year ended December 31, 2012, and the
reclassified amount from other comprehensive income to profit or loss is \ 751,792 thousand
(before tax). There is no amount recognized as other comprehensive income, representing the
ineffective portion related to cash flow hedge, for the year ended December 31, 2012.
18. Equity
Capital stock
The Company is authorized to issue 80,000,000 shares(\5,000 per share). The capital stock of
the Company consists of 20,000,000 shares of common stock and 5,000,000 shares of preferred
stock.
Capital stock as of December 31, 2012, is as follows:
(in thousands of Korean won)
Type Common stock Preferred Stock Total
Capital Stock \ 100,000,000 \ 25,000,000 \ 125,000,000
Paid-in capital in excess ofpar value
- 74,608,06074,608,060
The convertible preferred stocks are non-cumulative, non-participating, nominative, non-
permanent preferred stocks without voting right, the stocks will be converted to common stock
after seven years from issue date.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
45
Legal reserve
The Korean Commercial Law requires the Company to appropriate, as a legal reserve, an amount
equal to a minimum of 10% of annual cash dividends declared, until the reserve equals 50% of its
issued capital stock. This reserve is not available for the payment of cash dividends, but may be
transferred to capital stock or used to reduce accumulated deficit, if any.
Discretionary reserve
The Company appropriates a reserve in accordance with Electronic Financial Transactions Act.
If allowances for doubtful accounts do not meet the minimum amount calculated in accordance
with allowance reserve standards of Regulation on Supervision under Article 11 of the Specialized
Credit Financial Business Law, the Group appropriates a reserve for bad loans in an amount more
than the difference between the allowance and the requirement. The reserve for bad loans is
discretionary that could be reversed when the appropriated reserve exceeds the amount liable for
the fiscal year. When the Company has unappropriated deficit, the reserve for bad loans is
appropriated only after the unappropriated deficit has been recovered.
Appropriated and expected reserves for bad loans as of December 31, 2012 and 2011, are asfollows:
(in thousands of Korean won)
2012 2011
Appropriated reserve for bad loans \ 3,357,192 \ -
Expected reserve for bad loans 11,932,446 3,357,192
\ 15,289,638 \ 3,357,192
Transfer to reserve for bad loans and net income in consideration of effect of changes in reserve
for bad loans for the year ended December 31, 2012, are as follows:
(in thousands of Korean won)
Amounts
Net income \ 43,647,453
Transfer to reserve for bad loans1
11,932,446
Net income in consideration of changes in reserve forbad loans
2 31,715,007
Net income per share in consideration of changes inreserve for bad loans (In won)
3 1,286
1Estimated additional accumulated amount.
2Net 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.3
Net income per share in consideration of changes is calculated by subtracting the transfer to reserves bad
loans from the net income for common stock (Note 22).
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
46
Legal reserve and discretionary reserve are as follows:
(in thousands of Korean won)
2012 2011
Legal reserve Revenue reserve \ 4,000,000 \ 1,000,000
Discretionaryreserve
Reserve for bad loans 3,357,192 -
Reserve for electronic financialtransactions
100,000 100,000
3,457,192 100,000
Unappropriated retained earnings
(Expected reserve for bad loans
December 31, 2012: \ 11,932,446 thousand
December 31, 2011: \ 3,357,192 thousand)
128,412,093 145,366,632
\ 135,869,285 \ 146,466,632
The dividend for year 2012 is to be proposed at the annual general meeting on March 20, 2013.
The December 31, 2012 consolidated financial statements do not reflect this dividend payable.
Dividends for fiscal year of 2012 and 2011 are as follows :
(in thousands of Korean won)
2012 2011
Interim
Dividends
Common
stock
Number of shares eligible for
dividends
20,000,000 -
Par value for share (won) \ 5,000 -
Dividends rate 25.0% -
Dividends 25,000,000 -
Year-end
dividends
Common
stock
Number of shares eligible for
dividends
- 20,000,000
Par value for share (won) - \ 5,000
Dividends rate - 24.0%
Dividends - 24,000,000
Preferred
stock
Number of shares eligible for
dividends
5,000,000 5,000,000
Par value for share (won) \ 5,000 \ 5,000
Dividends rate 24.0% 24.0%
Dividends 6,000,000 6,000,000
Total dividends \ 31,000,000 \ 30,000,000
Net income 43,647,453 73,752,580
Dividends payout ratio (Dividends/ Net income) 71.0% 40.7%
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
47
19. Net Interest Income
Net interest income for the years ended December 31, 2012 and 2011, is as follows:
(in thousands of Korean won)
2012 2011
Interest income
Cash and deposits \ 9,672,871 \ 6,030,227
Loans receivable 256,376,955 228,896,693
Installment financial assets 40,624,910 57,700,311
Lease receivables 7,858,325 4,871,923
Other1
1,521,697 368,205
316,054,758 297,867,359
Interest expenses
Borrowings 35,084,314 37,653,353
Debentures 109,711,708 92,624,733
Securitized debts 17,464,262 17,626,190
Other1
1,216,424 508,370
163,476,708 148,412,646
Net interest income \ 152,578,050 \ 149,454,713
1Amortization of present value discount using the effective interest method.
20. Net Commission Income
Net commission income for the years ended December 31, 2012 and 2011, is as follows:
(in thousands of Korean won)
2012 2011
Commission income
Loans receivable \ 16,286,937 \ 12,605,602
Installment financial assets 1,637,531 1,743,098
Lease receivables 99,550 204,010
18,024,018 14,552,710
Commission expenses - -
Net Commission Income \ 18,024,018 \ 14,552,710
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
48
21. General and Administrative Expenses
General and administrative expenses for the years ended December 31, 2012 and 2011, are as
follows:
(in thousands of Korean won)
2012 2011
Payroll \ 22,858,689 \ 22,215,849
Severance benefits 2,156,981 1,914,074
Fringe benefits 5,503,659 4,731,682
Outsourcing service charges 4,070,340 3,144,764
Sales commission 12,897,058 11,564,790
Commission 3,310,244 2,402,530
Outsourcing service
commission2,179,596 1,837,194
Depreciation 1,044,778 1,206,373
Amortization 1,098,218 1,349,799
Taxes and dues 1,852,051 1,724,416
Electronic data processing
expenses2,678,454 1,774,341
Rent 1,368,111 866,538
Administrative expenses for
building1,111,377 944,723
Travel and transportation 671,526 562,465
Training expenses 649,914 620,046
Communication 600,760 539,203
Other expenses 1,972,282 1,963,377
\ 66,024,038 \ 59,362,164
22. Earnings Per Share
Basic earnings per share attributable to common stock for the years ended December 31, 2012
and 2011, is as follows:
(In Korean won)
2012 2011(1) Net income to owners
of the parent \ 43,647,452,618 \ 73,752,580,323
(2) Dividend on preferredstocstock
(6,000,000,000) (6,000,000,000)
(3) Net income attributableto common stock (Inwon)
37,647,452,618 67,752,580,323
(4) Weighted average ofnumber of outstandingcommon shares
20,000,000 20,000,000
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
49
(5) Basic earnings pershare (In won) (3)÷(4) \ 1,882 \ 3,388
As there was no discontinued operation during the years ended December 31, 2012 and 2011,
basic earnings per share is the same as basic earnings per share from continuing operations.
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. The Company
has one category of dilutive potential ordinary share: convertible preferred stock.
(In Korean won)
2012 2011
Profit attributable to ordinary shares \ 37,647,452,618 \ 67,752,580,323
Dividend on convertible preferred stock 6,000,000,000 6,000,000,000
Profit used to determine diluted earnings per
share43,647,452,618 73,752,580,323
Weighted average number of ordinary
shares in issue
20,000,000 20,000,000
Adjustments for:
Assumed conversion of convertible
preferred stock5,000,000 753,425
Weighted average number of ordinary
shares for diluted earnings per share25,000,000 20,753,425
Diluted earnings per share \ 1,746 \ 3,554
As convertible preferred stocks do not have an effect of dilution, the diluted earnings per share is
the same as basic earnings per share for year ended December 31, 2011.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
50
23. Other Comprehensive Income
Other comprehensive income for the years ended December 31, 2012 and 2011, consists of:
(in thousands of Korean won)
2012
Beginningbalance
Changes
Income taxeffects
Endingbalance
Reclassifi-cation ofprofit or
loss
Otherchanges
Gain(loss) on valuationof derivatives
\ (1,082,948) \ 751,792 \ (1,849,251) \ 265,585 \ (1,914,822)
Gain(loss) on valuationof available-for-salefinancial assets
6,047,838 - (7,037,834) 1,703,156 713,160
Accumulatedcomprehensiveincome(expense) ofequity methodinvestees
(1,702,584) - 5,571,254 (57,372) 3,811,298
\ 3,262,306 \ 751,792 \ (3,315,831) \ 1,911,369 \ 2,609,636
(in thousands of Korean won)
2011
Beginningbalance
Changes
Income taxeffects
Endingbalance
Reclassifi-cation ofprofit or
loss
Otherchanges
Gain(loss) on valuationof derivatives
\(1,662,560) \1,490,577 \ (725,917) \ (185,048) \ (1,082,948)
Gain(loss) on valuationof available-for-salefinancial assets
2,180,057 1,638,531 3,464,082 (1,234,832) 6,047,838
Accumulatedcomprehensiveincome(expense) ofequity methodinvestees
(1,379,779) - (477,206) 154,401 (1,702,584)
\ (862,282) \ 3,129,108 \ 2,260,959 \ (1,265,479) \ 3,262,306
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
51
24. Supplemental Cash Flow Information
Cash and cash equivalents in cash flow statements consisting of cash on hand, deposits and
short-term money-market instruments are as follows:
(in thousands of Korean won)
2012 2011
Cash \ 2,000 \ 2,000
Ordinary deposits 5,374,125 6,005,235
Short-term financial
instruments277,449,670 270,001,884
\ 282,825,795 \ 276,009,119
Cash generated from operations for the years ended December 31, 2012 and 2011, is as follows:
(in thousands of Korean won)
2012 2011
Net income \ 43,647,453 \ 73,752,580
Adjustments
Net interest expenses 152,282,140 142,026,979
Dividends (250,000) (300,000)
Income tax 22,435,670 26,366,920
Income on loans 45,145,458 36,273,733
Income on installment financial receivables 4,560,032 (1,970,014)
Income on leases (19,151) (27,153)
Gain on foreign exchange translations (4,521,000) -
Gain on valuation of derivatives - (1,950,000)
Gain on disposal of property and equipment (2,856) (4,347)
Gain on disposal of available-for-sale financial assets - (1,638,531)
Gain on equity method valuation (10,609,150) (13,220,846)
Bad debts expense 21,565,122 19,453,710
Severance benefits 2,157,020 1,914,074
Depreciation 1,044,778 1,206,373
Amortization of intangible assets 1,098,218 1,349,799
Loss on disposal of property and equipment 113,850 50,146
Impairment losses on investments - 1,433,571
Loss on foreign exchange translations - 1,950,000
Loss on valuation of derivatives 4,948,370 65,894
Loss on equity method valuation 18,716,249 -
Other expenses without cash outflow - 1,098
258,664,750 212,981,406
Changes in operating assets and liabilities
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
52
(Increase) in loans receivable (393,613,160) (619,248,834)
Decrease in installment financing receivables 113,474,729 101,619,447
(Increase) in finance lease receivables (47,691,709) (43,516,916)
(Increase) in deferred loan origination fees and costs (70,337,812) (51,878,621)
(Increase) in present value discounts (1,808,341) (1,447,571)
Increase (Decrease) in allowance for bad debts 501,748 (614,766)
Decrease in non-trade receivables 13,992,548 9,827,508
Decrease (Increase) in accrued revenues 1,087,848 (4,161,011)
(Increase) in advance payments (971,306) (879,050)
Decrease in prepaid expenses 125,101 4,967,617
Increase in non-trade payables 7,291,826 3,561,915
Increase (Decrease) in accrued expenses (1,250,569) 704,615
Increase (Decrease) in unearned revenue (209,828) 1,972,193
Increase in advance receipts 14,043 14,969
Increase in withholdings 396,766 263,555
Payment of severance benefits (409,250) (403,041)
(Increase) in plan assets (2,957,196) (1,407,545)
Transfer of severance benefits from related parties 1,301,232 452,920
Transfer of severance benefits to related parties (1,230,543) (522,962)
Increase in leasehold deposits received 17,681,745 15,211,099
(364,612,128) (585,484,479)
\ (62,299,925) \ (298,750,493)
For the year ended December 31, 2012, interest income cash flows from loans receivables,
installment financial assets and lease receivables amount to \ 305,948,037 thousand ( 2011:
\ 287,307,915 thousand).
Significant investing and financing activities not affecting cash flows for the years ended December
31, 2012 and 2011, are as follows:
(in thousands of Korean won)
2012 2011
Transferred from advance payments todevelopment costs
\ 448,816 \ 1,014,056
Transferred to legal reserve 3,000,000 1,000,000Transferred to discretionary reserve 3,357,192 100,000
25. Commitments and Contingencies
Details of unused credit line agreements of the Group are as follows:
(in thousands of Korean won)
Financialinstitutions 2012 2011
Limit ofoverdraft
Woori Bank and10 other banks
\ 435 billion \ 385 billion \ 225 billion \ 175 billion
Limit of L/C Shinhan Bank - - USD 8 million USD 8 million
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
53
Details of pending significant litigations involving the Group as of December 31, 2012, are as
follows:
(in thousands of Korean won)
Number of litigations Amount of litigations
Plaintiff 10 \ 345,684
Defendant 4 325,620
As of report date, the outcome of these cases cannot be reasonably determined and no
adjustments are reflected on the consolidated financial statements of the Group as of December
31, 2012.
The Company enters into a financial support agreement with Shinhan Bank for acquisitions of mold
equipment for Hyundai and Kia Motor Company’s component partner companies. The Company
guarantees the loans of the component partner companies. The amount of payment guarantees as of
December 31, 2012, is \ 1,905,528 thousand (2011:\ 12,542,306 thousand).
Details of guarantees involving third parties as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won)
Guarantor Details 2012 2011
Hyundai WiaGuarantees on machinery installment
financing receivables\ 23,779,938 \ 63,422,227
Hyundai MotorCompany
Guarantees on finance leasereceivables
2,824,246 8,877,631
Seoul GuaranteeInsurance Company
Deposit guarantee 13,449,276 13,213,256
26. Related Party Transactions
The parent company is Hyundai Motor Company. Related parties include associates, joint
ventures, post-employment benefit plans, members of key management personnel and entities
which the Group controls directly or indirectly, has joint control or significant influence over them.
Significant transactions, which occurred in the normal course of business with related companies
for the years ended December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011Purchases Disposal Purchases Disposal
Parent Company \ 70,236 \ - \ 232,568 \ -
Others 46,996,815 56,994,629 59,572,585 41,115,088
\ 47,067,051 \ 56,994,629 \ 59,805,153 \ 41,115,088
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
54
Revenues and expenses arising from transactions with related parties for the years ended
December 31, 2012 and 2011, and receivables and payables as of December 31, 2012 and
December 31, 2011, are as follows:
(in thousands of Korean won) 2012 2011Receivables Payables Receivables Payables
Parent Company \ 116,435 \ 851,685 \ 209,920 \ 173,830
Associates 4,923,830 11,061,020 3,504,434 2,870,760
Others 8,577,609 186,881 50,065,864 153,128
\ 13,617,874 \12,099,586 \ 53,780,218 \ 3,197,718
(in thousands of Korean won) 2012 2011Revenues Expenses Revenues Expenses
Parent Company \ 1,966,639 \ 305 \ 3,050,516 \ 8,517
Associates 1,145,603 1,598,892 727,680 699,920
Others 7,881,783 9,361,806 5,940,126 5,137,491
\ 10,994,025 \10,961,003 \ 9,718,322 \ 5,845,928
The Company has been provided with guarantees by related parties(Note 25).
Changes in loans to related parties for the years ended December 31, 2012 and 2011, are as
follows:
(in thousands of Korean won)
2012 2011
Other related parties
Beginning balance \ 46,410,456 \ 6,902,580
New loan - 45,000,000
Repayment (45,540,946) (5,492,124)
Interests charges 2,296,772 1,727,405
Interests collected (2,296,772) (1,727,405)
Ending balance \ 869,510 \ 46,410,456
Compensation for key management for the years ended December 31, 2012 and 2011, consists
of:
(in thousands of Korean won)
2012 2011
Short-term employee benefits \ 2,355,873 \ 1,430,632
Severance benefits 976,693 745,419
The key management above consists of directors (including nonpermanent directors), who have
significant authority and responsibilities for planning, operating and controlling of the Group.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
55
27. 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.
27.1 Credit risk
Exposures to credit risk are as follows:
(in thousands of Korean won)
2012 2011
Cash and deposits \ 282,832,795 \ 276,016,119
Loans receivable 2,781,461,960 2,391,270,400
Installment financial assets 356,818,556 468,115,734
Lease receivables 131,329,553 84,053,398
Non-trade receivables 15,813,310 29,694,392
Accrued revenue 16,858,350 17,963,211
Leasehold deposits 11,083,914 9,963,176
Derivative assets 137,775 1,369,009
Payment guarantee agreement 1,905,528 12,542,306
\ 3,598,241,741 \ 3,290,987,745
Credit quality of financial assets exposed to credit risk is as follows:
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
56
(in thousands of Korean won)
2012 2011
Normal Past due Impaired Normal Past due Impaired
Cash and deposits \ 282,832,795 \ - \ - \ 276,016,119 \ - \ -
Financial receivables
Loansreceivable
2,654,370,184 111,212,235 15,879,541 2,307,457,660 79,791,576 4,021,164
Installmentfinancialassets
339,122,981 16,741,779 953,796 450,693,558 16,896,032 526,144
Leasereceivables
126,071,530 5,258,023 - 78,449,454 5,603,944 -
3,119,564,695 133,212,037 16,833,337 2,836,600,672 102,291,552 4,547,308
Non-tradereceivables
15,813,310 - - 29,694,392 - -
Accrued revenue 16,858,350 - - 17,963,211 - -
Leaseholddeposits
11,083,914 - - 9,963,176 - -
Derivative assets 137,775 - - 1,369,009 - -
Unused loancommitments
1,905,528 - - 12,542,306 - -
\ 3,448,196,367 \ 133,212,037 \ 16,833,337 \ 3,184,148,885 \ 102,291,552 \ 4,547,308
Credit quality according to internal credit rating of financial receivables which are neither past due
nor impaired are as follows:
(in thousands of Korean won)
2012
Gross amount Allowance Book value
First-rate \ 1,527,243,577 \ (1,320,528) \ 1,525,923,049
Second-rate 545,226,460 (1,288,166) 543,938,294
Third-rate 624,178,668 (4,580,773) 619,597,895
Fourth-rate 108,597,624 (1,310,169) 107,287,455
Fifth-rate 85,891,673 (2,380,201) 83,511,472
Sixth-rate 40,528,603 (2,718,120) 37,810,483
No rating 202,855,717 (1,359,670) 201,496,047
\ 3,134,522,322 \ (14,957,627) \ 3,119,564,695
(in thousands of Korean won)
2011
Gross amount Allowance Book value
First-rate \ 286,871,742 \ (194,844) \ 286,676,898
Second-rate 1,099,608,490 (1,473,737) 1,098,134,753
Third-rate 936,455,547 (5,663,424) 930,792,123
Fourth-rate 161,475,901 (1,954,387) 159,521,514
Fifth-rate 70,267,989 (2,470,217) 67,797,772
Sixth-rate 38,813,635 (2,584,630) 36,229,005
No rating 258,882,906 (1,434,299) 257,448,607
\ 2,852,376,210 \ (15,775,538) \ 2,836,600,672
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
57
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.
Financial receivables past due but not impaired are as follows:
(in thousands of Korean won)
2012
Less than1 month
Between1 ~ 2 months
Between2~3 months
Over
3 months1 Total
Loans
receivable\ 99,058,460 \ 15,125,448 \ - \ - \ 114,183,908
Installment
financial assets13,729,517 2,205,380 359,955 924,195 17,219,047
Lease
receivables2,979,899 - - 2,307,262 5,287,161
115,767,876 17,330,828 359,955 3,231,457 136,690,116
Allowance (2,549,692) (917,506) (2,431) (8,450) (3,478,079)
Book value \113,218,184 \ 16,413,322 \ 357,524 \ 3,223,007 \ 133,212,037
1The Group does not include the receivables provided with guarantees from the related parties in the
receivables which are past due for over three months (Note 25).
(in thousands of Korean won)
2011
Less than1 month
Between1 ~ 2 months
Between2~3 months
Over
3 months1 Total
Loans
receivable\ 70,092,177 \ 11,795,790 \ - \ - \ 81,887,967
Installment
financial assets14,046,556 2,839,682 244,776 162,441 17,293,455
Lease
receivables531,398 6,916 - 5,080,257 5,618,571
84,670,131 14,642,388 244,776 5,242,698 104,799,993
Allowance (1,890,170) (613,402) (1,653) (3,216) (2,508,441)
Book value \ 82,779,961 \ 14,028,986 \ 243,123 \ 5,239,482 \ 102,291,552
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
58
Impaired financial receivables
(in thousands of Korean won)
2012
Gross amount Allowance Book value
Loans receivable \ 19,738,069 \ (3,858,528) \ 15,879,541
Installment financial assets 1,472,960 (519,164) 953,796
\ 21,211,029 \ (4,377,692) \ 16,833,337
(in thousands of Korean won)
2011
Gross amount Allowance Book value
Loans receivable \ 7,323,987 \ (3,302,823) \ 4,021,164
Installment financial assets 904,253 (378,109) 526,144
\ 8,228,240 \ (3,680,932) \ 4,547,308
Credit quality of other assets
Credit quality according to external credit rating of other assets, excluding financial receivables,
which are neither past due nor impaired are as follows:
(in thousands of Korean won)
Cash and deposits1
2012 2011
AAA \ 147,832,795 \ 151,016,119
AA+ 45,000,000 5,000,000
AA 20,000,000 50,000,000
AA- 20,000,000 20,000,000
A+ 50,000,000 50,000,000
\ 282,832,795 \ 276,016,119
1The average external credit rating of three domestic credit rating agencies is used.
(in thousands of Korean won)
Derivative assets2
2012 2011
AAA \ 63,352 \ -
A- - 867,216
No rating 74,423 501,793
\ 137,775 \ 1,369,009
2Derivative assets are classified based on S&P credit rating.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
59
The assets pledged as collateral for financial receivables are as follows:
(in thousands of Korean won)
2012
ImpairedUnimpaired
TotalDelinquent Non-delinquent
Total financialreceivables
\ 16,833,337 \ 133,212,037 \ 3,119,564,695 \ 3,269,610,069
Collateralized assets
Collateralizedvehicles
9,774,223 113,563,749 2,038,596,606 2,161,934,578
Collateralized realestate
9,464,286 - 186,259,014 195,723,300
\ 19,238,509 \ 113,563,749 \ 2,224,855,620 \ 2,357,657,878
(in thousands of Korean won)
2011
ImpairedUnimpaired
TotalDelinquent Non-delinquent
Total financialreceivables
\ 4,547,308 \ 102,291,552 \ 2,836,600,672 \ 2,943,439,532
Collateralized assets
Collateralizedvehicles
6,223,117 92,976,078 2,074,357,242 2,173,556,437
Collateralized realestate
- - 103,434,000 103,434,000
Collateralizedother assets
- - 65,500,000 65,500,000
\ 6,223,117 \ 92,976,078 \ 2,243,291,242 \ 2,342,490,437
Credit risk concentration of financial receivables by debtors is as follows:
(in thousands of Korean won)
2012
Excluding allowance Ratio Allowance Book value
Finance \ 30,073,634 0.91% \ (53,931) \ 30,019,703
Manufacturing 99,521,470 3.02% (838,571) 98,682,899
Service 3,006,431,213 91.31% (19,719,010) 2,986,712,203
Others 156,397,151 4.75% (2,201,887) 154,195,264
\ 3,292,423,468 100.00% \ (22,813,399) \ 3,269,610,069
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
60
(in thousands of Korean won)
2011
Excluding allowance Ratio Allowance Book value
Finance \ 33,921,201 1.14% \ (67,728) \ 33,853,473
Manufacturing 131,928,411 4.45% (1,106,069) 130,822,342
Service 2,632,052,498 88.76% (16,929,438) 2,615,123,060
Others 167,502,333 5.65% (3,861,676) 163,640,657
\ 2,965,404,443 100.00% \ (21,964,911) \ 2,943,439,532
27.2 Liquidity risk
Cash flows of financial liabilities based on remaining contractual maturities are as follows:
(in thousands of Korean won)2012
TypeImmediatepayment
Up to 3 months3 months to
1 year1 to 5 years Over 5 years Total
1
Borrowings \ - \ 285,505,411 \ 152,001,509 \ 309,406,417 \ - \ 746,913,337
Debentures - 162,092,468 765,499,842 1,600,216,128 109,290,500 2,637,098,938
Securitized debts - 3,891,514 61,347,320 271,394,383 - 336,633,217
Other liabilities 1,303,805 15,462,157 3,176,922 32,301,760 - 52,244,644
Payment guarantee
agreements
1,905,528 - - - - 1,905,528
Gross settlement
derivative liabilities2
Cash inflow - (2,471,523) (43,472,467) (26,822,836) - (72,766,826)
Cash outflow - 2,981,955 49,596,533 27,733,383 - 80,311,871
\ 3,209,333 \ 467,461,982 \ 988,149,659 \ 2,214,229,235 \ 109,290,500 \3,782,340,709
1The above amounts including the principal and future interest payments are contractual undiscounted cash
flows and are not equal to the amounts in the statement of financial position based on the discounted cash
flows.2
Gross settlement derivatives and contractual undiscounted cash flows.
(in thousands of Korean won)2011
TypeImmediatepayment
Up to 3 months3 months to
1 year1 to 5 years Over 5 years Total
1
Borrowings \ - \ 287,311,811 \ 150,244,775 \ 319,199,274 \ - \ 756,755,860
Debentures - 106,809,390 607,556,217 1,213,497,147 104,404,500 2,032,267,254
Securitized debts - 4,428,867 62,788,662 336,633,216 - 403,850,745
Other liabilities 1,798,476 17,975,817 1,318,441 16,796,669 - 37,889,403
Payment guarantee
agreements
12,542,306 - - - - 12,542,306
Gross settlement
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
61
derivative liabilities2
Cash inflow - (1,562,742) (4,244,427) (45,948,302) - (51,755,471)
Cash outflow - 1,745,180 4,890,469 48,610,256 - 55,245,905
\ 14,340,782 \ 416,708,323 \ 822,554,137 \ 1,888,788,260 \ 104,404,500 \3,246,796,002
In accordance with the contract on securitized assets, there is a trigger clause on various
requirements for credit support. The Group has to comply with certain conditions of securitized debts.
If these conditions are not met, the Group should redeem the securitized debts before maturity.
27.3 Market risk
a. Interest rate risk
The Group manages the interest rate risk through Value at Risk(VaR), Earnings 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 are as follows:
(in thousands of Korean won)
2012 2011
Interest rate VaR \ 4,157,195 \ 5,146,625
VaR is a commonly used market risk measurement techniques but has some limitations. VaR
estimates the expected loss under the specific reliability based on the historical changes in the
market data. However, the past changes in market cannot reflect all conditions and environments
that may occur in the future. Therefore, in the process of calculating, the timing and size of the
actual loss may vary according to changes in assumptions.
b. Foreign exchange risk
The Group holds borrowings and debentures that are denominated in foreign currencies and is
exposed to foreign exchange risk arising from various currency exposures. The Group undertakes
hedging strategies with hedge accounting being applied to manage these foreign exchange risks.
Hyundai Commercial, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011
62
Foreign exchange position exposures of the Group are as follows:
(in thousands of Korean won)
Currency 2012 2011
USD \ 58,910,500 \ 63,431,500
The Group’s exposure to foreign exchange risk is hedged by derivatives. Therefore, the foreign
exchange risk of the Group is not significant.
c. Price risk
Marketable equity securities which are classified into available-for-sale securities are exposed to
price risk. The effects of 10% price variation for comprehensive income and equity are as follows:
(in thousands of Korean won)
2012
Comprehensive income \ 830,700
Equity 830,700
27.4 Capital risk management
The objective of the Group’s capital management is to maintain sound capital structure. The Group
uses the adjusted capital adequacy ratio under the Supervision of Specialized Credit Financial
Business Law as a capital management indicator. This ratio is calculated as adjusted total assets
divided by adjusted equity.
Adjusted capital adequacy ratios of the Group are as follows:
(in thousands of Korean won)
2012 2011
Adjusted total assets (A) \ 3,625,546,783 \ 3,187,354,902
Adjusted equity (B) 422,760,975 464,735,912
Adjusted capital adequacy ratio (B/A) 11.66% 14.58%
The above adjusted capital adequacy ratio is calculated according to Supervision of Specialized
Credit Financial Business Law.