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


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


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


Hyundai Commercial, Inc. and SubsidiariesConsolidated Statements of Changes in EquityYears Ended December 31, 2012 and 2011

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(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


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


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


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


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.


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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.


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


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


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.


18

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


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


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


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


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


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.


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.


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


26

4. Securities

Securities are as follows:


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 are as follows:


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


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:


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


2011Number of

sharesOwnership

(%)Acquisition

costNet asset

valueBook value


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:


2012

BeginningBalance

AcquisitionGain (loss)

on valuation

Changes inaccumulated

othercomprehen-sive income

1

Changes inretainedearnings

EndingBalance


\147,539,965 \ - \10,609,150 \ 237,075 \ - \158,386,190


- 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


28

(in thousands of Korean won)2011

BeginningBalance

Gain (loss) onvaluation

Changes inaccumulated

othercomprehen-sive income

1

Changes inretainedearnings

Others Ending Balance


\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:


2012

Closingmonth

Assets LiabilitiesOperatingrevenue

Net income(loss)


December \ 11,252,488,244 \9,060,021,557 \ 2,524,941,896 \ 191,504,230


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


December \ 10,851,933,716 \ 8,855,250,685 \ 2,407,597,301 \ 238,647,582

5. Financial Receivables

Financial receivables are as follows:


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


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:


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


30


2011

Loansreceivable


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:


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.


31

The fair value hierarchy of financial assets and liabilities carried at fair value are as follows:


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


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.


2011

TypeBookvalue

Fairvalue

Fair value hierarchy1

level 1 level 2 level 3

Financial assets


\ 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


Derivative liabilities \ 2,691,395 \ 2,691,395 \ - \ 2,691,395 \ -


32

The changes in financial instruments of level 3 for the years ended December 31, 2012 and 2011,

are as follows:



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:


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


- 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


33


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


- 468,115,734 - - 468,115,734

Lease receivables - 84,053,398 - - 84,053,398

Derivative assets 501,793 - - 867,216 1,369,009


- 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


2012

Financial liabilitiesat amortized cost

Hedging derivativeinstruments

Total


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


34

2011

Financial liabilitiesat amortized cost

Hedging derivativeinstruments

Total


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:


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.


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:


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:


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:


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


36

10. Property and Equipment

Property and equipment consist of:


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


Type2011

Acquisitioncost


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:


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


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


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:


2012

Acquisitioncost


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


2011

Acquisitioncost


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:


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.


38


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:


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


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:


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:


2012 2011


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)


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:


2012 2011


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:


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:


2012 2011

Actual return on plan assets \ 224,620 \ 144,318

Details of plan assets consist of :


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


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 :


2012 2011

Defined benefit obligations \ 483,119 \ 207,271

Plan assets (4,187) 4,034


42

16. Income Tax

Income tax expense for the years ended December 31, 2012 and 2011, consists of:


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


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 :


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%


43

Changes in temporary differences and deferred assets (liabilities)


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


(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)


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


(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).


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:


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.


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:


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:


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).


46

Legal reserve and discretionary reserve are as follows:


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 :


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


dividends

- 20,000,000

Par value for share (won) - \ 5,000

Dividends rate - 24.0%

Dividends - 24,000,000

Preferred

stock


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%


47

19. Net Interest Income

Net interest income for the years ended December 31, 2012 and 2011, is as follows:


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:


2012 2011

Commission income

Loans receivable \ 16,286,937 \ 12,605,602


Lease receivables 99,550 204,010

18,024,018 14,552,710

Commission expenses - -

Net Commission Income \ 18,024,018 \ 14,552,710


48

21. General and Administrative Expenses

General and administrative expenses for the years ended December 31, 2012 and 2011, are as

follows:


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


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.


50

23. Other Comprehensive Income

Other comprehensive income for the years ended December 31, 2012 and 2011, consists of:


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


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


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:


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:


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


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:


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:


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


53

Details of pending significant litigations involving the Group as of December 31, 2012, are as

follows:


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:


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


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:


2012 2011

Other related parties


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:


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.


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:


2012 2011

Cash and deposits \ 282,832,795 \ 276,016,119

Loans receivable 2,781,461,960 2,391,270,400


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:


56


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


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:


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


2011


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


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:


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).


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


58

Impaired financial receivables


2012


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


2011


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:


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.


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.


59

The assets pledged as collateral for financial receivables are as follows:


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


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:


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


60


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:


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.


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


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:


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.


62

Foreign exchange position exposures of the Group are as follows:


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:


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:


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.

hci con audit_report_2012_final

Economy & Finance

financial performance

statements of changes

installment financial

audit report date

korean auditing standards

doubtful accounts106

doubtful accounts270

korean won notes