Audit Report: Hyundai Capital 2Q2011

Hyundai Capital Services, Inc. andSubsidiaries

Interim Consolidated Financial Statements

June 30, 2011 and 2010

Hyundai Capital Services, Inc. and SubsidiariesIndexJune 30, 2011

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

Interim Consolidated Financial Statements

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

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

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

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

Notes to the Interim Consolidated Financial Statements.................................................................. 12-72

1

Report on Review of Interim Financial Statements

To the Shareholders and Board of Directors of

Hyundai Capital Services, Inc.

Reviewed Financial Statements

We have reviewed the accompanying interim consolidated financial statements of Hyundai

Capital Services, Inc. and subsidiaries. These financial statements consist of consolidated

statements of financial position of the Company and subsidiaries as of June 30, 2011 and

December 31, 2010, and the related consolidated statements of comprehensive income for

the three-month and the six-month periods ended June 30, 2011 and 2010, and statements of

changes in equity and cash flows for the six-month periods ended June 30, 2011 and 2010,

and a summary of significant accounting policies and other explanatory notes, expressed in

Korean won.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these interim

consolidated financial statements in accordance with the International Financial Reporting

Standards as adopted by the Republic of Korea (Korean IFRS) 1034, Interim Financial

Reporting, and for such internal control as management determines is necessary to enable

the preparation of interim consolidated financial statements that are free from material

misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to issue a report on these interim consolidated financial statements based

on our reviews.

We conducted our reviews in accordance with the quarterly and semi-annual review

standards established by the Securities and Futures Commission of the Republic of Korea. A

review of interim financial information consists of making inquiries, primarily of persons

responsible for financial and accounting matters, and applying analytical and other review

procedures. A review is substantially less in scope than an audit conducted in accordance with

auditing standards generally accepted in the Republic of Korea and consequently does not

enable us to obtain assurance that we would become aware of all significant matters that

might be identified in an audit. Accordingly, we do not express an audit opinion.

2

Conclusion

Based on our reviews, nothing has come to our attention that causes us to believe the

accompanying interim consolidated financial statements do not present fairly, in all material

respects, in accordance with the Korean IFRS 1034, Interim Financial Reporting.

Emphasis of Matter

Without qualifying our opinion, as mentioned in Note 2, we draw attention to the fact that

these interim consolidated financial statements are prepared in accordance with Korean IFRS

and the interpretations which are effective as of this report date. Therefore, there may be

changes in the Korean IFRS and related interpretations adopted in the preparation of these

consolidated financial statements when Company prepares its first full Korean IFRS financial

statements.

Review standards and their application in practice vary among countries. The procedures and

practices used in the Republic of Korea to review such interim consolidated financial

statements may differ from those generally accepted and applied in other countries.

Accordingly, this report is for use by those who are informed about Korean review standards

and their application in practice.

Seoul, Korea

August 12, 2011

This report is effective as of August 12, 2011, the review report date. Certain subsequent

events or circumstances, which may occur between the review report date and the time of

reading this report, could have a material impact on the accompanying consolidated interim

financial statements and notes thereto. Accordingly, the readers of the review report should

understand that there is a possibility that the above review report may have to be revised to

reflect the impact of such subsequent events or circumstances, if any.

Hyundai Capital Services, Inc. and SubsidiariesInterim Consolidated Statements of Financial PositionJune 30, 2011 and December 31, 2010

3

(In millions of Korean won)

2011 2010

Assets

Cash and deposits

Cash and cash equivalents (Note 25) \ 1,382,779 \ 1,224,866

Deposits (Note 4) 23 25

1,382,802 1,224,891

Securities (Note 5)

Available-for-sale securities 20,598 20,577

Equity method investments 52,573 48,483

73,171 69,060

Loans receivable (Notes 6 and 7) 11,108,709 10,434,141

Allowances for doubtful accounts (255,690) (215,703)

10,853,019 10,218,438

Installment financial assets (Notes 6 and 7)

Auto installment financing receivables 4,917,092 5,023,945


Durable goods installment financing receivables 3,222 6,801

Allowances for doubtful accounts (161) (633)

Mortgage installment financing receivables 31,573 40,025


Machinery installment financing receivables 5,247 14,653


4,927,198 5,056,782

Lease receivables (Notes 6 and 7)

Finance lease receivables (Note 9) 2,096,875 1,777,477

Cancelled lease receivables 1,115 961

2,097,990 1,778,438

Leased assets (Note 10)

Operating leased assets 1,171,873 1,282,845

Cancelled leased assets 4,134 3,192

1,176,007 1,286,037


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2011 2010

Property and equipment (Note 11) 251,360 242,369

Other assetsIntangible assets (Note 12) 60,998 52,612

Non-trade receivables 40,867 40,833


Accrued revenues 111,891 115,278


Advance payments 98,017 99,842


Prepaid expenses 25,628 18,186

Leasehold deposits 34,474 31,954

Derivative assets (Note 18) 426,616 521,530

791,949 872,587

Total assets \ 21,553,496 \ 20,748,602

Liabilities and Shareholders’ Equity

Borrowings

Borrowings (Note 13) \ 1,930,000 \ 2,646,945

Debentures (Note 14) 15,457,222 14,396,741

17,387,222 17,043,686

Other liabilities

Non-trade payables 317,615 362,539

Accrued expenses 139,937 110,225

Unearned revenue 65,363 69,338

Withholdings 26,882 21,939

Defined benefit liability (Note 15) 13,205 11,687

Leasehold deposits received 762,124 746,532

Deferred income tax liabilities (Note 16) 83,497 2,617

Provisions (Note 17) 13,111 46,624

Derivative liabilities (Note 18) 230,905 96,568

1,652,639 1,468,069

Total liabilities 19,039,861 18,511,755

Commitments and contingencies (Note 26)


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2011 2010

Shareholders' equity

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

Capital surplus

Paid-in capital in excess of par value 369,339 369,339

Other capital surplus 38,200 38,200

407,539 407,539

Accumulated other comprehensive income andexpenses (Note 24)

Gain on valuation of available-for-salesecurities

105 512

Accumulated comprehensive income of equitymethod investees

9 24

Loss on valuation of derivatives (40,315) (67,924)

Cumulative effect of overseas operationtranslation

(159) 17

(40,360) (67,371)

Retained earnings (Note 19) 1,649,790 1,400,013

Non-controlling interests 129 129

Total shareholders' equity 2,513,635 2,236,847

Total liabilities and shareholders' equity \ 21,553,496 \ 20,748,602

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

Hyundai Capital Services, Inc. and SubsidiariesInterim Consolidated Statements of Comprehensive IncomeThree-Month and Six-Month Periods ended June 30, 2011 and 2010

6

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

Three months Six months

2011 2010 2011 2010

Operating revenue

Interest income (Note 20)

Interest on bank deposits \ 9,760 \ 5,926 \ 18,848 \ 12,280

Other interest income 124 343 254 682

9,884 6,269 19,102 12,962

Gain on valuation and disposal ofsecuritiesGain on disposal of available-for-

sale securities480 489 2,084 1,268

Reversal of impairment loss onavailable-for-sale securities

- - - 1,078

480 489 2,084 2,346

Income on loans (Notes 20 and 21) 392,318 337,039 773,337 657,123

Income on installment financialreceivables (Notes 20 and 21)

109,696 124,841 224,289 254,412

Income on leases (Notes 20 and 21) 215,548 217,346 438,066 431,607

Gain on disposal of loans 72,075 - 72,075 -

Gain on foreign currency transactions

Gain on foreign exchangestranslation

98,261 - 244,804 134,851

Gain on foreign currencytransactions

27,800 1,472 29,822 8,766

126,061 1,472 274,626 143,617

Dividend income 13 168 3,251 3,680

Other operating income

Gain on valuation of derivatives 40,344 341,757 73,016 240,487

Gain on derivatives transactions - 7,185 715 19,702

Others 56,401 13,474 81,077 28,889

96,745 362,416 154,808 289,078

Total operating revenue 1,022,820 1,050,040 1,961,638 1,794,825


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2011 2010 2011 2010

Operating expenses

Interest expenses (Note 20) \ 237,999 \ 219,215 \ 477,921 \ 439,251

Lease expenses (Note 21) 123,787 137,449 255,356 287,000

Bad debts expense (Note 7) 79,709 27,525 139,425 34,374

Loss on foreign transactions

Loss on foreign exchange translation 40,349 341,553 73,025 239,378

Loss on foreign currency transactions - 7,185 715 18,944

40,349 348,738 73,740 258,322

General and administrative expenses(Note 22)

127,991 139,421 261,177 242,214

Other operating expenses

Loss on valuation of derivatives 98,273 - 244,821 134,468

Loss on derivatives transactions 27,810 1,485 29,837 10,625

Others 10,974 12,772 21,558 28,234

137,057 14,257 296,216 173,327

Total operating expenses 746,892 886,605 1,503,835 1,434,488

Operating income 275,928 163,435 457,803 360,337

Non-operating income

Gain on equity method valuation(Note 5)

1,894 1,982 4,749 6,505

1,894 1,982 4,749 6,505

Non-operating expenses

Loss on equity method valuation(Note 5)

- - - 243

- - - 243

Income before income taxes 277,822 165,417 462,552 366,599

Income tax expense (Note 16) 68,897 44,572 108,503 90,948

Net income \ 208,925 \ 120,845 \ 354,049 \ 275,651

Net income attributable to:

Owners of the parent 208,925 120,845 354,049 275,651

Non-controlling interests - - - -

208,925 120,845 354,049 275,651


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2011 2010 2011 2010

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

Gain(Loss) on valuation of available-for-sale financial securities \ (441) \ 732 \ (407) \ 1,024

Other comprehensive income ofequity method investees

(118) (80) (15) (65)

Gain (Loss) on valuation ofderivatives

(34,712) (45,795) 27,609 (49,205)

Effect of overseas operationtranslation

8 22 (176) 22

(35,263) (45,121) 27,011 (48,224)

Total comprehensive income \ 173,662 \ 75,724 \ 381,060 \ 227,427

Total comprehensive income attributableto:

Owners of the parent 173,662 75,724 381,060 227,427

Non-controlling interests - - - -

173,662 75,724 381,060 227,427

Earnings per share attributable to theordinary equity holders of thecompany (Note 23)

Basic earnings pershare (Note 23) \ 2,104 \ 1,217 \ 3,565 \ 2,776


Hyundai Capital Services, Inc. and SubsidiariesInterim Consolidated Statements of Changes in Shareholders’ EquitySix-Month Periods ended June 30, 2011 and 2010

9

(In millions of Korean won)Capitalstock

Capitalsurplus

Accumulatedother

comprehensiveincome andexpenses

Retainedearnings

Totalattributableto owners ofthe parent

Non-controllinginterests Total equity

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

Total comprehensive incomeNet income - - - 275,651 275,651 - 275,651Other comprehensive income

Gain on valuation of available-for-sale securities

- - 1,024 - 1,024 - 1,024


- - (65) - (65) - (65)

Loss on valuation of derivatives - - (49,205) - (49,205) - (49,205)Effect of overseas operation

translation- - 22 - 22 - 22

Total comprehensive income - - (48,224) 275,651 227,427 - 227,427

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

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

Balances as of June 30, 2010 \ 496,537 \ 407,539 \ (53,694) \ 1,390,260 \ 2,240,642 \ 129 \ 2,240,771

Hyundai Capital Services, Inc. and SubsidiariesInterim Consolidated Statements of Changes in Shareholders’ EquitySix-Month Periods ended June 30, 2011 and 2010

10

(In millions of Korean won)Capitalstock

Capitalsurplus

Accumulatedother

comprehensiveincome andexpenses

Retainedearnings

Totalattributableto owners ofthe parent

Non-controllinginterests Total equity

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

Total comprehensive incomeNet income - - - 354,049 354,049 - 354,049Other comprehensive income

Loss on valuation of available-for-sale securities

- - (407) - (407) - (407)


- - (15) - (15) - (15)

Gain on valuation of derivatives - - 27,609 - 27,609 - 27,609Effect of overseas operation

translation- - (176) - (176) - (176)

Total comprehensive income - - 27,011 354,049 381,060 - 381,060

Transactions with ownersDividends - - - (104,272) (104,272) - (104,272)

Balances as of June 30, 2011 \ 496,537 \ 407,539 \ (40,360) \ 1,649,790 \ 2,513,506 \ 129 \ 2,513,635


Hyundai Capital Services, Inc. and SubsidiariesInterim Consolidated Statements of Cash FlowsSix-Month Periods ended June 30, 2011 and 2010

11


2011 2010

Cash flows from operating activities

Cash generated from operations (Note 25) \ 181,944 \ 351,117

Interest received 17,935 11,111Interest paid (412,390) (414,018)Dividends received 3,251 3,680Income taxes paid (87,925) (98,803)

(297,185) (146,913)

Cash flows from investing activitiesDecrease in deposits 3 1,913Dividends from equity method investments 707 1,226Acquisition of land (1,853) -Acquisition of building (5,243) (1,408)Disposal of vehicles 37 -Acquisition of vehicles (166) (46)Disposal of fixtures and furniture 14 -Acquisition of fixtures and furniture (15,955) (3,453)Acquisition of other tangible assets (496) -Increase in construction in progress (2,604) (5,234)Disposal of intangible assets 71 29Acquisition of intangible assets (5,910) (581)Decrease in leasehold deposits 1,912 1,180Increase in leasehold deposits (4,183) -

(33,666) (6,374)

Cash flows from financing activitiesProceeds from borrowings 1,300,000 1,665,650Repayments of borrowings (2,016,945) (2,086,549)Issuance of debentures 3,152,196 2,557,179Repayments of debentures (1,842,033) (1,750,312)Payments of dividends (104,273) (203,578)

488,945 182,390

Exchange losses on cash and cash equivalents (5) (14)

Increase(decrease) in other cash and cash equivalents (176) 23

Net increase in cash and cash equivalents 157,913 29,112

Cash and cash equivalentsBeginning of period 1,224,866 990,835

End of period \ 1,382,779 \ 1,019,947


Hyundai Capital Services, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsJune 30, 2011 and 2010, and December 31, 2010

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1. General Information

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

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

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

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

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

Hyundai Motor Company Group. As of June 30, 2011, the Company’s operations are

headquartered in Yeouido, Seoul. Its major shareholders are Hyundai Motor Company and GE

International Holdings Corporation with 56.47% and 43.30% ownership, respectively.

2. Summary of Significant Accounting Policies

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

accounts of Hyundai Capital Services, Inc. (the “Company”), as the parent company according to

Korean IFRS 1027, and Autopia Thirty-third trust and SPC and other subsidiaries(collectively the

“Group”), while HK Mutual Saving Bank and six other entities are accounted for using the equity

method.

Subsidiaries as of June 30, 2011 and December 31, 2010, are as follows. The Company has the

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

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

2011 2010

Special

Purpose

Entities

Autopia Thirty-third trust and SPC Autopia Thirty-third trust and SPC

Autopia Thirty-fifth trust and SPC Autopia Thirty-fourth trust and SPC

Autopia Thirty-sixth trust and SPC Autopia Thirty-fifth trust and SPC

Autopia Thirty-seventh trust and SPC Autopia Thirty-sixth trust and SPC

Autopia Thirty-eighth trust and SPC Autopia Thirty-seventh trust and SPC

Autopia Thirty-ninth trust and SPC Autopia Thirty-eighth trust and SPC

Autopia Fortieth trust and SPC Autopia Thirty-ninth trust and SPC

Autopia Forty-first trust and SPC Autopia Fortieth trust and SPC

Autopia Forty-second trust and SPC Autopia Forty-first trust and SPC

Autopia Forty-third trust and SPC Autopia Forty-second trust and SPC

Autopia Forty-fourth trust and SPC Autopia Forty-third trust and SPC

Autopia Forty-fifth trust and SPC Autopia Forty-fourth trust and SPC

Autopia Forty-sixth trust and SPC Autopia Forty-fifth trust and SPC

Stock

CompanyHyundai Capital Europe GmbH

1Hyundai Capital Europe GmbH

1It holds 100% shares of Hyundai Capital Services Limited Liability Company established duringthe first half of 2011.

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

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


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

2011.

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

in the notes.

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

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

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

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

cash flows for the six-month period ended June 30, 2010 and year ended December 31, 2010, are

provided in Note 3.

The interim consolidated financial statements for the six-month periods ended June 30, 2011 and

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

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

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

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

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

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

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

these interim consolidated financial statements.

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

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

2011, are as follows.

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

(announced in December, 2010)

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

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

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

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

required to be adopted from July 1, 2011.

- Amendments to Korean IFRS 1012, ‘Income Taxes’

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

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

selling. This will be effective on January 1, 2011.

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

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

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

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


14

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

applicable from July 1, 2011.

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

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

to all the periods presented, unless otherwise stated.

2.1 Consolidation

a. Subsidiaries

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

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

one half of the voting rights. The existence and effect of potential voting rights that are currently

exercisable or convertible are considered when assessing whether the Group controls another

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

They are deconsolidated from the date that control ceases.

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

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

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

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

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

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

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

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

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

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

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

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

Inter-company 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.


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c. Transactions with non-controlling interests

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

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

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

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

equity.

d. Associates and joint ventures

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

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

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

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

accumulated impairment loss.

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

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

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

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

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

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

payments on behalf of the associate.

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

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

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

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

the Group.

2.2 Foreign currency translation

a. Functional and presentation currency

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

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

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

Group’s functional currency.

b. Transactions and balances

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

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

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

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


16

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

income as qualifying cash flow hedges.

2.3 Critical accounting estimates and assumptions

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

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

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

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

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

addressed below.

a. Allowance for doubtful accounts

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

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

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

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

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

changed in a future period.

b. Fair value of financial instruments

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

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

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

valuation techniques.

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

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

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

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

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

specific assumption.

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

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

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

according to individual factors and changes of environment.

2.4 Revenue recognition

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

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

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


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

receivables.

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

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

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

2.5 Statements of cash flows

The Group prepares statements of cash flows using indirect method.

2.6 Cash and cash equivalents

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

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

2.7 Financial assets

a. Classification

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

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

of its financial assets at initial recognition.

Financial assets at fair value through profit or loss

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

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

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

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

assets held for trading.

Loans and receivables

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

are not quoted in an active market.

Available-for-sale financial assets

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

not classified in any of the other categories.

b. Recognition and measurement

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

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

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

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


18

transaction costs are expensed in the income statement. Available-for-sale financial assets and

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

receivables are subsequently carried at amortized cost using the effective interest method.

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

income statement as profit and loss.

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

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

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

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

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

Group’s right to receive payments is established.

c. Derecognition of financial assets

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

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

transferred.

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

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

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

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

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

d. Impairment of financial assets

(1) Assets carried at amortized cost

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

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

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

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

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

effective interest rate.

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

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

previously recognized impairment loss is recognized in the income statement.

(2) Available-for-sale financial assets

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

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


19

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

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

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

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

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

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

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

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

2.8 Deferral of loan origination fee and loan 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

from individual assessments and individually immaterial assets undertake the collective assessment

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

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

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

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

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

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

b. Write-off policy

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

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

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

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


20

2.10 Leases

a. Classification

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

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

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

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

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

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

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

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

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

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

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

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

of discharging the obligations under the guarantee.

b. Finance leases

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

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

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

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

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

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

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

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

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

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

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

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

receivables not yet due is reclassified as cancelled leased assets.

c. Operating leases

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

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

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

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

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

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


21

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

income on leased assets.

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

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

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

2.11 Property and equipment

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

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

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

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

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

reliably.

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

Depreciation Method Useful life

Buildings Straight-line 40 years

Structures Straight-line 40 years

Fixtures and furniture Straight-line 3-4 years

Vehicles Straight-line 4 years

Others - Indefinite useful life

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

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

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

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

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

2.12 Intangible assets

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

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

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

lives:

Amortization Method Useful life

Development costs Straight-line 5 years

Rights of trademark Straight-line 5 years

Other intangible assets Straight-line 5 years

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

life.


22

2.13 Impairment of non-financial assets

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

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

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

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

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

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

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

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

impairment at each reporting date.

2.14 Pension obligations

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

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

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

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

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

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

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

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

pension obligation.

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

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

2.15 Provisions and contingent liabilities

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

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

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

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

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

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

class of obligations may be small.

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

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

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

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

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

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


23

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

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

2.16 Derivative financial instruments

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

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

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

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

interest rates arising from floating-rate liabilities.

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

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

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

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

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

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

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

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

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

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

flows of hedged items.

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

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

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

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

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

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

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

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

in equity is immediately transferred to profits or losses.

2.17 Current and deferred income tax

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

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

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

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

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

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

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


24

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

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

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

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

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

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

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

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

not reverse in the foreseeable future.

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

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

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

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

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

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

recovered.

2.18 Earnings per share

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

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

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

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

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

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

in the calculation of diluted earnings per share.

2.19 Segment reporting

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

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

resources and assessing performance of the operating segments.

3. Transition to Korean IFRS

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

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

December 31, 2010 and as of June 30, 2010, which were prepared previously under K-GAAP are

restated in accordance with Korean IFRS 1101, “First-time adoption of Korean IFRS”, for the

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


25

a. Exemptions of Korean IFRS 1101 elected by the Group

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

application.

(1) Business combination

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

business combinations that took place prior to the transition date.

(2) Deemed cost of property and equipment

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

deemed cost at the date of transition to Korean IFRS.

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

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

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

Under K-GAAP, allowances for financial receivables are calculated based on the long-term

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

than the allowance calculated in accordance to the guidelines provided in the Act on the

Specialized Credit Financial Business, the Group recognizes an allowance in accordance to the

guidelines provided in the Act on the Specialized Credit Financial Business. Under Korean IFRS,

impairment losses are recognized where there is evidence that impairment occurred. Allowance for

financial receivables is measured individually for assets that are individually significant and on a

collective basis for portfolios with similar risk characteristics.

(2) Provision for unused loan commitment

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

expected losses of unused loan commitment are recognized as provision for unused credit lines.

(3) Accrued revenue for overdue receivables

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

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

impaired receivable are recognized using expected cash flow after impairments.

(4) Measurement of financial assets carried at amortized cost

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

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


26

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

using the effective interest method.

(5) Recognition of unused compensated absences

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

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

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

exchange for compensated absences.

(6) Depreciation method for property and equipment

Under K-GAAP, depreciation method for certain property and equipment was declining-balance

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

matching of the future economic benefits.

(7) Retirement benefit obligations

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

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

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

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

defined benefit obligation.

(8) Reclassification of memberships as intangible assets

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

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

life.

(9) Consolidation

Under K-GAAP, Autopia Thirty-third SPC, trust and other subsidiaries were previously excluded

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

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

(10) Income tax effects

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

adjustments for the transition to Korean IFRS.


27

c. Effects on the consolidated financial position and comprehensive income

(1) Reconciliation of financial position as of January 1, 2010

(in millions of Korean won)

Assets LiabilitiesShareholders’

equity

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

Conversion effects to Korean IFRS

Allowance for doubtful accounts 220,443 - 220,443

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

Accrued revenues 21,259 - 21,259

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

Recognition of unused compensatedabsences

- 2,267 (2,267)

Depreciation 11,748 - 11,748

Retirement benefit obligations - 91 (91)

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

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

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

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

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

(2) Reconciliation of financial position as of June 30, 2010


Assets LiabilitiesShareholders’

equity

K-GAAP \ 16,366,363 \ 14,160,619 \ 2,205,744


Allowance for doubtful accounts 215,735 - 215,735

Provision for unused loan commitments - 32,589 (32,589)

Accrued revenues 21,398 - 21,398

Measurement of amortized cost (443) - (443)

Recognition of unused compensatedabsences

- 3,341 (3,341)

Depreciation 464 - 464

Retirement benefit obligations 991 - 991

Others (1,266) (916) (350)

Scope of consolidation 2,682,383 2,818,663 (136,280)

Deferred income taxes - 30,559 (30,559)

Total effect of transition 2,919,262 2,884,236 35,026

Korean IFRS \ 19,285,625 \ 17,044,855 \ 2,240,770


28

(3) Reconciliation of results of operations for the three-month and the six-month periods ended June

30, 2010



Totalcomprehensive

incomeNet Income

Totalcomprehensive

incomeNet Income

K-GAAP \ 93,071 \ 119,000 \ 253,591 \ 288,022


Allowance for doubtfulaccounts

(5,913) (5,913) (4,708) (4,708)

Provision for unused loancommitments

(2,925) (2,925) (6,173) (6,173)

Accrued revenues 2,233 2,233 139 139

Measurement of amortizedcost

3,260 3,260 5,952 5,952

Recognition of unusedcompensated absences

(270) (270) (1,074) (1,074)

Depreciation (542) (542) (11,284) (11,284)

Retirement benefit obligations 374 374 1,082 1,082

Others 58 5,466 6,930 6,930

Scope of consolidation (38,355) (24,571) (41,141) (27,348)

Deferred income taxes 24,733 24,733 24,113 24,113

Total effect of transition (17,347) 1,845 (26,164) (12,371)

Korean IFRS \ 75,724 \ 120,845 \ 227,427 \ 275,651


29

(4) Reconciliation of financial position and results of operations as of and for the year ended

December 31, 2010


Assets Liabilities Total equityTotal

comprehensiveincome

Net Income

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


Allowance for doubtfulaccounts

208,187 - 208,187 (12,256) (12,256)

Provision for unused loancommitments

- 46,624 (46,624) (20,208) (20,208)

Accrued revenues 22,471 - 22,471 1,212 1,212

Measurement ofamortized cost

2,443 - 2,443 8,838 8,838

Recognition of unusedcompensated absences

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

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

Retirement benefitobligations

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

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

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

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

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

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

d. Adjustments of cash flows in 2010

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

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

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

the change in exchange rate on cash and cash equivalents held or due in a foreign currency are

presented separately from cash flows from operating, investing and financing activities. There are

no other significant differences between cash flows under Korean IFRS and K-GAAP.

e. Adjustments of operating income and expenses

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

operating income and expenses according to Korean IFRS.


30

Adjustments for the three-month and the six-month periods ended June 30, 2011 and 2010, are as

follows:

(in millions of Korean won) 2011 2010

TypeThree

monthsSix

monthsThree

monthsSix

months

Other operating income \ 35 \ 6,963 \ 5,133 \ 12,488

Other operating expenses 126 2,700 4,522 10,946

4. Restricted Financial Instruments

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

(in millions of Korean won) Amount

Type Entities 2011 2010 Restriction

DepositsKookmin Bankand 5 others \ 23 \ 25

Maintaining depositsfor opening account

5. Securities

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


Type 2011 2010

Available-for-sale securities

Equity securities

Marketable equitysecurities \ 6,526 \ 7,318

Unlisted equitysecurities

10,128 9,887

16,654 17,205

Debt securitiesGovernment andpublic bonds

3,944 3,372

Sub-total 20,598 20,577

Equity method investments 52,573 48,483

\ 73,171 \ 69,060


31

Available-for-sale securities

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

(1) Equity securities


Book value

Number ofshares

Ownership(%)

Acquisitioncost

2011 2010

Marketable equity securities

NICE InformationService

136,593 2.25 \ 3,312 \ 3,797 \ 4,221

NICE Holdings 49,162 1.42 3,491 2,729 3,097

Unlisted equity securities

Hyundai FinanceCorp.

1 1,700,000 9.29 9,888 10,128 9,887

\ 16,691 \ 16,654 \ 17,205

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

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

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

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

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

the past performance, business plan and expected market conditions.

(2) Debt securities


Book value

IssuerInterestrate (%)

Acquisitioncost 2011 2010

Government andpublic bonds

Metropolitan RapidTransit and others

2.50 \ 3,766 \ 3,944 \ 3,372

Equity method investments

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


2011Number of

sharesOwnership

(%)Acquisition

costNet asset

valueBook value

HK Mutual SavingBank

1 4,990,438 20.00 \ 45,719 \ 34,953 \ 47,201

HI Network, Inc.1

13,332 19.99 76 542 542

Korea Credit Bureau1

140,000 7.00 3,800 2,728 3,765Hyundai Capital

Germany GmbH600,200 30.01 1,065 966 1,065

\ 50,660 \ 39,189 \ 52,573


32


2010Number of

sharesOwnership

(%)Acquisition

costNet asset

valueBook value

HK Mutual SavingBank

1 4,990,438 20.00 \ 45,719 \ 30,601 \ 42,849

HI Network, Inc.1

13,332 19.99 76 1,055 1,055

Korea Credit Bureau1

140,000 7.00 3,800 2,477 3,514Hyundai Capital

Germany GmbH600,200 30.01 1,065 908 1,065

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

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

Bureau are less than 20%. However, the Group is able to significantly influence such

involvement in the financial and operating processes, and thus the equity method is applied.

Valuations of equity method investments for the six-month periods ended June 30, 2011 and 2010,

are as follows:


2011

BeginningBalance

AcquisitionGain (loss)

on valuation

Changes inaccumulated

othercomprehensive

income

DividendsEndingBalance

HK Mutual SavingBank \ 42,849 \ - \ 4,305 \ 47 \ - \ 47,201

HI Network, Inc. 1,055 - 193 - (706) 542

Korea CreditBureau

3,514 - 251 - - 3,765

Hyundai CapitalGermany GmbH

1,065 - - - - 1,065

\ 48,483 \ - \ 4,749 \ 47 \ (706) \ 52,573


2010

BeginningBalance

AcquisitionGain (loss)

on valuation

Changes inaccumulated

othercomprehensive

income

DividendsEndingBalance

HK Mutual SavingBank \ 35,799 \ - \ 4,629 \ 19 \ - \ 40,447

HI Network, Inc. - 76 1,755 - (1,227) 604

Korea CreditBureau

3,191 - (121) - - 3,070


1,065 - - - - 1,065

\ 40,055 \ 76 \ 6,263 \ 19 \ (1,227) \ 45,186

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

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


33


2011 2010

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

Korea Credit Bureau 1,037 1,037

\ 13,285 \ 13,285

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

follows:


2011

Assets LiabilitiesOperatingrevenue

Net income(loss)

HK Mutual Saving Bank \ 2,488,211 \ 2,313,445 \ 180,413 \ 21,527

HI Network, Inc. 5,675 2,967 9,854 1,007

Korea Credit Bureau 46,335 7,368 18,066 3,513


3,384 165 316 58


2010

Assets LiabilitiesOperatingrevenue

Net income(loss)

HK Mutual Saving Bank \ 2,439,109 \ 2,286,106 \ 158,559 \ 23,455

HI Network, Inc. 8,734 3,458 10,101 2,476

Korea Credit Bureau 45,301 9,914 11,874 (2,010)


3,145 117 - -


34

6. Financial Receivables

Financial receivables as of June 30, 2011 and December 31, 2010, are as follows:


2011

Principal

Deferred loanorigination fees and

costs(Initial direct costsfor lease assets)

Present valuediscounts

Allowancefor doubtful

accountsBook value

Loan receivables

Loans \ 11,220,286 \ (110,726) \ (851) \ (255,690) \ 10,853,019

Installment financial assets

Auto 5,000,809 (83,717) - (29,470) 4,887,622

Durable goods 3,208 14 - (161) 3,061

Mortgage 31,490 83 - (259) 31,314

Machinery 5,228 - 19 (46) 5,201

5,040,735 (83,620) 19 (29,936) 4,927,198

Lease receivables

Finance leasereceivables

2,117,538 (690) - (19,974) 2,096,874

Cancelled leasereceivables

3,620 - - (2,504) 1,116

2,121,158 (690) - (22,478) 2,097,990

\ 18,382,179 \ (195,036) \ (832) \ (308,104) \ 17,878,207


2010

Principal

Deferred loanorigination fees and

costs(Initial direct costsfor lease assets)

Present valuediscounts

Allowancefor doubtful

accountsBook value

Loan receivables

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

Installment financial assets

Auto 5,123,218 (99,271) (2) (27,489) 4,996,456

Durable goods 6,762 39 - (633) 6,168

Mortgage 39,915 111 - (404) 39,622

Machinery 14,595 - 58 (117) 14,536

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

Lease receivables

Finance leasereceivables

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

Cancelled leasereceivables

2,719 - - (1,758) 961

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

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


35

7. Allowance for Doubtful Accounts

Changes in allowance for doubtful accounts for the six-month periods ended June 30, 2011 and

2010, are as follows:


2011

TypeLoan

receivablesInstallment

financial assetsLease

receivablesOther assets Total

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

Amounts written off (137,115) (13,816) (11) (2,415) (153,357)

Recoveries of amountspreviously written off

48,063 6,726 62 4,010 58,861

Discount unwind (3,091) (156) (62) - (3,309)

Additional(reversed)allowance

132,130 8,539 1,458 (2,702) 139,425

Ending balance \ 255,690 \ 29,936 \ 22,478 \ 6,542 \ 314,646


2010

TypeLoan

receivablesInstallment

financial assetsLease

receivablesOther assets Total

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

Amounts written off (94,787) (16,763) (80) (1,770) (113,400)

Recoveries of amountspreviously written off

51,523 7,651 178 4,393 63,745

Discount unwind (2,462) (210) (24) - (2,696)

Additional(reversed)allowance

33,977 3,276 979 (3,856) 34,376

Ending balance \ 164,185 \ 26,471 \ 13,582 \ 5,764 \ 210,002


36

8. Financial Instruments

a. Fair value of financial instruments

The fair values of financial instruments as of June 30, 2011 and December 31, 2010, are as follows:


Type

2011 2010

Bookvalue

Fairvalue

Bookvalue

Fairvalue

Assets

Financial assets

Cash and deposits \ 1,382,802 \ 1,382,802 \ 1,224,891 \ 1,224,891

Available-for-salesecurities

20,598 20,598 20,577 20,577

Loans receivable 10,853,019 11,101,278 10,218,438 10,571,397

Installment financialassets

4,927,198 5,042,517 5,056,782 5,218,322

Derivative assets 426,616 426,616 521,530 521,530

Non-trade receivables 39,890 39,887 39,869 39,869

Accrued revenues 107,864 107,864 111,806 111,806

Advance payments1

36,783 36,783 34,092 34,092

Leasehold deposits 34,474 34,394 31,955 31,872

\ 17,829,244 \ 18,192,739 \ 17,259,940 \ 17,774,356

Liabilities

Financial liabilities

Borrowings \ 1,930,000 \ 1,932,840 \ 2,646,945 \ 2,652,759

Debentures 15,457,222 15,832,084 14,396,741 14,795,749

Derivative liabilities 230,905 230,905 96,568 96,568

Non-trade payables2

240,668 240,668 240,414 240,414

Accrued expenses 139,937 139,937 110,225 109,943

Withholdings2

14,310 14,316 10,791 10,791

Leasehold depositsreceived

762,124 768,073 746,531 763,718

\ 18,775,166 \ 19,158,823 \ 18,248,215 \ 18,669,942

1Certain portion of advance payments for customers.

2Excluding taxes.


37

b. Fair value hierarchy

The fair value hierarchy of financial assets and liabilities carried at fair value as of June 30, 2011

and December 31, 2010, are as follows:


2011

TypeBookvalue

Fairvalue

Fair value hierarchy1

level 1 level 2 level 3

Financial assets

Financial assets at fairvalueAvailable-for-salesecurities \ 20,598 \ 20,598 \ 6,526 \ 3,944 \ 10,128

Derivative assets 426,616 426,616 - 426,616 -

447,214 447,214 6,526 430,560 10,128


Derivative liabilities \ 230,905 \ 230,905 \ - \ 230,905 \ -

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

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

derivatives

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

market data. Most bonds issued in Korean won and foreign currency, general unlisted

derivatives like swap, forward, option

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

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


2010

TypeBookvalue

Fairvalue

Fair value hierarchy(*)

level 1 level 2 level 3

Financial assets

Financial assets at fairvalueAvailable-for-salesecurities \ 20,577 \ 20,577 \ 7,318 \ 3,372 \ 9,887

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

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


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

c. Changes in financial instruments of level 3

The changes in financial instruments of level 3 for the six-month periods ended June 30, 2011 and

2010 are as follows:


38


TypeAvailable-for-sale securities

2011 2010

Beginning balance \ 9,887 \ 8,802

Gains on valuation(Other comprehensive income)

241 673

Disposal - (76)

Ending balance \ 10,128 \ 9,399

d. Financial instruments by categories

The book value of financial instruments by categories as of June 30, 2011 and December 31, 2010,

are as follows:


2011

Type

Financialassets at fairvalue throughprofit or loss

Loans andreceivables

Available-for-sale financial

assets

Hedgingderivative

instrumentsTotal

Financial assets

Cash and deposits \ - \ 1,382,802 \ - \ - \ 1,382,802

Available-for- salesecurities

- - 20,598 - 20,598

Loans receivable - 10,853,019 - - 10,853,019

Installmentfinancial assets

- 4,927,198 - - 4,927,198

Derivative assets 37 - - 426,579 426,616

Non-tradereceivables

- 39,890 - - 39,890

Accrued revenues - 107,864 - - 107,864

Advance payments - 36,783 - - 36,783

Leaseholddeposits

- 34,474 - - 34,474

\ 37 \ 17,382,030 \ 20,598 \ 426,579 \ 17,829,244


39


2010

Type

Financialassets at fairvalue throughprofit or loss

Loans andreceivables

Available-for-sale financial

assets

Hedgingderivative

instrumentsTotal

Financial assets

Cash and deposits \ - \ 1,224,891 \ - \ - \ 1,224,891


- - 20,577 - 20,577

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


- 5,056,782 - - 5,056,782

Derivative assets 72 - - 521,458 521,530


- 39,869 - - 39,869

Accrued revenues - 111,806 - - 111,806

Advance payments - 34,092 - - 34,092

Leaseholddeposits

- 31,955 - - 31,955

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


2011 2010

Type

Financialliabilities

at fair valuethrough

profit or loss

Financialliabilities atamortized

cost

Hedgingderivative

instrumentsTotal

Financialliabilities at

amortized cost

Hedgingderivative

instrumentsTotal


Borrowings \ - \ 1,930,000 \ - \ 1,930,000 \ 2,646,945 \ - \ 2,646,945

Debentures - 15,457,222 - 15,457,222 14,396,741 - 14,396,741

Derivativeliabilities

2 - 230,903 230,905 - 96,568 96,568

Non-tradepayables

- 240,668 - 240,668 240,414 - 240,414

Accruedexpenses

- 139,937 - 139,937 110,225 - 110,225

Withholdings - 14,130 - 14,130 10,791 - 10,791

Leaseholddepositsreceived

- 762,124 - 762,124 746,531 - 746,531

\ 2 \18,544,261 \ 230,903 \ 18,775,166 \ 18,151,647 \ 96,568 \ 18,248,215

9. Finance Lease Receivables

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

Details of total lease investments and present value of minimum lease receipts as of June 30, 2011



40


Type

2011 2010

Total leaseinvestments

Present value ofminimum lease

receipts


Present value ofminimum lease

receipts

Less than 1 year \ 895,912 \ 544,436 \ 765,722 \ 457,513

1 to 5 years 1,504,034 583,785 1,272,610 504,344

Over 5 years 40 1 - -

\ 2,399,986 \ 1,128,222 \ 2,038,332 \ 961,857

b. Unearned interest income

Details of unearned interest income as of June 30, 2011 and December 31, 2010, are as follows:


2011 2010


Net lease investments

Unearnedinterestincome


Net lease investments

Unearnedinterestincome

Minimumlease

receipts(presentvalue)

Unguaranteedresidual value

(presentvalue)

Total

Minimumlease

receipts(presentvalue)

Unguaranteedresidual value

(presentvalue)

Total

\ 2,399,986 \ 1,128,222 \ 988,626 \2,116,848 \ 283,138 \ 2,038,332 \ 961,857 \ 834,893 \1,796,750 \ 241,582

c. The amounts of doubtful finance lease receivables and related allowance as of June 30, 2011



Type 2011 2010

Finance lease receivables \ 4,773 \ 3,889

Allowance (4,773) (3,889)

10. Leased Assets

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

the details are as follows:

(in millions of Korean won)2011 2010

Acquisitioncost

Accumulateddepreciation

Carryingamount

Acquisitioncost


Carryingamount

Operatingleased assets \1,792,032 \ (620,159) \ 1,171,873 \1,991,961 \ (709,116) \ 1,282,845

Cancelledleased assets

4,176 (42) 4,134 3,234 (42) 3,192

\1,796,208 \ (620,201) \ 1,176,007 \1,995,195 \ (709,158) \ 1,286,037


41

Future minimum lease receipts under operating lease as of June 30, 2011 and December 31,



Type 2011 2010

Less than 1 year \ 414,370 \ 423,307

1 to 5 years 380,050 414,181

Over 5 years 2 -

\ 794,422 \ 837,488

11. Property and Equipment

a. Details of property and equipment

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


Type2011 2010

Acquisitioncost


Book valueAcquisition

costAccumulateddepreciation

Book value

Land \ 103,697 \ - \ 103,697 \ 101,844 \ - \ 101,844

Buildings 117,548 (21,303) 96,245 112,305 (19,762) 92,543

Structures 2,466 (251) 2,215 2,466 (220) 2,246

Vehicles 1,699 (909) 790 1,608 (770) 838

Fixture andfurniture

132,918 (90,719) 42,199 116,971 (81,650) 35,321

Others 1,951 - 1,951 1,200 - 1,200

Construction inprogress

4,263 - 4,263 8,377 - 8,377

\ 364,542 \ (113,182) \ 251,360 \ 344,771 \ (102,402) \ 242,369

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

30, 2011, is \ 94,262 million (2010: \ 91,633 million).

b. Changes in property and equipment

Changes in property and equipment for the six-month periods ended June 30, 2011 and 2010, are

as follows:


42


2011

TypeBeginning

balanceAcquisition Replacement Disposal Depreciation

Endingbalance

Land \ 101,844 \ 1,853 \ - \ - \ - \ 103,697

Buildings 92,543 5,243 - - (1,541) 96,245

Structures 2,246 - - - (31) 2,215

Vehicles 838 166 - (30) (184) 790


35,321 15,956 19 (14) (9,083) 42,199

Others 1,200 496 259 - (4) 1,951


8,377 2,604 (6,718) - - 4,263

\ 242,369 \ 26,318 \ (6,440) \ (44) \ (10,843) \ 251,360


2010

TypeBeginning

balanceAcquisition Replacement Disposal Depreciation

Endingbalance

Land \ 98,778 \ - \ - \ - \ - \ 98,778

Buildings 92,374 1,408 - - (1,384) 92,398

Structures 2,134 - - - (29) 2,105

Vehicles 960 46 - - (172) 834


32,281 3,453 - - (8,095) 27,639

Others 1,087 - - - - 1,087


11,070 5,234 (7,250) - - 9,054

\ 238,684 \ 10,141 \ (7,250) \ - \ (9,680) \ 231,895

As of June 30, 2011, the Company carries comprehensive asset insurance for its buildings for up to

￦211,916 million (2010: ￦209,783 million). Comprehensive movable property insurance for

fixture and furniture covers up to ￦21,000 million (2010: ￦18,812 million). Other leased office

buildings and vehicles are covered with liability and general insurance.


43

12. Intangible Assets

a. Details of Intangible assets

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


Type2011 2010

Acquisitioncost


Bookvalue

Acquisitioncost


Bookvalue

Development costs \ 63,114 \ (39,131) \ 23,983 \ 56,142 \ (36,138) \ 20,004

Rights of trademark 69 (32) 37 69 (25) 44

Other intangibleassets

52,852 (15,874) 36,978 47,545 (14,981) 32,564

\ 116,035 \ (55,037) \ 60,998 \ 103,756 \ (51,144) \ 52,612

b. Changes in intangible assets

Changes in intangible assets for the six-month periods ended June 30, 2011 and 2010, are as

follows:


2011

Type Beginning balance Increase1 Disposal Amortization Ending balance

Development costs \ 20,004 \ 7,021 \ (50) \ (2,992) \ 23,983

Rights of trademark 44 - - (7) 37

Other intangible assets 32,564 5,328 (21) (893) 36,978

\ 52,612 \ 12,349 \ (71) \ (3,892) \ 60,998

1Inclusive of transfer from construction in progress


2010

Type Beginning balance Increase1

Disposal Amortization Ending balance

Development costs \ 7,691 \ 6,879 \ - \ (2,851) \ 11,719

Rights of trademark 57 - - (7) 50

Other intangible assets 31,186 952 (29) (1,004) 31,105

\ 38,934 \ 7,831 \ (29) \ (3,862) \ 42,874


44

13. Borrowings

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


Types LenderAnnual

interest rate (%)2011 2010

Borrowings in won

Commercial paperSK Securities

and 6 others3.22 ~ 4.97 \ 660,000 \ 1,420,000

General loansKookmin Bank

and 11 others4.18 ~ 7.74 1,270,000 1,170,000

1,930,000 2,590,000

Borrowings in foreign currency

General loans - - - 56,945

\ 1,930,000 \ 2,646,945

As of December 31, 2010, above borrowings included securitized borrowings of ￦ 10,000 million

issued based on loan receivables and installment financial assets. There are no securitized

borrowings as of June 30, 2011.

14. Debentures

Debentures issued by the Group and outstanding as of June 30, 2011 and December 31, 2010,

are as follows:


TypeAnnualinterest

rates (%)

2011 2010

Par value Issue price Par value Issue price

Short-term debenture

Debenture 3.22 ~ 5.19 \ 454,306 \ 454,306 \ 659,397 \ 659,397

Less: Discount ondebentures

(57) (253)

454,249 659,144

Current portion of debenture

Debenture 0.33 ~ 8.75 4,321,020 4,321,020 3,384,553 3,384,553


(4,029) (6,163)

4,316,991 3,378,390

Long-term debenture

Debenture 0.33 ~ 7.47 10,715,017 10,715,017 10,381,923 10,381,923


(29,035) (22,716)

10,685,982 10,359,207

\ 15,490,343 \ 15,457,222 \ 14,425,873 \ 14,396,741


45

As of June 30, 2011, above debentures include securitized borrowings of ￦ 2,401,666 million,

(2010: ￦ 2,936,654 million) issued based on loan receivables and installment financial assets.

15. Defined Benefit Liability

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

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


Type 2011 2010

Present value of funded obligations \ 42,730 \ 38,732

Fair value of plan assets (29,525) (27,045)

Defined benefit liability \ 13,205 \ 11,687

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

30, 2011 and 2010:


Type 2011 2010


Current service cost 4,697 4,130

Interest cost 885 1,003

Actuarial losses 1,127 -

Transfer of severance benefits from

related parties

1,405 1,109

Transfer of severance benefits to related

parties

(1,193) (1,067)

Benefits paid (2,923) (3,598)



46

c. Changes in the fair value of plan assets for the six-month periods ended June 30, 2011 and

2010:


Type 2011 2010


Contributions by plan participants 3,500 -

Expected return on plan assets 525 663

Actuarial (losses)/gains 71 (216)

Transfer of severance benefits from

related parties

845 288

Transfer of severance benefits to

related parties

(1,019) (644)

Benefits paid (1,442) (1,612)


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

June 30, 2011 and 2010:


Type 2011 2010

Current service cost \ 4,697 \ 4,130

Interest cost 885 1,003

Expected return on plan assets (525) (663)

Actuarial losses 1,056 216

\ 6,113 \ 4,686

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


Type 2011 2010

Actual return on plan assets \ 596 \ 447


47

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


Type2011 2010

Amount Ratio(%) Amount Ratio(%)

Cash \ 63 0.21 \ 96 0.36

Deposits 11,175 37.85 12,053 44.56

Interest rate guaranteedasset for 1-year

18,287 61.94 14,896 55.08

\ 29,525 100.00 \ 27,045 100.00

g. Actuarial assumptions

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

December 31, 2010, are as follows:

Type 2011 2010

Discount rate 4.85% 4.90%

Expected return on plan assets 3.97% 4.20%

Future salary increases 5.64% 5.39%

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

Korea Insurance Development Institute.

16. Income Tax

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


Type 2011 2010

Current tax1

\ 35,714 \ 79,777

Changes in deferred tax assets(liabilities) 80,880 (1,330)

Deferred tax credited directly to equity (8,091) 12,501

Income tax \ 108,503 \ 90,9481

Income tax for the six-month period ended June 30, 2011, includes changes in tax reconciliation

of the previous year.


48

b. Deferred tax credited directly to equity


Type 2011 2010

Gain on valuation of available-for-salefinancial securities

\ 114 \ (285)

Accumulated comprehensive income ofequity method investees

(62) (84)

Loss on valuation of derivatives (8,143) 12,870

\ (8,091) \ 12,501

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


Type 2011 2010

Profit before tax \ 462,552 \ 366,599

Current tax (24.2%) 111,911 88,717

Adjustments:

Income not subject to tax (51) (4)

Expenses not deductible for taxpurposes

82 110

Others (SPC consolidation, others) (3,439) 2,125

Income tax \ 108,503 \ 90,948

Effective tax rate

(Income tax over net income before tax)23.46% 24.80%

d. Changes in temporary differences and deferred assets (liabilities)


2011

TypeTemporary differences Deferred assets (liabilities)

Beginning Changes Ending Beginning Ending

Allowances for doubtfulaccounts \ (35,003) \ (173,184) \ (208,187) \ (8,471) \ (50,381)

Derivatives (264,264) 131,964 (132,300) (59,619) (28,801)

Deferred fees (192,524) 46,571 (145,953) (45,647) (32,110)

Initial direct costs forlease assets

(84,109) (6,331) (90,440) (19,057) (19,897)

Gain on foreignexchanges translation

227,514 (140,369) 87,145 55,058 18,832

Non-trade payables 132,116 (115,891) 16,225 31,770 3,926

Unearned revenue 43,532 (43,532) - 10,658 -

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

Others 63,997 (39,771) 24,226 15,272 5,985

Consolidation effects 125,064 (47,778) 77,286 33,500 18,975

\ (50,134) \ (321,984) \ (372,118) \ (2,617) \ (83,497)


49


2010

TypeTemporary differences Deferred assets (liabilities)

Beginning Changes Ending Beginning Ending

Allowances for doubtfulaccounts \ (79,850) \ 15,247 \ (64,603) \ (19,324) \ (15,634)

Derivatives (988,057) 254,531 (733,526) (230,538) (171,403)

Deferred fees (105,075) (5,710) (110,785) (25,071) (26,363)

Initial direct costs forlease assets

(65,368) (11,417) (76,785) (14,932) (17,515)

Gain on foreignexchanges translation

863,000 (235,155) 627,845 200,985 146,298

Non-trade payables 79,135 (61,567) 17,568 19,151 4,251

Unearned revenue 52,001 (72,250) (20,249) 12,362 (4,819)

Present value discounts (65,053) 64,928 (125) (15,495) (29)

Others 13,468 4,850 18,318 2,368 3,625

Consolidation effects 124,541 29,444 153,985 30,760 43,185

\ (171,258) \ (17,099) \ (188,357) \ (39,734) \ (38,404)

e. Realization of the deferred tax assets and basic judgment

Realization of the future tax benefits related to the deferred tax assets is dependent on many

factors, including the Group’s ability to generate taxable income within the period during which the

temporary differences reverse, the outlook of the Korean economic environment, and the overall

future industry outlook. Management periodically considers these factors in reaching its conclusion

and recognized the deferred income tax asset based on future realization.

As of June 30, 2011, the Group recognizes deferred income tax assets excluding certain

temporary differences which may not be realized. The amount above may change if the estimation

of future taxable income changes.

17. Provisions for Unused Loan Commitments

The Group has loan commitments. Changes in provisions for unused loan commitments for the six-

month periods ended June 30, 2011 and 2010, are as follows:


Type 2011 2010


Additional (Reversal) (33,513) 6,172



50

18. Derivative Financial Instruments and Hedge Accounting

a. Trading derivatives

Trading derivatives as of June 30, 2011 and December 31, 2010, are as follows:


Type

2011 2010Notionalprincipalamounts

1Assets Liabilities

Notionalprincipalamounts

1Assets Liabilities

Forward foreignexchange

\ 465 \ 37 \ 2 \ 578 \ 72 \ -

1Notional principal amounts are the amounts of foreign currency contracts for the Korean won

against foreign currency transaction, and the amount of foreign currency purchase contracts for

the foreign currency against the foreign currency transaction translated in the exchange rate as

of June 30, 2010 and December 31, 2010.

The Group recognized loss on trading derivatives of \ 37 million during the six-month period

ended June 30, 2011.

b. Derivatives designated as cash flow hedges

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

follows:


Type

2011 2010

Notionalprincipalamounts

Assets LiabilitiesNotionalprincipalamounts

Assets Liabilities

Interest rate swaps \ 140,000 \ 132 \ 333 \ 280,000 \ 9 \ 2,073

Currency swaps 7,019,343 426,447 230,570 6,616,568 521,449 94,495

\ 7,159,343 \ 426,579 \ 230,903 \ 6,896,568 \ 521,458 \ 96,568

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

ended June 30, 2011 and 2010.

19. Shareholders’ Equity

a. Capital stock

The Company is authorized to issue 500,000,000 shares. As of June 30, 2011, the Company has

99,307,435 shares issued and outstanding with a par value of \ 5,000 per share.


51

b. Legal reserve

The Korean Commercial Law requires the Company to appropriate, as a legal reserve, an amount

equal to a minimum of 10% of annual cash dividends declared, until the reserve equals 50% of its

issued capital stock. This reserve is not available for the payment of cash dividends, but may be

transferred to capital stock or used to reduce accumulated deficit, if any.

c. Discretionary reserve

The Company appropriates a reserve in accordance with Electronic Financial Transactions Act and

a reserve for business rationalization in accordance with Restriction of Special Taxation Act.

d. Legal reserve and discretionary reserve

Legal reserve and discretionary reserve as of June 30, 2011 and December 31, 2010 are as

follows:


Type 2011 2010

Legal reserve Revenue reserve \ 79,700 \ 48,914

Discretionaryreserve

Reserve for electronic financialtransactions

100 100

Reserve for business rationalization 74 74

174 174

Unappropriated retained earnings

(Expected reserve for bad loans 2011: \ 203,339million

2010: \ 208,187million)

1,569,916 1,350,925

\ 1,649,790 \ 1,400,013

e. Reserve for bad loans

If allowances for doubtful accounts do not meet the minimum amount calculated in accordance

with allowance reserve standards of Regulation on Supervision under the Specialized Credit

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

more than the difference between the allowance and the requirement.

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



Type 2011 2010

Appropriated reserve for bad loans \ - \ -

Expected reserve for bad loans 203,339 208,187

\ 203,339 \ 208,187


52

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

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


Type Amount

Net income \ 354,049

Reversal of reserve for bad loans1

4,848

Net income in consideration of changes in reservefor bad loans

2 \ 358,897

Net income per share in consideration of changesin reserve for bad loans (In won) \ 3,614

1Reversal of reserve for bad loans amounts are subtracted from balance of reserve for bad loans

in 2011 to balance in 2011.2

Net income in consideration of changes in reserve for bad loans is not accordance with K-IFRS,

and the amount is the sum of the reversal of reserve for bad loans before income tax and net

income.

20. Net Interest Income

Net interest income for the six-month periods ended June 30, 2011 and 2010, are as follows:


Type 2011 2010

Interest income

Cash and deposits \ 18,848 \ 12,279

Loans receivable 746,382 636,055

Installment financial assets 220,978 250,813

Lease receivables 77,926 61,063

Other 254 682

1,064,388 960,892

Interest expenses

Borrowings 51,680 54,315

Debentures 399,567 363,736

Other 26,661 20,981

477,908 439,032

\ 586,480 \ 521,860


53

21. Net Commission Income

Net commission income for the six-month periods ended June 30, 2011 and 2010, are as follows:


Type 2011 2010

Commission income

Loans receivable \ 26,955 \ 21,068

Installment financial assets 3,311 3,599

Lease receivables 56,563 37,076

86,829 61,743

Commission expenses

Lease expenses 27,916 19,354

Other 7,360 8,041

35,276 27,395

\ 51,553 \ 34,348

22. General and Administrative Expenses

General and administrative expenses for the three-month and the six-month periods ended June

30, 2011 and 2010, are as follows:


Type2011 2010

Three months Six months Three months Six months

Payroll \ 25,888 \ 52,097 \ 25,540 \ 45,636

Severance benefits 3,597 6,119 2,360 4,728

Fringe benefits 7,790 16,524 7,762 16,040

Depreciation 5,604 10,843 4,882 9,680

Advertising 9,068 18,150 24,051 32,789

Travel and transportation 1,055 2,026 1,096 1,794

Communication 3,180 6,461 3,125 6,043

Water, lighting and heating 2,110 4,390 1,826 4,287

Commission 4,866 8,576 4,497 7,650

Sales commission 14,088 38,841 19,628 33,695

Amortization 2,035 3,892 2,025 3,862

Outsourcing service charges 16,585 32,499 15,728 30,819

Rent 9,630 17,927 8,372 16,172

Other expenses 22,495 42,832 18,529 29,019

\ 127,991 \ 261,177 \ 139,421 \ 242,214


54

23. Earnings Per Share

a. Basic earnings per share

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

periods ended June 30, 2011 and 2010, follows:

Type

2011 2010

Three months Six months Three months Six months(1) Net income attributable

to common stock(In won)

\ 208,924,894,050 \ 354,048,916,718 \ 120,845,015,793 \ 275,651,441,186

(2) Weighted average ofnumber of outstandingcommon shares

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

(3) Basic earnings pershare (In won) (1)÷(2) \ 2,104 \ 3,565 \ 1,217 \ 2,776

b. Diluted earnings per share

As there was no discontinued operation during the six-month periods ended June 30, 2011 and

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

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

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

June 30, 2011 and 2010.

24. Other Comprehensive Income

Other comprehensive income for the six-month periods ended June 30, 2011 and 2010, consists

of:

(in millions of Korean won)2011

TypeBeginning

balance

ChangesIncome

taxeffects

Endingbalance

Reclassifi-cation ofprofit or

loss

Otherchanges

Gain on valuation ofavailable-for-salefinancial assets

\ 512 \ (661) \ 140 \ 114 \ 105

Accumulatedcomprehensiveexpense of equitymethod investees

24 - 47 (62) 9

Loss on valuation ofderivatives

(67,924) 5,919 29,833 (8,143) (40,315)

Loss on exchangedifferences of foreignoperations

17 - (176) - (159)

\ (67,371) \ 5,258 \ 29,844 \ (8,091) \ (40,360)


55


2010

TypeBeginning

balance

ChangesIncome

taxeffects

Endingbalance

Reclassifi-cation ofprofit or

loss

Otherchanges

Gain(Loss) on valuationof available-for-salefinancial assets

\ (1,835) \ - \ 1,309 \ (285) \ (811)

Accumulatedcomprehensiveexpense of equitymethod investees

(69) - 19 (84) (134)

Loss on valuation ofderivatives

(3,566) (2,183) (59,892) 12,870 (52,771)

Loss on exchangedifferences of foreignoperations

- - 22 - 22

\ (5,470) \ (2,183) \(58,542) \ 12,501 \ (53,694)

25. Cash Flow Statement

a. Cash and cash equivalents

Cash and cash equivalents in cash flow statements consisting of cash in hand, deposits and short-

term money-market instruments as of June 30, 2011 and December 31, 2010, follows:


Type 2011 2010

Cash \ 4 \ 4

Ordinary deposits 169,369 182,321

Current deposits 2,606 3,241

Short-term financial instruments 1,210,800 1,039,300

\ 1,382,779 \ 1,224,866


56

b. Cash generated from operations

Cash generated from operations for the six-month periods ended June 30, 2011 and 2010, are as

follows:


Type 2011 2010

Net income \ 354,049 \ 275,651

Adjustments

Net interest expenses 458,819 426,290

Income tax 108,503 90,948

Gain on disposal of available-for-sale financialassets

(2,084) (908)

Gain on loan receivables (21,784) (31,641)

Gain on installment financing (48,436) (50,928)

Gain on leased assets (609) (385)

Gain on foreign exchange translations (244,804) (134,851)

Dividends (3,251) (3,680)

Gain on valuation of derivatives (73,016) (240,487)

Other operating income (33,519) (18)

Gain on equity method valuation (4,749) (6,506)

Lease expenses 187,616 252,731

Bad debts expense 139,425 34,374

Loss on foreign exchange translations 73,024 239,378

Severance benefits 6,113 4,686

Depreciation 10,843 9,680

Amortization of intangible assets 3,892 3,862

Loss on valuation of derivatives 244,820 134,468

Other operating expenses 16 6,173

Loss on equity method valuation - 243

800,819 733,429

Changes in operating assets and liabilities

Decrease (Increase) in available-for-sale financialassets

1,543 (345)

(Increase) in loan receivables (811,970) (532,173)

Decrease in installment financing receivables 129,938 185,133

(Increase) in finance lease receivables (437,699) (383,676)

Decrease in canceled leased receivables 3,710 2,562

(Increase) in operating leased assets (76,644) (201,845)

Decrease in canceled leased assets 111,970 72,478

Decrease in deferred loan origination fees and costs 52,277 74,602

Increase in present value discounts (22,398) (24,501)

Increase in allowance for bad debts 58,860 63,722

Decrease(increase) in non-trade receivables (34) 12,405

Decrease in accrued revenues 4,306 1,292

(Increase) in advance payments (590) (14,890)


57

(Increase) in prepaid expenses (7,442) (6,419)

Decrease in derivative assets 21,192 45,547

Increase in non-trade payables 7,288 11,061

(Decrease) in accrued expenses (277) (1,023)

Increase(decrease) in unearned revenue (3,976) 4,082

Increase in withholdings 4,943 4,721

Increase in leasehold deposits received 11,463 55,905

Payment of severance benefits (2,923) (3,598)

Decrease(increase) in plan assets (1,884) 1,969

Transfer of severance benefits from related parties 1,405 1,110

Transfer of severance benefits to related parties (1,193) (1,067)

(Decrease) in derivative liabilities (14,789) (25,015)

(972,924) (657,963)

\ 181,944 \ 351,117

c. Investing and financing activities not affecting cash flows

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

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


Type 2011 2010

Transferred from construction in progress tointangible assets \ 6,440 \ 7,250

Transferred from construction in progress tofixture and furniture

19 -

Transferred from construction in progress toother tangible assets

259 -

Transferred to legal reserve 30,785 20,358


58

26. Commitments and Contingencies

a. Credit Line Agreement

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

as follows:


Type Financial institutions 2011 2010

Limit of overdraft Shinhan Bank and 3 other banks \ 51,500 \ 51,500

Limit of daily loan SC Jeil Bank and 2 other banks 45,000 49,400

Limit of purchasingcommercial paper

Woori Bank and 2 other banks 300,000 310,000

Limit of credit line (SPC) Korea Development Bank 10,000 61,200

\ 406,500 \ 472,100

b. Credit Facility Agreement

The Group has revolving credit facility agreements with several financial institutions as of June 30,

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


Financial institutions 2011 2010

GE Capital Corporation1 Euro currency for

a USD 1 billion

Euro currency for

a USD 1 billion

Mizuho Corporate Bank, Seoul Branch \ 65,000 \ 65,000

JPMorgan, Seoul Branch 80,000 34,000

Citibank, Seoul2 50,000 50,000

Standard Chartered, Seoul Branch 50,000 50,000

Societe Generale, Seoul Branch 55,000 -

Bank of China, Seoul Branch 30,000 -

DBS Bank, Seoul Branch 50,000 -

1GE Capital Corporation (the “GECC”) and Hyundai Motor Company entered into a support

agreement which includes the provision of debt-to-equity swap for the unredeemed amount and

the put/call option of the converted stocks.2

Comprehensive limit including overdraft of ￦ 10 billion.

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

December 31, 2010.


59

c. Guarantees

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

follows:


Guarantor Details 2011 2010

Hyundai Motor

Company

Joint liabilities on finance lease

receivables1 \ 1,278 \ 3,092

Hyundai WiaJoint liabilities on machinery

installment financing receivables1 5,228 14,730

Seoul GuaranteeInsurance Co., Ltd.

Guarantee for debt collection deposit,others

197,367 204,560

1The amounts represent the guaranteed balances as of June 30, 2011 and December 31, 2010,

as defined under the joint liability agreement.

The Group carries residual value guarantee insurance with Hyundai Marine & Fire Insurance Co., Ltd.

against loss in case unredeemed mortgage loans exceed recoverable amount from the collateral of the

loans. The receivables balance carried insurance and residual value guaranteed by insurance as of

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


Type 2011 2010

Receivables balance \ 941,925 \ 1,102,921

The amount of residual value guaranteed byinsurance

300,609 369,321

d. Pending significant litigations

Details of pending significant litigations involving the Group as of June 30, 2011, are as follows:


Type Number of litigations Amount of litigations

Plaintiff 3 \ 1,140

Defendant - -

In addition, the Group has filed lawsuits against a number of debtors to collect receivables. As of

report date, the outcome of these cases cannot be reasonably determined and no adjustments are

reflected on the financial statements of the Group as of June 30, 2011.


60

27. Related Party Transactions

a. Relationships between parents and subsidiaries

The parent company is Hyundai Motor Company. Related parties include associates, joint

ventures, post-employment benefit plans, members of key management personnel and entities

which the Group controls directly or indirectly, has joint control or significant influence over them.

b. Transaction between related parties

Significant transactions, which occurred in the normal course of business with related companies

for the six-month periods ended June 30, 2011 and 2010, are as follows:

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

Parent Company

Hyundai Motor Company \ 503,170 \ - \ 474,155 \ -

Others

Kia Motors Corp. 118,152 - 149,750 -

Hyundai Card Co., Ltd. 61,859 - 30,020 -

Hyundai Commercial 10,729 - 3,333 -

Other related parties 666 35,720 2,735 30,374

191,406 35,720 185,838 30,374

\ 694,576 \ 35,720 \ 659,993 \ 30,374

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

six-month periods ended June 30, 2011 and 2010, and receivables and payables as of June 30,

2011 and December 31, 2010, are as follows:

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

Parent Company

Hyundai Motor Company \ 4,881 \ 5,816 \ 5,188 \ 9,662

Others

Kia Motors Corp. 309 8,252 422 10,643

Hyundai Card Co., Ltd. 1,815 151,280 1,681 106,061

Hyundai Commercial 161 4,293 24 2,346

Other related parties 3,534 - 2,939 10

5,819 163,825 5,066 119,060

\ 10,700 \ 169,641 \ 10,254 \ 128,722


61

(in millions of Korean won) 2011

Revenues Expensesthree months six months three months six months

Parent Company

Hyundai Motor Company \ 4,964 \ 10,168 \ 291 \ 1,155

Others

Kia Motors Corp. - - 1,151 1,284Hyundai Card Co., Ltd. 5,775 12,005 3,946 6,358Hyundai Commercial 263 490 164 273Other related parties 1,453 2,387 9,309 17,572

7,491 14,882 14,570 25,487

\ 12,455 \ 25,050 \ 14,861 \ 26,642

(in millions of Korean won) 2010

Revenues Expensesthree months six months three months Six months

Parent Company

Hyundai Motor Company \ 7,230 \ 15,786 \ 217 \ 1,513

Others

Kia Motors Corp. 1,048 3,323 167 224Hyundai Card Co., Ltd. 2,882 9,153 3,188 9,282Hyundai Commercial 157 318 83 461Other related parties 835 1,598 11,739 20,639

4,922 14,392 15,177 30,606

\ 12,152 \ 30,178 \ 15,394 \ 32,119

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

c. Key management compensation

Compensation for key management for the six-month periods ended June 30, 2011 and 2010,

consists of:


Type 2011 2010

Short-term employee benefits \ 3,824 \ 1,794

Severance benefits 1,206 495

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

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


62

28. Financial Risk Management

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

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

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

risks.

28.1 Credit risk

a. Exposure to credit risk

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


Type 2011 2010

Cash and deposits \ 1,382,798 \ 1,224,887

Available-for-sale securities 3,944 3,372

Loans receivable 10,853,019 10,218,438

Installment financial assets 4,927,198 5,056,782

Non-trade receivables 39,890 39,869

Accrued revenue 107,864 111,806

Advance payments1

36,783 34,092

Leasehold deposits 34,474 31,955

Derivative assets 426,616 521,530

Unused loan commitments 1,052,779 1,071,419

\ 20,963,355 \ 20,092,588

1Some parts of advance payments for customers

b. Credit quality of financial assets

Credit quality of financial assets exposed to credit risk as of June 30, 2011 and December 31,

2010, follows:


63


Type2011 2010

Normal Past due Impaired Normal Past due Impaired

Cash and deposits \ 1,382,798 \ - \ - \ 1,224,887 \ - \ -


3,944 - - 3,372 - -

Financial receivables

Loans receivable 10,056,565 713,746 82,708 9,638,971 499,519 79,948


4,711,431 211,741 4,026 4,881,495 168,567 6,720

Leasereceivables

2,024,066 68,109 5,815 1,724,271 51,037 3,130

16,792,062 993,596 92,549 16,244,737 719,123 89,798


39,890 - - 39,869 - -

Accrued revenue 107,864 - - 111,806 - -

Advancepayments

36,783 - - 34,092 - -

Leaseholddeposits

34,474 - - 31,955 - -

Derivative assets 426,616 - - 521,530 - -

Unused loancommitments

1,052,779 - - 1,071,419 - -

\ 19,877,210 \ 993,596 \ 92,549 \19,283,667 \ 719,123 \ 89,798

(1) Financial receivables neither past due nor impaired

Credit quality according to internal credit rating of financial receivables which are neither past due

nor impaired as of June 30, 2011 and December 31, 2010, are as follows:


Type2011 2010

Gross amount Allowance Book value Gross amount Allowance Book value

First-rate \ 2,489,791 \ (1,521) \ 2,488,270 \ 1,398,614 \ (598) \ 1,398,016

Second-rate 5,046,286 (9,442) 5,036,844 4,973,898 (7,823) 4,966,075

Third-rate 5,808,910 (36,174) 5,772,736 6,200,694 (32,099) 6,168,595

Fourth-rate 927,422 (16,307) 911,115 1,002,305 (16,129) 986,176

Fifth-rate 1,038,643 (36,730) 1,001,913 986,277 (32,422) 953,835

Sixth-rate 522,031 (55,014) 467,017 485,733 (51,885) 433,848

No rating 1,135,921 (21,754) 1,114,167 1,360,428 (22,236) 1,338,192

\ 16,969,004 \ (176,942) \ 16,792,062 \16,407,949 \ (163,212) \ 16,244,737

The Group classifies financial receivables into six internal credit rating based on the rating criteria

and the characteristic of receivables. Some financial receivables have no rating due to lack of

analytical data or are being managed separately.


64

(2) Financial receivables past due but not impaired

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

as follows:


2011

TypesLess than1 month

Between1 ~ 2 months

Between2~3 months

Total

Loans receivable \ 615,440 \ 84,712 \ 47,467 \ 747,619

Installment financial assets 200,310 11,326 3,938 215,574

Lease receivables 64,026 4,312 1,468 69,806

879,776 100,350 52,873 1,032,999

Allowance (19,164) (7,174) (13,065) (39,403)

Carrying amount \ 860,612 \ 93,176 \ 39,808 \ 993,596


2010

TypesLess than1 month

Between1 ~ 2 months

Between2~3 months

Total

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

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

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

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

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

Carrying amount \ 617,523 \ 70,338 \ 31,262 \ 719,123


65

(3) Impaired financial receivables


2011 2010

Type Gross amount Allowance Book value Gross amount Allowance Book value

Loans receivable \ 160,117 \ (77,409) \ 82,708 \ 138,877 \ (58,929) \ 79,948


10,911 (6,885) 4,026 12,623 (5,903) 6,720

Lease receivables 13,280 (7,465) 5,815 11,355 (8,225) 3,130

\ 184,308 \ (91,759) \ 92,549 \ 162,855 \ (73,057) \ 89,798

(4) Credit quality of other assets

Credit quality according to external credit rating of other assets except for financial receivables

which are neither past due nor impaired as of June 30, 2011 and December 31, 2010, are as

follows:


Cash and deposits1

2011 2010

AAA \ 775,632 \ 767,370

AA+ 30,799 11,384

AA 280,000 140,000

AA- 60,000 95,000

A+ 205,328 190,257

A 30,534 462

A- - 20,000

No rating 505 414

\ 1,382,798 \ 1,224,887

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


Derivative assets2

2011 2010

AA \ 13,995 \ 19,326

AA- 85,956 93,379

A+ 220,316 267,891

A 93,895 123,027

BBB+ 12,454 17,907

\ 426,616 \ 521,530

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

Credit quality of other assets except for financial receivables according to borrowers’ past due

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


66


Accrued revenue 2011 2010

Group 13

\ 98,606 \ 102,482

Group 24

9,258 9,324

\ 107,864 \ 111,806

3Group 1: The borrowers have not experienced impairments in the past.

4Group 2: The borrowers have experienced impairments in the past.


Unused loan commitments 2011 2010

Group 1 \ 1,052,776 \ 1,071,419

Group 2 3 -

\ 1,052,779 \ 1,071,419

c. Assets pledges as collateral

The assets pledged as collateral for financial receivables as of June 30, 2011 and December 31,



2011

Type ImpairedUnimpaired

TotalDelinquent Non-delinquent

Total financialreceivables \ 92,549 \ 993,596 \ 16,792,062 \ 17,878,207

Collateralized assets

Collateralizedvehicles

39,208 443,972 4,623,554 5,106,734

Collateralized realestate

747 6,341 129,634 136,722

\ 39,955 \ 450,313 \ 4,753,188 \ 5,243,456


2010

Type ImpairedUnimpaired

TotalDelinquent Non-delinquent

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

Collateralized assets

Collateralizedvehicles

25,585 335,539 4,577,950 4,939,074

Collateralizedreal estate

328 2,739 127,709 130,776

\ 25,913 \ 338,278 \ 4,705,659 \ 5,069,850


67

d. Credit risk concentration

Credit risk concentration of financial receivables by debtors as of June 30, 2011 and December 31,



Type

2011 2010

Includingallowance

Ratio Allowance Book valueIncludingallowance

Ratio Allowance Book value

Individual \ 15,449,118 84.9% \ (277,342) \15,171,776 \ 14,902,141 86.0% \ (236,824) \ 14,665,317

Corporate

Finance 41,784 0.2% (290) 41,494 38,098 0.2% (296) 37,802

Manufac-turing

838,215 4.6% (9,973) 828,242 737,970 4.3% (10,444) 727,526

Service 826,858 4.6% (8,226) 818,632 721,722 4.2% (6,854) 714,868

Public 8,304 0.1% (26) 8,278 6,270 0.1% (54) 6,216

Others 1,022,031 5.6% (12,246) 1,009,785 912,833 5.2% (10,904) 901,929

2,737,192 15.1% (30,761) 2,706,431 2,416,893 14.0% (28,552) 2,388,341

\ 18,186,310 100.0% \ (308,103) \17,878,207 \ 17,319,034 100.0% \ (265,376) \ 17,053,658

28.2 Liquidity risk

Cash flows of financial liabilities based on remaining contractual maturities as of June 30, 2011 and



TypeImmediatepayment

Up to 1 year 1 to 5 years Over 5 years Total1

Borrowings \ - \ 1,507,950 \ 490,452 \ - \ 1,998,402

Debentures - 5,397,129 10,338,734 1,560,765 17,296,628

Other liabilities 5,133 435,358 640,539 8 1,081,038

Net settlement

derivative

liabilities

- 484 (13) - 471

Gross settlement

derivative

liabilities

Cash inflow - (949,210) (2,535,126) (771,178) (4,255,514)

Cash outflow 2 1,058,393 2,727,040 810,031 4,595,466

\ 5,135 \ 7,450,104 \ 11,661,626 \ 1,599,626 \ 20,716,491


68


TypeImmediatepayment

Up to 1 year 1 to 5 years Over 5 years Total1

Borrowings \ - \ 2,154,878 \ 557,869 \ - \ 2,712,747

Debentures - 4,687,022 10,882,286 408,872 15,978,180

Other liabilities 4,545 513,232 548,020 - 1,065,797

Net settlement

derivative

liabilities

- 2,564 (68) - 2,496

Gross settlement

derivative

liabilities

Cash inflow - (410,299) (1,565,978) - (1,976,277)

Cash outflow - 440,274 1,644,488 - 2,084,762

\ 4,545 \ 7,387,671 \ 12,066,617 \ 408,872 \ 19,867,705

The above amounts including the principal and future interest payments are contractual

undiscounted cash flows and are not equal to the amounts of statement of financial position based

on the discounted cash flows.

The unused agreement of limited loan products amounts to maximum of \ 1,052,779 million as of

June 30, 2011 (2010: \ 1,071,419 million). The unused loan agreement above might be paid

immediately on customers’ request.

28.3 Market risk

a. Interest rate risk

The Group manages the interest rate risk through Value at Risk(VaR), Earning at Risk(EaR)

measurement and Interest Rate Gap Analysis that analyze the maturity between the interest

revenue-generating assets and the interest-bearing liabilities.

VaR is calculated using the standard framework of the Bank for International Settlements(BIS). The

VaR model uses the proxy of modified duration per expiration interval proposed by the BIS and

expected interest rate volatility of expiration interval by reason of interest rate fluctuation of 100bp.

The interest rate risk using VaR as of June 30, 2011 and December 31, 2010, follows:


Type 2011 2010

Interest rate VaR \ 121,077 \ 78,614


69

VaR is a commonly used market risk measurement techniques but has some limitations. VaR

estimates the expected loss under the specific reliability based on the historical changes in the

market data. However, the past changes in market cannot reflect all conditions and environments

that may occur in the future. Therefore, in the process of calculating, the timing and size of the

actual loss may vary according to changes in assumptions.

b. Foreign exchange risk

The Group holds borrowings and debentures that are denominated in foreign currencies and is

exposed to foreign exchange risk arising from various currency exposures. The Group undertakes

hedging strategies with hedge accounting being applied to manage these foreign exchange risks.

Foreign exchange position exposures of the Group as of June 30, 2011 and December 31, 2010,

are as follows:

The Group’s exposure to foreign exchange risk is hedged by derivatives. Therefore, foreign

exchange risk of the Group is not significant.

28.4 Capital risk management

The objective of the Group’s capital management is to maintain sound capital structure. The Group

uses adjusted capital adequacy ratio under the regulation on Supervision of Specialized Credit

Financial Business Law as a capital management indicator. This ratio is calculated as adjusted total

asset divided by adjusted equity.


Currency 2011 2010

USD \ 3,926,619 \ 3,802,170

EUR 1,023,774 991,452

MYR 708,899 497,145

JPY 467,492 514,125

CHF 840,600 426,304

Others 53,703 150,709

\ 7,021,087 \ 6,381,905


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Adjusted capital adequacy ratio of the Group as of June 30, 2011 and December 31, 2010, are as

follows:

The above adjusted capital adequacy ratio is calculated according to Supervision of Specialized

Credit Financial Business Law.

29. Segment Information

Management has determined the operating segments based on the management’s reports in

conformity with nature of goods and services. Operating segments are segregated into auto

financing service and other service.

Segments’ assets and profits or losses are measured by management accounting policies of the

Group. Non-operating and nonrecurring incomes/expenses are not classified into segments, but

only financial receivables are allocated into operating segments.


Type 2011 2010

Adjusted total asset (1) \ 19,943,394 \ 19,295,545

Adjusted equity (2) 2,515,509 2,227,114

Adjusted capital adequacy ratio (2)÷(1) 12.61% 11.54%

Operating segments Description

Auto financing servicesegment

Assets, liabilities, incomes and expenses from auto installmentfinancing and auto leasing

Other service segmentAssets, liabilities, incomes and expenses from personal loanand mortgage installment financing other than auto relatedproducts.


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Segment information for the six-month periods ended June 30, 2011 and 2010, follows:


2011

Type Auto Others TotalUnallocated

othersFinancial

statements

Operating revenue

Interest income \ 752,929 \ 309,749 \ 1,062,678

Non-interestincome

476,270 49,836 526,106

1,229,199 359,585 1,588,784 \ 372,854 \ 1,961,638

Operating expenses

Interest expenses (334,405) (74,438) (408,843)

Non-interestexpenses

(648,440) (172,283) (820,723)

(982,845) (246,721) (1,229,566) (274,269) (1,503,835)

Segment operatingprofits(pre-tax)

246,354 112,864 359,218 98,585 457,803

Segment assets2

Loans receivable 7,942,281 2,415,085 10,357,366 862,069 11,219,435


4,999,710 898,609 5,898,319 (857,565) 5,040,754

LeaseReceivables

2,041,079 8,525 2,049,604 71,533 2,121,137

\ 14,983,070 \ 3,322,219 \ 18,305,289 \ 76,037 \ 18,381,326

1Unallocated and reclassification

•Income and expense unallocated – Income/expenses related to interest income on bank

deposits, foreign exchange translation, derivatives and others.

•Assets unallocated – Initial direct cost for finance lease receivables, cancelled lease receivables

and others2Loan principal and present value discounts


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2010

Type Auto Others TotalUnallocated

othersFinancial

statements

Operating revenue

Interest income \ 697,138 \ 252,451 \ 949,589

Non-interestincome

432,750 45,129 477,879

1,129,888 297,580 1,427,468 \ 367,356 \ 1,794,824

Operating expenses

Interest expenses (353,595) (80,789) (434,384)

Non-interestexpenses

(534,701) (119,424) (654,125)

(888,296) (200,213) (1,088,509) (345,979) (1,434,488)

Segment operatingprofits(pre-tax)

241,592 97,367 338,959 21,377 360,336

Segment assets2

Loans receivable 6,373,299 1,845,264 8,218,563 1,194,807 9,413,370


4,602,887 1,290,692 5,893,579 (1,198,554) 4,695,025

LeaseReceivables

1,479,514 24,606 1,504,120 59,575 1,563,695

\ 12,455,700 \ 3,160,562 \ 15,616,262 \ 55,828 \ 15,672,090

Audit Report: Hyundai Capital 2Q2011

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Transcript of Audit Report: Hyundai Capital 2Q2011