Hyundai Capital Services, Inc. and Subsidiaries Condensed Consolidated Interim Financial Statements (Unaudited) June 30, 2014 (With Independent Auditors’ Review Report Thereon)
Hyundai Capital Services, Inc. and Subsidiaries Condensed Consolidated Interim Financial Statements (Unaudited) June 30, 2014
(With Independent Auditors’ Review Report Thereon)
Contents
Page
Independent Auditors’ Review Report 1
Condensed Consolidated Interim Statements of Financial Position 3
Condensed Consolidated Interim Statements of Comprehensive Income 5
Condensed Consolidated Interim Statements of Changes in Equity 8
Condensed Consolidated Interim Statements of Cash Flows 10
Notes to the Condensed Consolidated Interim Financial Statements 11
(Based on a report originally issued in Korean)
The Board of Directors and ShareholdersHyundai Capital Services, Inc.: Reviewed Financial Statements We have reviewed the accompanying Services, Inc. and its subsidiariesfinancial position as of June 30, 201three-month and six-month periods ended June 30, 2014 and 2013changes in equity and cash flows forfinancial statements. Management’s Responsibility Management is responsible for the preparation and fair presentation of these financial statements in accordance with Korean International Financial Reporting Standards (“KInterim Financial Reporting, and for such internal control as management determines is necessary to enable the preparation of condensed consolidated whether due to fraud or error. Auditors’ Review Responsibility Our responsibility is to issue a report on these reviews. We conducted our reviews in accordance with the Review Standards for Quarterly & Semiannual Financial Statements 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 awidentified in an audit. Accordingly, we do not express an audit opinion.
KPMG Samjong Accounting Corp. 10th Floor, Gangnam Finance Center, 152 Teheran-ro, Gangnam-gu, Seoul 135-984, Republic of Korea
Tel Fax www.kr.kpmg.com
Independent Auditors’ Review Report
(Based on a report originally issued in Korean)
The Board of Directors and Shareholders
We have reviewed the accompanying condensed consolidated interim financial statements of Hyundai Capitaland its subsidiaries (the “Group”), which comprise the condensed consolidated
, 2014, the condensed consolidated statements of comprehensive incomemonth periods ended June 30, 2014 and 2013, the condensed consolidated statements of
changes in equity and cash flows for the six-month periods ended June 30, 2014 and 2013
Management is responsible for the preparation and fair presentation of these condensedfinancial statements in accordance with Korean International Financial Reporting Standards (“K
, and for such internal control as management determines is necessary to enable the consolidated interim financial statements that are free from material misstatement,
Our responsibility is to issue a report on these condensed consolidated interim financial statements based on our
in accordance with the Review Standards for Quarterly & Semiannual Financial tatements 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 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.
+82 (2) 2112 0100 Fax +82 (2) 2112 0101 www.kr.kpmg.com
financial statements of Hyundai Capital consolidated statement of
consolidated statements of comprehensive income for the the condensed consolidated statements of
and 2013 and notes to the interim
condensed consolidated interim financial statements in accordance with Korean International Financial Reporting Standards (“K-IFRS”) No.1034,
, and for such internal control as management determines is necessary to enable the financial statements that are free from material misstatement,
consolidated interim financial statements based on our
in accordance with the Review Standards for Quarterly & Semiannual Financial tatements 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 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 are of all significant matters that might be
Conclusion Based on our reviews, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements referred to above are not prepared, in all material respects, in accordance with K-IFRS No.1034, Interim Financial Reporting. Others The consolidated statement of financial position of the Group as of December 31, 2013, and the related consolidated statements of comprehensive income, changes in equity, and cash flows for the year then ended, which are not accompanying this report, were audited in accordance with auditing standards generally accepted in the Republic of Korea, and our report thereon, dated February 27, 2014, expressed an unqualified opinion. The accompanying condensed consolidated statement of financial position of the Group as of December 31, 2013, presented for comparative purposes, is not different from that audited by us in all material respects. The procedures and practices utilized in the Republic of Korea to review such condensed consolidated interim financial statements may differ from those generally accepted and applied in other countries.
KPMG Samjong Accounting Corp. Seoul, Korea August 12, 2014
This report is effective as of August 12, 2014, 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 condensed consolidated interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that the above report has not been updated to reflect the impact of such subsequent events or circumstances, if any.
Hyundai Capital Services, Inc. and Subsidiaries Condensed Consolidated Interim Statements of Financial Position As of June 30, 2014 and December 31, 2013 (Unaudited)
3
June 30, December 31, (In millions of won) Notes 2014 2013
Assets Cash and due from banks
Cash and cash equivalents 22 W 1,368,740 1,502,600 Due from banks 950 15
1,369,690 1,502,615 Securities 3
Available-for-sale securities 53,631 52,783 Investments in associates 112,205 157,313
165,836 210,096 Loans receivable 4,5
Loans receivable 10,295,587 11,457,560 Allowance for loan losses (343,133) (333,359)
9,952,454 11,124,201 Installment financial assets 4,5
Automobile installment financing receivables 5,952,664 4,832,950 Allowance for loan losses (51,416) (42,694) Durable goods installment financing receivables 1,452 — Allowance for loan losses (85) — Mortgage installment financing receivables 7,997 9,884 Allowance for loan losses (247) (286)
5,910,365 4,799,854 Lease receivables 4,5
Finance lease receivables 2,942,046 3,038,798 Allowance for loan losses (56,111) (49,612) Cancelled lease receivables 13,802 11,329 Allowance for loan losses (12,868) (10,556)
2,886,869 2,989,959 Leased assets
Operating lease assets 1,640,968 1,622,565 Accumulated depreciation (539,628) (555,872) Cancelled lease assets 5,129 5,259 Accumulated depreciation (2,226) (2,226)
1,104,243 1,069,726
Property and equipment, net 6 231,652 233,018
Assets held for sale 8 46,347 22,347
Other assets Non-trade receivables 99,227 119,207 Allowance for doubtful accounts 5 (5,670) (5,457) Accrued revenues 110,466 118,737 Allowance for doubtful accounts 5 (15,359) (15,220) Advance payments 74,849 57,153 Prepaid expenses 70,094 47,774 Intangible assets 7 60,814 62,747 Derivative assets 12,26 7,421 23,946 Leasehold deposits 28,941 28,343
430,783 437,230
Total assets W 22,098,239 22,389,046
See accompanying notes to the condensed consolidated interim financial statements.
Hyundai Capital Services, Inc. and Subsidiaries Condensed Consolidated Interim Statements of Financial Position, Continued As of June 30, 2014 and December 31, 2013 (Unaudited)
4
June 30, December 31,
(In millions of won) Notes 2014 2013
Liabilities
Borrowed funds 9 Borrowings W 1,704,704 1,811,443 Bonds issued 15,234,041 15,426,879
16,938,745 17,238,322 Other liabilities
Non-trade payables 244,758 307,753 Accrued expenses 163,543 161,447 Unearned revenue 38,854 41,857 Withholdings 33,366 37,486 Derivative liabilities 12,26 615,607 512,745 Current tax liabilities 32,469 58,528 Defined benefit liability, net 10 21,605 12,884 Deposits received 652,481 706,224 Deferred income tax liabilities 19 45,006 57,022 Provisions 11 1,693 1,826 Other 60 70
1,849,442 1,897,841
Total liabilities 18,788,187 19,136,163
Equity
Issued capital 496,537 496,537 Capital surplus 407,539 407,539 Accumulated other comprehensive loss 21 (39,553) (11,574) Retained earnings 13,14 2,445,529 2,360,381
Total Equity 3,310,052 3,252,883
Total liabilities and equity W 22,098,239 22,389,046
See accompanying notes to the condensed consolidated interim financial statements.
Hyundai Capital Services, Inc. and Subsidiaries Condensed Consolidated Interim Statements of Comprehensive Income For the three-month and six-month periods ended June 30, 2014 and 2013 (Unaudited)
5
Notes
June 30, 2014 June 30, 2013
(In millions of won)
Three- month period ended
Six- month period ended
Three- month period ended
Six- month period ended
Operating revenue
Interest income 15 W 10,749 22,624 7,679 15,807
Gain on valuation and sale of securities
349
1,002
473
1,395
Income on loans 15,16 320,691 653,235 381,767 757,811
Income on installment financial assets
15,16
88,970
168,375
56,654
123,301
Income on leases 15,16 216,457 435,105 225,048 453,076
Gain(loss) on sale of loans (171) 3,673 8,182 11,320
Gain on foreign currency transactions
196,013
196,521
27,844
50,821
Dividend income 177 2,383 230 2,588
Other operating income 17 (57,520) 81,746 204,986 416,327
Total operating revenue 775,715 1,564,664 912,863 1,832,446
Operating expenses
Interest expense 15 192,449 387,264 198,376 402,389 Lease expense 16 123,867 250,126 123,216 251,045 Provision for loan losses 5 107,672 226,650 103,026 203,956 Loss(gain) on foreign currency
transactions
(91,865) 13,193 154,631 330,601 General and administrative
expenses
18 167,657 321,190 161,022 315,302 Other operating expenses 17 210,166 222,989 42,453 81,667
Total operating expenses 709,946 1,421,412 782,724 1,584,960
Operating income W 65,769 143,252 130,139 247,486 See accompanying notes to the condensed consolidated interim financial statements.
Hyundai Capital Services, Inc. and Subsidiaries Condensed Consolidated Interim Statements of Comprehensive Income, Continued For the three-month and six-month periods ended June 30, 2014 and 2013 (Unaudited)
6
Notes
June 30, 2014 June 30, 2013
(In millions of won)
Three- month period ended
Six- month period ended
Three- month period ended
Six- month period ended
Non-operating income
Share in net income of associates under the equity method
3 W 2,733 6,828 (2,430) 1,746 Gain on sale of property and
equipment
48 61 8 85,488 Recovery of impairment loss
on intangible assets
— 26 — — Other 2,099 4,087 2,412 4,640
Total non-operating income 4,880 11,002 (10) 91,874
Non-operating expenses
Share in net loss of associates under the equity method
3 (41) 216 330 436
Impairment loss on investments in associates
3 — 27,688 — — Loss on sale of property and
equipment
55 58 58 2,896 Donation 423 513 169 272 Other 98 378 494 597
Total non-operating expenses 535 28,853 1,051 4,201 Profit before income taxes 70,114 125,400 129,078 335,159 Income tax expense 19 15,517 40,251 33,775 87,006 Profit for the period W 54,597 85,149 95,303 248,153 See accompanying notes to the condensed consolidated interim financial statements.
Hyundai Capital Services, Inc. and Subsidiaries Condensed Consolidated Interim Statements of Comprehensive Income, Continued For the three-month and six-month periods ended June 30, 2014 and 2013 (Unaudited)
7
Notes
2014 2013
(In millions of won, except for earnings per share information)
Three-month period ended
Six- month period ended
Three-month period ended
Six- month period ended
Other comprehensive loss,
net of income taxes
21
Items that will not be reclassified
to profit or loss:
Remeasurements of
defined benefit plans
W (3,012) (3,901) 2,124 665 Items that are or may be reclassified
subsequently to profit or loss:
Net change in unrealized gains and
losses on available-for-sale securities
(353) 531 818 1,060 Share in other comprehensive
income (loss) of associates under the equity method
(4,550) (4,939) 2,136 3,275 Net change in remaining effective
portion of cash flow hedges
(18,360) (19,153) (38,410) (58,148) Net change in foreign currency
translation adjustments
(419) (517) (1,020) (929)
(26,694) (27,979) (34,352) (54,077)
Total comprehensive income for the period
W 27,903 57,170 60,951 194,076
Earnings per share 20 Basic and diluted earnings per share W 550 857 960 2,499
See accompanying notes to the condensed consolidated interim financial statements.
Hyundai Capital Services, Inc. and Subsidiaries Condensed Consolidated Interim Statements of Changes in Equity For the six-month periods ended June 30, 2014 and 2013 (Unaudited)
8
(In millions of won)
Issued capital
Capital surplus
Additional paid-in capital
Other capital surplus
Accumulated other
comprehensive loss Retained earnings
Total equity
Balances as of January 1, 2013 W 496,537 369,339 38,200 (13,432) 2,148,998 3,039,642
Total comprehensive income (loss) Profit for the period — — — — 248,153 248,153 Other comprehensive loss: Net change in unrealized gains
and losses on available-for-sale securities — — — 1,060 — 1,060
Share in other comprehensive income of associates under the equity method — — — 3,275 — 3,275
Net change in remaining effective portion of cash flow hedges — — — (58,148) — (58,148)
Net change in foreign currency translation adjustments — — — (929) — (929)
Remeasurements of defined benefit plans — — — 665 — 665
— — — (54,077) 248,153 194,076
Balances as of June 30, 2013 W 496,537 369,339 38,200 (67,508) 2,397,151 3,233,718
See accompanying notes to the condensed consolidated interim financial statements.
Hyundai Capital Services, Inc. and Subsidiaries Condensed Consolidated Interim Statements of Changes in Equity, Continued For the six-month periods ended June 30, 2014 and 2013 (Unaudited)
9
(In millions of won)
Issued capital
Capital surplus
Additional paid-in capital
Other capital surplus
Accumulated other
comprehensive loss Retained earnings
Total equity
Balances as of January 1, 2014 W 496,537 369,339 38,200 (11,574) 2,360,380 3,252,882 Total comprehensive income (loss)
Profit for the period — — — — 85,149 85,149 Other comprehensive loss: Net change in unrealized gains
and losses on available-for-sale securities — — — 531 — 531
Share in other comprehensive loss of associates under the equity method — — — (4,939) — (4,939)
Net change in remaining effective portion of cash flow hedges — — — (19,153) — (19,153)
Net change in foreign currency translation adjustments — — — (517) — (517)
Remeasurements of defined benefit plans — — — (3,901) — (3,901)
— — — (27,979) 85,149 57,170
Balances as of June 30, 2014 W 496,537 369,339 38,200 (39,553) 2,445,529 3,310,052
See accompanying notes to the condensed consolidated interim financial statements.
Hyundai Capital Services, Inc. and Subsidiaries Condensed Consolidated Interim Statements of Cash Flows For the six-month periods ended June 30, 2014 and 2013 (Unaudited)
10
(In millions of won) Notes 2014 2013
Cash flows from operating activities Cash generated from operations 22 W 430,794 342,168
Interest received 22,192 16,662
Interest paid (361,519) (368,355) Dividends received 2,383 2,588
Income taxes paid (72,444) (46,431) Net cash provided by (used in) operating activities 21,406 (53,368) Cash flows from investing activities
Dividends received from associates — 533
Acquisition of investments in associates (5,150) (2,552) Acquisition of land (10) (1,981) Proceeds from sale of land — 114,486
Acquisition of building (405) — Proceeds from sale of building — 63,415
Acquisition of vehicles (383) (256) Proceeds from sale of vehicles 127 183
Acquisition of fixtures and furniture (9,038) (4,262) Proceeds from sale of fixtures and furniture 34 103
Acquisition of other tangible assets (75) (48) Proceeds from sale of other tangible assets 10 76
Increase in construction in progress (4,929) (24,612) Acquisition of intangible assets (6,077) (5,287) Decrease in leasehold deposits 1,537 3,488
Increase in leasehold deposits (873) (3,011) Net cash provided by provided by (used in) investing activities (25,232) 140,275 Cash flows from financing activities
Proceeds from borrowings 1,040,000 1,270,000
Repayments of borrowings (1,145,000) (1,526,500) Issuance of bonds 1,918,499 1,898,288
Repayments of bonds (1,943,504) (1,934,906)
Net cash used in financing activities (130,005) (293,118)
Effect of exchange rate fluctuations on cash and cash equivalents held (29)
2
Net decrease in cash and cash equivalents (133,860) (206,209) Cash and cash equivalents at beginning of the period 22 1,502,600 1,302,161
Cash and cash equivalents at end of the period 22 W 1,368,740 1,095,952
See accompanying notes to the condensed consolidated interim financial statements.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
11
1. Reporting Entity Hyundai Capital Services, Inc. (the “Company”) was established on December 22, 1993, to engage in installment financing, facilities leasing 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 30, 1998. In accordance with the Monopoly Regulation and Fair Trade Act, the Company is incorporated into Hyundai Motor Company Group. As of June 30, 2014, the Company’s operations are headquartered in 3, Uisadang-daero, Yeongdeungpo-gu, Seoul, Korea. Its major shareholders are Hyundai Motor Company and GE International Holdings Corporation with 56.47% and 43.30% ownership, respectively. The condensed consolidated interim financial statements include the accounts of the Company and its subsidiaries, including Autopia 36th Asset Securitization Specialty Company (“ABS SPC”) with trust for the securitization, and other subsidiaries as summarized below (collectively, the “Group”). Investments in Beijing Hyundai Auto Finance Co., Ltd. and four other associates are accounted for under the equity method. (1) The Group’s subsidiaries Subsidiaries as of June 30, 2014 and December 31, 2013, are as follows. Asset securitization vehicles are special purpose vehicles which are sponsored by the Group under its securitization program. The Group is exposed to variability of returns of the vehicles through its holding of debt securities in the vehicles and by issuing financial guarantees to the vehicles; and the Group manages key decisions that significantly affect these vehicles’ returns. As a result, the Group has concluded that its controls these vehicles even though its ownership interests over these vehicles do not exceed 50%.
Location
Ownership (%) June 30, 2014 December 31, 2013
Asset securiti-zation vehicles
Korea 0.9 Autopia 36th ABS SPC (trust) Autopia 36th ABS SPC (trust) Autopia 43rd ABS SPC (trust) Autopia 42nd ABS SPC (trust) Autopia 44th ABS SPC (trust) Autopia 43rd ABS SPC (trust) Autopia 45th ABS SPC (trust) Autopia 44th ABS SPC (trust) Autopia 46th ABS SPC (trust) Autopia 45th ABS SPC (trust) Autopia 47th ABS SPC (trust) Autopia 46th ABS SPC (trust) HB Third ABS SPC Autopia 47th ABS SPC (trust) HB Third ABS SPC 0.5 Autopia 49th ABS SPC (trust) Autopia 49th ABS SPC (trust) Autopia 50th ABS SPC (trust) Autopia 50th ABS SPC (trust) Autopia 51st ABS SPC (trust) Autopia 51st ABS SPC (trust) Autopia 52nd ABS SPC (trust) Autopia 52nd ABS SPC (trust) Autopia 54th ABS SPC (trust) 0.31 HB Fourth ABS SPC HB Fourth ABS SPC
Limited liability company
Germany 100 Hyundai Capital Europe GmbH (*) Hyundai Capital Europe GmbH (*)
India 100 Hyundai Capital India Private Limited
Hyundai Capital India Private Limited
Brazil 100 Hyundai Capital Brasil LTDA Hyundai Capital Brasil LTDA
(*) Hyundai Capital Europe GmbH holds 100% ownership interests of Hyundai Capital Services Limited
Liability Company located at Russia.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
12
1. Reporting Entity, Continued
(2) Changes in subsidiaries Subsidiaries that are included in and excluded from the Group’s consolidated interim financial statements during the six-month period ended June 30, 2014 are as follows:
Change Event Subsidiaries
Included Establishment Autopia 54th ABS SPC (trust)
Excluded Liquidation Autopia 42nd ABS SPC (trust)
(3) Key financial information of subsidiaries as of June 30, 2014 is summarized as follows:
Assets
Liabilities Equity
Operating income
Profit (loss) for the year
Total comprehensive income (loss)
Hyundai Capital Europe GmbH W 11,264 2,757 8,507 8,049 (1,011) (1,566)
Hyundai Capital India Private Limited 1,611 1,045 566 562 39 35
Hyundai Capital Brasil LTDA 2,387 164 2,223 2,009 828 870
ABS SPCs 2,368,955 2,364,577 4,378 84,046 (1,612) (4,248)
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
13
2. Accounting Policies 2.1 Basis of Accounting (1) Statement of compliance These condensed consolidated interim financial statements were prepared in accordance with K-IFRS No. 1034, Interim Financial Reporting, for the six-month period ended June 30, 2014, and do not include all of the disclosures required for full consolidated annual financial statements. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the last annual consolidated financial statements as of and for the year ended December 31, 2013. These condensed consolidated interim financial statements have been prepared in accordance with the Korean IFRS standards and interpretations issued and effective or issued and early adopted as of June 30, 2014.
(2) Use of estimates and judgements The preparation of the financial statements in conformity with K-IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. In preparing these condensed consolidated interim financial statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that were applied to the consolidated financial statements as of and for the year ended December 31, 2013.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
14
2. Accounting Policies, Continued 2.2 Significant Accounting Policies (1) Changes in accounting policies Except as described below, the accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as of and for the year ended December 31, 2013. The following changes in accounting policies are also expected to be reflected in the Group’s consolidated financial statements as at and for the year ending December 31, 2014.
(i) Amendments to K-IFRS No. 1032, Financial Instruments: Presentation The amendments requires the offsetting of financial assets to financial liabilities to be presented as a net value on the statement of financial position, only if the assets and liabilities recognized by the Group has legal enforceable rights to offset, and has the intent to realize the net value or realize liabilities simultaneously to when realizing assets. The amendments are effective for annual periods beginning on or after January 1, 2014. The adoption of the amendments had no significant impact on the Group’s consolidated financial statements. (ii) Amendments to K-IFRS No. 1036, Impairment of Assets The amendments address disclosure of recoverable amounts only for individual assets or cash generating units that recognize impairment losses (or subsequent gains) on goodwill and intangible assets with indefinite useful life. The amendments are effective for annual periods beginning on or after January 1, 2014. The adoption of the amendments had no significant impact on the Group’s consolidated financial statements.
(iii) K-IFRS No. 2121, Levies The interpretation defines a levy an outflow from an entity by a government in accordance with legislation. The obligating event that gives rise to a liability to pay a levy is the activity that triggers the payment of the levy, as identified by the legislation. The liability to pay a levy is recognized progressively if the obligation event occurs over a period time; if an obligation to pay a levy is triggered when a minimum threshold is reached, the corresponding liability is recognized when that minimum activity threshold is reached. An entity shall recognize an asset if it has prepaid a levy but does not yet have a present obligation to pay that levy. The interpretation confirms that an entity recognizes a liability for a levy when, and only when, the triggering event specified in the legislation occurs. An entity does not recognize a liability at an earlier date, even if it has no realistic opportunity to avoid the triggering event. The interpretation is effective for annual periods beginning on or after January 1, 2014. The adoption of the interpretation had no significant impact on the Group’s consolidated financial statements.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
15
3. Securities Securities as of June 30, 2014 and December 31, 2013 are as follows:
June 30, 2014 December 31, 2013 Available-for-sale securities Equity securities
Marketable equity securities W 10,418 9,981 Unlisted equity securities 10,589 10,844
21,007 20,825 Debt securities
Government and public bonds 1,896 1,735 Corporation bonds 30,728 30,223
32,624 31,958
53,631 52,783 Investments in associates 112,205 157,313
W 165,836 210,096
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
16
3. Securities, Continued
3.1 Available-for-sale securities Available-for-sale securities as of June 30, 2014 and December 31, 2013, are as follows: (1) Marketable equity securities
Carrying amount
Number of
shares Ownership
(%) Acquisition
cost June 30,
2014 December 31,
2013 Marketable equity securities
NICE Information Service 1,365,930 2.25 W 3,312 4,248 4,180 NICE Holdings 491,620 1.30 3,491 6,170 5,801
Unlisted equity securities Hyundai Finance Corp. (*) 1,700,000 9.29 9,888 10,414 10,666 Korean Egloan, Inc. 4,000 3.12 100 100 100 Golfclub Lich AG 14 0.59 60 75 78
W 16,851 21,007 20,825
(*) The fair value of Hyundai Finance Corp. is estimated at the average of appraised value obtained by two external appraisers, KIS Pricing Inc. and Korea Asset Pricing, using the valuation technique based on the income approach (discounted cash flow model). In measuring the fair value under this methodology, appraisers estimate five-year financial statements based on projections considering actual operating results assuming that the operational structure will remain unchanged for the next five years. Operating income and expenses are estimated based on the past performances, future business plans and expected market conditions.
(2) Debt securities
Carrying amount
Issuer Interest rate
(%) Acquisition
cost June 30,
2014 December 31,
2013 Government and public bonds
Seoul Metropolitan Rapid Transit Corp. and others 2.00 W 1,786 1,896 1,735
Corporate bonds Autopia 53rd ABS SPC 3.59, 4.42 30,000 30,728 30,223
W 31,786 32,624 31,958
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
17
3. Securities, Continued
3.2 Investments in associates (1) Details of investments in associates as of June 30, 2014 and December 31, 2013, are as follows:
(*1) Although the Group holds less than 20% of the voting rights, it has the ability to exercise significant
influence through representation on the board of directors or equivalent governing body of the investee. Investments in these entities are accounted for using the equity method.
(*2) Due to the unavailability of the financial statements as of June 30, 2014, the equity method was applied to the financial statements as of May 31, 2014. Significant transactions occurred between the HI Network, Inc.’s reporting date and the Group’s reporting date were reflected appropriately.
June 30, 2014
Number of
shares Owner –ship (%)
Principal place of business
Financial statement
date Industry HI Network, Inc.
(*1) (*2) 13,332 19.99 Korea 5/31/2014 Insurance brokerage
Korea Credit Bureau(*1) 140,000 7.00 Korea 6/30/2014 Credit bureau Hyundai Capital
Germany GmbH 600,200 30.01 Germany 6/30/2014 Automobile finance brokerage
Hyundai Capital UK Ltd. 16,494,500 29.99 UK 6/30/2014
Automobile finance brokerage
Beijing Hyundai Auto Finance Co., Ltd. — 46.00 China 6/30/2014
Automobile finance brokerage
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
18
3. Securities, Continued
(*1) Although the Group holds less than 20% of the voting rights, it has the ability to exercise significant
influence through representation on the board of directors or equivalent governing body of the investee. Investments in these entities are accounted for using the equity method.
(*2) Due to the unavailability of the financial statements as of December 31, 2013, the equity method was applied to the financial statements as of November 30, 2013. Significant transactions occurred between the HI Network, Inc.’s reporting date and the Group’s reporting date were reflected appropriately.
December 31, 2013
Number of
shares Owner –ship (%)
Principal place of business
Financial statement
date Industry HK Mutual Savings
Bank (*1) 4,990,438 19.99 Korea 12/31/2013 Savings bank HI Network, Inc.
(*1) (*2) 13,332 19.99 Korea 11/30/2013 Insurance brokerage
Korea Credit Bureau(*1) 140,000 7.00 Korea 12/31/2013 Credit bureau Hyundai Capital
Germany GmbH 600,200 30.01 Germany 12/31/2013 Automobile finance brokerage
Hyundai Capital UK Ltd. 13,495,500 29.99 UK 12/31/2013
Automobile finance brokerage
Beijing Hyundai Auto Finance Co., Ltd. — 46.00 China 12/31/2013
Automobile finance brokerage
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
19
3. Securities, Continued
(2) Summary of financial information of investees as of June 30, 2014 and December 31, 2013 for assets and liabilities, for the six-month period ended June 30, 2014 and 2013, for revenue and income, and the reconciliation of carrying amounts are as follows:
June 30, 2014
Total assets Total
liabilities Issued capital
Total equity
The Group’s share in
net assets Goodwill Carrying amount
HI Network, Inc. W 5,041 2,938 333 2,103 420 — 420 Korea Credit
Bureau 56,124 12,660 10,000 43,464 3,043 1,037 4,080 Hyundai Capital
Germany GmbH 7,608 1,254 3,547 6,354 1,907 — 1,907 Hyundai Capital
UK Ltd. 1,638,148 1,531,545 96,055 106,603 31,970 — 31,970 Beijing Hyundai Auto Finance Co., Ltd. 1,684,188 1,523,693 176,225 160,495 73,828 — 73,828
Six-month period ended June 30, 2014
Operating Revenue
Interest income
Interest expense
Net Income (loss)
Other compre-hensive
loss
Total compre-hensive income (loss)
Divi- dends
HI Network, Inc. W 6,298 30 — 75 — 75 — Korea Credit Bureau 16,860 287 — (3,332) — (3,332) —
Hyundai Capital Germany GmbH 2,073 34 — 829 (321) 508 —
Hyundai Capital UK Ltd. 43,373 39,706 7,131 14,484 (641) 13,843 —
Beijing Hyundai Auto Finance Co., Ltd. 72,313 70,676 34,917 3,655 (10,630) (6,975) —
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
20
3. Securities, Continued
December 31, 2013
Total assets Total
liabilities Issued capital
Total equity
The Group’s share in net assets Goodwill
Carrying amount
HK Mutual Savings Bank (*) W 2,494,096 2,299,652 124,761 194,444 38,889 12,248 51,137
HI Network, Inc. 5,480 3,361 333 2,119 424 — 424 Korea Credit Bureau 63,043 16,542 10,000 46,501 3,255 1,037 4,292
Hyundai Capital Germany GmbH 6,889 1,042 3,547 5,847 1,755 — 1,755
Hyundai Capital UK Ltd. 1,210,970 1,135,383 78,882 75,587 22,668 — 22,668
Beijing Hyundai Auto Finance Co., Ltd. 873,419 705,947 176,225 167,472 77,037 — 77,037
Six-month period ended June 30, 2013
Operating revenue
Interest income
Interest expense
Net income (loss)
Other compre-hensive
income (loss)
Total compre-hensive income (loss)
Divi- dends
HK Mutual Savings Bank (*) W 218,867 216,071 51,608 (2,181) (583) (2,764) —
HI Network, Inc. 7,953 33 — 694 — 694 — Korea Credit Bureau 20,810 223 — 1,278 — 1,278 (533)
Hyundai Capital Germany GmbH 1,230 19 — 442 249 691 —
Hyundai Capital UK Ltd. 22,124 18,894 2,898 2,985 620 3,605 —
Beijing Hyundai Auto Finance Co., Ltd. 8,825 2,528 1,052 (1,213) 6,805 5,592 —
(*) While HK Mutual Savings Bank’s fiscal year ends in June 30, the assets and liabilities are based on December
31, 2013, and the operating revenue and net income (loss) is based on the operating results of 6-month period from January 1, 2013 to June 30, 2013.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
21
3. Securities, Continued
(3) Changes in investments in associates for the six-month periods ended June 30, 2014 and 2013 are as follows:
2014
Beginning balance
Acqui- sition
Share in net income
(loss)
Share in other compre- hensive
loss
Loss on impair- ment
Reclassi-fication to assets held
for sale Ending balance
HK Mutual Savings Bank(*) W 51,137 — 554 (3) (27,688) (24,000) —
HI Network, Inc. 424 — (4) — — — 420
Korea Credit Bureau 4,292 — (212) — — — 4,080 Hyundai Capital Germany GmbH 1,755 — 249 (97) — — 1,907
Hyundai Capital UK Ltd. 22,668 5,150 4,344 (192) — — 31,970
Beijing Hyundai Auto Finance Co., Ltd. 77,037 — 1,681 (4,890) — — 73,828
W 157,313 5,150 6,612 (5,182) (27,688) (24,000) 112,205
(*) The Group made a reclassification for all of its investments in HK Mutual Savings Bank to assets held for sale
(See Note 8).
2013
Beginning balance
Acquisi- tion
Share in net income (loss)
Share in other compre-
hensive income (loss) Dividends
Ending balance
HK Mutual Savings Bank W 51,170 — (436) (117) — 50,617
HI Network, Inc. 861 — 111 — (533) 439
Korea Credit Bureau 3,985 — 53 — — 4,038 Hyundai Capital
Germany GmbH 1,183 — 182 76 — 1,441 Hyundai Capital UK
Ltd. 6,197 2,552 896 186 — 9,831 Beijing Hyundai Auto
Finance Co., Ltd. 35,400 — 504 3,130 — 39,034 W 98,796 2,552 1,310 3,275 (533) 105,400
(4) Goodwill related to associates as of June 30, 2014 and December 31, 2013 are as follows:
June 30, 2014 December 31, 2013
HK Mutual Savings Bank W — 12,248 Korea Credit Bureau 1,037 1,037
W 1,037 13,285 4. Financial Receivables
Financial receivables as of June 30, 2014 and December 31, 2013, are as follows:
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
22
June 30, 2014
Unpaid principal balance
Deferred loan fees, net of
costs (Initial direct
fees on finance leases)
Present value
discounts
Allowance for loan losses
Carrying amount
Loans receivable
Loans W 10,273,385 23,576 (1,374) (343,133) 9,952,454
Installment financial assets Automobile 5,908,088 44,576 — (51,416) 5,901,248 Durable goods 1,452 — — (85) 1,367 Mortgage 7,985 12 — (247) 7,750
5,917,525 44,588 — (51,748) 5,910,365 Lease receivables
Finance lease receivables 2,942,576 (530) — (56,111) 2,885,935
Cancelled lease receivables 13,802 — — (12,868) 934
2,956,378 (530) — (68,979) 2,886,869
W 19,147,288 67,634 (1,374) (463,860) 18,749,688
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
23
4. Financial Receivables, Continued
December 31, 2013
Unpaid principal balance
Deferred loan fees, net of
costs (Initial direct
fees on finance leases)
Present value
discounts
Allowance for loan losses
Carrying amount
Loans receivable
Loan W 11,462,116 (3,242) (1,314) (333,359) 11,124,201
Installment financial assets Automobile 4,804,618 28,332 — (42,694) 4,790,256 Mortgage 9,868 16 — (286) 9,598
4,814,486 28,348 — (42,980) 4,799,854 Lease receivables
Finance lease receivables 3,039,544 (746) — (49,612) 2,989,186
Cancelled lease receivables 11,329 — — (10,556) 773
3,050,873 (746) — (60,168) 2,989,959
W 19,327,475 24,360 (1,314) (436,507) 18,914,014
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
24
5. Allowance for Loan Losses
Changes in allowance for loan losses including allowance for doubtful accounts for other assets for the six-month periods ended June 30, 2014 and 2013, are as follows:
2014
Loan receivables
Installment financial
assets Lease
receivables Other assets Total
Beginning balance W 333,359 42,980 60,168 20,677 457,184 Charge-offs (231,301) (22,106) (559) (3,256) (257,222) Recoveries 51,650 6,034 28 5,252 62,964 Unwinding of discounts (4,117) (169) (158) — (4,444) Provision for (release of)
allowance 193,746 25,017 9,531 (1,644) 226,650 Others (204) (8) (31) — (243) Ending balance W 343,133 51,748 68,979 21,029 484,889
2013
Loan receivables
Installment financial
assets Lease
receivables Other assets Total
Beginning balance W 312,829 33,484 38,881 18,740 403,934 Charge-offs (203,492) (20,537) (518) (3,446) (227,993) Recoveries 45,939 5,264 72 5,127 56,402 Unwinding of discounts (3,962) (222) (133) — (4,317) Provision for (release of)
allowance 183,333 12,545 9,221 (1,143) 203,956 Others 44 (8) (595) — (559) Ending balance W 334,691 30,526 46,928 19,278 431,423
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
25
6. Property and Equipment
Changes in property and equipment for the six-month periods ended June 30, 2014 and 2013 are as follows: 2014
Beginning balance
Acquisi-tion Transfer Disposal
Depre- ciation
Translation differences
Ending balance
Land W 95,218 11 1,921 — — — 97,150
Buildings 89,267 405 132 — (1,198) — 88,606
Vehicles 2,154 287 — (101) (466) 2 1,876 Fixture and
furniture 42,068 5,019 489 (58) (10,523) (15) 36,980
Others 2,005 75 — (10) — — 2,070 Construction in
progress 2,306 5,019 (2,351) — — (4) 4,970
W 233,018 10,816 191 (169) (12,187) (17) 231,652 2013
Beginning balance Acquisition Transfer Disposal Depreciation
Ending balance
Land W 143,729 1,981 3,200 (40,016) — 108,894
Buildings 119,847 — 277 (55,335) (1,377) 63,412
Vehicles 2,478 256 — (137) (454) 2,143 Fixture and
furniture 45,054 4,262 578 (105) (10,054) 39,735
Others 2,033 48 — (76) — 2,005 Construction in
progress 10,337 24,612 (4,055) — — 30,894
W 323,478 31,159 — (95,669) (11,885) 247,083
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
26
7. Intangible Assets
Changes in intangible assets for the six-month periods ended June 30, 2014 and 2013 are as follows:
2014
Beginning balance Increase Transfer Amortization
Recovery of impairment
loss Ending balance
Goodwill W 1,429 — — — — 1,429 Development costs 29,017 2,487 — (5,314) — 26,190
Trademark 2 — — (2) — —
Membership 29,638 — (191) — 26 29,473
Others 2,661 1,969 — (908) — 3,722 W 62,747 4,456 (191) (6,224) 26 60,814
2013 Beginning balance Increase Amortization Ending balance
Goodwill W 1,429 — — 1,429 Development costs 28,198 5,287 (4,843) 28,642
Trademark 16 — (7) 9
Membership 30,008 — — 30,008
Others 4,512 — (948) 3,564 W 64,163 5,287 (5,798) 63,652
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
27
8. Assets Held for Sale
Details of the non-current assets held for sale as of June 30, 2014 and December 31, 2013 are as follows:
June 30, 2014 December 31, 2013
Investments in associates (*1) W 24,000 —
Land (*2) 13,676 13,676
Buildings (*2) 8,671 8,671
W 46,347 22,347 (*1) The board of directors approved the plan to sell all of the Group’s interest in HK Mutual Savings Bank.
Accordingly, the Group made a reclassification of the investment as held for sale. Management expects that the sale of its share will be completed no later than the second half of 2014.
(*2) Real estate properties that the Group owns, which are expected to be sold no later than the second half of 2014.
The Group measures assets held for sale at the lower of its carrying amount and fair value less costs to sell.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
28
9. Borrowed Funds
(1) Borrowings as of June 30, 2014 and December 31, 2013 are as follows:
Type Lender
Annual interest rate (%)
Maturity June 30,
2014 December 31,
2013
Borrowings in won Commercial paper
Shinhan Bank and 2 others 2.95 ~ 3.61
2014.7.24 ~ 2014.8.14 W 200,000 320,000
General loans
Kookmin Bank and 13 others 2.60 ~ 5.23
2014.7.1 ~ 2016.9.28 1,454,105 1,438,860
1,654,105 1,758,860 Borrowings in foreign
currency
General loans Bank of America 3.43 2015.6.12 50,599 52,583
W 1,704,704 1,811,443
(2) Bonds issued as of June 30, 2014 and December 31, 2013 are as follows:
Type
Annual Interest rate (%)
Maturity June 30,
2014 December 31,
2013
Current portion of long-term bonds Bonds 2.44 ~7.20
2014.7.16 ~ 2015.6.29 W 3,745,899 3,554,082
Less: Discount on bonds
(7,109) (1,189) 3,738,790 3,552,893 Long-term bonds
Bonds 2.44 ~6.53 2015.7.8 ~
2021.4.15 11,522,144 11,912,543
Less: Discount on bonds
(26,893) (38,557)
11,495,251 11,873,986
W 15,234,041 15,426,879
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
29
10. Post-employment Benefit Plans (1) Defined contribution plans
The amount recognized in the statement of comprehensive income for retirement benefits based on the defined contribution plan for the six-month periods ended June 30, 2014 and 2013 are as follows:
2014 2013
Post-employment benefits recognized as an expense for defined contribution plans W 29 26
(2) Defined benefit plans (i) Characteristics of the defined benefit plan
The Group operates the defined benefit plan based on final wages. The plan assets are mainly comprised of interest rate guaranteed type instruments, and therefore, are exposed to the risk of declining interest rates.
(ii) Changes in defined benefit liability, net
Six-month period ended June 30, 2014 Present value of
defined benefit obligation Plan assets
National pension fund
Defined benefit liability, net
Beginning balance W 69,772 (56,846) (42) 12,884
Contributions paid — — — —
Current service costs 6,275 — — 6,275
Interest cost (income) 1,242 (1,010) — 232
Return on plan assets (excluding interest income) — 324 — 324
Actuarial loss arising from experience adjustment 1,901 — — 1,901
Actuarial loss arising from financial assumptions 2,921 — — 2,921
Transfers between related parties (668) 104 — (564)
Benefits paid (5,084) 2,716 — (2,368) W 76,359 (54,712) (42) 21,605
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
30
10. Post-employment Benefit Plans, Continued
(2) Defined benefit plans, Continued
Six-month period ended, 2013 Present value of
defined benefit obligation Plan assets
National pension fund
Defined benefit liability, net
Beginning Balance W 63,847 (50,816) (43) 12,988
Contributions paid — (3,629) — (3,629)
Current service costs 6,367 — — 6,367
Interest cost (income) 1,015 (806) — 209
Return on plan assets (excluding interest income) — — — —
Actuarial gain arising from experience adjustment (110) (2) — (112)
Actuarial gain arising from financial assumptions (765) — — (765)
Transfers between related parties (1,237) 1,067 — (170)
Benefits paid (4,126) 5,469 — 1,343
W 64,991 (48,717) (43) 16,231
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
31
11. Provisions
Provisions account for the allowance for unfunded lending commitments including unused loan commitments and residual value guarantees. A similar approach to the allowance for loan losses is used for calculating a reserve for the estimated credit losses related to unfunded lending commitments. Changes in provisions for the six-month periods ended June 30, 2014 and 2013, are as follows:
2014 2013
Unused loan
commit- ments (*1) Other (*2) Total
Unused loan
commit- ments (*1) Other Total
Beginning balance W 1,826 — 1,826 2,017 — 2,017 Provision for
(reversal of)
allowance (309) 176 (133) (7) — (7) Ending balance W 1,517 176 1,693 2,010 — 2,010
(*1) The Group facilitates credits with limits, under which the Group provides commitments to extend credits.
Provision is made for estimated losses arising from unused loan commitments. (*2) The Group facilitates certain installment financial receivable products which the Group guarantees residual
value of used automobiles for consumers. Provision is made for estimated losses arising from these residual value guarantees.
12. Derivative Financial Instruments and Hedge Accounting Trading derivatives as of June 30, 2014 and December 31, 2013, are as follows:
June 30, 2014 Notional amount Assets Liabilities
Foreign currency forwards W 55 — 5
December 31, 2013 Notional amount Assets Liabilities
Foreign currency forwards W 57 — 2 During the six-month periods ended June 30, 2014 and 2013, the Group recognized loss on trading derivatives of W3 million and W2 million, respectively.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
32
12. Derivative Financial Instruments and Hedge Accounting, Continued In the normal course of business, the Group enters into derivative contracts to manage its exposures to changes in future cash flows arising from volatilities in interest rate and foreign currency exchange rates with its borrowings and bonds issued. The Group uses interest rate swaps and currency swaps principally to manage exposures to fluctuations in future cash flows due to interest rate risk and foreign exchange risk. The Group also utilizes currency forward contracts to manage exposures to fluctuation in future cash flows with its lease contracts denominated in foreign currencies. There was no change in overall strategy of the Group for cash flow hedges. Derivatives that are designated and qualifying as cash flow hedges as of June 30, 2014 and December 31, 2013 are as follows:
June 30, 2014
Notional amount Assets
Liabilities
Accumulated other
compre- hensive
Income (loss)
Interest rate swaps W 1,510,000 241 7,567 (5,553)
Currency swaps 6,249,342 6,325 608,035 (11,859)
Foreign currency forwards 7,076 855 — 36 W 7,766,418 7,421 615,602 (17,376)
December 31, 2013
Notional amount Assets
Liabilities
Accumulated other
compre- hensive
Income (loss)
Interest rate swaps W 1,670,000 2,103 4,045 (1,472)
Currency swaps 6,207,240 21,185 508,698 3,263
Foreign currency forwards 11,305 658 — (14) W 7,888,275 23,946 512,743 1,777
Notional amounts represent won equivalent amounts of foreign currencies for won-to-foreign currency transactions and receiving foreign currencies for foreign currency-to-foreign currency transactions that are translated with the BOK rate as of the reporting date. The Group is expected to be exposed to the variability in future cash flows arising from derivatives designated as cash flow hedges, until February 7, 2019. There was no ineffective portion recognized related to cash flow hedge for the six-month periods ended June 30, 2014 and 2013.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
33
13. Equity In accordance with Regulation on Supervision of Specialized Credit Finance Business mandated by the Financial Services Commission, the Group appropriates regulatory reserves for loan losses which equal to the difference between allowance for loan losses estimated under K-IFRS and allowance estimated based on loans and receivables of regulatory risk grades of loans and receivables and minimum required reserve ratio in accordance with the Regulation.
Details of regulatory reserve for loans losses as of June 30, 2014 and December 31, 2013 are as follows:
June 30,
2014
December 31, 2013
Appropriated reserve for loan losses W 328,317 273,906 Expected provision for regulatory reserve for loan losses 14,521 54,411
W 342,838 328,317
Provision for regulatory reserve for loan losses and profit for the period and earnings per share adjusted with provision for regulatory reserve for loan losses for the six-month periods ended June 30, 2014 and 2013 are as follows:
2014 2013 Profit for the period W 85,149 248,153 Provision for regulatory reserve for loan losses (*1) (14,521) (93,631) Profit for the period adjusted with provision for regulatory reserve for loan losses (*2) W 70,628 154,522
Basic and diluted earnings per share adjusted with provision for regulatory reserve for loan losses (in won) W 711 1,556
(*1) Provision for regulatory reserve for loan losses represents additional reserves expected to be made for the
six-month periods ended June 30, 2014 and 2013. (*2) Profit for the period adjusted with provision for regulatory reserve for losses are not prepared in accordance
with K-IFRS, but the amount reflects the expected provision for regulatory reserve for loan losses on a pretax basis on profit for the period.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
34
14. Retained Earnings
Details of retained earnings as of June 30, 2014 and December 31, 2013 are as follows:
June 30, 2014 December 31, 2013
Legal reserve
Earned surplus reserve (*) W 107,635 89,630
Voluntary reserve Regulatory reserve for loan losses (Note 13) 328,317 273,906
Provisions for electronic financial transactions 100 100
Reserve for business rationalization 74 74
328,491 274,080 Retained earnings before
appropriation 2,009,403 1,996,671
W 2,445,529 2,360,381
(*) In accordance with the Korean Commercial Law, a minimum of 10% of annual cash dividends declared are
accumulated as a legal reserve each accounting period, until the reserve equals 50% of its issued capital stock. This reserve is not available for the payment of cash dividends, but may only be transferred to capital stock or used to reduce accumulated deficit.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
35
15. Net Interest Income
Net interest income for the three-month and six-month periods ended June 30, 2014 and 2013 are as follows:
2014 2013
Three-month Period ended
Six-month
period ended Three-month period ended
Six-month
period ended
Interest income Cash and due from banks W 10,196 20,706 7,318 15,083
Loans receivable 309,143 630,440 368,748 733,365 Installment financial assets 86,786 164,285 55,798 121,447
Lease receivables (*1) 59,873 120,326 63,319 125,495 Other (*2) 553 1,919 361 724
466,551 937,676 495,544 996,114
Interest expense Borrowings (16,122) (33,447) (21,317) (43,834) Bonds issued (169,433) (340,181) (168,549) (340,380) Other (*2) (6,894) (13,636) (8,510) (18,175)
(192,449) (387,264) (198,376) (402,389)
Net interest income W 274,102 550,412 297,168 593,725 (*1) Includes amortization of present value discounts for deposits received for leases. (*2) Includes amortization of present value discount using the effective interest method.
16. Net Commission Income
Net commission income for the three-month and six-month periods ended June 30, 2014 and 2013 are as follows:
2014 2013
Three-month period ended
Six-month
period ended Three-month period ended
Six-month
period ended
Commission income
Loans receivable W 11,549 22,795 13,022 24,448 Installment financial assets 2,184 4,090 855 1,854 Lease receivables 40,843 87,303 44,851 87,496
54,576 114,188 58,728 113,798
Commission expenses Lease expenses (5,834) (12,559) (16,686) (33,209)
Net commission income W 48,742 101,629 42,042 80,589
17. Other operating income and expenses
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
36
Other operating income and expenses for the three-month and six-month periods ended June 30, 2014 and 2013 are as follows:
2014 2013
Three-month period ended
Six-month
period ended Three-month period ended
Six-month
period ended
Other operating income Gain on valuation of derivatives W (92,567) 11,529 140,827 314,663
Gain on derivatives transactions 102 1,062 13,755 15,891
Other 34,945 69,155 50,404 85,773
W (57,520) 81,746 204,986 416,327
Other operating expenses Loss on valuation of derivatives W 190,856 190,950 27,292 49,153
Loss on derivatives transactions 5,168 5,240 331 1,285
Other 14,142 26,799 14,830 31,229
W 210,166 222,989 42,453 81,667
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
37
18. General and Administrative Expenses
General and administrative expenses for the three-month and six-month periods ended June 30, 2014 and 2013, are as follows:
19. Income Taxes
2014 2013
Three-month period ended
Six- month period ended
Three-month period ended
Six- month
period ended Salaries W 45,617 79,508 39,929 78,123 Severance benefits 3,270 6,536 3,294 6,602 Employee benefits 6,559 15,901 8,847 19,900 Depreciation 6,114 12,187 5,691 11,885 Advertising 12,259 24,854 12,504 23,907 Travel and transportation 1,504 2,473 1,509 2,504 Communication 4,067 7,960 3,877 7,501 Utilities 2,874 6,258 2,637 5,850 Commissions and charges 5,437 10,549 4,919 9,596 Sales promotion 16,356 32,826 20,529 37,901 Amortization 3,172 6,224 2,926 5,798 Outsourcing service charges 17,727 35,248 17,077 32,831 Rents 10,292 22,035 10,695 20,785 Other 32,409 58,631 26,588 52,119
W 167,657 321,190 161,022 315,302
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
38
(1) Income tax expense for the six-month periods ended June 30, 2014 and 2013 are as follows:
(2) Deferred income taxes recognized directly to equity for the six-month periods ended June 30, 2014 and 2013 are as follows:
2014 2013
Current income tax expense W 44,832 82,335 Change in deferred income tax due to temporary differences (12,015) (13,342)
Deferred income taxes recognized directly to equity 7,434 18,013
Income tax expense W 40,251 87,006
2014
Beginning balance
Ending balance
Changes
Loss on valuation of available-for-sale securities W (1,036) (1,205) (169)
Share of other comprehensive income of associates — 243 243
Net change in remaining effective portion of cash flow hedges (567) 5,548 6,115
Remeasurements of defined benefit plans 4,356 5,601 1,245
W 2,753 10,187 7,434
2013
Beginning balance
Ending balance
Changes
Loss on valuation of available-for-sale securities W (320) (659) (339)
Net change in remaining effective portion of cash flow hedges (678) 17,886 18,564
Remeasurements of defined benefit plans 4,197 3,985 (212)
W 3,199 21,212 18,013
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
39
19. Income Taxes, Continued (3) Reconciliation between profit before income taxes and income tax expense for the six-month periods ended
June 30, 2014 and 2013 are as follows:
2014 2013
Profit before income taxes (A) W 125,401 335,159
Income taxes at statutory tax rates 29,885 80,647
Adjustments:
Non-taxable income (7) (45)
Non-deductible expense for tax purposes 157 13 Recognition of previously unrecognized tax
losses and changes to estimates for prior years 10,216 6,391
Income tax expense (B) W 40,251 87,006
Effective tax rate (B/A) 32.10% 25.96%
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
40
20. Earnings Per Share
(1) Basic earnings per share Basic earnings per share attributable to common stock of equity holders for the three-month and six-month periods ended June 30, 2014 and 2013 are as follows:
(2) Diluted earnings per share As there was no discontinued operation during the three-month and six-month periods ended June 30, 2014 and 2013, 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, 2014 and 2013. Therefore, the diluted earnings per share is the same as basic earnings per share for the three-month and six-month periods ended June 30, 2014 and 2013.
2014 2013
Three-month period ended
Six-month period ended
Three-month period ended
Six-month period ended
Profit for the period attributable to common stocks (in won) (A) W 54,597,148,109 85,149,261,705
95,303,358,051
248,152,862,699
Weighted average of number of outstanding common stocks (B)
99,307,435 99,307,435 99,307,435 99,307,435 Basic earnings per
Share (in won) (A/B)
W 550 857
960
2,499
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
41
21. Other Comprehensive Income
Other comprehensive income for the six-month periods ended June 30, 2014 and 2013 are as follows:
2014
Beginning balance
Changes
Income tax effects
Ending balance
Reclassifi-
cation to profit or loss
Other changes
Net change in unrealized gain on valuation of available-for-sale securities W 3,243 (100) 800 (169) 3,774
Share in other comprehensive income of associates (*) (1,616) — (5,182) 243 (6,555)
Net change in remaining effective portion of cash flow hedges 1,777 (306) (24,962) 6,115 (17,376)
Net change in foreign currency translation adjustments (1,333) — (517) — (1,850)
Remeasurements of defined benefit plans (13,645) — (5,146) 1,245 (17,546)
W (11,574) (406) (35,007) 7,434 (39,553)
(*) Includes accumulated other comprehensive loss in the amount of W40 million, net of income taxes (W13
million) as of June 30, 2014, related to the investments in HK Mutual Savings Bank which has been reclassified to assets held for sale.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
42
21. Other Comprehensive Income, Continued
2013
Beginning balance
Changes
Income tax effects
Ending balance
Reclassifi-
cation to profit or loss
Other changes
Net change in unrealized gain on valuation of available-for-sale securities W 1,002 (92) 1,491 (339) 2,062
Share in other comprehensive income of associates (2,540) — 3,275 — 735
Net change in remaining effective portion of cash flow hedges 2,125 2,617 (79,329) 18,564 (56,023)
Net change in foreign currency translation adjustments (872) — (929) — (1,801)
Remeasurements of defined benefit plans (13,147) — 877 (212) (12,482)
W (13,432) 2,525 (74,615) 18,013 (67,509)
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
43
22. Supplemental Cash Flow Information
Cash and cash equivalents as of June 30, 2014 and December 31, 2013, are as follows:
Other cash equivalents include short-term, highly liquid investments in money markets.
Cash generated from operations for the six-month periods ended June 30, 2014 and 2013 are as follows:
22. Supplemental Cash Flow Information, Continued
June 30, 2014 December 31, 2013
Cash W 1 3
Ordinary deposits 149,924 200,356
Checking deposits 3,315 4,941
Other cash equivalents 1,215,500 1,297,300
W 1,368,740 1,502,600
2014 2013 Profit for the period W 85,149 248,153 Adjustments:
Gain on sale of available-for-sale securities (1,002) (1,395) Income on loans 14,004 (16,290) Income on instalment financial assets 13,909 (19,130) Income on leases 27,888 28,598 Gain on foreign currency translation (191,293) (49,777) Dividend income (2,383) (2,588) Gain on valuation of derivatives (11,529) (314,663) Release of allowance for unfunded lending commitments (309) (7) Net interest expenses 364,640 378,683 Lease expenses 150,065 161,901 Provision for loan losses 226,650 203,956 Loss on foreign currency translation 11,707 315,059 Loss on valuation of derivatives 190,950 49,153 Losses on redemption of bonds issued — 51 Provision for unfunded lending commitments 176 — Severances 6,507 6,576 Depreciation 12,187 11,885 Amortization 6,224 5,798 Share in net income of associates under the equity method (6,828) (1,746) Gain on sale of property and equipment (61) (85,488) Recovery of impairment loss on intangible assets (26) — Share in net loss of associates under the equity method 216 436 Impairment loss on investments in associates 27,688 — Loss on sale of property and equipment 58 2,896 Income tax expense 40,251 87,006
W 879,689 760,914
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
44
23. Commitments and Contingencies
2014 2013 Changes in operating assets and liabilities
Increase in due from banks W (936) (3) Decrease in available-for-sale securities 851 970 Decrease (Increase) in loans receivable 963,998 (810,659) Decrease (Increase) in installment financial assets (1,149,437) 699,258 Increase in finance lease receivables (197,292) (397,135) Decrease in cancelled lease receivables 9,311 6,702 Increase in operating lease assets (184,711) (125,980) Decrease in cancelled lease assets 253,379 203,095 Decrease (Increase) in non-trade receivables 22,213 (26,811) Decrease (Increase) in accrued revenues 7,439 (1,581) Increase in advance payments (17,696) (19,439) Increase in prepaid expenses (22,320) (21,514) Decrease (Increase) in derivatives, net (85,304) 525 Decrease in non-trade payables (57,348) (32,679) Increase (decrease) in accrued expenses 320 (6,994) Decrease in unearned revenue (3,002) (5,722) Decrease in withholdings (4,120) (9,758) Increase (decrease) in current tax liabilities 1,552 (32,979) Decrease in defined benefit liabilities (5,752) (5,364) Decrease in plan assets 2,820 2,907 Decrease in deposits received (67,999) (83,708) Decrease in other liabilities (10) (30)
(534,044) (666,899) W 430,794 342,168
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
45
(1) Line of credit commitments As of June 30, 2014, the Group has line-of-credit commitments from Shinhan Bank and 3 other financial institutions with aggregated limits in the amount of W106,500 million.
(2) Credit Facility Agreement (i) Credit Facility Agreement As of June 30, 2014, the Group has a credit facility agreement with GE Capital European Funding & Co. (“GE Capital”); and the limit of this credit facility is euro equivalent amounts to USD 600 million. The expiration date of the agreement is January 9, 2015. Regarding the credit facility agreement above, Hyundai Motor Company guarantees GE Capital for any amounts not paid by the Group, equal to its ownership interests of 56% in the Group.
(ii) Revolving Credit Facility
As of June 30, 2014, the Group has revolving credit facility agreements amounted to USD 200 million and W 1,495 billion with Kookmin Bank and 17 other financial institutions for credit line.
(3) Guarantees
Details of guarantees provided to the Group as of June 30, 2014 and December 31, 2013 are as follows:
Guarantor Details June 30,
2014 December 31, 2013 Hyundai Motor Company
Joint liabilities on finance lease receivables (*) W 1,568 1,568
Seoul Guarantee Insurance Co., Ltd.
Guarantee for debt collection deposit, others 122,349 132,589
(*) The amounts represent the guaranteed unpaid principals as of June 30, 2014 and December 31, 2013, as
defined under the joint liability agreement.
The Group has residual value guarantee insurance policy with LIG Insurance Co., Ltd. and other carriers which covers losses resulting from defaults in mortgage loans that unpaid amounts exceed the recoverable amounts from the collateral of the loans. Loans insured by the policy and residual value guaranteed by the insurance policy as of June 30, 2014 and December 31, 2013 are as follows:
Type
June 30, 2014
December 31, 2013
Loans insured W 857,119 792,244
Residual value guaranteed by the insurance policy 294,165 284,746
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
46
23. Commitments and Contingencies, Continued (4) Significant pending litigations
Pending significant litigations include 17 cases (total amount of W3,592 million) where the Group is the defendant, 13 cases (total amount of W492 million) where the Group is the plaintiff, and litigations against a number of debtors to collect receivables as of June 30, 2014.
(5) Receivables transfer agreement The Group entered into an agreement with Hyundai Card Co., Ltd., Hyundai Commercial Co., Ltd., and Hyundai Life Insurance Co., Ltd., regarding the transfer of receivables. According to the agreement, the Group is a transferee of overdue receivables and amounts written off at the agreed value.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
47
24. Related Party Transactions
(1) 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.
(2) Related parties Related parties that have transactions, and receivables and payables with the Group as of June 30, 2014, are as follows:
Type Company
The Parent company
Hyundai Motor Company
Associates HI Network, Inc., Korea Credit Bureau, Hyundai Capital Germany GmbH, Hyundai Capital UK Ltd., Beijing Hyundai Auto Finance Co., Ltd., HK Mutual Savings Bank
Others Hyundai Life Insurance Co., Ltd., Hyundai Card Co., Ltd., Hyundai Autoever Corp., Kia Motors Corp., Hyundai Capital America, and 75 others.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
48
24. Related Party Transactions, Continued (3) Transactions with related parties
(i) Significant transactions, which occurred in the normal course of business with related companies for the six-
month periods ended June 30, 2014 and 2013 are as follows:
2014 Other Revenues Expenses Sales Purchases
Parent Company
Hyundai Motor Company W 6,568 759 — 441,177
Associates
HI Network, Inc. — 661 — —
Korea Credit Bureau 4 98 — — Hyundai Capital Germany GmbH 229 — — —
Beijing Hyundai Auto Finance Co., Ltd. 24 — — —
HK Mutual Savings Bank 35 — 24 — 292 759 24 —
Others Hyundai Life Insurance Co., Ltd. 134 4,309 — 261
Hyundai Card Co., Ltd. 20,405 12,296 — 82,598
Hyundai Autoever Corp. 38 17,049 — 13,268
Kia Motors Corp. 7,064 547 — 110,867
Hyundai Capital America 7,818 — — —
Others 11,985 10,540 24,255 26,328
47,444 44,741 24,255 233,322 W 54,304 46,259 25,279 674,499
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
49
24. Related Party Transactions, Continued
(3) Transactions with related parties, Continued
2013 Other Revenues Expenses Sales Purchases
Parent Company
Hyundai Motor Company W 3,234 1,372 — 430,932
Associates
HI Network, Inc. 267 1,052 — — Hyundai Capital Germany GmbH 211 —
— —
Beijing Hyundai Auto Finance Co., Ltd. 410 —
— —
HK Mutual Savings Bank 60 — — — 948 1,052 — —
Others Hyundai Life Insurance Co., Ltd. 85,580 5,783 177,900 —
Hyundai Card Co., Ltd. 51,653 17,171 — 74,917
Hyundai Autoever Corp. 26 14,507 — 8,904
Kia Motors Corp. 11 2,524 — 146,544
Hyundai Capital America 8,487 — — —
Others 7,477 10,059 32,653 37,062
153,234 50,044 210,553 267,427 W 157,416 52,468 210,553 698,359
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
50
24. Related Party Transactions, Continued
(ii) Receivables and payables with related parties for the years ended June 30, 2014 and December 31, 2013 are as follows:
June 30, 2014 Receivables Payables
Parent Company W
Hyundai Motor Company 3,333 30,658
Associates
Korea Credit Bureau 4 —
Others
Hyundai Life Insurance Co., Ltd. 41,964 134
Hyundai Card Co., Ltd. 2,007 115,393
Hyundai Autoever Corp. 250 5,097
Kia Motors Corp. 21,703 14,227
Hyundai Capital America 10,290 —
Others 23,646 570
99,860 135,421 W 103,197 166,079
December 31, 2013 Receivables Payables
Parent Company W
Hyundai Motor Company 1,823 24,768
Others
Hyundai Life Insurance Co., Ltd. 21,257 —
Hyundai Card Co., Ltd. 3,147 83,353
Hyundai Autoever Corp. — 87
Kia Motors Corp. 1,278 40,666
Hyundai Capital America 20,866 —
Others 4,137 614
50,685 124,720 W 52,508 149,488
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
51
24. Related Party Transactions, Continued
(iii) Details of line-of-credits provided to and received from related parties as of June 30, 2014 are as follows:
Creditor Debtor Type Amount Period Hyundai Capital Services, Inc.
Hyundai Card Co., Ltd.
Call loan W 300,000
11/1/2013~10/31/2014
Hyundai Capital Services, Inc.
Hyundai Commercial Co., Ltd.
Call loan 100,000
11/1/2013~10/31/2014 Hyundai Card Co., Ltd.
Hyundai Capital Services, Inc.
Call loan 300,000
11/1/2013~10/31/2014
With the counterparty’s request, a credit is granted when there are available funds in accordance with the agreement. As of June 30, 2014, there was no outstanding balances under the line of credit. The Group has been provided with a credit facility and payment guarantees by GE Capital European Funding & Co. and Hyundai Motor Company, respectively (Note 23).
(4) Key management compensation
Compensation to key management for the six-month periods ended June 30, 2014 and 2013, are as follows:
The key management above consists of directors (including non-permanent directors), who have significant authority and responsibilities for planning, operating and controlling the Group.
Type 2014 2013 Short-term employee benefits W 2,647 3,172 Severance benefits 1,066 1,540
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
52
25. Transfers of Financial Assets
The Group issued senior and subordinated asset-backed securities collateralized by loans receivable, instalment financial assets, and lease receivables; and the investors in the securitized notes have recourse only to the cash flows from the transferred financial assets. Details of financial assets transferred that are not derecognized as of June 30, 2014 and December 31, 2013 are as follows:
June 30,
2014 December 31,
2013 Carrying amount of assets
Loans receivable W 1,603,544 2,030,886 Installment financial assets 1,494,612 1,010,051 Lease receivables 290,126 292,453
3,388,282 3,333,390 Carrying amount of associated liabilities (*) (2,274,109) (2,361,821) For those liabilities that have recourse only to the transferred financial assets
Fair value of assets 3,423,090 3,441,725 Fair value of associated liabilities (*) (2,291,989) (2,427,098) Net position W 1,131,101 1,014,627
(*) Does not include derivatives. The Group uses currency swaps principally to manage exposures to
fluctuations in future cash flows due to interest rate risk and foreign exchange risk of foreign currency denominated asset-backed securities issued.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
53
26. Offsetting Financial Assets and Liabilities Derivative assets and liabilities are subject to an enforceable master netting arrangement or similar agreement including derivative clearing agreements based on future events as defined in the arrangement.
Financial assets and liabilities subject to offsetting, enforceable master netting arrangements and similar agreements as of June 30, 2014 and December 31, 2013 are as follows:
June 30, 2014
Gross amounts of recognized financial assets/
liabilities
Gross amounts of recognized
financial assets/liabilities
offset in the statement of
financial position
Net amounts of financial assets/ liabilities in the
statement of financial position
Related amounts not offset in the statement of financial
position
Net
amount Financial
instruments
Cash collateral received
Financial assets Derivative assets
W 7,421 — 7,421 7,421 — — Financial liabilities Derivative
liabilities 615,607 — 615,607 7,421 — 608,186
December 31, 2013
Gross amounts of recognized financial assets/
liabilities
Gross amounts of recognized financial
assets/liabilities set off in the statement of
financial position
Net amounts of financial
assets/ liabilities
presented in the statement of financial
position
Related amounts not set off in the statement of financial
position
Net
amount Financial
instruments
Cash collateral received
Financial assets Derivative assets
W
23,946
—
23,946
23,557
—
389
Financial liabilities
Derivative liabilities
512,745 — 512,745 23,557 — 489,188
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
54
27. Fair Value Management of Financial Instruments
Valuation models of measuring fair value of financial instruments are as follows:
Type Valuation model Cash and due
from banks The carrying amount and the fair value of cash are identical. As cash, deposits, and other
cash equivalent instruments can be easily converted into cash, the carrying amount approximates the fair value.
Available-for-sale securities
When available, the Group measures the fair value of a security using quoted prices in an active market. If a market for a security is not active, the Group establishes fair value by using a highly accredited independent valuation agency. The independent valuation agency utilizes various valuation technique, which include discounted cash flow model, imputed market value model, free cash flow to equity model, dividend discount model, risk adjusted discount rate method, and net asset valuation approach. Depending on the characteristic and nature of the instrument, the fair value is measured by using at least one valuation technique.
Loans receivables/ installment financial assets/lease receivables
The fair value is determined using discounted cash flow model that incorporate parameter inputs for expected maturity rate/prepayment rate, as appropriate. As the discount rate used for determining the fair value incorporates the time value of money and credit risk, the Group’s discount rate system is formed to consider the market risk and the credit risk.
Derivative instruments
The fair value of interest rate swaps and currency swaps are determined by using a discounted cash flow model based on a current interest rate yield curve appropriate for market interest rate as of June 30, 2014. The fair value of each derivative instrument measured by discounting and offsetting the probable future cash flows of swap, which are estimated based on the forward rate and the closing foreign exchange price. The fair value of each derivative is measured by offsetting and discounting the expected cash flows of the swap at appropriate discount rate which is based on forward interest rate and exchange rate that is generated by using above method. The fair value of currency forward is measured principally with the forward exchange rate which is quoted in the market at the end of reporting period considering the maturity of the currency forward. The discount rate used in measuring the fair value of currency forward is the adverse CRS rate which is determined by using the spot exchange rate and the forward exchange rate based on the interest rate parity theory.
Borrowings The fair value of borrowings is determined by using discounted cash flow method. In other words, the fair value of a financial instrument is determined by discounting the expected cash flows at an appropriate rate.
Bonds The fair value of industrial finance bonds in won, except structured industrial finance bonds in won, is determined by using discounted cash flow method. The fair value of structured industrial finance bonds in won and industrial finance bonds in foreign currencies is determined by a highly accredited independent valuation agency.
Other financial assets and liabilities
The fair value of other financial assets and other financial liabilities is determined by using discounted cash flow method. However, when the cash flow cannot be objectively measured, the book value approximates the fair value.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
55
27. Fair value management of financial Instruments, Continued (1) Fair value of financial instruments The fair values of financial instruments, together with carrying amounts shown in the statements of financial position, as of June 30, 2014 and December 31, 2013 are as follows:
June 30, 2014 December 31, 2013
Carrying amount Fair value
Carrying amount Fair value
Assets Financial assets Cash and due from banks W 1,369,690 1,369,690 1,502,615 1,502,615 Available-for-sale securities 53,631 53,631 52,783 52,783 Loans receivable 9,952,454 10,088,762 11,124,201 11,318,040 Installment financial assets 5,910,365 5,919,715 4,799,854 4,801,546 Lease receivables 2,886,869 2,858,170 2,989,959 2,943,184 Derivative assets 7,421 7,421 23,946 23,946 Non-trade receivables 93,557 93,557 113,750 113,750 Accrued revenues 95,107 95,107 103,517 103,517 Leasehold deposits 28,941 29,006 28,343 28,117 W 20,398,035 20,515,059 20,738,968 20,887,498
Liabilities Financial liabilities Borrowings W 1,704,704 1,718,056 1,811,443 1,822,182 Bonds issued 15,234,041 15,665,172 15,426,879 15,780,619 Derivative liabilities 615,607 615,607 512,745 512,745 Non-trade payables (*) 221,721 221,721 290,405 290,405 Accrued expenses 163,543 163,543 161,447 161,447 Withholdings (*) 17,009 17,009 13,673 13,673 Deposits received 652,481 657,135 706,224 708,597 Other liabilities 60 60 70 70 W 18,609,166 19,058,303 18,922,886 19,289,738
(*) Excludes liabilities for taxes and dues
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
56
27. Fair value management of financial Instruments, Continued
(2) Fair Value Hierarchy
1-1) The fair value hierarchy of financial assets and liabilities measured at fair value in the statement of financial position as of June 30, 2014 and December 31, 2013 are as follows:
June 30, 2014
Carrying amount
Fair value
Fair value hierarchy (*2)
Level 1 Level 2 Level 3 (*1) Financial assets
measured at fair value
Available-for-sale securities W 53,631 53,631 10,418 32,624 10,589
Derivative assets Designated as hedging instruments for cash flow hedges 7,421 7,421 — 7,421 —
W 61,052 61,052 10,418 40,045 10,589 Financial liabilities
measured at fair value
Derivative liabilities
Trading W 5 5 — 5 — Designated as hedging instruments for cash flow hedges 615,602 615,602 — 615,602 —
W 615,607 615,607 — 615,607 —
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
57
27. Fair value management of financial Instruments, Continued (2) Fair Value Hierarchy, Continued December 31, 2013
Carrying amount
Fair value
Fair value hierarchy (*2)
Level 1 Level 2 Level 3 (*1) Financial assets
measured at fair value
Available-for-sale securities W 52,783 52,783 9,981 31,958 10,844
Derivative assets Designated as hedging instruments for cash flow hedges 23,946 23,946 — 23,946 —
W 76,729 76,729 9,981 55,904 10,844 Financial liabilities
measured at fair value
Derivative liabilities
Trading W 2 2 — 2 — Designated as hedging instruments for cash flow hedges 512,743 512,743 — 512,743 —
W 512,745 512,745 — 512,745 — (*1) Equity securities for which quoted prices in active markets are not available and fair value of those
instruments cannot be measured reliably are measured at cost and classified as level 3 instruments. These instruments are amounted to W175 million and W178 million as of June 30, 2014 and 2013, respectively.
(*2) The levels of fair value hierarchy have been defined as follows: - Level 1: Quoted prices in active markets for identical assets or liabilities. Listed stocks and derivatives - Level 2: Inputs for the asset or liability included within valuation techniques that are observable market
data. Most bonds issued in Korean won and foreign currency, general unlisted derivatives like swap, forward, option
- Level 3: Inputs for the asset or the liability that are not based on observable market data. Unlisted stocks, complicated structured bonds, complicated unlisted derivative
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
58
27. Fair value management of financial Instruments, Continued (2) Fair Value Hierarchy, Continued 1-2) The valuation techniques and the fair value measurement input variables of financial assets and liabilities
classified as level 2 are as follows:
Carrying amount
Valuation techniques Inputs
Financial assets Available-for-sale securities W 32,624 DCF Model Discount rate Derivative assets
Designated as hedging instruments for cash flow hedges
7,421
DCF Model
Discount rate, short -term interest rate, volatility, foreign exchange rate, and others
40,045 Financial liabilities Derivative liabilities
Trading
5
DCF Model
Discount rate, short -term interest rate, volatility, foreign exchange rate, and others
Designated as hedging instruments for cash flow hedges
615,602
DCF Model
Discount rate, short -term interest rate, volatility, foreign exchange rate, and others
W 615,607
1-3) Changes in fair value of instruments classified as level 3 for the years ended June 30, 2014 and December
31, 2013 are as follows.
Available-for-sale securities
June 30, 2014 December 31, 2013
Beginning balance W 10,844 11,165
Increase — 78 Losses recognized as other comprehensive income
and loss (255) (399)
Ending balance W 10,589 10,844
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
59
27. Fair value management of financial Instruments, Continued
(2) Fair Value Hierarchy, Continued
1-4) Valuation techniques and quantitative information unobserved inputs of financial instruments classified as level 3 as of June 30, 2014 are as follows:
Fair value
Valuation technique Inputs
Unobservable inputs
Estimated range of unobservable inputs Impacts on fair value
Financial assets Available-for-
sale securities W 10,589
FCFE model
Growth rate, Discount rate
Sales growth rate 0.38% ~ 2.00% Fair value is likely to increase as the sales growth rate and pre-tax operating income ratio rise, while cost of equity capital declines
Pre-tax operating income ratio
16.53% ~ 17.98%
Cost of equity capital 6.83% Financial assets classified as level 3 are available-for-sale securities as of June 30, 2014. Changes in other comprehensive income due to changes in inputs to valuation are not considered to have material impacts comparing to the amount of total equity of the Group.
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
60
27. Fair value management of financial Instruments, Continued
(2) Fair Value Hierarchy, Continued
2-1) Fair value hierarchy of financial assets and liabilities which the fair value are disclosed as of June 30, 2014 and December 31, 2013, are as follows:
June 30, 2014
Carrying
amount Fair value
Fair value hierarchy
Level 1 Level 2 Level 3 Financial assets measured at fair value
Cash and due from banks W 1,369,690 1,369,690 1 1,369,689 —
Loan receivables 9,952,454 10,088,762 — — 10,088,762
Installment financial assets 5,910,365 5,919,715 — — 5,919,715
Lease receivables 2,886,869 2,858,170 — — 2,858,170
Accounts receivables 93,557 93,557 — — 93,557
Accrued revenues 95,107 95,107 — — 95,107
Leasehold deposits 28,941 29,006 — 29,006 —
W 20,336,983 20,454,007 1 1,398,695 19,055,311 Financial liabilities measured at fair value
Borrowings W 1,704,704 1,718,056 — 1,718,056 —
Bonds issued 15,234,041 15,665,172 — 15,665,172 —
Accounts payables (*) 221,721 221,721 — — 221,721
Accrued expense 163,543 163,543 — — 163,543
Withholdings (*) 17,009 17,009 — — 17,009
Deposits received 652,481 657,135 — 657,135 —
Other liabilities 60 60 — — 60
W 17,993,559 18,442,696 — 18,040,363 402,333
(*) Excludes liabilities for taxes and dues
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
61
27. Fair value management of financial Instruments, Continued
(2) Fair Value Hierarchy, Continued
December 31, 2013
Carrying
amount Fair value
Fair value hierarchy
Level 1 Level 2 Level 3 Financial assets measured at fair value
Cash and due from banks W 1,502,615 1,502,615 3 1,502,612 —
Loan receivables 11,124,201 11,318,040 — — 11,318,040
Installment financial assets 4,799,854 4,801,546 — — 4,801,546
Lease receivables 2,989,959 2,943,184 — — 2,943,184
Accounts receivables 113,750 113,750 — — 113,750
Accrued revenues 103,517 103,517 — — 103,517
Leasehold deposits 28,343 28,117 — 28,117 —
W 20,662,239 20,810,769 3 1,530,729 19,280,037 Financial liabilities measured at fair value Borrowings W 1,811,443 1,822,182 — 1,822,182 —
Bonds issued 15,426,879 15,780,619 — 15,780,619 —
Accounts payables 290,405 290,405 — — 290,405
Accrued expense 161,447 161,447 — — 161,447
Deposit received 13,673 13,673 — — 13,673
Deposits received 706,224 708,597 — 708,597 —
Other liabilities 70 70 — — 70
W 18,410,141 18,776,993 — 18,311,398 465,595
Hyundai Capital Services, Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements June 30, 2014 (Unaudited) (In millions of won)
62
27. Fair value management of financial Instruments, Continued
(2) Fair Value Hierarchy, Continued
2-2) Since the carrying amount is a reasonable estimate of the fair value, the valuation techniques and inputs related to items that recognize the book value as the fair value are not disclosed.
2-3) The valuation techniques and inputs of the fair value measurement for financial assets and liabilities
classified as level 2 for which the fair value are disclosed as of June 30, 2014 are as follows:
Fair value
Valuation
technique Inputs
Financial assets
Leasehold deposits W 29,006 DCF model Base interest rate
Financial liabilities Borrowings 1,718,056
DCF model
Market benchmark interest rate,
other spreads Bonds issued
15,665,172
BDT model
Market benchmark discount rate,
volatility, and other inputs
Deposits received 657,135 DCF model Base interest rate
W 18,040,363
2-4) The valuation techniques and the fair value measurement input variables of financial assets and liabilities classified as level 3 as of June 30, 2014 are as follows:
Fair value
Valuation
technique Inputs Financial assets Loans and receivables W 10,088,762
DCF model
Market benchmark interest rate,
credit spread, other spreads Installment financial assets
5,919,715
DCF model
Market benchmark interest rate, credit spread, other spreads
Lease receivables
2,858,170
DCF model
Market benchmark interest rate, credit spread, other spreads
W 18,866,647 28. Financial Risk Management
The Group is exposed to credit risk, liquidity risk and market risk (exchange and interest 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. There was no significant change in the Group's risk management operations and policies after December 31, 2013.