HANJIN SHIPPING HOLDINGS CO., LTD. Financial Statements · 2012-08-10 · Hanjin Shipping Holdings Co., Ltd. We have audited the accompanying statements of financial position of Hanjin

HANJIN SHIPPING HOLDINGS CO., LTD. Financial Statements December 31, 2011 and 2010 (With Independent Auditors’ Report Thereon)

Contents

Page

Independent Auditors’ Report 1

Statements of Financial Position 2

Statements of Comprehensive Income (Loss) 3

Statements of Changes in Equity 4

Statements of Cash Flows 5

Notes to the Financial Statements 6

Independent Accountants’ Review Report on Internal Accounting Control System 46

10th Floor, GFC Tel. 02.2112.0100 737 Yeoksam-dong Fax.02.2112.0101 Gangnam-gu, Seoul 135-984 www.kr.kpmg.com Republic of Korea

Independent Auditors’ Report

Based on a report originally issued in Korean The Board of Directors and Shareholders Hanjin Shipping Holdings Co., Ltd. We have audited the accompanying statements of financial position of Hanjin Shipping Holdings Co., Ltd. (the “Company”) as of December 31, 2011, 2010 and January 1, 2010, and the related statements of comprehensive income (loss), changes in equity and cash flows for the years ended December 31, 2011 and 2010. Management is responsible for the preparation and fair presentation of these financial statements in accordance with Korean International Financial Reporting Standards. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2011, 2010 and January 1, 2010 and its financial performance and its cash flows for the years ended December 31, 2011 and 2010, in accordance with Korean International Financial Reporting Standards. Without qualifying our opinion, we draw attention to the following:

The procedures and practices utilized in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying financial statements are for use by those knowledgeable about Korean auditing standards and their application in practice. Seoul, Korea February 29, 2012 This report is effective as of February 29, 2012, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

HANJIN SHIPPING HOLDINGS CO., LTD. Statements of Financial Position As of December 31, 2011, 2010 and January 1, 2010

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(In thousands of won) Note December 31,

2011 December 31,

2010 January 1,

2010

Assets Cash and cash equivalents 415,28 ￦ 16,852,928 27,074,049

37,047,250

Short-term financial instruments 4,5,15,28 6,894,115 1,852,625

2,021,803 Trade and other receivables 4,6,15,26,28 6,074,095 7,265,833

992,572

Other current assets 7 192,906 188,560

7,457,012 Current assets 30,014,044 36,381,067

47,518,637

Property and equipment 9,17 42,343,361 42,907,815

42,857,641

Investment property 10,17 36,670,440 37,335,712

38,317,904 Intangible assets 11 43,700 43,700

43,700

Investments in associates 8,17 755,202,057 1,045,349,175

248,286,412 Employee benefits 16 347,408 -

-

Other non-current assets 576,201 156,201

101,200 Non-current assets 835,183,167 1,125,792,603

329,606,857

Total assets ￦ 865,197,211 1,162,173,670

377,125,494

Liabilities

Trade and other payables 4,12,15,26,28 ￦ 1,765,045 1,974,932

962,278

Borrowings 4,14,15,28 64,991,284 20,000,000

- Deposits received 4,15,28 8,312,015 9,682,519

9,587,193

Other current liabilities 13 1,184,865 229,099

276,674 Current liabilities 76,253,209 31,886,550

10,826,145

Borrowings 4,14,15,28 130,000,000 99,927,723

49,858,457 Employee benefits 16 - 2,241,892

1,054,018

Deferred income tax liabilities 24 19,222,034 53,007,803

25,728,420 Non-current liabilities 149,222,034 155,177,418

76,640,895

Total liabilities 225,475,243 187,063,968

87,467,040

Equity

Share capital 18 218,954,385 218,954,385

71,417,580

Share premium 18 417,782,311 417,782,311

75,966,109 Retained earnings 21 138,984,981 437,702,198

679,845,040

Treasury shares 19 (68,830,149) (68,830,149)

(56,380,952) Accumulated other comprehensive loss 20 (67,169,560) (30,499,043)

(481,189,323)

Total equity 639,721,968 975,109,702

289,658,454 Total equity and liabilities ￦ 865,197,211 1,162,173,670

377,125,494

See accompanying notes to the financial statements.

HANJIN SHIPPING HOLDINGS CO., LTD. Statements of Comprehensive Income (loss) For the years ended December 31, 2011 and 2010

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(In thousands of won, except share data) Note 2011 2010

Operating income 10,22,26 ￦ 36,236,162 23,909,981 Operating expense 10,22,26 (10,951,531) (9,185,659) Equity in income (loss) of equity method accounted investees 8 (327,115,116) 137,020,815

Income (loss) from operations (301,830,485) 151,745,137

Finance income 4 1,348,582 1,205,862 Finance costs 4 (8,211,728) (5,768,184) Net finance costs (6,863,146) (4,562,322)

Other income (expense) 23 (126,404) 336,027

Profit (loss) before income tax (308,820,035) 147,518,842

Income tax benefit (expense) 24 22,875,292 (3,943,476) Profit (loss) for the year (285,944,743) 143,575,366

Actuarial losses 16 (252,937) (239,341) Change in capital adjustments of equity method accounted investments 8 (36,670,517) 85,712,506

Change in retained earnings of equity method accounted investments 8 (2,012,084) (2,976,110)

Change of functional currency - 46,992,922 Total other comprehensive income (loss) for

the year, net of income tax (38,935,538) 129,489,977

Total comprehensive income (loss) for the year ￦ (324,880,281) 273,065,343

Earnings per share Basic and diluted earnings (loss) per share 26 ￦ (6,803) 4,001 See accompanying notes to the financial statements.

HANJIN SHIPPING HOLDINGS CO., LTD. Statements of Changes in Equity For the years ended December 31, 2011 and 2010

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(In thousands of won)

Share capital

Share premium

Treasury shares

Accumulated other

comprehensive loss

Retained earnings

Total equity

Balance at January 1, 2010 W 71,417,580 75,966,109 (56,380,952) (481,189,323) 679,845,040 289,658,454

Total comprehensive income for the year:

Profit for the year - - - - 143,575,366 143,575,366

Other comprehensive income (loss), net of tax: Change in retained earnings of equity

method accounted investments - - - - (2,976,110) (2,976,110) Change in capital adjustments of equity

method accounted investments - - - 85,712,506 - 85,712,506

Actuarial losses - - - - (239,341) (239,341)

Change of functional currency - - - (16,001,715) 62,994,637 46,992,922

- - - 69,710,791 59,779,186 129,489,977 - - - 69,710,791 203,354,552 273,065,343 Transactions with owners of the Company, recognized directly in equity :

Issuance of common stock 147,536,805 311,842,000 - - - 459,378,805 Losses on capital reduction - - - 445,497,394 (445,497,394) - Change of functional currency - 29,974,202 (12,449,219) (64,517,905) - (46,992,922) Acquisition and disposal of treasury stock - - 22 - - 22

Balance at December 31, 2010 W 218,954,385 417,782,311 (68,830,149) (30,499,043) 437,702,198 975,109,702

Balance at January 1, 2011 W 218,954,385 417,782,311 (68,830,149) (30,499,043) 437,702,198 975,109,702

Total comprehensive loss for the year:

Loss for the year - - - - (285,944,743) (285,944,743)

Other comprehensive loss, net of tax: Change in retained earnings of equity

method accounted investments - - - - (2,012,084) (2,012,084) Change in capital adjustments of equity

method accounted investments - - - (36,670,517) - (36,670,517)

Actuarial losses - - - - (252,937) (252,937)

- - - (36,670,517) (2,265,021) (38,935,538) - - - (36,670,517) (288,209,764) (324,880,281)

Transactions with owners of the Company, recognized directly in equity :

Dividends - - - - (10,507,453) (10,507,453)

Balance at December 31, 2011 W 218,954,385 417,782,311 (68,830,149) (67,169,560) 138,984,981 639,`721,968

See accompanying notes to the financial statements.

HANJIN SHIPPING HOLDINGS CO., LTD. Statements of Cash Flows For the years ended December 31, 2011 and 2010

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Note 2011 2010 Cash flows from operating activities Cash generated from operations 27 W 25,127,688 12,084,883 Income tax paid 313 7,181,622 Net cash provided by operating activities 25,128,001 19,266,505 Cash flows from investing activities Disposition of short-term financial instruments 1,852,625 169,178 Acquisition of short-term financial instruments (6,894,115) - Acquisition of deposits received 986,994 95,326 Disposition of deposits received (2,357,499) - Acquisition of investments in associates (102,506,039) (93,854,814)Acquisition of property and equipment (81,573) (392,734)Acquisition of investment property (95,740) - Increase in other non-current assets (420,000) (55,001)Interest received 1,161,980 1,125,065 Dividends received 15,944,964 200,000 Net cash provided used in investing activities (92,408,403) (92,712,980) Cash flows from financing activities Repayment of borrowings (20,000,000) - Proceeds from borrowings 94,999,992 70,000,000 Disposal of treasury stocks - 22 Dividends paid (10,507,453) - Interest paid (7,433,258) (5,590,722)Stock issue expenses - (936,026)Net cash provided by financing activities 57,059,281 63,473,274 Net decrease in cash and cash equivalents (10,221,121) (9,973,201) Cash and cash equivalents at beginning of year 27,074,049 37,047,250 Cash and cash equivalents at end of year W 16,852,928 27,074,049 See accompanying notes to the financial statements.

HANJIN SHIPPING HOLDINGS CO., LTD. Notes to the Financial Statements For the years ended December 31, 2011 and 2010

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1. Organization and Description of Business Hanjin Shipping Holdings Co., Ltd. (the “Company”) was incorporated on December 23, 1949 under the laws of the Republic of Korea to engage in the container and bulk shipping business. Under the Korean Government’s shipping industry rationalization plan approved by the Industry Policy Review Board, Hanjin Container Lines Co., Ltd. was merged with Korea Shipping Corporation in 1988 and the merged company was named Hanjin Shipping Co., Ltd. As of December 1, 2009, the Company split itself into two companies by spinning off the shipping segment, according to the resolutions of its board of directors on September 16, 2009 and stockholders’ meeting on October 28, 2009 with the aim being to optimize the operations and management of each business division and to improve their competitiveness. The Company changed its name from Hanjin Shipping Co., Ltd. to Hanjin Shipping Holdings Co., Ltd. Hanjin Shipping Co., Ltd. was established by spinning off the shipping segment of Hanjin Shipping Holdings Co., Ltd. on the date of December 1, 2009.

The major stockholders are Korean Air Lines Co., Ltd. and affiliated private stockholders, with total ownership equity of 53.93% as of Deceber 31, 2011.

2. Basis of Preparation

(a) Statement of Compliance

The financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”), as prescribed in the Act on External Audits of Corporations in the Republic of Korea. These financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”) as detailed in the following notes. These are the Company’s first K-IFRS financial statements for part of the year covered by the first K-IFRS annual financial statements and K-IFRS 1101, ‘First-time Adoption of Korean International Financial Reporting Standards’ has been applied. The date of transition to K-IFRS is January 1, 2010, and the effect of the transition from Korean Generally Accepted Accounting Principles (“K-GAAP”) to K-IFRS on the reported financial position and financial performance is explained in note 30. The financial statements were authorized for issue by the Board of Directors on 30, January 2012. (b) Basis of Measurement The financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position:

liabilities for defined benefit plans are recognized at the net of the total present value of the defined

benefit obligation less the fair value of plan assets and unrecognized past service costs.

(c) Functional and Presentation Currency These financial statements are presented in Korean won, which is the Company’s functional currency and the currency of the primary economic environment in which the Company operates.

HANJIN SHIPPING HOLDINGS CO., LTD. Notes to the Financial Statements, Continued For the years ended December 31, 2011 and 2010

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2. Basis of Preparation, Continued

(d) 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.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimates are revised and in any future years affected.

Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is included in the following notes:

Note 10 – classification of investment property

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes:

Note 16 – retirement benefit obligations Note 24 – income taxes

3. Significant Accounting Policies

The accounting policies set out below have been applied consistently to all years presented in these financial statements for the purposes of the transition to K-IFRS, unless otherwise indicated.

(a) Investments Associates and Joint Ventures in the Financial Statements Associates are those entities in which the Company has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Company holds between 20 and 50 % of the voting power of another entity. Joint ventures are those entities over whose activities the Company has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions.

Investments in associates and jointly controlled entities are accounted for using the equity method (equity accounted investees) and are recognized initially at cost. The Company’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The financial statements include the Company’s share of the income and expenses and equity movements of equity accounted investees, after adjustments to align the accounting policies with those of the Company, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Company’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term investments, is reduced to nil, and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has made payments on behalf of the investee.


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3. Significant Accounting Policies, Continued

(b) Foreign Currencies

i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments, a financial liability designated as a hedge of the net investment in a foreign operation, or qualifying cash flow hedges, which are recognized in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. When gains or losses on non-monetary items are recognized in other comprehensive income, exchange components of those gains or losses are recognized in other comprehensive income. Conversely, when gains or losses on non-monetary items are recognized in profit or loss, exchange components of those gains or losses are recognized in profit or loss.

ii) Foreign operations If the presentation currency of the Company is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:

The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus they are expressed in the functional currency of the foreign operation and translated into Won, the presentation currency, using the closing rate.

When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed to non-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss. (c) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and are used to manage short-term commitments. Generally, equity investments are excluded from cash and cash equivalents.


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(d) Non-derivative Financial Assets

The Company recognizes financial assets in the statement of financial position when the Company becomes a party to the contractual provisions of the instrument.

Upon initial recognition, non-derivative financial assets are measured at their fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the asset’s acquisition or issuance. i) Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method except for loans and receivables of which the effect of discounting is immaterial.

ii) De-recognition of financial assets The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability. If the Company retains substantially all the risks and rewards of ownership of the transferred financial assets, the Company continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

iii) Offsetting between financial assets and financial liabilities Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position only when the Company currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously. (e) Impairment of Financial Assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized.

Objective evidence that financial assets are impaired can include the following - default or delinquency in interest or principal payments by the issuer, the Company, for economic reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the Company would not otherwise consider, or the disappearance of an active market for that financial asset. For an investment in an unlisted equity security, objective evidence of impairment includes ① significant financial difficulty of the issuer, and/or ② a significant or prolonged decline in its fair value below its cost.


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(e) Impairment of Financial Assets, Continued If there is objective evidence that an impairment loss has been incurred on financial assets carried at amortized cost or cost, or available-for-sale financial assets, the amount of the impairment loss is measured as described below.

i) Financial assets carried at cost The amount of the impairment loss on financial assets carried at cost is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment loss is realized in profit or loss. Such impairment losses are not reversed. (f) Property and Equipment

Property and equipment are measured at cost. The cost of property and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for them to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which they are located.

After recognition as an asset, property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Subsequent costs are recognized in the carrying amount of property and equipment at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Land is not depreciated. Property and equipment except for land are depreciated on a straight-line basis which most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset over the estimated useful life of each part of an item of property and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term.

Each part of an item of property and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately.

The estimated useful lives for the current and comparative years are as follows:

Useful lives (years) Buildings 53 Equipment 4~5

The residual value, the useful life of an asset and the depreciation method are reviewed at least at each financial year-end and, if expectations differ from previous estimates, the change is accounted for as a change in an accounting estimate.

Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of property and equipment and are recognized in profit or loss.


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(g) Investment Property

Properties held to earn rental income or for capital appreciation are classified as investment properties. Investment property is measured initially at its cost including transaction costs and, after initial recognition, carried at cost less accumulated depreciation and accumulated impairment losses.

Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Investment properties are depreciated on a straight-line basis over 24 ~ 40 years, the estimated useful lives. Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. The change is accounted for as a change in an accounting estimate.

(h) Impairment of Non-financial Assets

The carrying amounts of the Company’s non-financial assets, other than assets generated from investment property, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, intangible assets that have indefinite useful lives or that are not yet available for use and assets that are not used yet, impairment is tested by comparing the carrying amount of the unit with the recoverable amount annually regardless of indication that an asset may be impaired.

The Company estimates the recoverable amount as a single asset, or ,if the asset that cannot be tested individually, as a cash-generating unit ("CGU") to which the asset belongs. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss. An impairment loss is recognized immediately in profit or loss Impairment losses recognized in respect of CGUs reduce the carrying amounts of the other assets in the unit on a pro rata basis. In respect of other assets, impairment losses recognized in prior years are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, had no impairment loss been recognized for the asset in prior years.


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(i) Borrowing Costs

The Company capitalizes borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The Company recognizes other borrowing costs as an expense in the year in which it incurs them. A qualifying asset is an asset that necessarily takes a substantial year of time to get ready for its intended use or sale. Financial assets, and inventories that are manufactured, or otherwise produced, over a short year of time, are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets.

To the extent that the Company borrows funds specifically for the purpose of obtaining a qualifying asset, the Company determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the year less any investment income on the temporary investment of those borrowings. The capitalization rate is the weighted average of the borrowing costs applicable to the borrowings of the Company that are outstanding during the year, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amounts of borrowing costs that the Company capitalizes during a year do not exceed the amounts of borrowing costs it incurred during that year.

(j) Employee Benefits

i) Short-term employee benefits Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the year in which an employee renders the related service. When an employee has rendered service to the Company during an accounting year, the Company recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service. When the Company is legally or constructively obligated to pay an employee for their service rendered and the amount can be estimated reliably, the Company recognizes the related amount as liabilities.

ii) Retirement benefits: defined contribution plans When an employee has rendered service to the Company during a year, the Company recognizes the contribution payable to a defined contribution plan in exchange for that service as a liability (accrued expense), after deducting any contribution already paid. If the contribution already paid exceeds the contribution due for service before the end of the reporting year, the Company recognizes that excess as an asset (prepaid expense) to the extent that the prepayment will lead to a reduction in future payments or a cash refund.


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(j) Employee Benefits, Continued iii) Retirement benefits: defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company’s net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior years; that benefit is discounted to determine its present value. The fair value of plan assets is deducted. The calculation is performed annually by an independent actuary using the projected unit credit method.

The discount rate is the yield at the reporting date on corporate bonds that have maturity dates approximating the terms of the Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The Company recognizes all actuarial gains and losses arising from actuarial assumption changes and experiential adjustments in other comprehensive income when incurred.

When the fair value of plan assets exceeds the present value of the defined benefit obligation, the Company recognizes an asset, to the extent of the total of cumulative unrecognized past service cost and the present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.

Past service costs, which are the change in the present value of the defined benefits obligation for employee service in prior years, resulting in the current year from the introduction of, or change to post-employment benefits, are recognized as an expense on a straight-line basis over the average year until the benefits become vested. To the extent that the benefits are already vested immediately following the introduction of, or changes to, a defined benefit plan, the Company recognizes the past service cost immediately. iv) Termination benefits Termination benefits are recognized as an expense when the Company is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense if the Company has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.

(k) Provision

A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. The risks and uncertainties that inevitably surround events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.

The balance of provisions are reviewed at the end of each reporting year and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed. A provision shall be used only for expenditures for which the provision was originally recognized.


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(l) Equity capital

Common stocks are classified as equity. Incremental costs directly attributable to the issue of common stocks and share options are recognized as a deduction from equity, net of any tax effects.

Repurchase of share capital (treasury shares) When share capital recognized as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount received results in an increase in equity, and the resulting surplus or deficit on the transaction is presented in share premium.

(m) Revenue Recognition

Revenue from rendering of services or the use by others of Company assets is measured at the fair value of the consideration received or receivable, net of trade discounts, volume rebates and cash incentives.

Services Revenue from services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

Commissions When the Company acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognized is the net amount of commission made by the Company.

Rental income Rental income from investment property is recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives granted are recognized in profit or loss on a straight-line basis as a reduction to lease income over the term of the lease. (n) Finance Income and Finance Costs

Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale financial assets, changes in the fair value of financial assets at fair value through profit or loss, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest method. Dividend income is recognized in profit or loss on the date that the Company’s right to receive payment is established.

Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets at fair value through profit or loss, impairment losses recognized on financial assets, and losses on hedging instruments that are recognized in profit or loss. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or loss using the effective interest method.


15


(o) Income Tax

Income tax expense comprises current tax and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

i) Current tax Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the year since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future years, and non-taxable or non-deductible items from the accounting profit.

ii) Deferred tax Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. A deferred tax liability is recognized for all taxable temporary differences. A deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which they can be utilized. However, deferred tax is not recognized for the following temporary differences: taxable temporary differences arising on the initial recognition of goodwill, or the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting profit or loss nor taxable income.

The Company recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates and jointly controlled entities, except to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. A deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable that the differences relating to investments in subsidiaries, associates and jointly controlled entities will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting year. The measurement of deferred tax liabilities and deferred tax assets reflect the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting year, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset if, and only if, the Company has a legally enforceable right to set off current tax assets against current tax liabilities and the deferred assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on intending to settle current tax liabilities and assets on a net basis. Additional income tax due to dividend payments is recognized when the Company recognizes a liability relevant to a dividend payment.


16


(p) Earnings Per Share

The Company presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all potentially dilutive ordinary shares, which comprise convertible notes and share options granted to employees. (q) New Standards and interpretations not yet adopted

The following new standards, interpretations and amendments to existing standards have been published and are mandatory for the Company for annual years beginning after January 1, 2011, and the Company has not early adopted them.

i) Amendments to K-IFRS No. 1107 Financial Instruments: Disclosures The amendments require disclosing the nature of the transferred assets, their carrying amount, and the description of risks and rewards for each class of transferred financial assets that are not derecognized in their entirety. If the Company derecognizes transferred financial assets but still has their specific risks and rewards, the amendments require additional disclosures on their effect of risks. The amendments will be applied prospectively for the Company’s annual years beginning on or after July 1, 2011.

ii) Amendments to K-IFRS No. 1012 Income Tax Deferred tax assets or deferred tax liabilities on investment properties measured at fair value, unless any contrary evidence exists, will be measured by reflecting the tax effect from selling the investment properties. The amendments will be prospectively applied for the Company’s annual years beginning on or after January 1, 2012.

iii) Amendments to K-IFRS No. 1019 Employee Benefits The standard requires recognition of actuarial gains and losses immediately in other comprehensive income and to calculate expected return on plan assets based on the rate used to discount the defined benefit obligation. The standard will be applied retrospectively for the Company’s annual years beginning on or after January 1, 2013.

iv) K-IFRS No. 1113 Fair Value Measurement The standard defines fair value and a single framework for fair value, and requires disclosures about fair value measurements. The standard will be applied prospectively for the Company’s annual years beginning on or after January 1, 2013.


17

4. Categories of Financial Instruments

(a) Categories of financial instruments as of December 31, 2011, 2010 and January 1, 2010 are

summarized as follows:

(i) December 31, 2011


Loans and receivables

Financial assets

at fair value through profit

or loss

Financial liabilities

measured at amortized

cost Total Financial instruments: Cash and cash equivalents W 16,852,928 - - 16,852,928 Short-term financial instruments 6,894,115 - - 6,894,115 Trade and other receivables 6,074,095 - - 6,074,095

W 29,821,138 - - 29,821,138

Financial liabilities: Trade and other payables W - - 1,765,045 1,765,045 Deposit received - - 8,312,015 8,312,015 Borrowings - - 194,991,284 194,991,284 W - - 205,068,344 205,068,344

(ii) December 31, 2010



Financial assets


or loss



cost Total Financial instruments: Cash and cash equivalents W 27,074,049 - - 27,074,049 Short-term financial instruments 1,852,625 - - 1,852,625 Trade and other receivables 7,265,833 - - 7,265,833

W 36,192,507 - - 36,192,507

Financial liabilities: Trade and other payables W - - 1,974,932 1,974,932 Deposit received - - 9,682,519 9,682,519 Borrowings - - 119,927,723 119,927,723

W - - 131,585,174 131,585,174


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4. Categories of Financial Instruments, Continued

(iii) January 1, 2010



Financial assets


or loss



cost Total Financial instruments: Cash and cash equivalents W 37,047,250 - - 37,047,250 Short-term financial instruments 2,021,803 - - 2,021,803 Trade and other receivables 992,572 - - 992,572

W 40,061,625 - - 40,061,625

Financial liabilities: Trade and other payables W - - 962,278 962,278 Deposit received - - 9,587,193 9,587,193 Borrowings - - 49,858,457 49,858,457

W - - 60,407,928 60,407,928 (b) The items of income, expense, gains and losses on financial instruments incurred for the years ended

December 31, 2011 and 2010 are as follows:



Financial assets


or loss



cost Total For the year ended December 31, 2011 Interest costs W - - (8,211,728) (8,211,728) Interest income 1,348,582 - - 1,348,582

W 1,348,582 - (8,211,728) (6,863,146)

For the year ended December 31, 2010 Interest costs W - - (5,768,184) (5,768,184) Interest income 1,205,862 - - 1,205,862

W 1,205,862 - (5,768,184) (4,562,322)

5. Restricted Deposits Deposits which are restricted in use as of December 31, 2011, 2010 and January 1, 2010 are summarized as follows: (In thousands of won)

12/31/2011 12/31/2010

1/1/2010 Restriction Short-term financial instruments W 2,894,115 1,852,625 2,021,803 Leasehold deposits payable


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6. Trade and Other Receivables

(a) Trade and other receivables as of December 31, 2011, 2010 and January 1, 2010 are summarized as

follows:

(b) The aging schedule of trade and other receivables before impairment which were past due as of

December 31, 2011, 2010 and January 1, 2010 are as follows:

7. Other Current Assets Details of other current assets as of December 31, 2011, 2010 and January 1, 2010 are summarized as follows:

(In thousands of won) 12/31/2011 12/31/2010 1/1/2010

Trade receivables W 5,704,399 7,078,560 883,628 Other receivables 4,698 8,877 11,345 Accrued interest income 364,998 178,396 97,599

W 6,074,095 7,265,833 992,572

(In thousands of won) 12/31/2011 12/31/2010 1/1/2010 Up to 6 months W 6,074,095 7,265,833 992,572

(In thousands of won) 12/31/2011 12/31/2010 1/1/2010 Advance payments W 25,411 23,699 19,045 Prepaid expenses 842 841 - Prepaid taxes 156,152 156,465 7,437,966 Supplies 10,501 7,555 -

W 192,906 188,560 7,457,011


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8. Investments in Associates

(a) Details of investments in associates as of December 31, 2011, 2010 and January 1, 2010 are as

follows: (In thousands of won)

12/31/2011

12/31/2010

1/1/2010

Company

Main operating activity

Percentage of

ownership Book value

Percentage of

ownership Book value

Percentage of

ownership

Book value

Hanjin Shipping

Co., Ltd.

Shipping 36.02% W 741,655,503 37.14% W 1,029,082,969

12.20% W 231,542,945

Cyber Logitech Co., Ltd.

Computer system consulting & building 40.00% 13,546,554 40.00% 16,266,206

40.00%

16,743,467

W 755,202,057 W 1,045,349,175 W 248,286,412

Hanjin Shipping Co., Ltd. ‘s common stocks are listed on KRX KOSPI Market established by Korea Stock Exchange and the market value of the stocks is W 511,062,341 thousand as of December 31, 2011.

(b) Changes in investments in associates for the year ended December 31, 2011 are summarized as

follows:

(i) For the year ended December 31, 2011


Book value as of

Jan. 1, 2011

Contribution or

Add

Equity in loss of equity method

accounted investees Dividend Other(*)

Book value as of

Dec. 31, 2011

Hanjin Shipping Co., Ltd. W 1,029,082,969 102,506,039 (324,952,640) (15,784,964) (49,195,901) 741,655,503 Cyber Logitech Co., Ltd. 16,266,206 - (2,162,476) (160,000) (397,176) 13,546,554 W 1,045,349,175 102,506,039 (327,115,116) (15,944,964) (49,593,077) 755,202,057

Equity in loss of equity method accounted investees related to Hanjin Shipping Co., Ltd. included W 14,283,771 thousand due to decrease of ownership and the amount of W 310,668,869 thousand due to equity method valuation loss. Equity in loss of equity method accounted investees related to Cyber Logitech Co., Ltd is due to equity method valuation loss.


21

8. Investments in Associates, Continued


follows, Continued:

(*) Details of other changes in investments in associates and joint ventures for the year ended December 31, 2011 are summarized as follows:


Details

Company

Book value as of Jan. 1,

2011 Increase

(decrease)

Book value as of Dec. 31,

2011 Retained earnings–change in equity method accounted investment, before tax

Hanjin Shipping Co., Ltd. W (3,229,750) (2,182,418) (5,412,168)

Cyber Logitech Co., Ltd. (585,775) (397,176) (982,951) (3,815,525) (2,579,594) (6,395,119) Capital adjustments–change in equity method accounted investment, before tax

Hanjin Shipping Co., Ltd. W 110,621,858 (47,013,483) 63,608,375

Cyber Logitech Co., Ltd. - - - 110,621,858 (47,013,483) 63,608,375 W 106,806,333 (49,593,077) 57,213,256

(ii) For the year ended December 31, 2010



2010 Acquisitions

Equity in income of

equity method

accounted investees Dividend Other(*)

Book value as of Dec. 31, 2010

Hanjin Shipping Co., Ltd. W 231,542,945 554,169,645 136,712,301 - 106,658,078 1,029,082,969 Cyber Logitech Co., Ltd. 16,743,467 - 308,514 (200,000) (585,775) 16,266,206 W 248,286,412 554,169,645 137,020,815 (200,000) 106,072,303 1,045,349,175

Equity in income of equity method accounted investees related to Hanjin Shipping Co., Ltd. Included W 278,713 thousand due to gain in a bargain purchase, W (2,177,022) thousand due to decrease of ownership and amount W 138,610,610 thousand due to equity method valuation income. Equity in loss of equity method accounted investees related to Cyber Logitech Co., Ltd is due to equity method valuation income.


22

8. Investments in Associates, Continued


follows, Continued: (*) Details of other changes in investments in associates and joint ventures for the year ended December 31, 2010 are summarized as follows:


Details

Company


2010 Increase

(decrease)


2010 Retained earnings–change in equity method accounted investment, before the tax

Hanjin Shipping Co., Ltd. W - (3,229,750) (3,229,750)

Cyber Logitech Co., Ltd. - (585,775) (585,775) - (3,815,525) (3,815,525) Capital adjustments–change in equity method accounted investment, before the tax

Hanjin Shipping Co., Ltd. W 734,030 109,887,828 110,621,858

Cyber Logitech Co., Ltd. - - - 734,030 109,887,828 110,621,858 W 734,030 106,072,303 106,806,333 (c) Summary of financial information in investments in associates and joint ventures as of December 31,

2011 is summarized as follows:

(In thousands of won) Asset Liabilities

Revenue Net

income(loss) Hanjin Shipping Co., Ltd. W 11,196,845,338 9,171,777,144 9,523,255,243 (835,438,594) Cyber Logitech Co., Ltd. 46,725,841 12,859,456 71,647,126 (5,406,189)

9. Property and Equipment (a) Changes in Property and equipment for the year ended December 31, 2011, are as follows:

(In thousands of won) Land Buildings Equipment Total Cost :

Balance at January 1,2011 W 31,713,941 14,496,655 392,608 46,603,204 Acquisitions - 26,900 54,672 81,572 Other(*) - (346,204) - (346,204) Balance at December 31,2011 31,713,941 14,177,351 447,280 46,338,572 Accumulated depreciation : Balance at January 1,2011 - (3,675,245) (20,144) (3,695,389) Depreciation - (286,437) (101,156) (387,593) Other(*) - 87,771 - 87,771 Balance at December 31,2011 - (3,873,911) (121,300) (3,995,211) Carrying amount: Balance at January 1,2011 W 31,713,941 10,821,410 372,464 42,907,815 Balance at December 31,2011 W 31,713,941 10,303,440 325,980 42,343,361 (*) Transfer to investment property for the year ended December 31, 2011.


23

9. Property and Equipment, Continued

(b) Changes in Property and equipment for the year ended December 31, 2010 are as follows:


Land Buildings(*)

Equipment Construction

-in-progress

Total Cost :

Balance at January 1,2010 W 31,713,941 14,534,687 - - 46,248,628 Acquisitions - - 316,265 76,469 392,734 Disposition - - (126) - (126) Other(*) - (38,032) 76,469 (76,469) (38,032) Balance at December 31,2010 31,713,941 14,496,655 392,608 - 46,603,204 Accumulated depreciation : Balance at January 1,2010 - (3,390,987) - - (3,390,987) Disposition - - - - - Depreciation - (293,893) (20,144) - (314,037) Other(*) - 9,635 - - 9,635 Balance at December 31,2010 - (3,675,245) (20,144) - (3,695,389) Carrying amount: Balance at January 1,2010 W 31,713,941 11,143,700 - - 42,857,641 Balance at December 31,2010 W 31,713,941 10,821,410 372,464 - 42,907,815

(*) Transfer to investment property for the year ended December 31, 2010.

(c) The officially declared value of land at December 31, 2011, as announced by the Minister of Construction

and Transportation, is as follows:

(In thousands of won) Book value Declared value Land W 31,713,941 43,940,130

The officially declared value, which is used for government purposes, is not intended to represent fair value.


24

10. Investment Property

(a) Details of investment property as of December 31, 2011, 2010 and January 1, 2010 are as follows:


Buildings Cost W 50,457,880 50,015,936 49,977,904 Accumulated depreciation (13,787,440) (12,680,224) (11,660,000) Book Value W 36,670,440 37,335,712 38,317,904

(b) Changes in investment property for the year ended December 31, 2011 were as follows:



2011 Acquisitions Transfers Depreciation


2011 Buildings W 37,335,712 95,740 258,433 (1,019,445) 36,670,440

(c) Changes in investment property for the year ended December 31, 2010 were as follows:


Book value as of Jan. 1, 2010 Transfers Depreciation

Book value as of Dec. 31, 2010

Buildings W 38,317,905 28,396 (1,010,589) 37,335,712

(d) Details of revenue and operation expense related to Investment property for the years ended

December 31, 2011 and 2010 were as follows:

(In thousands of won) 2011 2010

Revenue W 12,680,323 11,522,929 Operation expense (2,613,761) (2,344,648)

11. Intangible Assets Changes in intangible assets for the year ended December 31, 2011 are summarized as follows:

Balance at

January 1, 2011 Acquisitions Disposals

Balance at December 31,

2011 Facility usage right W 43,700 - - 43,700

Balance at

January 1, 2011 Acquisitions Disposals

Balance at December 31,

2011 Facility usage right W 43,700 - - 43,700


25

12. Trade and Other Payables

Details of trade and other payables as of December 31, 2011, 2010 and January 1, 2010 are as follows:

(In thousands of won) 12/31/2011 12/31/2010 1/1/2010 Current : Trade payables W 552,003 1,476,790 572,333 Accrued expenses 1,213,042 498,142 389,945 W 1,765,045 1,974,932 962,278

13. Other Current Liabilities Details of other current liabilities as of December 31, 2011, 2010 and January 1, 2010 are as follows:

(In thousands of won) 12/31/2011 12/31/2010 1/1/2010 Withholdings W 1,184,865 229,099 176,794 Income taxes payable - - 99,880 W 1,184,865 229,099 276,674

14. Borrowings

(a) Short-term borrowings

Short-term borrowings as of December 31, 2011, 2010 and January 1, 2010 are summarized as follows:


Lender Annual interest

rate Maturity 12/31/2011

12/31/2010

1/1/2010 Nonghyup 4.68% 2012.05.17 W 14,999,992 - - The Korea Securities Finance Corp. 5.47% 2011.06.11 - 20,000,000 - W 14,999,992 20,000,000 -


26

14. Borrowings, Continued

(b) Bonds

i) Bonds as of December 31, 2011, 2010 and January 1, 2010 are summarized as follows:

(In thousands of won) Bonds Issue Date Maturity 12/31/2011 12/31/2010 1/1/2010

1st 2009.02.19 2012.02.19 W 50,000,000 50,000,000 50,000,000 2nd 2010.06.21 2013.06.21 50,000,000 50,000,000 - 3rd 2011.10.28 2014.10.28 40,000,000 - - 140,000,000 100,000,000 50,000,000

Less discount of bonds (8,708) (72,277) (141,543) 139,991,292 99,927,723 49,858,457 Less current portion of bonds (49,991,292) - -

90,000,000

99,927,723

49,858,457 Ending balance of bonds W

ii) Aggregate maturities of the Company’s Bonds as of December 31, 2011 are summarized as follows:


Year Local currency borrowings

2012.01.01~2012.12.31 W 50,000,000 2013.01.01~2013.12.31 50,000,000 2014.01.01~2014.12.31 40,000,000

W 140,000,000

iii) Changes in bonds for the years ended December 31, 2011 and 2010 are summarized as follows:

(In thousands of won) 2011 2010 Balance at beginning of year W 100,000,000 50,000,000 Increase 40,000,000 50,000,000 Balance at the end of year W 140,000,000 100,000,000

(c) Long-term borrowings

Long-term borrowings as of December 31, 2011, 2010 and January 1, 2010 are summarized as follows:

(In thousands of won) Lender Annual interest rate Maturity 12/31/2011 12/31/2010 1/1/2010 Nonghyup 5.24% 2014.11.01 W 40,000,000 - -


27

15. Fair Value of Financial Assets and Liabilities

The Company classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.

The level of fair value hierarchy is as follows:

Significance of inputs Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

Level 3

Inputs for the asset or liability that are not based on observable market data (unobservable inputs)

Details of financial instruments are discussed in note 4.

As of December 31, 2011, 2010 and January 1, 2010, details of fair value, carrying amount, secured assets are as follows:


Carrying amount Fair value



Assets carried at amortized cost Cash and cash equivalents W 16,852,928 16,852,928 27,074,049 27,074,049 37,047,250 37,047,250 Short-term financial instruments 6,894,115 6,894,115 1,852,625 1,852,625 2,021,803 2,021,803 Trade and other receivables 6,074,095 6,074,095 7,265,833 7,265,833 992,572 992,572 Total W 29,821,138 29,821,138 36,192,507 36,192,507 40,061,625 40,061,625 Liabilities carried at amortized cost Trade and other payables W 1,765,045 1,765,045 1,974,932 1,974,932 962,278 962,278 Borrowings 194,991,284 194,991,284 119,927,723 119,927,723 49,858,457 49,858,457 Deposits received 8,312,015 8,312,015 9,682,519 9,682,519 9,587,193 9,587,193 Total W 205,068,344 205,068,344 131,585,174 131,585,174 60,407,928 60,407,928

(*) Assets carried at amortized cost and liabilities carried at amortized cost were considered amortized cost as fair value because amortized cost was not materially different from fair value.

16. Employee Benefits The Company operates a defined benefit retirement plan. According to the defined benefit plan, the Company pays retirement benefits calculated under the plan’s benefit formula at the time employees leave the Company. Under the defined benefit plan, the expected payout upon termination of employment is calculated based on the average salary amount for the last 3 months of the employment and number of years employed. The defined benefit obligations are calculated by independent actuaries using the projected unit credit method.


28

16. Employee Benefits, Continued

(a) The amounts of retirement benefits related to defined benefit plan recognized in the comprehensive

income statement for the years ended December 31, 2011 and 2010 are as follows: (In thousands of won) 2011 2010 Current service cost W 712,306 859,901 Interest cost 115,824 26,956 Expected return on plan assets (9,330) (7,447)

W 818,800 879,410

(b) The changes in the defined benefit obligation for the years ended December 31, 2011 and 2010 are as

follows:

(In thousands of won) 2011 2010 Balance at beginning of year W 2,491,832 1,185,489 Current service cost 712,306 859,901 Interest cost 115,824 26,956 Payments (1,747,391) (36,980) Actuarial losses 255,180 246,340 Other (159,105) 210,126 Balance at the end of year W 1,668,646 2,491,832

(c) The changes in the fair value of plan assets for the years ended December 31, 2011 and 2010 are as

follows:

(In thousands of won) 2011 2010 Balance at beginning of year W 249,940 131,471 Expected return on plan assets 9,330 7,447 Deposits for plan assets 2,000,000 104,023 Payments (245,458) - Actuarial gains 2,243 6,999 Balance at end of year W 2,016,055 249,940

Because the fair value of plan assets exceeds the present value of the defined benefit obligation, the Company recognizes an asset.

(d) Plan assets as of December 31, 2011, 2010 and January 1, 2010 are comprised as follows:

(In thousands of won) 12/31/2011 12/31/2010 1/1/2010 Retirement pension plan assets W 2,009,714 243,600 128,376 National pension fund 6,340 6,340 3,095 W 2,016,054 249,940 131,471

The principal on the Company’s retirement pension plan assets is protected by financial instruments.


29

16. Employee Benefits, Continued

(e) The amounts of actuarial losses recognized in the statement of comprehensive income(loss) for the

yaers ended December 31, 2011 and 2010 are as follows: (In thousands of won) 2011 2010 Actuarial losses (before tax) W 252,938 239,341

(f) The principal actuarial assumptions used are as follows:

12/31/2011 12/31/2010 1/1/2010 Discount rate 4.66% 4.27% 5.67% Expected return on plan assets 3.83% 3.83% 4.43% Future salary increases 4.93% 4.93% 4.23%

17. Pledged Assets and Guarantees The following assets were pledged as collateral for the Company’s short-term borrowings and long-term debt as of December 31, 2011: (In thousands of won)

Asset

Lender

Goss book value

Collateralized amount

Land and buildings Nonghup & Kookmin bank W 78,687,821 104,000,000 Investments in associates and joint ventures Nonghup 49,413,482 19,500,000

18. Capital and Reserves

(a) The number of the Company’s shares authorized is 250,000,000 and the number of the Company’s shares issued is 43,790,877 as of December 31, 2011.

(b) Transactions in stockholders’ equity for the years ended December 31, 2011 and 2010 are as follows:

(In thousands of won, except share data)

2011 2010 Common stock Common stock

Number of

shares Amount Number

of shares Amount

Balance at Beginning 43,790,877 W 218,954,385 14,283,516 W 71,417,580 Increase in paid-in capital - - 29,507,361 147,536,805

43,790,877

218,954,385

43,790,877

218,954,385 Balance at Ending W W


30

18. Capital and Reserves, Continued

(c) Details of capital surplus as of December 31, 2011, 2010 and January 1, 2010 are as follows:


12/31/2011 12/31/2010 1/1/2010

Additional paid-in capital W 417,782,311 417,782,311 75,966,109

(d) The changes of capital surplus for the years ended December 31, 2011 and 2010 are as follows:


Balance at beginning of year W 417,782,311 75,966,109

Increase in paid-in capital - 311,842,000

Gain on presentation currency translations - 29,974,202

417,782,311

417,782,311 Balance at beginning of year W

19. Treasury Stock In corporate division, the Company issued stocks by ratio of division and the Company purchased fractional shares, as of December 31, 2011, treasury stocks are W 68,830,149 thousand won (1,761,065 shares). The Company is planning to dispose treasury stocks from the market conditions.

20. Accumulated other comprehensive income (loss)

Accumulated other comprehensive income (loss) as of December 31, 2011, 2010 and January 1, 2010:

(in thousands of won) 12/31/2011 12/31/2010 1/1/2010

Change in capital adjustments of equity method accounted investments W 49,776,019 86,446,536 734,030 Other capital adjustment (116,945,579) (116,945,579) (52,427,674) Loss on capital reduction - - (445,497,393) Gain on presentation currency translations, net of tax - - 16,001,714 W (67,169,560) (30,499,043) (481,189,323)


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21. Retained Earnings

(a) Composition of retained earnings as of December 31, 2011, 2010 and January 1, 2010 are

summarized as follows:

(In thousands of won) 12/31/2011 12/31/2010 1/1/2010 Legal reserve W 1,050,745 - -

Other reserve 169,823,081 169,823,080 136,457,703

Unappropriated retained earnings (deficit) (31,888,843) 267,879,118 543,387,337 W 138,984,981 437,702,198 679,845,040

(b) Statutory Reserve The Korean Commercial Code requires the Company to appropriate a legal reserve in an amount equal to at least 10 % of cash dividends for each accounting year until the reserve equals 50 % of stated capital. The legal reserve may be used to reduce a deficit or may be transferred to common stock in connection with a free issue of shares. (c) Other Reserve Reserve for business rationalization was appropriated in order to utilize tax deduction benefit though the early recognition of future expenditure. This reserve was restored to retained earning in accordance with the relevant tax laws. Such reserve is taken back into taxable income in the year of restoration. Reserve without specific purpose is restored to retained earning by a resolution at a general of shareholders. (d) Statements of appropriation of retained earnings for the years ended December 31, 2011 and 2010 are

as follows :

Date of appropriation for 2010 : March 18, 2011

Date of appropriation for 2011 : March 16, 2012

(In thousands of won) 2011 2010 I. Unappropriated retained earnings

(undisposed accumulated deficit) Beginning of the year W 256,320,921 97,889,943

Net income(loss) for the year (285,944,743) 143,575,366

Actuarial losses (252,937) (239,341) Change in retained earnings–change in equity method accounted investments (2,012,084) (2,976,110)

Effect du to change of functional currency - - 29,629,260

(31,888,843) 267,879,118

II. Appropriation of retained earnings - Legal reserve - - 1,050,744 Dividends - - 10,507,453 - (11,558,197)III. Unappropriated retained earnings (undisposed accumulated deficit) to be carried over to subsequent year W (31,888,843) 256,320,921


32

22. Operating Revenue and Expenses

Details of other operation revenue and expenses for the years ended December 31, 2011 and 2010 are as follows;

(In thousands of won) 2011 2010 Operating Revenue

Revenues-rental W 12,680,323 11,522,929 Brand royalty revenues 22,704,173 11,718,710 Other operating revenues 851,666 668,342

W 36,236,162 23,909,981 Operating Expenses

Wages W 3,866,328 3,914,702 Depreciation 1,407,039 1,324,626 Insurance 25,412 21,283 Taxes and dues 540,665 531,840 Advertising 1,832,280 331,656 Repairs 2,042,277 1,720,724 Utilities 629,229 652,663 Others 608,301 688,165

W 10,951,531 9,185,659

23. Others expense

Details of others (income and costs) for the years ended December 31, 2011 and 2010 are as follows:


Other income W 248,596 347,359 Donation (375,000) (10,000) Other costs - (1,332)

W (126,404) 336,027


33

24. Income Tax Expense

(a) The components of income tax expense (benefit) for the years ended December 31, 2011 and 2010 are

as follows: (In thousands of won) 2011 2010 Current tax expenses (benefit) W - -

-Adjustment for prior years - - -Origination and reversal of temporary differences (33,785,769) 27,279,383 -Income tax recognized in other comprehensive income 10,910,477 (23,335,907)

Total income tax expense (benefit) W (22,875,292) 3,943,476

(b) Income tax recognized directly in other comprehensive income for the years ended December 31 2011

and 2010 are as follows: (In thousands of won) 2011 2010 Current tax : - Gains/losses on sale of treasury stock W - - - Defined benefit plan actuarial gains/losses - - Subtotal of current tax : - - Deferred income tax: - - - Change in capital adjustments–change in equity method accounted investments 10,342,966 (24,175,322)

- Change in retained earnings–change in equity method accounted investments 567,511 839,415

Subtotal of deferred income tax 10,910,477 (23,335,907)Income tax recognized directly in other comprehensive income W 10,910,477 (23,335,907)

(c) Details of the difference in accounting profit related to the business and taxable income for the years ended December 31, 2011 and 2010 are as follows:

(In thousands of won) 2011 2010 Profit (loss) before income taxes W (308,820,035) 147,518,842 Additional income for tax purposes

- Deferred difference 395,264,533 318,926,752 - Non-deferred difference 80,661,665 16,832,061

475,926,198 335,758,813 Additional expense for tax purposes

- Deferred difference (126,888,765) (211,392,684) - Non-deferred difference (14,288,438) (179,044,071)

(141,177,203) (390,436,755) Carry-over deficits for tax purposes (25,928,960) (92,840,900)

Total of taxable standards W - -


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24. Income Tax Expense, Continued

(d) Deferred tax expense (benefit) relating to the origination and reversal of temporary differences for the

yaers ended December 31, 2011 and 2010 were follows:

(In thousands of won) 2011 2010 Current tax expenses W - - Deferred tax assets (liabilities) at end of years (19,222,034) (53,007,803) Deferred tax assets (liabilities) at beginning of years (53,007,803) (25,728,420) Change of deferred tax assets (liabilities) W 33,785,769 (27,279,383)

(e) As of December 31, 2011, the tax effects of temporary difference were calculated by expected tax

rate of the fiscal year when the temporary differences were reversed. The tax rates in 2012 and after expected to be 22 %, respectively.

(f) The net deferred tax assets (liabilities) are reflected in the statements of financial position after

offsetting assets and liabilities where there is a legally enforceable right to offset tax assets and liabilities and where the deferred income taxes related to the same fiscal authority.

(g) Changes in deferred tax assets (liabilities)for the years ended December 31, 2011 and 2010 are as follows:

i) For the year ended December 31, 2011


Beginning balance

Profit or loss

Other capital

adjustment

Other comprehensive

income Ending balance

Retirement benefit obligations W 403,171 (346,947) - - 56,224 Severance and retirement insurance (53,592) - - - (53,592)Investment in associates and joint ventures (49,860,862) 26,770,121 10,342,966 567,511 (12,180,264)Accrued income (39,247) (41,053) - - (80,300)Treasury stocks (3,457,273) - - - (3,457,273)Lands - (1,370,794) - - (1,370,794)Buildings - (2,136,035) - - (2,136,035)

W (53,007,803) 22,875,292 10,342,966 567,511 (19,222,034)

ii) For the year ended December 31, 2010 (In thousands of won)

Beginning balance

Profit or loss

Other capital

adjustment

Other comprehensive

income Ending balance

Retirement benefit obligations W 248,483 154,688 - - 403,171 Severance and retirement insurance (28,243) (25,349) - - (53,592)Investment in associates and joint ventures (4,253,888) (22,271,067) (24,175,322) 839,415 (49,860,862)Accrued income (23,619) (15,628) - - (39,247)Treasury stocks (21,671,153) 18,213,880 - - (3,457,273)

W (25,728,420) (3,943,476) (24,175,322) 839,415 (53,007,803)


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25. Earnings (Loss) Per Share

Basic earnings (loss) per share for the years ended December 31, 2011 and 2010 are as follows:

(In thousands of won, except number of shares, per share information) 2011 2010

Net earnings (loss) W (285,944,743) 143,575,366 Weighted-average number of common shares outstanding (*) 42,029,812 35,885,814 Earnings (loss) per share W (6,803) 4,001

(*) Weighted average number of common shares outstanding:

(In thousands of won, except number of shares, per share information) 2011 2010

Weighted average number of ordinary shares W 43,790,877 37,646,879 Effect of treasury stocks held (1,761,065) (1,761,065) W 42,029,812 35,885,814

26. Transactions and Balances with Subsidiaries and Related companies (a) Details of related companies as of December 31, 2011 are as follows:

Relationship Name

Investments in Associates and Joint Ventures Hanjin Shipping Co., Ltd. Cyber Logitech Co., Ltd.

(b) Significant transactions which occurred in the normal course of business with related companies

for the yaers ended December 31, 2011 and 2010 are as follows:


Relationship

Name 2011 2010

Revenue Expenses Revenue Expenses Affiliate Hanjin Shipping Co., Ltd. W 28,514,118 133,427 16,916,633 93,622 Affiliate Cyber Logitech Co., Ltd. - 5,709 - 73,870 Other Hanjin Pacific Co., Ltd. 175,976 - 163,539 - Other HJLK CO., Ltd. 102,937 - 45,954 - Other Hanjin Transportation Co., Ltd. - 80,152 - 22,746 Other Korea Airport Service Co.,Ltd. - 5,477 - 3,774 Other Jungseok Enterprise - 41,606 - - Other Hanjin Travel Service Co., Ltd. - - - 1,307 Other Korea Information & Communication - 1,363 - 2,725 W 28,793,031 267,734 17,126,126 198,044


36

26. Transactions and Balances with Subsidiaries and Related companies, Continued

(c) Account balances with related companies as of December 31, 2011 and 2010 are as follows:


Relationship

Name

2011 2010

Receivables and others

Payables and others

Receivables and others

Payables and others

Affiliate Hanjin Shipping Co., Ltd. W 5,647,084 3,020,445 7,072,039 2,736,500 Affiliate Cyber Logitech Co., Ltd. - 574 - 8,739 Other Hanjin Pacific Co., Ltd. 42 97,431 10 89,386 Other HJLK CO., Ltd. - 57,640 - 31,322 Other Hanjin Transportation Co., Ltd. - 7,165 - 2,382 Other Korea Airport Service Co.,Ltd. - 608 - 421 Other Jungseok Enterprise - 3,822 - - Other

Hanjin Information Systems & Telecommunication Co., Ltd. - 1,499 - 1,499

W 5,647,126 3,189,184 7,272,049 2,870,249

(d) Key management personnel compensation in total and for each of the following categories for the year

ended December 31, 2011 is as follows:

(In thousands of won) Compensation details Amount paid Amount approved Standing directors W 1,706,000

2,500,000 Outside directors 144,000

Key management personnel include standing directors and outside directors who have the authority and responsibilities for planning, operation and control of the business of the Company.

(e) The Company had provided guarantees for related companies as of December 31, 2011 as follows:

Guarantee recipient Type of borrowings Guaranteed amount

TTI Algeciras S.A. Performance guarantee of debts EUR 95,496,000

Receivables and payables relating to the shipping business segment have transferred over successfully to Hanjin Shipping Co., Ltd. According to the Commercial law Par. 1 of Article 9, Clause 530 Hanjin Shipping Co., Ltd. (established by spin-off) and Hanjin Shipping Holdings., Co., Ltd. (which continued as an ongoing business entity after the spin-off) continued with its business after the spin-off are jointly responsible for the payables which occurred prior to the spin-off.


37

27. Cash Generated from Operations

Details of cash generated from (used in) operations of the Company using the indirect method for the years ended December 31, 2011 and 2010 are as follows: (In thousands of won) 2011 2010

Net income (loss) for the year W (285,944,743) 143,575,366 Adjustment for: Income tax expenses (22,875,292) 3,943,476 Interest expense, net 6,863,146 4,562,321 Depreciation 1,407,039 1,324,626 Loss (gain) on disposal of property and equipment, net - 126 Loss (gain) on equity method accounted investees 327,115,116 (137,020,815) Retirement benefit costs 818,800 879,412

Changes in assets and liabilities Trade and other receivables 1,378,340 (6,192,464) Inventories (2,945) (7,556) Other current assets (1,713) (5,495) Trade and other payables (924,787) 904,457 Other current liabilities 955,765 52,306 Payment of retirement and severance benefits (1,747,391) (36,980) Severance and retirement benefits transferred from affiliates (159,105) 210,126 National pension fund - (3,245) Deposits for severance and retirements benefits (1,754,542) (100,778) Cash generated from operating activities W 25,127,688 12,084,883

28. Financial Risk Management

The Company is exposed to credit risk, liquidity risk and market risk. Market risk arises from currency risk, interest rate risk and fair value risk associated with investments. For this, The Company has been monitoring the risk factors closely. Financial risk management of financial risks are being run as a financial risk measurement, evaluation and hedging under the operation divisions and domestic and foreign subsidiaries, regularly. The Company's financial assets that are under financial risk management are composed of cash and cash equivalents, short-term financial instruments, available-for-sale financial assets, trade and other receivables and other financial assets. The Company's financial liabilities under financial risk management are composed of trade and other payables, borrowings, other financial liabilities. (a) Market Risk

i) Foreign exchange risk The Company is not exposed to foreign exchange risk arising because the Company does not have foreign currency assets and liabilities.

ii) Price risk The Company’s investment portfolio consists of direct and indirect investments in listed and non-listed securities in needs to management of liquidity and business.

There are no comprehensive income changes except for remarkable changing in price of equity investment because the Company only invests in associates and joint ventures.


38

28. Financial Risk Management, Continued

(a) Market Risk, Continued

iii) Interest risk Interest rate risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company's position with regard to interest rate risk exposure is mainly driven by its debt obligations such as bonds, interest-bearing deposits.

(b) Credit Risk Credit risk arises during the normal course of transactions and investing activities, where clients or other party fails to discharge an obligation. The Company monitors and sets the counterparty's credit limit on a yearic basis based on the counterparty's financial conditions, default history and other important factors.

There were no significant loans or other receivables which are overdue or subject to impairment, included in accounts receivables or other financial instruments. The Company has evaluated there is no indication of default by any of its counterparties

The carrying amount of financial assets represents the maximum credit exposure. The Company limits its exposure to credit risk by depositing cash and cash equivalents in financial institutions that have a high credit rate.

i) The maximum exposure to credit risk The maximum exposure to credit risk for financial assets as of December 31, 2011, 2010, and January 1, 2010 are as follows: (In thousands of won) 12/31/2011 12/31/2010 1/1/2010 Trade and other receivables W 6,074,095 7,265,833 992,572 Short-term financial instruments 6,894,115 1,852,625 2,021,803 Cash and cash equivalent 16,852,928 27,074,049 37,047,250 Guarantee for related Company EUR 95,496,000 EUR 112,000,000 - W 29,821,138 36,192,507 40,061,625 EUR 95,496,000 EUR 112,000,000 -

ii) Impairment The aging schedule of trade receivables with impairment which were past due as of December 31, 2011, 2010, and January 1 2010 are as follows: (In thousands of won) 12/31/2011 12/31/2010 1/1/2010

Trade

receivable Impairment Trade

receivable Impairment Trade

receivable Impairment Up to 6 months W 6,074,095 - 7,265,833 - 992,572 -


39

28. Financial Risk Management, Continued

(c) Liquidity Risk

The Company manages its liquidity risk to maintain adequate net working capital by constantly managing projected cash flow.

Beyond effective working capital and cash management, the Company mitigates liquidity risk by contracting with financial institution with respect to bank overdraft and Banking Facility agreement for efficient management of fund.

In case of investing huge facility, the Company is to minimize liquidity risk and reduce financial expense by matching expenditure with utilizing reserved cash or borrowing a long-term debt.

The following table indicates the years in which the cash flows associated with cash flow hedges are expected to occur.

(In thousands of won) Carrying amount

Expected cash flows

1 year or less

More than 1 years

Non-derivative Financial Liabilities

Trade and other payables W 1,765,045 1,765,045 1,765,045 -

Current borrowings 64,991,284 65,736,150 65,736,150 -

Deposits received 8,312,015 8,312,015 8,312,015 -

Non-current borrowings 130,000,000 144,209,310 - 144,209,310

W 205,068,344 220,022,520 75,813,210 144,209,310 Receivables and payables relating to the shipping business segment have transferred over successfully to Hanjin Shipping Co., Ltd. According to the Commercial law Par. 1 of Article 9, Clause 530 Hanjin Shipping Co., Ltd. (established by spin-off) and Hanjin Shipping Holdings., Co., Ltd. (which continued as an ongoing business entity after the spin-off) continued with its business after the spin-off are jointly responsible for the payables which occurred prior to the spin-off.

(d) Management of Capital Risk The objective of capital management is to maintain sound capital structure. Consistent with others in industry, the Company monitors capital on the basis of the debt to equity ratio. This ratio calculated as total liabilities divided by equity based on the financial statements

The debt to equity ratio as December 31, 2011, 2010 and January 1, 2010 are as follows (In millions of won, except ratio data) 12/31/2011 12/31/2010 1/1/2010

Total liabilities ₩ 225,475,243 187,063,969 87,467,040

Total equity 639,721,968 975,109,702 289,658,454

Debt to equity ratio 35.25% 19.18% 30.20%


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29. Transition to K-IFRS

As stated in note 2, these are the Company’s first financial statements prepared in accordance with K-IFRS. The accounting policies set out in note 3 have been applied in preparing the financial statements for the year ended December 31, 2011, the comparative information presented in these financial statements for the year ended December 31, 2010 and in the preparation of an opening K-IFRS statement of financial position at January 1, 2010.

(a) Significant differences in accounting policies

Significant differences between the accounting policies chosen by the Company under K-IFRS and under previous K-GAAP are as follows

i) First time adoption of K-IFRS The Company elected the following exemptions upon the adoption of K-IFRS in accordance with K-IFRS 1101

- Business Combinations: Past business combination that occurred before the date of transition to K-

IFRS will not be retrospectively restated under No. 1103, Business Combinations. - Cumulative translation differences: All cumulative translation gains and losses arising from foreign

subsidiaries and associates as of the date of transition to K-IFRS are reset to zero.

ii) Employee benefits Under K-GAAP, the Company recognizes a defined benefit obligation (accrual for retirement and severance benefits) at the amount expected to be payable assuming all employees, who have been with the Company for more than one year, left at the end of the reporting year. The changes in the defined benefit obligations, other than transfers to and from related parties, and the benefit payments made for the reporting year are recognized in profit or loss. Under K-IFRS, the Company recognizes defined benefit obligations at present value of the expected future benefit cost using unbiased and mutually compatible actuarial assumptions about demographic variables and financial variables.

iii) Reclassification Memberships used to be classified as other investment assets in previous K-GAAP, but have been reclassified to intangible assets with infinite useful lives in accordance with K-IFRS. iv) Goodwill or bargain purchase arising from business combinations Under K-GAAP, the Company amortizes goodwill, or recognizes a gain in relation to a bargain purchase (negative goodwill), from a business combinations on a straight-line method over twenty years from the year of acquisition. Under K-IFRS, goodwill is not amortized but reviewed for impairment annually. A bargain purchase is recognized immediately in the statement of income under K-IFRS.

v) Deferred tax Under K-GAAP, deferred tax assets and liabilities were classified as either current or non-current based on the classification of their underlying assets and liabilities. If there are no corresponding assets or liabilities, deferred tax assets and liabilities were classified based on the years the temporary differences were expected to reverse. Under K-IFRS, deferred tax assets and liabilities are all classified as non-current on the statement of financial position.

The Company considered a difference between the carrying value and tax basis of an investment in associates and joint venture as a temporary difference and, accordingly, recognized deferred tax or liabilities under K-GAAP. Under K-IFRS, however, deferred tax assets or liabilities are recognized based on the expected date of reversal of temporary differences.


41

29. Transition to K-IFRS, Continued

(a) Significant differences in accounting policies, Continued

vi) Changes in Scope of Consolidation

At the date of transition, changes in the scope of consolidation as a result of adoption of K-IFRS are as follows:

Change Description Name of Entity Excluded Under K-GAAP, entities where the Controlling

Company owns more than 30% of shares and is the largest shareholder with the largest voting rights were included in scope of consolidation. Under K-IFRS, such entities are not subject to consolidation unless control over the entity is established.

Hanjin Shipping Co., Ltd. Cyber Logitech Co., Ltd.

(b) The effects of the adoption of K-IFRS on the Company’s equity

i) The effects of the adoption of K-IFRSs on the Company financial position as of the date of transition,

January 1, 2010 are as follows:

(In millions of won)

Previous K-GAAP

Investments in associates

and joint ventures

Employee benefits Reclassification

Deferred tax K-IFRS

1/1/2010 iv) ii) iii) v) 1/1/2010

Assets

Cash and cash equivalents W 37,047 - - - - 37,047 Short-term financial instruments 2,022 - - - - 2,022 Trade and other receivables 993 - - - - 993 Inventories - - - - - - Other current assets 7,457 - - - - 7,457 Total current assets 47,519 - - - - 47,519 Property, ships and equipment 81,176 - - (38,318) - 42,858 Investment property - - - 38,318 - 38,318 Intangible assets - - - 44 - 44 Investments in associates and joint ventures 248,745 (459) - - - 248,286 Other non-current assets 145 - - (44) - 101 Total non-current assets 330,066 (459) - - - 329,607 Total assets W 377,585 (459) - - - 377,126

Liabilities Trade and other payables 962 - - - - 962 Income taxes payable 100 - - - - 100 Deposits received 9,587 - - - - 9,587 Other current liabilities 177 - - - - 177 Total current liabilities 10,826 - - - - 10,826 Borrowings 49,858 - - - - 49,858 Retirement benefit obligations 1,096 - (42) - - 1,054 Deferred income tax liabilities 25,419 301 9 - - 25,729 Total non-current liabilities 76,373 301 (33) - - 76,641 Total liabilities W 87,199 301 (33) - - 87,467


42


(b) The effects of the adoption of K-IFRS on the Company’s equity, Continued


Previous K-GAAP


and joint ventures


Deferred tax K-IFRS

1/1/2010 iv) ii) iii) v) 1/1/2010

Equity Share capital 71,418 - - - - 71,418 Share premium 75,966 - - - - 75,966 Retained earnings 679,740 73 32 - - 679,845 Treasury shares (56,381) - - - - (56,381) Accumulated other comprehensive income (480,357) (832) - - - (481,189) Total equity 290,386 (759) 32 - - 289,659 Total liabilities and equity W 377,585 (458) (1) - - 377,126

(*) Total assets were amount W 418,620 million and total liabilities were amount W 102,878 million in financial statements under K-GAAP as of January 1, 2010.

ii) The effects of the adoption of K-IFRSs on the Company financial position as of December 31, 2010 are as follows:


Previous K-GAAP


and joint ventures


Deferred tax K-IFRS

1/1/2011 iv) ii) iii) v) 1/1/2011

Assets

Cash and cash equivalents W 27,074 - - - - 27,074 Short-term financial instruments 1,853 - - - - 1,853 Trade and other receivables 7,265 - - - - 7,265 Inventories 8 - - - - 8 Other current assets 181 - - - - 181 Total current assets 36,381 - - - - 36,381 Property, ships and equipment 80,244 - - (37,366) - 42,908 Investment property - - - 37,366 - 37,336 Intangible assets - - - 44 - 44 Investments in associates and joint ventures 971,872 73,477 - - -

1,045,349

Other non-current assets 200 - - (44) - 156

Total non-current assets 1,052,316 73,477 - - - 1,125,79

3 Total assets W 1,088,697 73,477 - - - 1,162,174


43


(b) The effects of the adoption of K-IFRS on the Company’s equity, Continued


Previous K-GAAP


and joint ventures


Deferred tax K-IFRS

1/1/2011 iv) ii) iii) v) 1/1/2011

Liabilities Trade and other payables 1,975 - - - - 1,975 Borrowings 20,000 - - - - 20,000 Income taxes payable - - - - - - Deposits received 9,683 - - - - 9,683 Other current liabilities 229 - - - - 229 Total current liabilities 31,887 - - - - 31,887 Borrowings 99,928 - - - - 99,928 Retirement benefit obligations 2,079 - 163 - - 2,242 Deferred income tax liabilities 42,489 10,554 (35) - - 53,008 Total non-current liabilities 144,496 10,554 128 - - 155,178 Total liabilities W 176,383 10,554 128 - - 187,065 Equity Share capital 218,954 - - - - 218,954 Share premium 417,782 - - - - 417,782 Retained earnings 413,725 24,104 (127) - - 437,702 Treasury shares (68,830) - - - - (68,830) Accumulated other comprehensive income (69,317) 38,818 - - - (30,499) Total equity 912,314 62,922 (127) - - 975,109 Total liabilities and equity W 1,088,697 73,476 1 - - 1,162,174

(*) Total assets were amount W 10,135,155 million and total liabilities were amount W 7,796,680 million in financial statements under K-GAAP as of December 31, 2010


44


(c) The effects of the adoption of K-IFRS on the Company’s comprehensive income

The effects of the adoption of K-IFRSs on the Company comprehensive income for the year ended December 31, 2010 are as follows:

(In millions of won, except loss per share information, which is in won)

Previous K-GAAP

Investments in

associates and joint ventures


Deferred tax K-IFRS

2010 iv) ii) iii) v) 2010

Operating income W 158,702 2,229 - - - 160,931 Operating income 23,910 - - - - 23,910 Equity in income of equity method accounted investees 134,792 2,229 - - - 137,021 Operating expense 9,228 - (42) - - 9,186 Operating expense 9,228 - (42) - - 9,186 Equity in loss of equity method accounted investees - - - - - - Income(loss) from operations 149,474 2,229 42 - - 151,745 Finance income 1,213 - (7) - - 1,206 Finance costs 5,768 - - - - 5,768 Net finance income(costs) (4,555) - (7) - - (4,562)

Other operating income(expenses) 336 - - - - 336

Income before income taxes 145,255 2,229 35 - - 147,519 Income tax expense (benefit) (3,498) (490) 44 - - (3,944) Net income for the year W 141,757 1,739 79 - - 143,575

Other comprehensive income (net of tax) Actuarial gains (losses), net of tax - - (239) - - (239) Change in capital adjustments of equity

method accounted investments, net of tax 48,119 37,593 - - - 85,712

Change in Retained earnings of equity method accounted investments, net of tax (25,268) 22,292 - - - (2,976)

Effect in change of functional currency 46,993 16,002 - - - 62,995 Loss on presentation currency translations, net - (16,002) - - - (16,002)

Total other comprehensive income (loss) for the year, net of income tax 69,844 59,885 (239) - - 129,490

Total comprehensive income (loss) for the year W 211,601 61,624 (160) - - 273,065 Loss per share - Basic and diluted W 3,950 4,001


45


(d) Adjustments to the statement of cash flows for the year ended December 31, 2010

Interests and dividend received and interests paid classified as operation cash flow under previous K-GAAP were classified as investing cash flows and financing cash flows respectively and presented as separate items. The effect of exchange rate fluctuations on cash and cash equivalents in foreign currency, classified as operation cash flow under previous K-GAAP, were not classified as operation, investing or financing cash flows and presented separately under K-IFRS. Bank overdrafts that are repayable on demand and form an integral part of the Company’s cash management were classified as financing cash flows under previous K-GAAP. These overdrafts were not reclassified as cash and cash equivalents in cash flow statements under K-IFRS. There are no other material differences between the statement of cash flows presented under K-IFRS and the statement of cash flows presented under previous K-GAAP.

10th Floor, GFC Tel. 02.2112.0100 737 Yeoksam-dong Fax.02.2112.0101 Gangnam-gu, Seoul 135-984 www.kr.kpmg.com Republic of Korea

46

Independent Accountants’ Review Report on Internal Accounting Control System

English translation of a Report Originally Issued in Korean

To the President of Hanjin Shipping Holdings Co., Ltd.: We have reviewed the accompanying Report on the Operations of Internal Accounting Control System (“IACS”) of Hanjin Shipping Holdings Co., Ltd. (the “Company”) as of December 31, 2011. The Company's management is responsible for designing and maintaining effective IACS and for its assessment of the effectiveness of IACS. Our responsibility is to review management's assessment and issue a report based on our review. In the accompanying report of management’s assessment of IACS, the Company’s management stated: “Based on the assessment on the operations of the IACS, the Company’s IACS has been effectively designed and is operating as of December 31, 2011, in all material respects, in accordance with the IACS Standards issued by the IACS Operations Committee.” We conducted our review in accordance with IACS Review Standards, issued by the Korean Institute of Certified Public Accountants. Those Standards require that we plan and perform the review to obtain assurance of a level less than that of an audit as to whether Report on the Operations of Internal Accounting Control System is free of material misstatement. Our review consists principally of obtaining an understanding of the Company’s IACS, inquiries of Company personnel about the details of the report, and tracing to related documents we considered necessary in the circumstances. We have not performed an audit and, accordingly, we do not express an audit opinion. A Company's IACS is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, however, IACS may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future years are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on our review, nothing has come to our attention that Report on the Operations of Internal Accounting Control System as of December 31, 2011 is not prepared in all material respects, in accordance with IACS Framework issued by the Internal Accounting Control System Operation Committee. This report applies to the Company’s IACS in existence as of December 31, 2011. We did not review the Company’s IACS subsequent to December 31, 2011. This report has been prepared for Korean regulatory purposes, pursuant to the External Audit Law, and may not be appropriate for other purposes or for other users. Seoul, Korea February 29, 2012

Notice to Readers This report is annexed in relation to the audit of the financial statements as of December 31, 2011 and the review of internal accounting control system pursuant to Article 2-3 of the Act on External Audit for Stock Companies of the Republic of Korea.

Documents

HANJIN SHIPPING HOLDINGS CO., LTD. Financial Statements · 2012-08-10 · Hanjin Shipping Holdings Co., Ltd. We have audited the accompanying statements of financial position of Hanjin