Hyundai 2006 Annual Report Download - page 124

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120
HYUNDAI MOTOR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
26.DERIVATIVE INSTRUMENTS:
(1) The Company entered into derivative instrument contracts including forwards, options and swaps to hedge the exposure to changes in
foreign exchange rate. As of December 31, 2006 and 2005 the Company deferred the net gain of 20,068 million (US$21,588 thousand)
and 33,590 million (US$36,134 thousand), respectively, on valuation of the effective portion of derivative instruments for cash flow
hedging purposes from forecasted exports as capital adjustments. The longest period in which the forecasted transactions are expected
to occur is within 44 months from December 31, 2006. Of the net loss on valuation recorded as capital adjustments as of December 31,
2006 amounting to 36 million (US$39 thousand) is expected to be realized and charged to current operations within one year from
December 31, 2006.
For the year ended December 31, 2006 and 2005, the Company recognized the net loss of 274,104 million (US$294,862 thousand) and
the net gain of 389,078 million (US$418,543 thousand), respectively, on valuation of the ineffective portion of such instruments and the
other derivative instruments in current operations.
The Company entered into derivative instrument contracts with the settlement for the difference between the fair value and the
contracted initial price of the shares of Kia Motors Corporation as follows:
Contract Parties Derivatives Period Number of Initial price
Kia shares
Credit Suisse First Boston International Equity swap September 17, 2003 ~
September 8, 2008 12,145,598 US$ 8.2611
" Call option (*) " 12,145,598 US$ 11.5300
" Equity swap " 21,862,076 US$ 8.2611
JP Morgan Chase Bank, London Branch " " 1,839,367 US$ 7.8811
(*) The Company has the position of seller.
The gain or loss on valuation of these derivatives related to the fair value of Kia shares is recognized in current operations.
As of December 31, 2006 and 2005, all premiums to be paid by the Company are recorded as accounts payable-other of 21,524
million (US$23,154 thousand) and 23,455 million (US$25,231 thousand), respectively, and other long-term liabilities of 21,417
million (US$23,039 thousand) and 46,793 million (US$50,337 thousand), respectively, after deducting the present value discount of
2,703 million (US$2,908 thousand) and 6,584 million (US$7,083 thousand), respectively. Also, as of December 31, 2006 and 2005,
all premiums to be received by the Company are recorded as other current assets of 3,529 million (US$3,796 thousand) and 3,845
million (US$4,136 thousand), respectively, and long-term other accounts receivable of 3,529 million (US$3,796 thousand) and
7,690 million (US$8,272 thousand), respectively, after deducting the present value discount of 448 million (US$482 thousand) and
1,154 million (US$1,241 thousand), respectively.
The Company recorded total gain on valuation of outstanding derivatives and present value of premiums of 290,925 million
(US$312,957 thousand) and 751,995 million (US$808,945 thousand) in current and non-current assets as of December 31, 2006 and
2005, respectively. Also, total loss on valuation of outstanding derivatives and present value of premiums of 55,506 million
(US$59,710 thousand) and 205,504 million (US$221,067 thousand) is recorded in current and long-term liabilities as of December 31,
2006 and 2005, respectively.