Kia 2001 Annual Report Download - page 25
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46 47
ranty costs incurred are charged against the accrual when paid.
Accrued Severance Benefits
Employees and directors with more than one year of service are entitled to receive a lump-sum payment
upon termination of their service with the Company, based on their length of service and rate of pay at
the time of termination. The accrued severance benefits which would be payable, assuming all eligible
employees were to resign as of December 31, 2001 and 2000 amount to 1,026,529 million ($774,096
thousand) and 914,066 million ($689,289 thousand), respectively.
Accrued severance benefits are approximately 55 percent and 52 percent funded at December 31,
2001 and 2000, respectively, through an individual severance insurance plan. Individual severance
insurance deposits, in which the beneficiary is a respective employee, are presented as deduction from
accrued severance benefits.
Before April 1999, the Company and the employees paid 3 percent and 6 percent, respectively, of
monthly pay (as defined) to the National Pension Fund in accordance with the National Pension Law of
Korea. The Company paid half of the employees' 6 percent portion and is paid back at the termination of
service by offsetting the receivable against the severance payment. Such receivables, totalling 51,078
million ($38,517 thousand) and 55,726 million ($42,022 thousand) as of December 31, 2001 and 2000,
respectively, are presented as a deduction from accrued severance benefits. Since April 1999, accord-
ing to a revision in the National Pension Law, the Company and the employees each pay 4.5 percent of
monthly pay to the Fund.
Stock Options
The Company computes total compensation expense to stock options, which are granted to employees
and directors, by fair value method using the option-pricing model. The compensation expense has
been accounted for as a charge to current operations and a credit to capital adjustment from the grant
date using the straight-line method.
Derivative Instruments
All derivative instruments are accounted for at fair value with the valuation gain or loss recorded as an
asset or liability. If the derivative instrument is not part of a transaction qualifying as a hedge, the adjust-
ment to fair value is reflected in current operations. The accounting for derivative transactions that are
part of a qualified hedge, based both on the purpose of the transaction and on meeting the specified cri-
teria for hedge accounting, differs depending on whether the transaction is a fair value hedge or a cash
flow hedge. Fair value hedge accounting is applied to a derivative instrument designated as hedging the
exposure to changes in the fair value of an asset or a liability or a firm commitment (hedged item) that is
attributable to a particular risk. The gain or loss both on the hedging derivative instruments and on the
hedged item attributable to the hedged risk is reflected in current operations. Cash flow hedge account-
ing is applied to a derivative instrument designated as hedging the exposure to variability in expected
future cash flows of an asset or a liability or a forecasted transaction that is attributable to a particular risk.
The effective portion of gain or loss on a derivative instrument designated as a cash flow hedge is
recorded as a capital adjustment and the ineffective portion is recorded in current operations. The effec-
tive portion of gain or loss recorded as a capital adjustment is reclassified to current earnings in the
same period during which the hedged forecasted transaction affects earnings. If the hedged transaction
results in the acquisition of an asset or the incurrence of a liability, the gain or loss in capital adjustment is
added to or deducted from the asset or the liability.
In 2000, the Company entered into foreign currency forward contracts to hedge the exposure to
changes in the fair value of recognized foreign currency denominated asset and liabilities. The Company
recognized gain and losses arising from changes in the fair value of the foreign currency forward con-
tracts in net income on a current basis, the ineffective portion of which was 2,417 million (1,823 thou-
sand) as of December 31, 2000, with related liabilities of 39,207 million (29,566 thousand) included
in derivative instruments-credit.
In addition, the Company deferred the losses on the effective portion of foreign currency forward con-
tracts for cash flow hedging purpose from forecasted exports as capital adjustments, amounting
26,071 million (19,660 thousand) as of December 31, 2000, all of which were included in the deter-
mination of net income in 2001.
Accounting for Foreign Currency Transactions and Translation
The Company maintains its accounts in Korea won. Transactions in foreign currencies are recorded in
Korean won based on the prevailing rates of exchange on the transaction date. Monetary accounts with
balances denominated in foreign currencies are recorded and reported in the accompanying non-con-
solidated financial statements at the exchange rates prevailing at the balance sheet dates. The balances
have been translated using the Bank of Korea Basic Rate which was 1,326.10 and 1,259.70 to US
$1.00 at December 31, 2001 and 2000, respectively, and the translation loss and gain is reflected in cur-
rent operations
Income Tax Expense
The Company recognizes deferred income taxes. Accordingly, income tax expense is determined by
adding or deducting the total income tax and surtaxes to be paid for the current period and the changes
in deferred income tax debits (credits). The difference between the income tax expense and the amount
of income tax shown in the current period's tax return will be offset against the deferred income tax cred-
its (debits), which will occur in subsequent periods.
Earnings Per Share
Basic ordinary income per common share and basic earnings per common share are computed by
dividing ordinary income (after deduction for tax effect) and net income, respectively, by the weighted
average number of common shares outstanding during the year. The number of shares used in comput-
ing ordinary income per share and earnings per share is 387,672,624 in 2001 and 444,940,373 in 2000.
Diluted ordinary income per share and diluted earnings per share are computed by dividing ordinary
income and net income, after addition for the effect of expenses related to diluted securities on net
income, by the number of the weighted average number of common shares plus the number of dilutive
potential common shares. As the Company has not issued any diluted securities and the stock options
have no dilutive effect on basic ordinary income per share and basic earnings per share in 2001 and
NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000