Kia 2006 Annual Report Download - page 85

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(18) Retirement and Severance Benefits
Changes in retirement and severance benefits for the years ended December 31, 2006 and 2005 are summarized as follows:
The Company maintains an employees’ severance benefit insurance arrangement with the Samsung Life Insurance Co., Ltd. and others. Under this arrangement,
the Company has made a deposit in the amount equal to 60.48% and 61.34% of the reserve balances of retirement and severance benefits as of December 31, 2006
and 2005, respectively. This deposit is to be used to guarantee the required payments to the retirees and accounted for as a reduction of the reserve balances.
(19) Commitments and Contingencies
(a) The Company has provided guarantees of ￦14,221 million to the banks which provide customer financing for long-term installment sales as of December 31,
2006. These guarantees are all covered by insurance contracts for the customer and the Company as contractor and beneficiary, respectively.
(b) As of December 31, 2006, 34 blank checks, 96 blank promissory notes and two promissory notes totaling ￦1,820 million have been provided as collateral to
Standard Chartered First Bank Korea Ltd. and others for the Company’s certain debts and agreements.
(c) The Company is involved in 34 lawsuits and claims for alleged damages aggregating ￦4,584 million and ￦7,884 million as of December 31, 2006 and 2005,
respectively, which arose in the ordinary course of business. Management is of the opinion that the foregoing lawsuits and claims will not have a material adverse
effect on the Company’s financial position, operating results or cash flows.
(d) The Company is involved in lawsuits, in Brazilian court, pertaining to the disputes with the Brazilian shareholders of Asia Motors Do Brasil S.A. (AMB) and AMB,
which was established as a joint venture by Asia Motors with a Brazilian investor. In 2002, the Company brought the case to the International Court of Arbitration to
settle the disputes pursuant to the terms of contract signed at the time of the inception of the joint venture, which stipulates that in case the business has been
adversely affected by a party’s failure to comply with contract terms and other reasons, the matter should be taken before the International Court of Arbitration for
settlement and parties shall be held accountable according to the results. The case was decided in favour of the Company in the International Count of Arbitration
on July 22, 2004. In addition, the Company, a shareholder of AMB, has already written off this investment of ￦14,057 million. Although the outcome of these
matters is not currently predictable, management believes that the resolution of these matters will not have a material adverse effect on the operations or financial
position of the Company.
(e) As of December 31, 2006, the Company has an ongoing litigation for certain executives regarding the Company’s certain past transactions of fund. It is
impossible for the board of directors of the Company to estimate the possible outflow of resources as a result of this lawsuit and the possible loss that may be
sustained from this lawsuit in proper way. However, it is assumed that there will be no substantial impact on the Company’s financial statements. Thus, the financial
statements do not include any adjustments that might arise from the outcome of this uncertainty.
In addition, the Company is under investigation from the Korean Fair Trade Commission about a series of management activities. It is impossible for the board of
directors of the Company to estimate the possible outflow of resources as a result of this investigation and the possible loss that may be sustained from this lawsuit
1,522,784
357,508
10
(472,676)
1,407,626
(24,788)
(851,383)
531,455
￦
￦
2006 2005
1,437,076
270,082
891
(185,265)
1,522,784
(34,418)
(934,041)
554,325
Net balance at beginning of year
Provision for retirement and severance benefits
Transfer-in from affiliate companies
Payments
Estimated retirement and severance benefits accrual at end of year
Transfer to National Pension Fund
Deposit for severance benefit insurance
Net balance at end of year
Won (millions)