(Convenience Translation of a Report and Financial Statements and Notes Originally Issued in Turkish) Türk Demir Döküm Fabrikaları Anonim Şirketi - PDF

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(Convenience Translation of a Report and Financial Statements and Notes Originally Issued in Turkish) Türk Demir Döküm Fabrikaları Anonim Şirketi Consolidated Interim Financial Statements As of June 30,

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(Convenience Translation of a Report and Financial Statements and Notes Originally Issued in Turkish) Türk Demir Döküm Fabrikaları Anonim Şirketi Consolidated Interim Financial Statements As of June 30, 2005 Together With Independent Auditors Limited Review Report (Convenience Translation of a Report and Financial Statements and Notes Originally Issued in Turkish - See Note 44 to the Financial Statements) TÜRK DEMİR DÖKÜM FABRİKALARI ANONİM ŞİRKETİ TABLE OF CONTENTS Page Independent Auditors Limited Review Report 1 Consolidated Balance Sheet 2-3 Consolidated Income Statement 4 Notes to Consolidated Financial Statements 5-45 (CONVENIENCE TRANSLATION OF A REPORT ORIGINALLY ISSUED IN TURKISH - SEE NOTE 44) TÜRK DEMİR DÖKÜM FABRİKALARI ANONİM ŞİRKETİ INDEPENDENT AUDITORS LIMITED REVIEW REPORT FOR THE INTERIM PERIOD OF JANUARY 1- JUNE To the Board of Directors of We have reviewed the consolidated balance sheet of Türk Demir Döküm Fabrikaları A.Ş. (the Company) as of June 30, 2005 and the related consolidated statement of income for the interim period then ended in accordance with the generally accepted principles and rules for review engagements issued by the Capital Market Board (CMB). Our review of the interim balance sheet and statement of income is limited as compared to the examination of the annual financial statements that are made in accordance with the generally accepted auditing standards. Our review is limited primarily to information gathering and analytical procedures applied to analyze the system underneath the preparation of the interim balance sheet and statement of income and is conducted in accordance with the review techniques required by review rules and principles. Therefore our limited review report should be considered on different grounds than the annual independent auditors report. As discussed, in the accompanying notes 15 (a), as of June 30, 2005, the Company has not reflected the fair value of Ram Dış Ticaret A.Ş., which is stated as investments available for sale, in the accompanying consolidated financial statements but carried them at their cost value. As of June 30, 2005, Chung Mei Industries Limited and Tianjin Demrad International Trading Company Limited of which the Company owns 45% and 60%, respectively are not consolidated as to equity pick-up method and consolidation method, respectively and carried at cost. Based on our review, except for the possible effects that are stated in the second and third paragraphs above, nothing has come to our attention that causes us to believe that the interim financial statements referred to above are not presented fairly, in accordance with the accounting standards, applied consistently with the same period of the prior year, issued by the CMB (Note 2) and with the generally accepted principles and rules for review engagements. Additional paragraph for convenience translation to English : As of June 30, 2005, the accounting principles described in Notes 2 and 3 (defined as CMB Accounting Standards) to the accompanying financial statements differ from International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board with respect to the application of inflation accounting and the presentation of the basic financial statements and the notes to them. Accordingly, the accompanying financial statements are not intended to present the financial position and results of operations in accordance with IFRS. Güney Serbest Muhasebeci Mali Müşavirlik Anonim Şirketi An Affiliated Firm of Ernst & Young International Billur Demet Atan, SMMM Engagement Partner August 5, 2005 İstanbul, Turkey CONSOLIDATED BALANCE SHEET Per Capital Market Board Communiqué XI: 25 As at June 30, 2005 (Currency - New Turkish Lira (YTL)) ASSETS Notes Reviewed Audited Current Assets Cash and cash equivalents Marketable securities, net Trade receivables, net Finance lease receivables, net Due from related parties, net Other receivables, net Live stock, net Inventories Costs and estimated earnings in excess of billings on uncompleted contracts, net Deferred tax assets Other current assets Non current assets Trade receivables, net Finance lease receivables, net Due from related parties, net Other receivables, net Financial assets, net Positive Goodwill (net) Investment property, net Property, plant and equipment, net Intangibles, net Deferred tax assets Other non current assets Total Assets The accompanying policies and explanatory notes on pages 5 through 45 form an integral part of the financial statements (2) CONSOLIDATED BALANCE SHEET Per Capital Market Board Communiqué XI: 25 As at June 30, 2005 (Currency - New Turkish Lira (YTL)) LIABILITIES Notes Reviewed Audited Current liabilities Short term borrowings, net Current portion of long term borrowings, net Finance lease obligations, net Other financial liabilities, net Trade payables, net Due to related parties, net Advances taken Billings in excess of costs and estimated earnings on uncompleted contracts, net Provisions Deferred tax liability Other liabilities Non current liabilities Long term borrowings, net Finance lease obligations, net Other financial liabilities, net Trade payables, net Due to related parties, net Advances taken Provisions Deferred tax liability Other liabilities, net MINORITY INTEREST EQUITY Share capital Issued Capital Subsidiaries Elimination Capital reserves Share premium Income on common stock disposals - - Revaluation fund - - Financial assets value increase fund Equity restatement differences Profit reserves ( ) Legal reserves Statutory reserves - - General reserves ( ) Special reserves - - Gain on sale of investments and fixed assets to be transferred to the share capital - - Currency translation differences Net profit for the period Prior year profits Total liabilities and equity The accompanying policies and explanatory notes on pages 5 through 45 form an integral part of the financial statements (3) CONSOLIDATED INCOME STATEMENT For the period ended June 30, 2005 (Currency - New Turkish Lira (YTL)) Operating Income Notes January 1- June 30, 2005 Reviewed Not-reviewed Reviewed April 1 - January 1 - June 30, 2005 June 30,2004 April 1- June 30,2004 Net Sales Cost of sales 36 ( ) ( ) ( ) ( ) Service income, net Other income from operational activities, net Gross Profit Operating Expenses (-) 37 ( ) ( ) ( ) ( ) Profit from operations, net Other operating income Other operating expense (-) 38 ( ) ( ) ( ) ( ) Financial expense (-) 39 ( ) ( ) ( ) ( ) Operating profit Monetary gain ( ) ( ) Minority interest ( ) ( ) Profit before tax Tax 41 ( ) ( ) ( ) Net Profit Basic earnings per share (1 YTL par value each) Weighted average number of shares (0.001 YTL par value each) The accompanying policies and explanatory notes on pages 5 through 45 form an integral part of the financial statements. (4) SHAREHOLDERS EQUITY STATEMENT For the period ended June 30, 2005 (Currency - New Turkish Lira (YTL)) Share Capital Share Premiums Equity restatement differences Financial assets value increase fund Legal reserves General reserves Currency translation differences Net profit Accumulated profits Total equity Balance at January 1, ( ) Offsetting prior year losses Transfer from prior year profits to legal reserves ( ) - - Financial assets value increase fund Transfer from prior year profits to general reserves ( ) - - Net currency translation differences ( ) - - ( ) Net profit for the period Dividends paid Balance at June 30, ( ) ( ) Share Capital Share Premiums Equity restatement differences Financial assets value increase fund Legal reserves General reserves Currency translation differences Net profit Accumulated profits Total equity Balance at January 1, ( ) Offsetting prior year losses - (7.039) ( ) Transfer from prior year profits to legal reserves ( ) - - Financial assets value increase fund Transfer from prior year profits to general reserves ( ) - - Net currency translation differences Net profit for the period Dividends paid ( ) ( ) Balance at June 30, (5) NOTES TO INTERIM FINANCIAL STATEMENTS 1. CORPORATE INFORMATION General (Demir Döküm) was founded in % of the shares of Demir Döküm are listed on the Istanbul Stock Exchange. The address of the registered office of the Company is Kurtköy-Orhanlı Caddesi Mezarlık Yanı Pendik, İstanbul. Headquarters of the Company are located in İnegöl. The production facilities of Demir Döküm are located in Bozüyük and İnegöl. As of November 22, 2001, Demir Döküm spun off its panel radiator production facilities that were located in Bozüyük and established Panel Radyatör Sanayi ve Ticaret A.Ş. (Panel) to carry on the production activities of panel radiators. Demir Döküm sold 50% of Panel to a group company, Beko UK, at an amount of U.S. Dollars on December 28, On January 1, 2003 the division of Beko UK which specialized in the sales and servicing of radiators was sold to DD Heating Limited (DD Heating) in which the Company owns 50%. Although the heatline radiator business dates back to 1980 s it was properly established in 1990 and has become one of the fastest growing brands in the heating market. On May 1, 2003, the German heatline division of Beko was also transferred to DD Heating. DD Heating has purchased the 50% of Panel shares from Beko UK funded by a loan obtained on May 1, 2003 at an amount of GBP at 5%(Libor+1,25%) repayable by April As of July 25, 2002, the Company also spun off its cast iron radiator production facilities that were located in İnegöl and established Demrad Döküm Ürünleri Sınai ve Ticaret Anonim Şirketi (Demrad) to carry on the production activities of cast iron radiator. The establishment has been realized through the transfer of the fixed assets of Demir Döküm to Demrad as capital in-kind. The Company owns 99.9% of Demrad. Per Board of Directors Resolution dated July 24, 2002, the Company has decided to separate its oiled radiator production facilities and establish a joint venture with 45% of Demir Döküm, 10% of Ram Pacific Ltd., and 45% Chung Mei Industries Limited participation of under the name of Chung Mei Industries Limited (Chung Mei). The new established Company will sell products under the brand name of Doka. The fixed assets of the radiator production facility with the historical cost value of YTL as of December 31, 2002, have been used as capital in kind. The establishment has been realized and as of March 5, 2004 Chung Mei has started its operations in China. As of June 30, 2005, per the financial statements of Chung Mei that are not reviewed by any independent auditors, the total assets is EUR , total equity is EUR and net loss for the period is EUR Chung Mei has not been consolidated as to equity pick-up method to the consolidated financials of Demir Döküm, since the subsidiary s reviewed interim financial statements by independent auditors could not be obtained as of the date of this report and it is carried at cost in equity investments. Per Board of Directors resolution dated May 14, 2003, the Company has decided to operate its selling, marketing and warehousing facilities in China Tianjin Free Trade Zone. For its operations, Demir Döküm participated in Tianjin Demrad International Trading Company Limited (Demiladi) which has a share capital of U.S. Dollar , with 60% participating share. Since the interim financial statements of such subsidiary, which is prepared in accordance with IFRS and reviewed by independent auditors could not be obtained as of June 30, 2005, it has not been consolidated as of June 30, 2005, and carried at cost. The consolidated financial statements are authorized for issue by the Company Management on August 5, The General Assembly and certain regulatory bodies have the power to amend the statutory financial statements after issue. (6) 1. CORPORATE INFORMATION (continued) The parent of Demir Döküm is Koç Holding. The average number of employees is out of which 221 white collared and blue collared. For the purpose of these consolidated financial statements, Demir Döküm and its consolidated subsidiaries, Panel, Demrad and DD Heating are referred to as the Company and its subsidiaries or the Company . Nature of activities The Company is engaged in the manufacture and trade of durable consumer goods such as iron panel and steel radiators, cast iron radiators, instant and storage water heaters, central heating systems, iron stoves, individual heating equipment. 2. BASIS OF PRESENTATION Basis of presentation The financial statements of the Company have been prepared in accordance with accounting and reporting standards as prescribed by Turkish Capital Market Board ( CMB Accounting Standards ). The CMB has issued Communiqué No. XI-25 Communiqué on Accounting Standards in Capital Markets which sets out a comprehensive set of accounting principles. In this Communiqué, the CMB stated that, as an alternative, application of accounting standards prescribed by the International Accounting Standards Board and the IASC will also be considered to be compliant with the CMB Accounting Standards. With the decision taken on March 17, 2005, the CMB has declared that application of inflation accounting is no longer required for companies operating in Turkey which are reporting in accordance to CMB Accounting Standards effective from January 1, The financial statements have been prepared under the alternative application defined by the CMB as explained above. The financial statements and explanatory notes are presented using the compulsory standard formats as prescribed by the CMB. The financial statements as of December 31, 2004 and June 30,2004 attached for comparison purposes are presented with the purchasing power of YTL as of December 31, Demir Döküm and its subsidiaries, which are incorporated in Turkey, maintain their books of account and prepare their statutory financial statements in accordance with regulations on accounting and reporting framework and accounting standards promulgated by the Turkish Capital Market Board (TCMB - only for Demir Döküm), Turkish Commercial Code and Tax Legislation and the Uniform Chart of Accounts issued by the Ministry of Finance. The foreign subsidiary maintains its books of accounts in accordance with the laws and regulations in force in the country where it is registered. The consolidated financial statements have been prepared from statutory financial statements of Demir Döküm and its subsidiaries and presented in New Turkish Lira (YTL) with adjustments and reclassifications for the purpose of fair presentation in accordance with CMB as explained above. As a result of a long period of high inflation, the Turkish Lira (TL) has ended up in large denominations, creating difficulty in expressing and recording transactions. A new law was enacted on January 31, 2004 to introduce Yeni Türk Lirası (New Turkish Lira, YTL) the new currency unit for the Republic of Turkey. Conversion rate for TL against YTL is fixed at YTL 1 to TL through out the period until complete phase-out TL. Accordingly, the Company's financial statements as of June 30, 2005 and comparative figures for the prior period have also been presented in YTL, using the conversion rate of TL /YTL=1,00. (7) 2. BASIS OF PRESENTATION (continued) Measurement and Reporting Currency Measurement and reporting currency of Demir Döküm and its subsidiaries which operate in Turkey is YTL. Measurement and reporting currency of DD Heating which operates in Great Britain is Great Britain Pound and related balance sheet accounts are converted into YTL using the exchange rate at the date of the balance sheet and profit and loss accounts using the average buying exchange rates. As of June 30, 2005, 1 Great Britain Pound = YTL with the average rate, Great Britain Pound = YTL). As of December 31, 2004 and June 30, 2005, the three year cumulative inflation rates were 69,7% and 55,7% and annual inflation rates were 13,8% and 8,7% based on the Turkish countrywide wholesale price index published by the State Institute of Statistics. Consequently, in accordance with CMB announcement No dated March 18, 2005; since the objective conditions for the restatement in hyperinflationary economies is no longer available, the financial statements are restated until December 31, As of December 31, 2004, the restatement of financial statements was made in accordance with CMB Communiqué Serial: XI, No: 25 Part 15 ( Restatement of Financial Statements in Hyperinflationary Economies ) which requires that the financial statements are presented with the purchasing power of YTL at the balance sheet date and that the previous periods are restated accordingly. Accordingly, current period financial statements and previous period financial statements which are presented for comparison purposes have been restated with the conversion factors as of December 31, Such index and conversion factors as of the end of the three year period ended June 30, 2005 are given below: Dates Index Conversion factors December 31, ,8 1,297 December 31, ,1 1,138 June 30, ,7 1,053 December 31, ,8 1,000 The main guidelines for the above mentioned restatement are as follows: - Non-monetary assets, liabilities and shareholders equity including share capital reported in the balance sheet as of June 30, 2005, are derived by indexing the additions occurred until December 31, 2004 to December 31, 2004 and carrying the additions after this date with their nominal amounts. - All the items in the interim income statement for the period ended June 30, 2005 are stated with their historical values excluding depreciation and amortization expenses that is calculated based on gross book values of property, plant and equipment and intangible assets derived by indexing until December 31, 2004 and carrying the nominal values of additions after January 1, 2005; and gain /loss on sales of those assets. Restatement of balance sheet and income statement items through the use of a general price index and relevant conversion factors does not necessarily mean that the Company could realize or settle the same values of assets and liabilities as indicated in the balance sheets. Similarly, it does not necessarily mean that the Company could return or settle the same values of equity to its shareholders. (8) 2. BASIS OF PRESENTATION (continued) Foreign Currency Translation Differences Operating results of the subsidiaries whose functional currency belongs to non-inflationary economies, are translated to the Company s reporting currency (YTL) using the methods below: a) all monetary and non monetary assets and liabilities are converted with the exchange rate at the date of balance sheet; b) income and expense items are converted with the exchange rate of the date of transaction; c) all translation differences are classified as foreign currency translation differences under shareholders equity until the disposal of the subsidiary DD Heating which is a subsidiary of the Company uses Great Britain Pound in its financial statements. Offsetting Financial assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to set off the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liabilities simultaneously. Use of Estimates The preparation of financial statements, require management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Those estimates are reviewed periodically, and as adjustments become necessary, they are reported in earnings in the periods in which they become known. Basis of Consolidation The consolidated financial
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