Académique Documents
Professionnel Documents
Culture Documents
Preface These Illustrative Financial Statements were developed by KPMG Romania to provide a guide for those preparing or reading Romanian Financial Statements in accordance with Ministry of Public Finance Order no. 94/2001. They provide accessible and concise guidance on the format of a complete set of financial statements in accordance with MOPF 94/2001 as at 31 December 2003. We would be pleased to assist you further with the analysis and interpretation of the financial statements.
Contact: KPMG Romania Calea Serban Voda 133, Sector 4, Bucharest Romania Tel: +40 (21) 336 22 66 Fax: +40 (21) 336 11 77 E-mail: kpmgro@kpmg.ro Web site: www.kpmg.ro
Prepared in accordance with OMFP no. 94/2001 (Free translation from Romanian)
February 2004
2004 KPMG Audit SRL. All rights reserved. Printed in Romania Publication "Illustrative Financial Statements as at 31 December 2003 prepared in accordance with OMFP 94/2001" gives one possible example of preparation of Financial Statements as at 31 December 2003 in accordance with Romanian statutory requirements. This publication is for illustrative purposes only and it is not a comprehensive study of the application and interpretation of Romanian legislative requirements relevant to preparation of Financial Statements. Whilst care has been taken in its preparation, reference to the legal enactments relevant to preparation of Financial Statements should be made, and specific advice sought, for a complete understanding. No responsibility for loss to any person acting or refraining from action as a result of any material in this publication is accepted by KPMG.
Financial Statements
KPMG Audit S.R.L. has prepared these Illustrative Financial Statements in accordance with Ministry of Public Finance Order no. 94/2001 for approval of the accounting regulations harmonised with the lV Directive of the European Economic Communities and International Accounting Standards.* ("OMFP 94/2001"), with all the subsequesnt amendments, effective starting with the financial statements for the year ended 31 December 2000.
A complete set of annual financial statements includes the following components: Balance Sheet Statement of Income Statement of Changes in Shareholders' Equity Statement of Cash Flows and Notes to the Financial Statements.
S.C. Alfa S.R.L. ("The Company") must also present with the annual financial statements two supplementary forms (Additional Data - Code 30, Fixed Assets - Code 40), these are not part of the financial statements and are not audited. Any item to be presented in an entity's financial statements may be shown in more detail than required by the format adopted if this greater detail will help to present the information in a more relevant way for the users.
*The International Accounting Standards have been renamed the International Financial Reporting Standards by the International Accounting Standards Board. 1) The International Financial Reporting Standards (IFRS) include: a) The International Financial Reporting Standards; b) The International Accounting Standards; and c) The interpretations issued by the International Financial Reporting Interpretations Committee or by the former Standing Interpretations Committee and adopted by IASB. 2) IFRS, the English abreviation for the International Financial Reporting Standards.
M
3
The entity will show separately in the explanatory notes, the appropriation of net profit as follows: a) the amount of any dividends proposed to be paid out of the net profit for the year. According to IAS 10 "Events after the balance sheet date", if these dividends are proposed or declared after the balance sheet date, the entity should not recognize them as liability at the balance sheet date; b) any amount transferred to reserves; c) the amount allocated to cover the accounting loss for the preceding year; d) other distributions.
X
4
Illustrative Financial Statements
P
Balance Sheet Statement of Income Statement of Changes in Shareholders' Equity Statement of Cash Flows Notes to Financial Statements Additional data
Contents
L
7 10
M X A
5
E
12 13 15-38 39-43
County: Dolj Address: Florilor Street, no. 25, Oras Phone: 0235 123 456; Fax: 0235 123 457 Company register no.: J16/3456/1991 Country: Romania Main activity (CAEN group name): CAEN Group Code: Fiscal Code: R 1 2
BALANCE SHEET
at 31 December 2003
P
Row no. 02 03 06 07 08 09 10 11 12 17 19 20 21 22
7
L
2002 2003 12,626 756,329 768,955 474,242,340 25,735,565 216,200 415,493 500,609,598 1,000,000 151,056 1,151,056 502,529,609 2,773 275,366 278,139 491,717,741 29,770,478 355,026 2,407,315 524,250,560 1,000,000 25,854 1,025,854 525,554,553 18,723,491 127,277,161 32,125,911 123,955,388
A. NON-CURRENT ASSETS I. INTANGIBLE ASSETS Set-up costs (acc. 203-2803-2903) Concessions, patents, licenses, trademarks and similar rights and assets (acc. 2051+2052+208-2805-2808-2905-2908) TOTAL: (rows 01 to 05) II. TANGIBLE ASSETS Land and buildings (acc. 211+212-2811-2812-2911-2912) Plant and machinery and motor vehicles (acc. 213-2813-2913) Fixtures and fittings (acc. 214-2814-2914) Fixed assets in progress and advance payments for fixed assets in progress (acc. 231+232-2931) TOTAL: (rows 07 to 10) III. FINANCIAL ASSETS Investment in Group Companies Other financial assets (acc. 2673+2674+2678+2679-2966-2969) TOTAL FINANCIAL ASSETS: (rows 12 to 18) TOTAL NON-CURRENT ASSETS B. CURRENT ASSETS I. INVENTORIES Raw materials and consumables (acc. 301+3021+3022+3023+3024+3025+3026+3028+303+/308+351+358+381+/-388-391-3921-3922-3951-3958-398) Work in progress (acc. 331+332+341+/-3481+3541-393-3941-3952)
E
3456 6 3 4 5
Type of property:
Private
35
Finished products and goods for resale (acc. 345+346+/-3485+/-3486+3545 +3546+356+357+361+/-368+371+/-378-3945-3946-3953-3954-3956-3957 -396-397-4428) Advance payments for the purchase of inventories (acc. 4091) TOTAL INVENTORIES: (rows 21 to 24) II. RECEIVABLES Trade receivables (acc. 4092+4111+4118+413+418-491) Other receivables (acc. 425+4282+431+437+4382+441+4424+4428+444 +445+446+447+4482+ 4582+ 461+473-496+5187) TOTAL: (rows 26 to 30) III. SHORT TERM FINANCIAL INVESTMENTS IV. CASH AND BANK ACCOUNTS (acc. 5112+5121+5124+5125+5311 +5314+5321+5322+5323+5328+5411+5412+542) TOTAL CURRENT ASSETS (rows 25+31+35+36) C. ACCRUED EXPENSES (acc. 471) D. CURRENT LIABILITIES Liabilities to credit institutions (acc. 1621+1622+1624+1625+1627+1682 +5191+5192+5198) Advances from clients (acc 419) Trade payables (acc. 401+404+408) Other liabilities, including fiscal and social security liabilities (acc.1623+1626+167+1687+2698+421+423+424+426+427+4281+431 +437+4381+441+4423+4428+444+446+447+4481+4551+4558+456 +457+4581+462+473+509+5186+5193+5194+5195+5196+5197) TOTAL: (rows 39 to 46) E. CURRENT ASSETS, NET CURRENT LIABILITIES (rows 37+38-47-64) F. TOTAL ASSETS LESS CURRENT LIABILITIES (rows 20+48 - 63) G. DEBTS THAT HAVE TO BE PAID IN MORE THAN A YEAR Other liabilities, including tax liabilities and other social charges (acc.1623+1626+167+1687+2698+421+423+424+426+427+4281+431 +437+4381+441+4423+4428+444+446+447+4481+4551+4558+456 +457+4581+462+473+509+5186+5193+5194+5195+5196+5197) TOTAL: (rows 50 to 57) H. PROVISIONS FOR RISKS AND CHARGES Other provisions (acc. 151) TOTAL PROVISIONS: (rows 59 + 60) I. DEFFERED REVENUE (rows 63+64) Deffered revenue (acc. 472) J. CAPITAL AND RESERVES I. CAPITAL (rows 66 to 68), out of which: - subscribed and paid-in capital (acc. 1012)
23 24 25 26 29 31
L
36 37 38 40 41 42 46 47 48 49 57 58 59 60 61 62 64 65 67
P
8
E
18,630,724 8,081,269 26,711,993 96,791,621 96,791,621 7,706,196 7,706,196 196,972 196,972
296,892,431 296,892,431
IV. RESERVES (acc. 106) (rows 73 to 76) Legal reserves (acc. 1061) Other reserves (acc. 1068+/-107) V. RETAINED EARNINGS (acc. 117) - Credit balance - Debit balance VI. PROFIT/LOSS OF THE PERIOD (acc. 121) - Credit balance - Debit balance TOTAL EQUITY (rows 65+69+70-71+72+77-78+79-80-81) TOTAL EQUITY AND RESERVES (rows 82+83)
ADMINISTRATOR, Full name Signature Companys stamp
L P
Full name Signature
77 78
232,720,476
79 80 82 84
PREPARED BY,
A
9
Illustrative Financial Statements
E
6,020,724 2,572,838 3,447,886
70 71 72 73 76
95,957,454
County: Dolj Legal entity: S.C. Alfa S.R.L. Address: Florilor Street, no. 25, Oras Phone: 0235 123 456; Fax: 0235 123 457 Company register no.: J16/3456/1991 Country: Romania Type of ownership: Main activity (CAEN group name): Construction of industrial equipment CAEN Group Code: Fiscal Code: R 1 2 Private 35
Thousand ROL 1. Net turnover (rows 02 to 04) Turnover (acc. 701+702+703+704+705+706+708) Revenues from goods for resale (acc. 707) 2. Variation in inventories (acc. 711)
P
Row no. 01 02 03 05 07 08 09 10 11 12 13 14 15 16 17 18 20 21 22 23 24 25
COD 20
L
2002 279,533,981 272,257,918 7,276,063 68,469,361 5,179,271 77,702 353,260,315 105,212,628 4,154,704 20,921,374 6,020,074 201,348,482 140,971,225 60,377,257 11,698,027 11,698,027 (7,993,253) 35,587,854 43,581,107 145,160,633 71,755,891 12,573,320 2003 690,107,045 683,094,699 7,012,346 (11,279,558) 1,846,853 2,734,789 683,409,129 108,037,585 6,095,688 25,343,678 5,806,849 239,664,624 171,736,969 67,927,655 13,338,440 13,338,440 (6,765,554) 29,642,406 36,407,960 163,604,524 93,438,285 10,050,146
STATEMENT OF INCOME
5.a) Raw materials and consumables (acc. 601+602-7412) b) Electricity, heating and water expenses (acc. 605-7413) Goods for resale (acc. 607) a) Salaries (acc. 641-7414) 6. Personnel expenses (rows 15+16)
b) Social security contributions (acc. 645-7415) 7.a) Adjustments on the value of tangible and intangible assets (rows 18-19) a.1) Expenses (acc. 6811+6813) 7.b) Adjustments on the value of current assets (rows 21-22) b.1) Expenses (acc. 654+6814) b.2) Revenues (acc. 754+7814)
8. Other operating expenses (rows 24 to 26) 8.1. Third party services (acc. 611+612+613+614+621+622+623+624 +625+626+627+628-7416) 8.2. Other taxes, duties and similar expenses (acc. 635)
M
10
E
3456 6 3 4 5
8.3. Compensations, donations and net value of assets disposed (acc. 658) 8.4. Adjustments regarding the provisions for risks and charges (rows 28-29) Expenses (acc. 6812) Revenues (acc. 7812) TOTAL OPERATING EXPENSES (rows 10 to 14+17+20+23+27) PROFIT/LOSS FROM OPERATIONS: - Profit (row 09-30) - Loss (row 30-09) 11. Interest income (acc. 766) - Out of which, related to group companies Other financial revenues (acc. 7617+762+763+764+765+767+768+788) TOTAL FINANCIAL REVENUES (rows 33+35+37+39) 13. Interest expense (acc. 666-7418) Other financial expenses (acc. 663+664+665+667+668+688) TOTAL FINANCIAL EXPENSES (rows 41+44+46) FINANCIAL RESULT - Loss (row 47-40) 14. CURRENT RESULT:
26 27 28 29 30
31 32 37 38
L
39 40 44 46 47 49 50 51 56 57 58 59 60 61 65 66 67 68
PREPARED BY,
P
Full name Signature
- Loss (rows 32+49) TOTAL REVENUES (rows 09+40+52) TOTAL EXPENSES (rows 30+47+53) GROSS RESULT Profit (row 56-57)
M
11
E
136,520,894 987,072 987,072 5,595,704 6,582,776 4,467,901 74,713,960 79,181,861 72,599,085 209,119,979 359,843,091 568,963,070 209,119,979 11,115 209,131,094 (17,600) (17,600)
122,897,474
53,820,482
69,076,992
691,247,199 622,170,207
69,076,992
- Loss
5,820 5,820
- diluted
ADMINISTRATOR, Full name Signature Companys stamp
County: Dolj Legal entity: S.C. Alfa S.R.L. Address: Florilor Street, no. 25, Oras Phone: 0235 123 456; Fax: 0235 123 457 Company register no.: J16/3456/1991 Country: Romania Type of ownership: Main activity (CAEN group name): CAEN Group Code: Fiscal Code: R 1 2 Construction of industrial equipment Private 35
Balance at 1 January Thousand ROL Share capital 296,892,431 Revaluation reserve 95,957,454 Legal reserve 2,572,838 Other reserves 3,447,886 Retained earnings (78,542,202) Retained earnings from first applications of IAS less IAS 29 (154,178,274) Profit/ (Loss) for the year (209,131,094) Total shareholders' equity (42,980,961)
Additions
P
Transfers PREPARED BY, Full name Signature
L
Disposals Total, out of which: 9,146,370 (205,677,244) (196,530,874)
M
35,983,409 3,453,850 (209,131,094) 69,076,992 (100,616,843)
12
(209,131,094)
(209,131,094)
ADMINISTRATOR,
Companys stamp
E
3456 6 3 4 5
Balance at 31 December
County: Dolj Legal entity: S.C. Alfa S.R.L. Address: Florilor Street, no. 25, Oras Phone: 0235 123 456; Fax: 0235 123 457 Company register no.: J16/3456/1991 Country: Romania Type of ownership: Main activity (CAEN group name): CAEN Group Code: Fiscal Code: R 1 2 Private 35
Thousand ROL OPERATING ACTIVITIES Net profit (loss) before taxation and extraordinary items Adjustments for: Depreciation and amortization Revenue from interest Interest expense Operating profit before working capital changes Increase in short term payables
P
2002
L
2003 69,076,992 5,385,821 13,338,440 (2,734,789) (440,750) 1,786,195 86,411,909 193,668,888 (252,919,328) 8,167,133 35,328,602 (1,786,195) 33,542,407 (22,508,454) 15,716,898 440,750 (6,350,806)
Increase of provisions for risks and charges Net value of disposals of fixed assets
M
13
(209,131,094) -
Increase in trade and other receivables (Increase)/ Decrease in inventories Cash generated from operations Interest paid Income tax received
INVESTING ACTIVITIES
Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Interest received CASH FLOW FROM INVESTING ACTIVITIES
E
3456 3 4 5 6
FINANCING ACTIVITIES Proceeds from issuance of share capital Payment of finance lease liabilities Repayment of borrowings Proceeds from long-term borrowings NET CASH FROM FINANCING ACTIVITIES Net increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December ADMINISTRATOR, Full name Signature Companys stamp Full name Signature (62,080,976) 88,783 (61,992,193) 1,879,188 13,105,085 14,984,273 96,698,880 (551,106)
PREPARED BY,
X
14
Illustrative Financial Statements
E
(21,382,999) 104,883,732 30,118,957 132,075,333 14,984,273 147,059,606
M
1,708,174 1,729,646 31 December 2002 8,846 951,845 960,691 768,955
P
Additions Disposals 10,379 1,150,592 1,160,971 31 December 2003 11,093 557,582 568,675 Amortization charge for the year Accumulated amortization of disposals 10,379 1,150,592 1,160,971 8,320 282,216 290,536 278,139 31 December 2003 9,853 480,963 490,816
Accumulated amortization
Thousand ROL
15
Thousand ROL
31 December 2002
P
Depreciation year* charge for the 236,677,223 4,065,269 1,044,621 62,934 241,850,047
Accumulated depreciation
L
9,795,669 1,728,647 16,737,200 Accumulated disposals 1,366,720 2,004,422 313,129 70,820 3,755,091 depreciation of
Plant and machinery and motor vehicles Impairment provision Fixtures and fittings Total
M
21,732,866 5,696,212 171,789 119,426,932 500,609,598
Buildings
91,826,065
* Depreciation charge for the year includes the differences from revaluation.
The land owned by the Company is located in Oras having a surface of 733,121 square meters. The buildings are stated at their revalued amounts less subsequent accumulated depreciation, as allowed by the alternative treatment as per OMFP 94/2001. At 10 May 2003, the buildings have been revalued in accordance with HG 403/2000, by an independent valuer S.C. Evaluarea S.A, a certified ANEVAR member. For the
S.C. Alfa S.R.L. concluded a lease agreement (contract no. 4002/03/01/2003) with SC Leasing Romania S.R.L. for the acquisition of equipment necessary to the acetylene supply with a total value of ROL 1,798,200 thousand.
computation of the revalued amounts the valuer used the Consumer Price Index (CPI) published by the National Statistics Office of Romania. The gross revalued amounts were subsequently adjusted to the market value/replacement cost appraised by the independent valuer. The Company recorded as at 31 December 2003 differences from the revaluation of the building amounting to ROL 255,994,679 thousands related to the gross book value and ROL 227,957,640 thousand related to accumulated depreciation. These differences are presented in the table of movements above, as additions and depreciation charge related to year ended 31 December 2003.
16
E
2003
646,795,496
31 December
31 December 2003
The investment in subsidiary represents the investment in S.C. ABC SRL, a company with headquarters in Bucharest. S.C. Alfa S.R.L owns 100% of this company. The main object of activity of the company is design of industrial equipment. The investment in S.C. ABC SRL is stated at cost. The company has not consolidated the
financial statements of S.C. ABC S.R.L, as OMFP 94/2001. The presentation of unconsolidated financial statements is in accordance with the provisions of the Ministry of Public Finance Order no. 1827/2003 (OMFP 1.827/2003)
Thousand ROL
M
31 December 2002 7,706,196
P
Movements Increase Decrease 4,355,761 4,355,761 1,440,964 11,651,053 13,092,017 31 December 2003 Provision for litigation and claims to customers Total 1,440,964 8,300,618 9,741,582
7,706,196
S.C. Activitatea S.A. claims penalties for non-compliance with their deadline in the amount of 1,440,964 thousand ROL.
The Company is in litigation with S.C. Activitatea S.A. for the service performed by S.C. Alfa S.R.L.
The warranty provision represents the best estimate of the Company's liability under the 12 months warranty granted, based on prior experience.
17
E
1,000,000 25,854 1,025,854
Thousand ROL Legal reserves Reserves related to fiscal incentives Profit carried forward Total Partial recovery of loss recorded in previous years
L
2002 279,533,981 230,013,027 132,182,745 18,386,805 79,443,477 49,520,954 189,936,244 3,894,396
The Company approved the distribution of profit according to the legislation in force as follows: 3,453,850 thousand ROL: 5% from the gross profit of the year has been transferred to the legal reserve. The Company will stop this transfer when the legal reserve equals 20% of the social capital.
M
18
The undistributed profit carried forward consists of dividends approved after the year ended 31 December 2003 amounting to 4,144,620 thousand ROL, dividends that will be distributed to shareholders in 2004.
13,815,398 thousand ROL: the Company received a fiscal credit (50% reduction in income tax) for the investments made from reinvested profit, having the obligation to transfer to its development funds both the fiscal credit and the reinvested profit. 47,663,124 thousand ROL: partial recovery of the loss recorded in previous years.
The legal reserves and the reserves related to fiscal incentives cannot be distributed.
2. Cost of sales (3+4+5) 3. Operating expenses 5. Indirect expenses 4. Auxiliary expenses 6. Gross profit (1-2)
7. Distribution expenses
E
2003
Illustrative Financial Statements
2003
(136,520,894)
The Company includes in production cost both direct and indirect production costs. Administrative expenses are not included. To obtain the cost of sales, production cost was adjusted with the change in the stocks (balance of account 711 in the income statement).
Operational result presented above includes also the net loss from the disposal of fixed assets amounting to ROL 536,000 thousands for 2003. For information regarding rent and operational leasing contracts, see Note 10.5.
L
Due term less than one 194,502,919 (8,911,928) 29,969,849 more than one year 31 December 2002
As at 31 December 2003, the Company included in the short term receivable the following receivables:
- ROL 31,825 million S.C. Epsilon S.R.L., - ROL 50,250 million Alfa Standard Corporation and - ROL 45,225 million S.C. Gamma S.R.L., representing the value of services provided by the Company in favour of customers, and which are currently under
A
31 December 2003 30,118,957 93,334,151 114,779,774 740,325,877 978,558,759 year 21,382,999 157,638,838 73,806,714 394,493,682 647,322,233 30,118,957 93,334,151 114,779,774 740,325,877 978,558,759 Due term less than one more than one year -
Liabilities to credit institutions Advance payments from clients Trade payables Other payables Total
M
19
P
215,560,840
215,560,840
dispute. Management estimates that the value of these services will be recovered. As at 31 December 2003 the Company recorded in the financial statements an allowance for doubtful debts amounting to ROL 8,911,928 thousand, collection considered by the management of the company as uncertain.
On 6 December 2003 the Company concluded an overdraft facility contract with Delta Bank S.A. for a maximum amount of USD 1,200,000. As at 31 December 2003 the overdraft balance was USD 899,000. According to the conditions in the contract, the overdraft should be reimbursed by 30 June 2004. The interest applicable to this overdraft is the bank's interest base rate plus a margin of 1.5% computed on an annual basis (360 days).
The guarantees set up by the Company in relation to this overdraft facility are: First rank pledge over the Company's cash in bank, in accordance with the pledge contract;
Thousand ROL
31 December 2002
L
less than one year 6,383,495 3,520,717 5,004,171 295,488,104 331,983,416 96,698,880 1,247,094 740,325,877
elements:
Amounts payable to state budget Dividends payable from 2002 Sundry creditors Other liabilities Contribution to share capital Payables leasing Total
P
295,488,104 5,004,171 331,983,416 96,698,880 1,247,094 740,325,877
4,638,785
M
394,493,682
The contribution to the share capital represents the amount paid by S.C. Beta S.A. in order to increase the share capital (refer to Note 18).
20
E
Due term year -
First rank pledge for an amount of USD 1,266,111 over the Company's receivables, in accordance with the pledge contract.
The financial statements have been prepared in ROL and are presented in thousand ROL. (b) Statement of compliance Second year of applying OMFP 94/2001 The financial statements were prepared in accordance with the OMFP no. 94/2001 - "for the approval of the accounting regulations harmonized with Economic European Committee Fourth Directive and with the International Financial Reporting Standards". The year 2003 represents the second year of effective application of the accounting regulations harmonized with Economic European Committee and with the International Financial Reporting Standards. The annual financial statements comprise of: Balance Sheet Statement of Income Statement of Changes in Stockholders' Equity Statement of Cash Flows Notes to the Financial Statements.
Valuation of Asset and Liability items - in determining the aggregate amount of any item in the balance sheet, the amount of each individual asset or liability has been determined separately. Opening balance - The opening balance sheet of a financial year must correspond to the closing balance sheet of the previous financial year, except for certain reclassifications of accounts necessary to ensure comparability with the financial statements for the year ended 31 December 2003. Offsetting - Items representing assets or income may not be net off against items representing liabilities or expenditure, except for the netting off between assets and liabilities approved by OMFP 94/2001.
Substance over form - The information presented in the financial statements should reflect the economic substance of events and transactions and not only their legal form. Materiality - Each significant item should be presented separately in the financial statements.
M
21
First year of applying OMFP 94/2001 [if the case] The first financial year in which the Company issued its financial statements in accordance with the provisions of the Ministry of Finance Order 94/2001 is the year ended 31 December 2003. The financial statements for the previous years were prepared and issued in accordance with the Romanian accounting rules provided in Law 82/1991. The Company did not show comparative financial statements for year 2002 and, also, it did not show the cash flow statement and the statement of changes in equity for the financial year ended 31 December 2003, as stated in OMFP 94/2001. Also, the effect of the adjustments of adopting for the first time the OMFP 94/2001 are shown in the retained earnings, the profit and loss account for the year not being affected. These statements include: Balance Sheet Statement of Income Notes to the Financial Statements.
[Note: The Illustrative financial statements prepared in accordance with OMFP 94/2001, in the first year of applying OMFP 94/2001, do not include the Statement of Changes in Equity and the Statement of Cash Flows]. (c) Standards applicable in hyperinflationary economies and foreign currency translations Measurement currency The Company operates in a highly inflationary economy. The Company's management considers that the measurement currency, as defined by SIC 19 "Reporting Currency-Measurement and Presentation of Financial Statements Under IAS 21 and IAS 29" is the USD/EUR, due to the following reasons: selling prices for the main products and services are linked to the USD/EUR; imports are made mainly in USD/EUR; the Company is to a large extent financed in USD/EUR; management uses USD/EUR-based reports to monitor the Company's financial performance; other reasons. In accordance with SIC 19, since the measurement currency of the Company is USD/EUR, the financial statements should be prepared in USD/EUR and transactions in foreign currencies (all currencies other than USD/EUR) should be recorded at the exchange rate from the date of the transaction, according to International Accounting Standard "The Effects of Changes in Foreign Exchange Rates" (IAS 21).
Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Plant and equipment acquired by way of finance leasing are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. Lease payments are accounted for as described in accounting policy at paragraph (p) below. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term. iii) Subsequent repair and maintenance expenditure Repair and maintainance expenditure made in order to restore or maintain the value of the fixed assets is included in the profit and loss account when incurred. Expenses perfomed towards improvement of technical performance are capitalised and depreciated over the remaining period of depreciation of the specific fixed asset. iv) Depreciation Depreciation is provided to write off the cost (or valuation) less the estimated residual value by using the straight line method of depreciation over the estimated useful lives of items of property, plant and equipment, and major components that are accounted for separately. Estimated useful lives are as follows: Buildings Plant and equipment Vehicles Fixtures and fittings 40 5-12 5 5-10 years years years years
Foreign currency transactions are presented at the foreign exchange rate ruling at the date of the transaction. At year end, monetary assets and liabilities denominated in foreign currencies are translated to ROL at the foreign exchange rate ruling at the balance sheet date, and the foreign exchange rate differences arising on translation are recognized in the income statement.
The Company's management decided to prepare the financial statements based on historical cost. Therefore, the Company chose the alternative accounting treatment stipulated by OMFP 94/2001 and did not adjust the financial statements in accordance with IAS 21 "The effects of changes in foreign exchange rates".
(e) Property, plant and equipment i) Own assets Land and buildings are stated in the balance sheet at their revalued amount less accumulated depreciation and i) Intangible assets that are acquired by the Company are stated at cost less accumulated amortization (see below) and impairment losses (refer accounting policy (k) below). ii) Amortization is charged to the income statement on a
M
22
P
(f) Intangible assets
impairment losses (refer to accounting policy (k)). The cost of self-constructed assets includes the cost of materials, direct labor and an appropriate proportion of production overheads. The historic cost has been revalued in accordance with Government decisions: 945/1990, 26/1992, 500/1994, 983/1998 and 403/2000 using indexes established by the respective normative acts.
straight-line basis over the estimated useful lives of intangible assets. The most significant part of the intangible assets recorded by the Company comprise software. Software is depreciated using the straight-line method over the estimated useful life, which does not exceed 5 years. (g) Investments Investments held to maturity by the Company are stated at amortized cost less impairment losses (refer to accounting policy (k)). (h) Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventory is based on the First In First Out principle (or Weighted Average principle) and includes expenditure incurred in acquiring the inventories and bringing them to their existing condition and location. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity. (i) Trade and other receivables
An impairment loss in respect of a held-to-maturity receivable is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognized. In respect of other assets, 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, if no impairment loss had been recognized. (l) Issued capital Dividends Dividends are recognized as a liability in the period in which their distribution is approved. (m) Interest-bearing borrowings Interest-bearing borrowings are recognized initially at cost, less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortized cost with any difference between cost and redemption value being recognized in the income statement over the period of the borrowings on an effective interest basis. (n) Trade and other payables Trade and other payables are stated at their cost, which is the fair value of the consideration to be paid in the future for goods and services received. (o) Lease obligation Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The corresponding liability to the lessor is included in the
Trade and other receivables are stated at their cost less impairment losses. (j) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. (k) Impairment
The carrying amounts of the Company's assets other than inventories and deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset or its cashgenerating unit exceeds its recoverable amount. Impairment losses are recognized in the income statement or in equity [if the case]. i) Calculation of recoverable amount
M
23
The recoverable amount of the Company's investments in held-to-maturity securities and receivables is calculated as the present value of expected future cash flows, discounted at the original effective interest rate corresponding to these assets. Receivables with a short duration are not discounted.
balance sheet as a finance lease obligation. Finance costs are charged to the statement of income over the term of the relevant lease so as to produce a constant periodic rate of interest on the remaining balance of the obligations for each accounting period. Operating lease rentals are charged to the profit and loss account on a straight-line basis over the period of the lease. Lease rentals discounts granted are recognised in the profit and loss account as a reduction of expense. (p) Provisions A provision is recognized in the balance sheet when the Company has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. The provisions are revised at the end of each period and adjusted in order to reflect the most accurate estimate. Warranties
taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized. The effect on deferred tax of any changes in tax rates is charged to the income statement, except to the extent that it relates to items previously charged or credited directly to equity. (t) Related parties Parties are considered related when one party, either through ownership, contractual rights, family relationship or otherwise, has the ability to directly control or significantly influence the other party. (u) Estimates In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenue and expenses for the year. Actual results could differ from those estimates. Estimates are used when accounting for items and matters such as allowance for un-collectable accounts receivable, discounted non-current receivables, inventory obsolescence, amortization/depreciation and taxes. The effect of changes in accounting estimates is computed prospectively and is included in the determination of net profit or loss in: the period of the change, if the change affects the period only; or the period of the change and future periods, if the change affects both. (v) Comparative information [if applicable]
A provision for warranties is recognized when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities. (q) Revenue Goods sold
Revenue from the sale of goods is recognized in the income statement when the significant risks and rewards of ownership over the goods have been transferred to the buyer. (r) Financial result This includes interest payable on borrowings, interest receivable on funds invested, interest payable on finance leases and foreign exchange gains and losses. The principal of separate financial statements is followed in order to recognise these elements. The interest expense component of finance lease payments is recognized in the income statement using the effective interest rate method. (s) Income tax
Tax on the profit or loss for the year comprises current and deferred tax. Current tax is the expected tax payable calculated on the
M
24
Certain items from the 2002 financial statements have been reclassified to conform to the 2003 financial statements presentation. (w) Pensions and other post retirement benefits During its normal activity, the Company pays to the state taxes due for its employees. All Company's employees are members of the Romanian Pensions Fund. The Company's policy does not include any other pensions scheme or any plan of supplementary benefits after retiring, consequently, it has no other obligations regarding the pensions system. In addition, the Company has no obligation in granting any other benefits to its employees at the retirement date.
X
25
Illustrative Financial Statements
L
958,943 11,875,697 personnel is as follows: of Directors' members were:
Illustrative Financial Statements
The revaluation reserve relating to property, plant and equipment, amounting to ROL 102,565,653 thousand (increase in the fair value of the property at the date of revaluation), is included in the Company's share capital in accordance with GD 945/1990, GD 26/1992 and GD 500/1994.
The Company is managed by the Board of Directors, which has 3 members. At 31 December 2003, the Board Name Florian Popescu Gheorghe Mincu Nicoleta Vornicu Position General manager Member Member
M
Number 9 2,089 479 68 14 2,659
P
26
As mentioned in Note 18, on 30 March 2004 the Company's share capital increased as a result of issuing 3,862,771 shares in accordance with the General Shareholder's Meeting held on 9 January 2004 with the ROL equivalent of USD 2,880,000.
E
Share capital 246,181,256 19,663,515 7,074,075 23,973,585 296,892,431
The current Board of Directors has been appointed by the General Shareholders Meeting held on 30 August 2003. The Company's Directors have been appointed by the Decisions of the Board of Directors from 5 September
2003 and 22 September 2003. As at 31 December 2003, the Company's Management has the following structure:
Name Eng. Florian Popescu Eng. Claudiu Postelnicu Eng. Adrian Popovici Eng. Vlad Solomon Eng. Marius Grigore Eng. Alina Oprea Ec. Mariana Calin Eng. Elena Ionescu Law. Cristian Tudor
Position General Director Technical Director Production Director Quality Director Logistics Director Finance Director Human Resources Director Legal Director Marketing Director
The Company's payroll expenses in 2003 were: Thousand ROL Employees - salaries payable Company's contribution to social security Company's contribution to health fund
P
2003 171,736,969 43,824,046 8,597,562 12,090,280 3,415,767 239,664,624
Company's contribution to support fund for disabled persons Total The management's wages represent 4% from the total salary expenses in 2003.
X
27
Illustrative Financial Statements
Quick ratio (acid test) Current assets (A) Inventories (B) Current liabilities (C) (A-B)/C - number of times
206,124,374 164,428,108
P
647,322,233 0.06
L M
28
96,791,621 (42,980,961) N/A (204,652,078) 4,467,901 N/A 164,428,108 115,387,406 520
Illustrative Financial Statements
II. Risk ratios Degree of indebtness ratio Borrowed capital (A) Equity (B) A/B (if negative, N/A)
Interest cover ratio Profit before interest and tax (A) Interest expense (B)
E
518,881,421 978,558,759 0.53 518,881,421 156,260,975 978,558,759 0.37 52,933,070 70,863,187 1,786,195 39.67 156,260,975 119,940,122 476
Thousand ROL 2002 Accounts receivable turnover Trade receivables (A) Net turnover (B) (A/B)*365 - number of days 18,630,724 279,533,981 24 185,895,768 690,107,045 2003
Accounts payable turnover Trade payables (A) Net turnover (B) (A/B)*365 - number of days 73,806,714 279,533,981 96
L
279,533,981 502,529,609
Non-current assets turnover Net turnover (A) Non-current assets (B) (A/B) - number of times
P
0.56 279,533,981 709,036,061
Asset turnover Net turnover (A) Total assets (B) (A/B) - number of times
M
29
0.39
IV. Profitability ratios Gearing ratio Profit before interest and tax (A)
(204,652,078) 61,516,856 -
Net result atributable to ordinary shareholders (A) Number of outstanding ordinary shares (B) (A/B) - Thousand ROL
E
98 114,779,774 690,107,045 61 690,107,045 525,554,553 1.31 690,107,045 1,044,583,846 0.66 70,863,187 66,025,087 1.07 277,669,666 690,107,045 40% 69,076,992 11,875,697 5.82
[The following comments are to be tailored by the Company to reflect its specific situation.]
I. Liquidity ratios Current ratio, respectively quick ratio (acid test), shows how many times the current liabilities are covered by the current assets, respectively by current assets less inventory. The ratios obtained are low in comparison with the recommended figure (around 2), illustrating a reduced capacity of current assets (mainly trade receivables and cash and cash equivalents) to cover the amount of current liabilities.
Accounts receivable turnover indicates the number of days until the debtors pay their debt to the company, showing the effectiveness of the company in collecting its receivables. The increase in the number of days in 2003 may indicate problems connected to the control of credit given to clients. Accounts payable turnover indicates the number of credit days the company obtains from its suppliers. Non-current assets turnover evaluates the efficiency in managing the non-current assets by examining the value of the turnover generated by operating these. Assets turnover evaluates the efficiency in managing the total assets by examining the value of the turnover generated by the companys assets.
II. Risk ratios The degree of indebtness ratio shows how many times the borrowed capital (long term debts) can be covered by own capital and reflects the financing structure of the Company at the end of the financial year. As the ratio has a negative value at 31 December 2002 and a nil value at 31 December 2003, it is not relevant to compute it. Interest cover ratio shows how many times interest expense is covered by profit before interest and tax. The lower the ratio, the more risky the position of the company is considered to be. For 2002, the analysis of the indicator is not relevant, as the indicator has a negative value.
IV. Profitability ratios Gearing ratio represents the profit the company obtains from one unit of resource, invested in the business. The company recorded a loss in 2002 and a profit in 2003. Gross profit margin has a high level in 2003.
Inventory turnover indicates the number of days goods are held by the company.
M
30
V. Earnings per share ratios Earnings per share ratio was ROL 5,820 per share in 2003, and in 2002 the company recorded losses of ROL 17,610 per share.
1. accounting profit for the year 2. non taxable revenues 3. total non deductible expenses
M
31
P
ROL ROL ROL ROL ROL ROL ROL
The accumulated fiscal losses can be carried forward over maximum five years. In the financial year ended 31 December 2003, the Company recorded an accounting profit of ROL 69,076,992 thousand in the financial statements in nominal terms and a fiscal profit of ROL 75,076,992 thousand. The reconciliation between the fiscal result and the accounting result is presented below:
5. recoverable fiscal loss from previous years 6. accumulated fiscal loss (row4+row5) 7. tax on profit 25 %
L
ROL 12,215,922 thousand - Loss ROL 173,503,970 thousand - Loss 69,076,992 thousand 61,077,251 thousand 67,077,251 thousand 75,076,992 thousand (260,796,884) thousand (185,719,892) thousand 0 thousand The most important foreign clients are the German company Foreign Business AG and the Swedish Business Company from Sweden.
Illustrative Financial Statements
10.5 The amount of future payments for rent and operating lease contracts.
Rent
31 December 2002 Less than 1 year Between 1 and 5 years More than 5 year Total 3,325,623 6,964,497 10,290,120
Operating leasing
Thousand ROL Instalments to be paid at 31 December 2002 Less than 1 year Between 1 and 5 years More than 5 year Total 1,421,450 1,097,965 Instalments to be paid at 31 December 2003 1,421,450 1,729,850 3,151,300
2,519,415
10.6 Auditors
The Company's auditor is Audit S.R.L. The audit fees are based on the existing agreement between the two parties
A
555 Total 566 Total
M
32
P
Beneficiary Beneficiary
and is stated in the service contract signed by the company and by Audit S.R.L.
L
EUR 69,025 69,025 30,677 107,371 276,098 EUR 60,000 60,000
Illustrative Financial Statements
12,107,250
Contract no.
Swedish Business
Thousand ROL
Instalments to be paid at
Instalments to be paid at
b) Letters of guarantee in the favor of Customs Security Bureau Constanta (collateral cash)
Beneficiary
Value ROL
P
193
Raw materials Provisions for raw materials Consumables Provisions for consumables Small inventory Work in progress Provisions for work in progress Semi-finished goods, finished goods, residual products Inventory held by third parties
12,516,187 (172,565)
L
31 December 2003 25,253,066 (1,115,892) 7,535,193 (784,817) 1,074,262 150,850,786 (26,895,398) 4,466,108 (311,922) 250,941 162,308,928 (35,031,767) 12 164,099 1,974,742 177,689 18,249,574 170,452 9,212 164,428,108 156,260,975 booked a provision for work in progress amounting to ROL 26,895,398 thousand.
The recoverability of the debt related to Utility International litigation was evaluated by the management of the Company as doubtful and the Company has
Total
M
33
Total
14,984,273
P
31 December 2003 Payments 1,371,803 1,371,803
L
31 December 2003 Interest 31 December 2003 Principal 124,709 1,247,094 124,709 1,247,094 31 December 2003 3,637,973 1,771,443 5,409,416
Between one year and five years More than five years
Total
S.C. Alfa S.R.L. concluded a lease agreement (contract no. 4002/03/01/2003) with SC Leasing Romania for the acquisition of equipment necessary in the acetylene
Thousand ROL
Receivables from related parties S.C. Eficienta S.R.L. S.C. Contractul S.R.L. 2,790,676 1,741,780
Total
M
4,532,456
supply with a total value of 64,283 EURO; at 31 December 2003 eight installments had been paid and the remaining ten installments amount to 35,714 EURO.
31 December 2002
34
E
146,978,987 6,320 74,299 147,059,606
Thousand ROL
31 December 2002
31 December 2003
Payables to related parties Trade Suppliers (related parties) S.C. Eficienta S.R.L. S.C. Contractul S.R.L. Suppliers of fixed assets (related parties) S.C. Contractul S.R.L. 20,137,624 20,893,299
Total
41,030,923
14.2.1 Purchases
Thousand ROL
2002
P
2003 10,250,670 10,250,670 2003 45,908,220 44,535,236 90,443,456 2003 654,003 654,003
Total
Thousand ROL
Total
Thousand ROL
Total
M
10,191,496 10,191,496 2002 32,135,754 31,410,773 63,546,527 2002 559,301
35
E
35,476,432 14,993,841 10,250,670 60,720,943
14.2.2 Sales
Thousand ROL 2002 2003
Total
2,060,952
At 31 December 2003, the deferred tax asset was not recorded in the financial statements as its realisation was not considered probable. The deferred tax asset is generated by the items presented in the following table,
representing temporary differences between their fiscal base and their accounting base, and by the fiscal loss brought forward (refer to note 10.3).
Thousand ROL Property, plant and equipment Intangible assets Investment property Other investments Inventories
P M
36
Interest-bearing loans and borrowings Employee benefits Deferred government grants Provisions Other items
Total
Alfa S.A. is involved in the following litigations: Litigation with S.C. Popescu S.A. for the recovery of penalties computed in relation with delivered equipment. According to the Company's lawyers, the probability that the Company will lose the litigation and incur losses is remote. Therefore, no provision was recorded in the financial statements.
L
1,013,129 506,565 593,948 848,497 254,549 151,964 1,696,994 5,065,646
31 December 2003
E
2,265,374 2,265,374
Shareholder
Number of shares
P
13,710,021 786,541 282,963 958,943 15,738,468 (ii) Market risk
The General Shareholders Meeting has decided on 9 January 2004 the increase of the share capital by cash subscription - the ROL equivalent of USD 2,880,000, representing 3,862,771 shares with a nominal value of ROL 25,000. As the other shareholders did not take their preemptive right, the amount was subscribed and paid in
The share capital increase was recorded at the Trade Register on 30 March 2004. The structure of the shareholders of the Company after the share capital increase is as follows:
87.11
M
1.80 6.09 100
5.00
Total
The Romanian Economy is in transition, and there exists uncertainty regarding the future evolution of the political and economic development. The management cannot
37
L
Value of capital (thousand ROL) 342,750,525 19,663,515 7,074,075 23,973,585 393,461,700
foresee the changes that may occur in Romania and the effects that these changes may have onto the financial status, operating results and Company's cash flows. (iii) Interest rate risk The Company has concluded a short-term loan with Delta Bank S.A. The interest rate is variable, being the bank base rate plus a 1.5% margin.
(iv) Credit risk In the normal course of its business, the Company is subject to credit risk principally from trade debtors. Management closely monitors its exposure to credit risk on a regular basis. Credit risk with respect to trade receivables is limited due to a large number of customers comprising the Company's customer base. Accordingly, management believes there are no significant concentrations of credit risk.
X
38
Illustrative Financial Statements
ADDITIONAL DATA
X
39
Illustrative Financial Statements
A
40
M
ADMINISTRATOR, PREPARED BY, Name and surname ______________________ Signature _______________________________ Companys stamp Name and surname ______________________ Signature _______________________________ Companys stamp
P
Illustrative Financial Statements
E M P
Companys stamp PREPARED BY,
X L
A
ADMINISTRATOR, Name and surname ______________________ Signature _______________________________
41
Signature _______________________________
Companys stamp
E M P
Companys stamp PREPARED BY,
X
Name and surname ______________________ Signature _______________________________
A L E
42
ADMINISTRATOR,
Signature _______________________________
Companys stamp
E M P
Companys stamp PREPARED BY,
X L
Name and surname ______________________ Signature _______________________________
43
ADMINISTRATOR,
Signature _______________________________
Companys stamp
KPMG Romania
Bucharest Calea Serban Voda, 133 Sector 4 Tel: +40 (21) 336 22 66 Fax: +40 (21) 336 11 77 Timisoara Str. Victor Babes nr. 17 Timisoara, cod 300 595 Tel: 0256 499 055 Fax: 0256 499 361 E-mail: kpmgro@kpmg.ro Web site: www.kpmg.ro
Contacts
Victor Kevehazi, Senior Partner vkevehazi@kpmg.ro Bill Bowman, Partner bbowman@kpmg.ro John Lane, Partner johnlane@kpmg.ro Serban Toader, Partner Stoader@kpmg.ro Aura Giurcaneanu, Senior Manager agiurcaneanu@kpmg.ro
44
The information contained herein is of a general nature and is not intended to address the KPMG Assurance, Romania circumstances of any particular individual or entity. Although we endeavor to provide accurate and Designed and produced timely information, there can be no guarantee that such information is accurate as of the date it KPMG Romania by is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular Calea Serban Voda 133, Sector 4, Bucharest situation.
February 2004
2004 KPMG Romania SRL, the Romanian member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in Romania.