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    Illustrative Financial Statements

    February 2004February 2004

    Illustrative Financial Statements

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    Preface

    These Illustrative Financial Statements were developed by KPMG Romania toprovide a guide for those preparing or reading Romanian Financial Statements

    in accordance with Ministry of Public Finance Order no. 94/2001. They pro-

    vide accessible and concise guidance on the format of a complete set of finan-

    cial 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 RomaniaCalea Serban Voda 133,Sector 4, BucharestRomaniaTel: +40 (21) 336 22 66Fax: +40 (21) 336 11 77E-mail: [email protected] site: www.kpmg.ro

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    Prepared in accordance with OMFP no. 94/2001

    (Free translation from Romanian)

    February 2004

    Illustrative Financial StatementsS.C. Alfa S.R.L

    as at 31 December 2003

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    2004 KPMG Audit SRL. All rights reserved. Printed in RomaniaPublication "Illustrative Financial Statements as at 31 December 2003 prepared inaccordance with OMFP 94/2001" gives one possible example of preparation of FinancialStatements 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 theapplication and interpretation of Romanian legislative requirements relevant to preparationof Financial Statements. Whilst care has been taken in its preparat ion, reference to the legalenactments relevant to preparation of Financial Statements should be made, and specificadvice 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.

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    PL EFinancial Statements

    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 financialstatements 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.

    KPMG Audit S.R.L. has prepared these Illustrative Financial Statements in

    accordance with Ministry of Public Finance Order no. 94/2001 for approval ofthe 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.

    3 I l l u s t r a t i v e F i n a n c i a l S t a t e m e n t s

    Balance Sheet and Income Statement

    The Balance Sheet and Income Statement must show at

    least the items listed in the form of the balance sheet andincome statement provided by OMFP 94/2001.

    For the purpose of this illustrative model of financial

    statements, the lines from the Balance Sheet and

    Statement of Income with zero amounts are not

    presented.

    Statement of Cash Flows

    The Statement of Cash Flows must present the items

    described by one of the cash flow methodologies from

    IAS 7 "Cash flow statements": direct method or indirect

    method. S.C. Alfa S.R.L. has chosen to present the

    Statement of Cash Flows using the indirect method.

    *The International Accounting Standards have been renamed the International Financial Reporting Standards by theInternational Accounting Standards Board.

    1) The International Financial Reporting Standards (IFRS) include:a) The International Financial Reporting Standards;b) The International Accounting Standards; andc) 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.

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    4 I l l u s t r a t i v e F i n a n c i a l S t a t e m e n t sE

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    The Statement of Changes inShareholders' Equity

    The statement of changes in shareholders' equity will

    disclose the information required by OMFP 94/2001.

    Notes to the financial statements

    In accordance with OMFP 94/2001, ten compulsory

    notes should be presented.

    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.

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    5 I l l u s t r a t i v e F i n a n c i a l S t a t e m e n t sE

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    Contents

    Balance Sheet 7

    Statement of Income 10

    Statement of Changes

    in Shareholders' Equity 12

    Statement of Cash Flows 13

    Notes to Financial Statements 15-38

    Additional data 39-43

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    I l l u s t r a t i v e F i n a n c i a l S t a t e m e n t s6

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    PL EBALANCE SHEET

    at 31 December 2003

    (Free translation from Romanian)

    COD 10

    Thousand ROL Row no. 2002 2003

    A. NON-CURRENT ASSETS

    I. INTANGIBLE ASSETS

    Set-up costs (acc. 203-2803-2903) 02 12,626 2,773

    Concessions, patents, licenses, trademarks and similar rights

    and assets (acc. 2051+2052+208-2805-2808-2905-2908) 03 756,329 275,366

    TOTAL: (rows 01 to 05) 06 768,955 278,139II. TANGIBLE ASSETS

    Land and buildings (acc. 211+212-2811-2812-2911-2912) 07 474,242,340 491,717,741

    Plant and machinery and motor vehicles (acc. 213-2813-2913) 08 25,735,565 29,770,478

    Fixtures and fittings (acc. 214-2814-2914) 09 216,200 355,026

    Fixed assets in progress and advance payments for fixed

    assets in progress (acc. 231+232-2931) 10 415,493 2,407,315

    TOTAL: (rows 07 to 10) 11 500,609,598 524,250,560

    III. FINANCIAL ASSETS

    Investment in Group Companies 12 1,000,000 1,000,000Other financial assets (acc. 2673+2674+2678+2679-2966-2969) 17 151,056 25,854

    TOTAL FINANCIAL ASSETS: (rows 12 to 18) 19 1,151,056 1,025,854

    TOTAL NON-CURRENT ASSETS 20 502,529,609 525,554,553

    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) 21 18,723,491 32,125,911

    Work in progress (acc. 331+332+341+/-3481+3541-393-3941-3952) 22 127,277,161 123,955,388

    7 I l l u s t r a t i v e F i n a n c i a l S t a t e m e n t s

    County: Dolj

    Legal entity: S.C. Alfa S.R.L. Type of property: Private 35

    Address: Florilor Street, no. 25, Oras Main activity (CAEN group name):

    Phone: 0235 123 456; Fax: 0235 123 457 Construction of industrial equipment

    Company register no.: J16/3456/1991 CAEN Group Code: 3456

    Country: Romania Fiscal Code: R 1 2 3 4 5 6 7

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    8 I l l u s t r a t i v e F i n a n c i a l S t a t e m e n t sE

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    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) 23 177,882 170,464

    Advance payments for the purchase of inventories (acc. 4091) 24 18,249,574 9,212

    TOTAL INVENTORIES: (rows 21 to 24) 25 164,428,108 156,260,975

    II. RECEIVABLES

    Trade receivables (acc. 4092+4111+4118+413+418-491) 26 18,630,724 185,895,768

    Other receivables (acc. 425+4282+431+437+4382+441+4424+4428+444

    +445+446+447+4482+ 4582+ 461+473-496+5187) 29 8,081,269 29,665,072

    TOTAL: (rows 26 to 30) 31 26,711,993 215,560,840

    III. SHORT TERM FINANCIAL INVESTMENTS

    IV. CASH AND BANK ACCOUNTS (acc. 5112+5121+5124+5125+5311+5314+5321+5322+5323+5328+5411+5412+542) 36 14,984,273 147,059,606

    TOTAL CURRENT ASSETS (rows 25+31+35+36) 37 206,124,374 518,881,421

    C. ACCRUED EXPENSES (acc. 471) 38 382,078 147,872

    D. CURRENT LIABILITIES

    Liabilities to credit institutions (acc. 1621+1622+1624+1625+1627+1682

    +5191+5192+5198) 40 21,382,999 30,118,957

    Advances from clients (acc 419) 41 157,638,838 93,334,151

    Trade payables (acc. 401+404+408) 42 73,806,714 114,779,774

    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) 46 394,493,682 740,325,877

    TOTAL: (rows 39 to 46) 47 647,322,233 978,558,759

    E. CURRENT ASSETS, NET CURRENT LIABILITIES (rows 37+38-47-64) 48 (441,012,753) (459,529,466)

    F. TOTAL ASSETS LESS CURRENT LIABILITIES (rows 20+48 - 63) 49 61,516,856 66,025,087

    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) 57 96,791,621 -

    TOTAL: (rows 50 to 57) 58 96,791,621 -

    H. PROVISIONS FOR RISKS AND CHARGES 59

    Other provisions (acc. 151) 60 7,706,196 13,092,017

    TOTAL PROVISIONS: (rows 59 + 60) 61 7,706,196 13,092,017

    I. DEFFERED REVENUE (rows 63+64) 62 196,972 -

    Deffered revenue (acc. 472) 64 196,972 -

    J. CAPITAL AND RESERVES

    I. CAPITAL (rows 66 to 68), out of which: 65 296,892,431 296,892,431- subscribed and paid-in capital (acc. 1012) 67 296,892,431 296,892,431

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    9 I l l u s t r a t i v e F i n a n c i a l S t a t e m e n t sE

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    III. REVALUATION RESERVES (acc. 105)

    - Credit balance 70 95,957,454 122,794,493

    - Debit balance 71

    IV. RESERVES (acc. 106) (rows 73 to 76) 72 6,020,724 6,020,724

    Legal reserves (acc. 1061) 73 2,572,838 2,572,838

    Other reserves (acc. 1068+/-107) 76 3,447,886 3,447,886

    V. RETAINED EARNINGS (acc. 117)

    - Credit balance 77

    - Debit balance 78 232,720,476 441,851,570

    VI. PROFIT/LOSS OF THE PERIOD (acc. 121)

    - Credit balance 79 69,076,992

    - Debit balance 80 209,131,094TOTAL EQUITY (rows 65+69+70-71+72+77-78+79-80-81) 82 (42,980,961) 52,933,070

    TOTAL EQUITY AND RESERVES (rows 82+83) 84 (42,980,961) 52,933,070

    ADMINISTRATOR, PREPARED BY,

    Full name Full name

    Signature Signature

    Companys stamp

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    10 I l l u s t r a t i v e F i n a n c i a l S t a t e m e n t sE

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    County: Dolj

    Legal entity: S.C. Alfa S.R.L. Type of ownership: Private 35

    Address: Florilor Street, no. 25, Oras Main activity (CAEN group name):

    Phone: 0235 123 456; Fax: 0235 123 457 Construction of industrial equipment

    Company register no.: J16/3456/1991 CAEN Group Code: 3456

    Country: Romania Fiscal Code: R 1 2 3 4 5 6 7

    STATEMENT OF INCOME

    for the year ended 31 December 2003

    Free translation from Romanian

    COD 20

    Thousand ROL Row no. 2002 2003

    1. Net turnover (rows 02 to 04) 01 279,533,981 690,107,045

    Turnover (acc. 701+702+703+704+705+706+708) 02 272,257,918 683,094,699

    Revenues from goods for resale (acc. 707) 03 7,276,063 7,012,346

    2. Variation in inventories (acc. 711) 05 68,469,361 (11,279,558)

    3. Own work capitalized (acc. 721+722) 07 5,179,271 1,846,853

    4. Other operating income (acc. 758+7417) 08 77,702 2,734,789

    TOTAL OPERATING INCOME (rows 01+05-06+07+08) 09 353,260,315 683,409,129

    5.a) Raw materials and consumables (acc. 601+602-7412) 10 105,212,628 108,037,585

    Other expenses related to inventories (acc. 603+604+606+608) 11 4,154,704 6,095,688

    b) Electricity, heating and water expenses (acc. 605-7413) 12 20,921,374 25,343,678

    Goods for resale (acc. 607) 13 6,020,074 5,806,849

    6. Personnel expenses (rows 15+16) 14 201,348,482 239,664,624

    a) Salaries (acc. 641-7414) 15 140,971,225 171,736,969

    b) Social security contributions (acc. 645-7415) 16 60,377,257 67,927,655

    7.a) Adjustments on the value of tangible and intangible assets (rows 18-19) 17 11,698,027 13,338,440

    a.1) Expenses (acc. 6811+6813) 18 11,698,027 13,338,440

    7.b) Adjustments on the value of current assets (rows 21-22) 20 (7,993,253) (6,765,554)

    b.1) Expenses (acc. 654+6814) 21 35,587,854 29,642,406

    b.2) Revenues (acc. 754+7814) 22 43,581,107 36,407,960

    8. Other operating expenses (rows 24 to 26) 23 145,160,633 163,604,524

    8.1. Third party services (acc. 611+612+613+614+621+622+623+624

    +625+626+627+628-7416) 24 71,755,891 93,438,285

    8.2. Other taxes, duties and similar expenses (acc. 635) 25 12,573,320 10,050,146

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    11 I l l u s t r a t i v e F i n a n c i a l S t a t e m e n t sE

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    8.3. Compensations, donations and net value of assets disposed (acc. 658) 26 60,831,422 60,116,093

    8.4. Adjustments regarding the provisions for risks and charges (rows 28-29) 27 3,258,540 5,385,821

    Expenses (acc. 6812) 28 5,032,980 9,741,582

    Revenues (acc. 7812) 29 1,774,440 4,355,761

    TOTAL OPERATING EXPENSES (rows 10 to 14+17+20+23+27) 30 489,781,209 560,511,655

    PROFIT/LOSS FROM OPERATIONS:

    - Profit (row 09-30) 31 122,897,474

    - Loss (row 30-09) 32 136,520,894

    11. Interest income (acc. 766) 37 987,072 440,750

    - Out of which, related to group companies 38 987,072 440,750

    Other financial revenues (acc. 7617+762+763+764+765+767+768+788) 39 5,595,704 7,397,320

    TOTAL FINANCIAL REVENUES (rows 33+35+37+39) 40 6,582,776 7,838,070

    13. Interest expense (acc. 666-7418) 44 4,467,901 1,786,195

    Other financial expenses (acc. 663+664+665+667+668+688) 46 74,713,960 59,872,357

    TOTAL FINANCIAL EXPENSES (rows 41+44+46) 47 79,181,861 61,658,552

    FINANCIAL RESULT

    - Loss (row 47-40) 49 72,599,085 53,820,482

    14. CURRENT RESULT:

    - Profit (rows 31+48) 50 69,076,992

    - Loss (rows 32+49) 51 209,119,979

    TOTAL REVENUES (rows 09+40+52) 56 359,843,091 691,247,199

    TOTAL EXPENSES (rows 30+47+53) 57 568,963,070 622,170,207

    GROSS RESULT

    Profit (row 56-57) 58 69,076,992

    Loss (rows 57-56) 59 209,119,979

    18. INCOME TAX (acc. 691-791) 60 11,115 -

    Current tax on profit expenses (acc. 6911) 61

    20. NET RESULT OF THE PERIOD (rows 58-60)

    - Profit 65 69,076,992

    - Loss 66 209,131,094

    21. Earnings per share (ROL)

    - basic 67 (17,600) 5,820

    - diluted 68 (17,600) 5,820

    ADMINISTRATOR, PREPARED BY,

    Full name Full name

    Signature Signature

    Companys stamp

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    County: Dolj

    Legal entity: S.C. Alfa S.R.L. Type of ownership: Private 35

    Address: Florilor Street, no. 25, Oras Main activity (CAEN group name):

    Phone: 0235 123 456; Fax: 0235 123 457 Construction of industrial equipment

    Company register no.: J16/3456/1991 CAEN Group Code: 3456Country: Romania Fiscal Code: R 1 2 3 4 5 6 7

    STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITYfor the year ended 31 December 2003

    (Free translation from Romanian)

    Balance Additions Disposals Balance at

    at 1 January 31 December

    Thousand ROL Total, out Transfers Total, out Transfers

    of which: of which:

    Share capital 296,892,431 - - - - 296,892,431

    Revaluation reserve 95,957,454 35,983,409 - 9,146,370 - 122,794,493

    Legal reserve 2,572,838 3,453,850 - - - 6,026,688

    Other reserves 3,447,886 - - - 3,447,886

    Retained earnings (78,542,202) (209,131,094) (209,131,094) - - (287,673,296)

    Retained earnings from

    first applications of

    IAS less IAS 29 (154,178,274) - - - - (154,178,274)

    Profit/ (Loss) for the

    year (209,131,094) 69,076,992 - (205,677,244) (205,677,244) 65,623,142

    Total shareholders'equity (42,980,961) (100,616,843) (209,131,094) (196,530,874) (205,677,244) 52,933,070

    ADMINISTRATOR, PREPARED BY,

    Full name Full name

    Signature Signature

    Companys stamp

    12 I l l u s t r a t i v e F i n a n c i a l S t a t e m e n t s

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    County: Dolj

    Legal entity: S.C. Alfa S.R.L. Type of ownership: Private 35

    Address: Florilor Street, no. 25, Oras Main activity (CAEN group name):

    Phone: 0235 123 456; Fax: 0235 123 457 Construction of industrial equipment

    Company register no.: J16/3456/1991 CAEN Group Code: 3456

    Country: Romania Fiscal Code: R 1 2 3 4 5 6 7

    STATEMENT OF CASH FLOWSfor the year ended 31 December 2003

    Free translation from Romanian

    Thousand ROL 2002 2003

    OPERATING ACTIVITIES

    Net profit (loss) before taxation

    and extraordinary items (209,131,094) 69,076,992

    Adjustments for:

    Increase of provisions for risks and charges - 5,385,821

    Depreciation and amortization 11,698,027 13,338,440

    Net value of disposals of fixed assets (77,702) (2,734,789)

    Revenue from interest (987,072) (440,750)

    Interest expense 4,467,901 1,786,195

    Operating profit before working capital changes (194,029,940) 86,411,909

    Increase in short term payables 356,537,003 193,668,888

    Increase in trade and other receivables (7,742,449) (252,919,328)

    (Increase)/ Decrease in inventories (83,549,067) 8,167,133

    Cash generated from operations 71,215,547 35,328,602

    Interest paid (4,582,013) (1,786,195)

    Income tax received 669,749 -

    CASH GENERATED BY OPERATING ACTIVITIES 67,303,283 33,542,407

    INVESTING ACTIVITIES

    Purchase of property, plant and equipment (7,315,923) (22,508,454)

    Proceeds from sale of property,

    plant and equipment 2,896,949 15,716,898

    Interest received 987,072 440,750

    CASH FLOW FROM INVESTING ACTIVITIES (3,431,902) (6,350,806)

    13 I l l u s t r a t i v e F i n a n c i a l S t a t e m e n t s

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    FINANCING ACTIVITIES

    Proceeds from issuance of share capital - 96,698,880

    Payment of finance lease liabilities - (551,106)

    Repayment of borrowings (62,080,976) (21,382,999)

    Proceeds from long-term borrowings 88,783 30,118,957

    NET CASH FROM FINANCING ACTIVITIES (61,992,193) 104,883,732

    Net increase in cash and cash equivalents 1,879,188 132,075,333

    Cash and cash equivalents at 1 January 13,105,085 14,984,273

    Cash and cash equivalents at 31 December 14,984,273 147,059,606

    ADMINISTRATOR, PREPARED BY,

    Full name Full nameSignature Signature

    Companys stamp

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    15 I l l u s t r a t i v e F i n a n c i a l S t a t e m e n t sE

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    PL ENote 1. Non-current assets

    Movements in the gross book value, depreciation

    and net book value during financial year ended 31

    1.1 Intangible assets

    Cost

    Thousand ROL 31 December 2002 Additions Disposals 31 December 2003

    Set up and development costs 21,472 - 10,379 11,093

    Other intangibles (licenses) 1,708,174 - 1,150,592 557,582

    Total 1,729,646 - 1,160,971 568,675

    Accumulated amortization

    Thousand ROL 31 December Amortization Accumulated 31 December2002 charge for the amortization of 2003

    year disposals

    Set up and development costs 8,846 9,853 10,379 8,320

    Other intangibles (licenses) 951,845 480,963 1,150,592 282,216

    Total 960,691 490,816 1,160,971 290,536

    Net book value 768,955 278,139

    December 2003 for each group of intangible assets

    is detailed below:

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    1.2 Tangible assets

    Cost or valuation

    Thousand ROL 31 December 2002 Acquisitions Disposals 31 December 2003

    Freehold land 172,059,013 - 200 172,058,813

    Buildings 394,009,392 254,994,827 2,208,723 646,795,496

    Plant, machinery and motor

    vehicles 53,164,643 9,749,793 2,922,541 59,991,895

    Fixtures and fittings 387,989 212,360 81,420 518,929

    Fixed assets in progress 353,169 11,488,717 9,795,669 2,046,217

    Advances to fixed assets suppliers 62,324 2,027,421 1,728,647 361,098

    Total 620,036,530 278,473,118 16,737,200 881,772,448

    Accumulated depreciation

    Thousand ROL 31 December Depreciation Accumulated 31 December

    2002 charge for the depreciation of 2003

    year* disposals

    Buildings 91,826,065 236,677,223 1,366,720 327,136,568

    Plant and machinery and motor

    vehicles 21,732,866 4,065,269 2,004,422 23,793,713

    Impairment provision 5,696,212 1,044,621 313,129 6,427,704

    Fixtures and fittings 171,789 62,934 70,820 163,903

    Total 119,426,932 241,850,047 3,755,091 357,521,888

    Net book value 500,609,598 524,250,560

    * Depreciation charge for the year includes the differences from revaluation.

    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.

    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

    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.

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    1.3 Financia l assets

    Thousand ROL 31 December 2002 31 December 2003

    Investment in subsidiary 1,000,000 1,000,000

    Other investments 151,056 25,854

    Total 1,151,056 1,025,854

    Thousand ROL 31 December Movements 31 December

    2002 2003

    Increase Decrease

    Provision for litigation and claims - 1,440,964 - 1,440,964

    Provision for warranties granted

    to customers 7,706,196 8,300,618 4,355,761 11,651,053

    Total 7,706,196 9,741,582 4,355,761 13,092,017

    Note 2. Provision for risks and charges

    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)

    The Company is in litigation with S.C. Activitatea S.A.

    for the service performed by S.C. Alfa S.R.L.

    S.C. Activitatea S.A. claims penalties for non-compliance

    with their deadline in the amount of 1,440,964 thousand

    ROL.

    The warranty provision represents the best estimate of

    the Company's liability under the 12 months warranty

    granted, based on prior experience.

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    Note 3. Profit appropriation

    For the year ended 31 December 2003 the Company has

    recorded a net profit of ROL 69,076,992 thousands,

    distributed as follows:

    E

    X A

    M

    PL E

    Thousand ROL 2003

    Legal reserves 3,453,850

    Reserves related to fiscal incentives 13,815,398

    Partial recovery of loss recorded in previous years 47,663,124

    Profit carried forward 4,144,620

    Total 69,076,992

    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.

    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.

    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.

    Note 4. Analysis of operating result

    Thousand ROL 2002 2003

    1. Net turnover 279,533,981 690,107,045

    2. Cost of sales (3+4+5) 230,013,027 412,437,379

    3. Operating expenses 132,182,745 297,342,931

    4. Auxiliary expenses 18,386,805 21,631,534

    5. Indirect expenses 79,443,477 93,462,914

    6. Gross profit (1-2) 49,520,954 277,669,666

    7. Distribution expenses - -

    8. Administrative expenses 189,936,244 159,353,834

    9. Other operating revenues 3,894,396 4,581,642

    10. Operating result (6-7-8+9) (136,520,894) 122,897,474

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    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.

    Note 5. Trade receivables and payables

    5.1 Trade receivables

    Thousand ROL 31 December 31 December Due term

    2002 2003 less than one more than one

    year year

    Trade receivables 27,588,059 194,502,919 194,502,919 -

    Allowance for trade receivables (8,957,335) (8,911,928) (8,911,928)

    Other receivables 8,081,269 29,969,849 29,969,849 -

    Total 26,711,993 215,560,840 215,560,840 -

    5.2 Trade payables

    Thousand ROL 31 December 31 December Due term

    2002 2003 less than one more than one

    year year

    Liabilities to credit institutions 21,382,999 30,118,957 30,118,957 -

    Advance payments from clients 157,638,838 93,334,151 93,334,151 -

    Trade payables 73,806,714 114,779,774 114,779,774 -

    Other payables 394,493,682 740,325,877 740,325,877 -

    Total 647,322,233 978,558,759 978,558,759 -

    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

    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.

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    The item "Other liabilities" comprise the following

    elements:

    E

    X A

    M

    PL E

    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).

    Thousand ROL 31 December 31 December Due term

    2002 2003 less than one more than oneyear year

    Personnel related payables 4,638,785 6,383,495 6,383,495 -

    Amounts payable to state budget 183,476,314 295,488,104 295,488,104 -

    Dividends payable from 2002 3,716,233 3,520,717 3,520,717 -

    Sundry creditors 3,338,588 5,004,171 5,004,171 -

    Other liabilities 199,323,762 331,983,416 331,983,416 -

    Contribution to share capital - 96,698,880 96,698,880 -

    Payables leasing - 1,247,094 1,247,094

    Total 394,493,682 740,325,877 740,325,877 -

    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;

    First rank pledge for an amount of USD 1,266,111

    over the Company's receivables, in accordance with

    the pledge contract.

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    A. Accounting principles

    The financial statements for the year ended 31 December2003 have been prepared in accordance with the follow-

    ing accounting principles:

    Going concern principle - it is assumed that the Compa-

    ny normally continues its operation in the foreseeable

    future without entering into liquidation or significantly

    reducing its activity.

    Consistency principle - leads to the continuity in the

    application of the rules and regulations regarding the

    assessment, accounting and presentation of the owner-

    ship elements and of the results, thus ensuring the time

    comparability of the accounting information.

    Prudence principle - adjustments have been proposed for

    depreciation in an asset's value as well as for probable

    liabilities and potential losses that come from the current

    financial year or from a prior financial year.

    Matching principle - all income and charges relating to

    the financial year have been considered, no matter of the

    date of receipt or payment.

    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 finan-

    cial year must correspond to the closing balance sheet of

    the previous financial year, except for certain reclassifi-

    cations 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 expen-

    diture, except for the netting off between assets and lia-

    bilities approved by OMFP 94/2001.

    Substance over form - The information presented in the

    financial statements should reflect the economic sub-

    stance of events and transactions and not only their legal

    form.

    Materiality - Each significant item should be presentedseparately in the financial statements.

    B. Significant accounting policies

    (a) Basis of preparation

    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 Euro-

    pean Committee Fourth Directive and with the Interna-

    tional 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 Inter-

    national 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.

    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 pre-

    vious years were prepared and issued in accordance with

    the Romanian accounting rules provided in Law 82/1991.

    The Company did not show comparative financial state-

    ments 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 stat-

    ed 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 6. Significant accounting principlesand policies

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    [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 meas-

    urement currency, as defined by SIC 19 "Reporting Cur-

    rency-Measurement and Presentation of Financial State-

    ments 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 cur-

    rency of the Company is USD/EUR, the financial state-

    ments 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 ofthe transaction, according to International Accounting

    Standard "The Effects of Changes in Foreign Exchange

    Rates" (IAS 21).

    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".

    (d) Foreign currency transactions

    Foreign currency transactions are presented at the for-

    eign 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.

    (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

    impairment losses (refer to accounting policy (k)). The

    cost of self-constructed assets includes the cost of mate-

    rials, direct labor and an appropriate proportion of pro-

    duction 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.

    ii) Leased Assets

    Leases in terms of which the Company assumes sub-

    stantially all the risks and rewards of ownership are clas-

    sified 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 short-

    er 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 includ-

    ed in the profit and loss account when incurred. Expens-

    es perfomed towards improvement of technical perform-

    ance are capitalised and depreciated over the remainingperiod 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 com-

    ponents that are accounted for separately.

    Estimated useful lives are as follows:

    Buildings 40 years

    Plant and equipment 5-12 years

    Vehicles 5 years

    Fixtures and fittings 5-10 years

    Land and fixed assets under construction are not depre-

    ciated.

    (f) Intangible assets

    i) Intangible assets that are acquired by the Company arestated 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

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    straight-line basis over the estimated useful lives of intan-

    gible assets.

    The most significant part of the intangible assets record-

    ed by the Company comprise software. Software is

    depreciated using the straight-line method over the esti-

    mated 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 realis-

    able value. Net realisable value is the estimated selling

    price in the ordinary course of business, less the esti-

    mated 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

    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 cash-

    generating unit exceeds its recoverable amount. Impair-

    ment losses are recognized in the income statement or in

    equity [if the case].

    i) Calculation of recoverable amount

    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, dis-

    counted at the original effective interest rate correspon-

    ding to these assets. Receivables with a short duration

    are not discounted.

    ii) Reversals of impairment

    An impairment loss in respect of a held-to-maturity

    receivable is reversed if the subsequent increase in recov-

    erable 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 deter-

    mine 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 depre-

    ciation 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 state-

    ment 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

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    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 obliga-

    tions for each accounting period.

    Operating lease rentals are charged to the profit and

    loss account on a straight-line basis over the period ofthe lease. Lease rentals discounts granted are recog-

    nised 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 eco-

    nomic 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

    A provision for warranties is recognized when the under-

    lying products or services are sold. The provision is based

    on historical warranty data and a weighting of all possi-

    ble 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 prin-

    cipal of separate financial statements is followed in order

    to recognise these elements.

    The interest expense component of finance lease pay-

    ments 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

    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 taxationpurposes. 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 prob-

    able 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 signifi-

    cantly 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 mat-

    ters 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 com-

    puted 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]

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    Certain items from the 2002 financial statements have

    been reclassified to conform to the 2003 financial state-

    ments presentation.

    (w) Pensions and other post retirement benefits

    During its normal activity, the Company pays to the statetaxes due for its employees. All Company's employees

    are members of the Romanian Pensions Fund.

    The Company's policy does not include any other pen-

    sions scheme or any plan of supplementary benefits after

    retiring, consequently, it has no other obligations regard-

    ing the pensions system.

    In addition, the Company has no obligation in granting

    any other benefits to its employees at the retirement

    date.

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    Note 7. Share capital

    During 2003, the average number of employees was

    2,659 (in 2002: 2,751). The functional structure of

    of Directors' members were:

    E

    X A

    M

    PL E

    At 31 December 2003, the authorized share capital is

    ROL 296,892,431 thousand comprised of 11,875,697

    ordinary shares, having a par value of ROL 25,000. All

    issued shares are fully paid. The shareholder's structure

    as at 31 December 2003 is as follows:

    Thousand ROL % No of shares Share capital

    Beta S.A. 82.93 9,847,250 246,181,256

    Company M 6.62 786,541 19,663,515

    Company T 2.38 282,963 7,074,075

    Other shareholders 8.07 958,943 23,973,585

    Total 100 11,875,697 296,892,431

    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.

    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.

    Note 8. Information regardingemployees, administrators and directorspersonnel is as follows:

    Category Number

    Managers 9

    Workers 2,089

    Production Technicians 479

    Administration 68

    IT 14

    Total 2,659

    The Company is managed by the Board of Directors,

    which has 3 members. At 31 December 2003, the Board

    Name Position

    Florian Popescu General manager

    Gheorghe Mincu Member

    Nicoleta Vornicu Member

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    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:

    E

    X A

    M

    PL E

    The management's wages represent 4% from the total

    salary expenses in 2003.

    Name Position

    Eng. Florian Popescu General Director

    Eng. Claudiu Postelnicu Technical Director

    Eng. Adrian Popovici Production Director

    Eng. Vlad Solomon Marketing Director

    Eng. Marius Grigore Quality Director

    Eng. Alina Oprea Logistics Director

    Ec. Mariana Calin Finance Director

    Eng. Elena Ionescu Human Resources Director

    Law. Cristian Tudor Legal Director

    The Company's payroll expenses in 2003 were:

    Thousand ROL 2003

    Employees - salaries payable 171,736,969

    Company's contribution to social security 43,824,046

    Company's contribution to unemployment fund 8,597,562

    Company's contribution to health fund 12,090,280

    Company's contribution to support fund for disabled persons 3,415,767

    Total 239,664,624

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    28 I l l u s t r a t i v e F i n a n c i a l S t a t e m e n t s

    Note 9. Performance measurement

    Thousand ROL

    2002 2003

    I. Liquidity ratios

    Current ratio

    Current assets (A) 206,124,374 518,881,421

    Current liabilities (B) 647,322,233 978,558,759

    A/B - number of times 0.32 0.53

    Quick ratio (acid test)

    Current assets (A) 206,124,374 518,881,421

    Inventories (B) 164,428,108 156,260,975

    Current liabilities (C) 647,322,233 978,558,759

    (A-B)/C - number of times 0.06 0.37

    II. Risk ratios

    Degree of indebtness ratio

    Borrowed capital (A) 96,791,621 -

    Equity (B) (42,980,961) 52,933,070

    A/B (if negative, N/A) N/A -

    Interest cover ratio

    Profit before interest and tax (A) (204,652,078) 70,863,187

    Interest expense (B) 4,467,901 1,786,195

    A/B - number of times (if negative, N/A) N/A 39.67

    III. Efficiency ratios

    Inventory turnover

    Inventory (A) 164,428,108 156,260,975

    Cost of sales (B) 115,387,406 119,940,122

    (A/B)*365 - number of days 520 476

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    X A

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    Thousand ROL

    2002 2003

    Accounts receivable turnover

    Trade receivables (A) 18,630,724 185,895,768

    Net turnover (B) 279,533,981 690,107,045

    (A/B)*365 - number of days 24 98

    Accounts payable turnover

    Trade payables (A) 73,806,714 114,779,774

    Net turnover (B) 279,533,981 690,107,045

    (A/B)*365 - number of days 96 61

    Non-current assets turnover

    Net turnover (A) 279,533,981 690,107,045

    Non-current assets (B) 502,529,609 525,554,553

    (A/B) - number of times 0.56 1.31

    Asset turnover

    Net turnover (A) 279,533,981 690,107,045

    Total assets (B) 709,036,061 1,044,583,846

    (A/B) - number of times 0.39 0.66

    IV. Profitability ratios

    Gearing ratio

    Profit before interest and tax (A) (204,652,078) 70,863,187

    Total assets less current liabilities (B) 61,516,856 66,025,087

    (A/B) (if negative, N/A) - 1.07

    Gross profit margin

    Gross profit from sales (A) 49,520,954 277,669,666

    Net turnover (B) 279,533,981 690,107,045

    (A/B) 18% 40%

    V. Earning per share ratios

    Earning per share

    Net result atributable to ordinary shareholders (A) (209,131,094) 69,076,992

    Number of outstanding ordinary shares (B) 11,875,697 11,875,697

    (A/B) - Thousand ROL (17.6) 5.82

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    Note 10. Other Information10.1 The Company

    S.C. Alfa S.R.L. was set up in 1991 in accordance with

    Law no.15/1990, Law no. 31/1990 and Law

    no.1224/1990, under the registration no.

    J16/3456/1991.

    [The following comments are to be tailored by the Com-

    pany 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 thecurrent assets, respectively by current assets less inven-

    tory. 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 cur-

    rent liabilities.

    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 com-

    pany is considered to be. For 2002, the analysis of the

    indicator is not relevant, as the indicator has a negative

    value.

    III. Efficiency ratios

    Inventory turnover indicates the number of days goods

    are held by the company.

    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 turnoverindicates the number of cred-it 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 turnoverevaluates the efficiency in managing the

    total assets by examining the value of the turnover gen-

    erated by the companys assets.

    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.

    V. Earnings per share ratios

    Earnings per share ratio was ROL 5,820 per share in2003, and in 2002 the company recorded losses of ROL

    17,610 per share.

    The Company's headquarters is located in Oras, Florilor

    Street no. 25.

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    10.2 Related Parties

    The Company carried on commercial transactions in

    2002 and 2003 with the following related parties:

    The Company owns 100% shares of S.C. ABC S.R.L.,

    E

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    The most important foreign clients are the German

    company Foreign Business AG and the Swedish Business

    Company from Sweden.

    10.3 Income Tax

    At 31 December 2003, the deferred tax - asset has been

    computed based on Company's accumulated fiscal

    losses, which can be carried forward, and based on the

    temporary differences between the accounting and the

    fiscal base for the items detailed in note 15.

    As the realisation of this asset is not probable, the

    deferred tax computed as mentioned above has not been

    recorded in the financial statements.

    Total net fiscal losses amount to ROL 185,719,892

    thousand as follows:

    - Year 2001 ROL 12,215,922 thousand - Loss

    - Year 2002 ROL 173,503,970 thousand - Loss

    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:

    Company Country of origin Address

    S.C. Eficienta S.R.L. Romania Oras, Ardeziei Street, no. 137

    S.C. Contractul S.R.L. Romania Oras, Victoriei Street, no. 20

    1. accounting profit for the year ROL 69,076,992 thousand

    2. non taxable revenues ROL 61,077,251 thousand

    3. total non deductible expenses ROL 67,077,251 thousand

    4. fiscal profit (row1-row2+row3) ROL 75,076,992 thousand

    5. recoverable fiscal loss from previous years ROL (260,796,884) thousand

    6. accumulated fiscal loss (row4+row5) ROL (185,719,892) thousand

    7. tax on profit 25 % ROL 0 thousand

    10.4 Details on turnover

    The turnover for 2003 is ROL 690,107,045 thousand out

    of which 95.8% relates to exports and 4.2% relates to

    domestic market.

    based in Romania, Str. Nova, nr 3, Bucharest.

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    32 I l l u s t r a t i v e F i n a n c i a l S t a t e m e n t s

    and is stated in the service contract signed by the

    company and by Audit S.R.L.

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    10.5 The amount of future payments for rent and operating

    lease contracts.

    Rent

    Thousand ROL Instalments to be paid at Instalments to be paid at

    31 December 2002 31 December 2003

    Less than 1 year 3,325,623 3,831,413

    Between 1 and 5 years 6,964,497 8,275,837

    More than 5 year - -

    Total 10,290,120 12,107,250

    Operating leasing

    Thousand ROL Instalments to be paid at Instalments to be paid at

    31 December 2002 31 December 2003

    Less than 1 year 1,421,450 1,421,450

    Between 1 and 5 years 1,097,965 1,729,850

    More than 5 year - -

    Total 2,519,415 3,151,300

    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

    10.7 Security granted

    a) Letters of guarantee (collateral cash)

    Contract no. Beneficiary EUR544 Foreign Business AG 69,025

    545 Foreign Business AG 69,025

    553 Foreign Business AG 30,677

    555 Foreign Business AG 107,371

    Total 276,098

    Contract no. Beneficiary EUR

    566 Swedish Business 60,000

    Total 60,000

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    33 I l l u s t r a t i v e F i n a n c i a l S t a t e m e n t s

    Note 11. Inventory

    b) Letters of guarantee in the favor of Customs Security

    Bureau Constanta (collateral cash)

    booked a provision for work in progress amounting to

    ROL 26,895,398 thousand.

    10.8 Pledges received

    There were no letters of guarantee issued in the

    Company's favor.

    E

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    Thousand ROL 31 December 2002 31 December 2003

    Raw materials 12,516,187 25,253,066

    Provisions for raw materials (172,565) (1,115,892)

    Consumables 4,466,108 7,535,193

    Provisions for consumables (311,922) (784,817)

    Small inventory 250,941 1,074,262

    Work in progress 162,308,928 150,850,786

    Provisions for work in progress (35,031,767) (26,895,398)

    Semi-finished goods, finished

    goods, residual products 193 12

    Inventory held by third parties 1,974,742 164,099

    Goods for resale and packaging

    materials 177,689 170,452Advances for inventory purchase 18,249,574 9,212

    Total 164,428,108 156,260,975

    The recoverability of the debt related to Utility

    International litigation was evaluated by the management

    of the Company as doubtful and the Company has

    Beneficiary Value ROL

    Duane 600,000,000

    Duane 600,000,000

    Total 1,200,000,000

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    34 I l l u s t r a t i v e F i n a n c i a l S t a t e m e n t s

    Note 12. Cash and cash equivalents

    Note 13. Lease obligation

    Financial leases as at 31 December 2003 are as

    follows:

    related parties are as follows:

    E

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    Thousand ROL 31 December 2002 31 December 2003

    Cash at bank 14,899,201 146,978,987

    Petty cash 5,434 6,320

    Other cash and cash equivalents 79,638 74,299

    Total 14,984,273 147,059,606

    Thousand ROL 31 December 31 December 31 December 31 December

    2002 2003 2003 2003

    Period Payments Interest Principal

    Less than one year - 1,371,803 124,709 1,247,094

    Between one year and five years - - - -More than five years - - - -

    Total - 1,371,803 124,709 1,247,094

    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.

    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

    Note 14. Related parties14.1 Balances as at 31 December 2003

    Thousand ROL 31 December 2002 31 December 2003

    Receivables from related parties

    S.C. Eficienta S.R.L. 2,790,676 3,637,973

    S.C. Contractul S.R.L. 1,741,780 1,771,443

    Total 4,532,456 5,409,416

    As at 31 December 2003, the amounts receivable from

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    Thousand ROL 31 December 2002 31 December 2003

    Payables to related partiesTrade Suppliers (related parties)

    S.C. Eficienta S.R.L. 20,137,624 35,476,432

    S.C. Contractul S.R.L. 20,893,299 14,993,841

    Suppliers of fixed assets (related parties)

    S.C. Contractul S.R.L. - 10,250,670

    Total 41,030,923 60,720,943

    14.2 Transactions with related parties

    14.2.1 Purchases

    Thousand ROL 2002 2003

    Fixed assets purchases

    S.C. Contractul S.R.L. 10,191,496 10,250,670

    Total 10,191,496 10,250,670

    Thousand ROL 2002 2003

    Raw material purchases

    S.C. Eficienta S.R.L. 32,135,754 45,908,220

    S.C. Contractul S.R.L. 31,410,773 44,535,236

    Total 63,546,527 90,443,456

    Thousand ROL 2002 2003

    Purchases of consumables

    S.C. Eficienta S.R.L. 559,301 654,003

    Total 559,301 654,003

    As at 31 December 2003, the balances payable to

    related parties are as follows:

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    36 I l l u s t r a t i v e F i n a n c i a l S t a t e m e n t s

    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,

    E

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    14.2.2 Sales

    Thousand ROL 2002 2003

    Sales of merchandise

    S.C. Eficienta S.R.L. 2,060,952 2,265,374

    Total 2,060,952 2,265,374

    Note 15. Deferred tax

    Thousand ROL 31 December 2003

    Property, plant and equipment 1,013,129

    Intangible assets 506,565

    Investment property -

    Other investments 593,948

    Inventories 848,497

    Interest-bearing loans and borrowings -

    Employee benefits 254,549

    Deferred government grants 151,964

    Provisions -

    Other items 1,696,994

    Tax value of loss carried forward -

    Total 5,065,646

    Alfa S.A. is involved in the following litigations:

    Litigation with Alfa Standard Corporation for the

    recovery of the amount of USD 325,000 relating to

    services rendered. As the debt under litigation is covered

    by a letter of guarantee issued by Corporation Bank in

    favour of Alfa S.A., the Company did not provide for this

    amount. Alfa Standard Corporation required additionalpenalties amounting to USD 162,000 for not meeting the

    deadline of the repayments, but lawyers estimate the

    probability of loosing the law suit as being low.

    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.

    Note 16. Contingent liabilities

    representing temporary differences between their fiscal

    base and their accounting base, and by the fiscal loss

    brought forward (refer to note 10.3).

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    X A

    M

    PL E

    Shareholder % Number of shares Value of capital

    (thousand ROL)

    Beta S.A. 87.11 13,710,021 342,750,525

    Company M 5.00 786,541 19,663,515

    Company T. 1.80 282,963 7,074,075

    Other shareholders 6.09 958,943 23,973,585

    Total 100 15,738,468 393,461,700

    Note 17. Environment

    Romania is currently undergoing a process of accelerated

    harmonization of the environmental regulations with the

    European Union legislation in force. As of 31 December

    2003, the Company does not consider the costs related

    to environment issues to be significant, consequently it

    did not record any liability relating to anticipated costs,

    including legal and consultancy fees, research,

    development and implementation of projects concerning

    the protection of the environment.

    Note 18. Subsequent events

    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 ofROL 25,000. As the other shareholders did not take their

    preemptive right, the amount was subscribed and paid in

    entirely by Beta S.A.

    The share capital increase was recorded at the Trade

    Register on 30 March 2004. The structure of theshareholders of the Company after the share capital

    increase is as follows:

    Note 19. Risk Management

    The main risks that the Company may face and the

    measures applicable are detailed below.

    (i) Foreign currency risk and inflation

    The Company carries on its activity in Romania, in a

    hyperinflation environment. As a result there is a risk of

    net monetary assets (denominated in ROL) devaluation.

    At present, there are no markets outside Romania for

    ROL conversion in other currencies.

    The inflation rate decreased constantly from 54.8% in

    1999 to 17.8% in 2002 (2000:40.7%, 2001: 34.5%).

    The local currency has suffered a steady devaluation

    compared to EURO (the ROL-EURO exchange rate was

    41,113 at 31 December 2003 compared to 34,919 at 31

    December 2002).

    (ii) Market risk

    The Romanian Economy is in transition, and there exists

    uncertainty regarding the future evolution of the political

    and economic development. The management cannot

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    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.

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    X A

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    PL EADDITIONAL DATA (not part of the financial statements)

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    ADMINISTRATOR,

    Name and surname ______________________

    Signature _______________________________

    Companys stamp

    PREPARED BY,

    Name and surname ______________________

    Signature _______________________________

    Companys stamp

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    X A

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    PREPARED

    BY

    ,

    Namean

    dsurnam

    e______________________

    Signature

    _______________________________

    Company

    sstamp

    ADMINISTRATOR

    ,

    Namean

    dsurname

    ______________________

    Signature

    ____

    ___________________________

    Company

    sstamp

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    X A

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    A

    DMINISTRATOR

    ,

    Namean

    dsurna

    me

    ______________________

    Signature

    ______

    _________________________

    Company

    sstam

    p

    PR

    EPARED

    BY

    ,

    Namean

    dsurname

    ______________________

    Signature

    _______________________________

    Company

    sstamp

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    X A

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    A

    DMINISTRATOR

    ,

    Namean

    dsurna

    me

    ______________________

    Signature

    ______

    _________________________

    Company

    sstam

    p

    PR

    EPARED

    BY

    ,

    Namean

    dsurname

    ______________________

    Signature

    _______________________________

    Company

    sstamp

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    44 I l l u s t r a t i v e F i n a n c i a l S t a t e m e n t s

    For further information, please contact:

    KPMG Romania

    BucharestCalea Serban Voda, 133Sector 4Tel: +40 (21) 336 22 66

    Fax: +40 (21) 336 11 77

    TimisoaraStr. Victor Babes nr. 17Timisoara, cod 300 595Tel: 0256 499 055 Fax: 0256 499 361

    E-mail: [email protected] site: www.kpmg.ro

    Contacts

    Victor Kevehazi, Senior [email protected]

    Bill Bowman, [email protected]

    John Lane, [email protected]

    Serban Toader, [email protected]

    Aura Giurcaneanu, Senior [email protected]

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