Tofaş Türk Otomobil Fabrikası Anonim Şirketi - PDF

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CONVENIENCE TRANSLATION OF FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH - SEE NOTE 47 TO THE FINANCIAL STATEMENTS Tofaş Türk Otomobil Fabrikası Anonim Şirketi Consolidated Financial Statements As

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CONVENIENCE TRANSLATION OF FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH - SEE NOTE 47 TO THE FINANCIAL STATEMENTS Tofaş Türk Otomobil Fabrikası Anonim Şirketi Consolidated Financial Statements As of Together with Independent Auditor s Report (Convenience Translation of Financial Statements Originally Issued in Turkish - See Note 47 to the Financial Statements) TABLE OF CONTENTS Pages Independent Auditor s Report 1-2 Consolidated Balance Sheet 3-4 Consolidated Income Statement 5 Notes to the Consolidated Financial Statements 6-44 (Convenience Translation of Report Originally Issued in Turkish - See additional paragraph below for convenience translation) INDEPENDENT AUDITOR'S REPORT To the Board of Directors of : We have audited the accompanying financial statements of (the Company) and its subsidiaries (together will be referred to as the Group ) which comprise the consolidated balance sheet as of and the related consolidated income statement for the year then ended and a summary of significant accounting policies and other explanatory notes. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Financial Reporting Standards published by Capital Market Board in Turkey. This responsibility includes; designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor's Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with standards on auditing issued by Capital Market Board. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of and its subsidiaries as of and its consolidated financial performance for the year then ended in accordance with Financial Reporting Standards published by Capital Market Board (Note 2) in Turkey. Other Matter Without qualifying our opinion, we would like to draw attention to the following matter: As disclosed in Note 9 to the accompanying consolidated financial statements, major portion of the Company s sales and purchases are conducted through its related parties. Additional paragraph for convenience translation to English: The effect of the differences between the accounting principles summarized in Note 2 and the accounting principles generally accepted in countries in which the financial statements are to be distributed and International Financial Reporting Standards (IFRS) have not been quantified and reflected in the accompanying financial statements. The differences with IFRS mainly related to the application of inflation accounting which was ceased one year later in IFRS, and the presentation of the basic financial statements and the notes to them. Accordingly, the financial statements are not intended to present the Group s financial position and results of its operations in accordance with accounting principles generally accepted in such countries of users of the financial statements and IFRS. Güney Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik Anonim Şirketi An Affiliated Firm of Ernst & Young International Erdem Tecer, SMMM Engagement Partner March 26, 2008 İstanbul, Turkey (2) CONSOLIDATED BALANCE SHEET As of ASSETS Notes Current Year (Audited) Prior Year (Audited) Current Assets Cash and cash equivalents Investment securities Trade receivables from third parties (net) Financial lease receivables Trade receivables from related parties (net) Other receivables (net) Biological assets (net) Inventories (net) Receivables from construction projects in progress (net) Deferred tax asset Other current assets Non-current Assets Trade receivables from third parties (net) Financial lease receivables Trade receivables from related parties (net) Other receivables (net) Available for sale financial assets (net) Positive/negative goodwill (net) Investment properties (net) Property, plant and equipment (net) Intangibles (net) Deferred tax asset Other non-current assets Total Assets The accompanying policies and explanatory notes on pages 6 through 44 form and integral part of the consolidated financial statements. (3) CONSOLIDATED BALANCE SHEET As of LIABILITIES Notes Current Year (Audited) Prior Year (Audited) Current Liabilities Short-term bank borrowings (net) Current portion of long-term bank borrowings (net) Short-term financial lease payables (net) Other financial liabilities (net) Trade payables to third parties (net) Trade payables to related parties (net) Advances taken Progress billings amounts of construction in progress (net) Provisions Deferred tax liability Other current liabilities (net) Non-current Liabilities Long-term bank borrowings (net) Long-term financial lease payables (net) Other financial liabilities (net) Trade payables to third parties (net) Trade payables to related parties (net) Advances taken Provisions Deferred tax liability Other current liabilities (net) Minority interest Shareholders Equity Paid-in share capital Adjustments to share capital and equity instruments Capital reserves Share premium - - Gain on cancellation of shares - - Revaluation fund - - Revaluation surplus of financial assets Inflation adjustment on equity items Profit reserves 27, Legal reserves - - Statutory reserves Extraordinary reserves Special funds - - Gain on sale of fixed assets and financial assets subject to share capital increase - - Foreign currency translation adjustment - - Cumulative gain on the hedging Net income for the period Transfer from net income for the period of gain on sale of fixed asset to share capital 26, Retained earnings 27, Total Liabilities and Shareholders Equity The accompanying policies and explanatory notes on pages 6 through 44 form and integral part of the consolidated financial statements. (4) CONSOLIDATED INCOME STATEMENT For the year ended Currency Thousands of New Turkish Liras (YTL)) Notes Current Year (Audited) January 1- Prior Year (Audited) January 1- Operational Income Net sales Cost of sales (-) 36 ( ) ( ) Service income (net) Other income from operational activities (net) Gross Operational Profit Operating expenses (-) 37 ( ) ( ) Net Operational Profit Other operating income Other operating expense (-) 38 (2.116) (4.158) Financial income / (expense), net Operating Profit Net monetary gain Minority interest Net Income Before Provision for Taxes Taxation 41 (37.896) (96.731) Net Income Weighted average number of shares (thousand shares with 1 Yeni Kuruş each) Earnings per share (Yeni Kuruş) 42 0,35 0,16 The accompanying policies and explanatory notes on pages 6 through 44 form and integral part of the consolidated financial statements. (5) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 1. CORPORATE INFORMATION Tofaş Türk Otomobil Fabrikası A.Ş. (a Turkish corporation, the Company - Tofaş) was established in 1968 as a Turkish-Italian cooperation venture. The core business of the Company is manufacturing, exporting and selling passenger cars and light commercial vehicles under licenses of Fiat Auto S.p.A. (Fiat). The Company, which is a member of Koç Holding A.Ş. (Koç Holding) and Fiat, also produces various automotive spare parts used in its automobiles. The Company s head office is located at Büyükdere Cad. No: 145 Zincirlikuyu Şişli, İstanbul. The manufacturing facilities are located at Bursa. The Company manufactures its cars pursuant to license agreements between the Company and Fiat. These license agreements prohibit the Company from assembling, producing, importing or selling any car other than Fiat cars. However, the Company has started to produce and sell Mini Cargo vehicles as of October, whose intellectual and industrial property rights belong to itself. The Company has been registered with the Turkish Capital Market Board (CMB) and quoted on the İstanbul Stock Exchange (ISE) since The Company conducts a significant portion of its business with affiliates of Koç Holding and Fiat Group (see Note 9). As of and, consolidated subsidiaries of the Company are as follows: Name of the Company Operating Area Percentage of Ownership Koç Fiat Kredi Tüketici Finansmanı A.Ş. (KFK) Consumer financing 99,9% 99,9% Mekatro Araştırma Geliştirme A.Ş. Research and development 97,0% 97,0% Platform Araştırma Geliştirme Tasarım ve Ticaret A.Ş. (Platform) Research and development 99,0% 99,0% Fer Mas Oto Ticaret A.Ş Trading of automobile and spare parts 99,4% 99,4% For the purpose of the consolidated financial statements, the Company and its consolidated subsidiaries are referred to as the Group . The average number of personnel in accordance with their categories is as follows: Blue-collar White-collar Total number of personnel (6) As of 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Preparation The financial statements of the Group have been prepared in accordance with accounting and reporting standards (CMB Accounting Standards) as prescribed by Turkish Capital Market Board (CMB). CMB has issued communiqué no. XI-25 Communique on Accounting Standards in Capital Markets which sets out a comprehensive set of accounting principles. In this Communique, CMB stated that alternatively application of accounting standards prescribed by the International Accounting Standards Board (IASB) and International Accounting Standards Committee (IASC) will also be considered to be compliant with CMB Accounting Standards. On March 17, 2005, CMB has issued a resolution and declared that application of inflation accounting is no longer required for companies operating in Turkey and reporting under CMB Accounting Standards, with effect from January 1, Financial statements have been prepared within the framework of the alternative application defined by CMB as explained above. The financial statements and footnotes are presented using the compulsory standard formats as prescribed by CMB. The consolidated financial statements were authorized for issue on March 26, 2008 by the Board of Directors of the Company and signed by Cengiz Eroldu, CFO and Selçuk Öncer, Accounting Director, representing Board of Directors. The Group Management and certain regulatory bodies have the authority to amend the statutory financial statements after issue. Functional and Presentation Currency The functional and presentation currency of the Group is accepted as YTL. In accordance with CMB announcement No.11/367 dated March 17, 2005; since the objective conditions for the application of restatement is no longer available and since CMB foresees that the probability of the re-occurance of the conditions is remote, lastly the financial statements as of 2004 have been subject to the restatement per International Accounting Standarts IAS 29 (Financial Reporting in Hyperinflationary Economies). Therefore, the non-monetary assets, liabilities and shareholders equity including share capital reported in the balance sheet as of and are derived by indexing the additions occurred until The additions after 2004 are carried with their nominal amounts. Restatement of balance sheet and income statement items through the use of a general price index and relevant conversion factors as of 2004 does not necessarily mean that the Group could realize or settle the same values of assets and liabilities as indicated in the consolidated balance sheet. Similarly, it does not necessarily mean that the Group could return or settle the same values of equity to its shareholders. Basis of Consolidation The control relation is normally evidenced when the Company owns, either directly or indirectly, more than 50% of the voting rights of a company s share capital and is able to govern the financial and operating policies of an enterprise so as to benefit from its activities. During consolidation intercompany balances and transactions, including intercompany profits and unrealized profits and losses are eliminated. Consolidated financial statements are prepared using consistent accounting policies for similar transactions and other events in similar circumstances. (7) As of 3. ACCOUNTING POLICIES AND PRINCIPLES Cash and Cash Equivalents Cash and cash equivalents include cash on hand and cash at banks. Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts and that are subject to an insignificant risk of change in value. Cash and cash equivalent balances in the consolidated cash flow statements do not include the cash amounts with original maturity of three months or more. Available for sale financial assets, net All investments, including the initial acquisition expenses, are initially carried at cost. After initial recognition, investments classified as available for sale, carried at fair value. The fair value of investments traded in financial markets are designated as the stock exchange closing value at the balance sheet date. Gains or losses on remeasurement to fair value are recognized as a separate component of equity, under revaluation surplus of financial assets. Loans (Consumer Financing Loans) Consumer financing loans originated by the wholly owned subsidiary KFK and classified as other current receivables in the balance sheet are carried at amortized cost. Interest on these loans is recorded on accrual basis using the effective yield method. A specific credit risk provision for loan impairment is established to provide for management s estimate of credit losses as soon as the recovery of an exposure is identified as doubtful. When a loan is deemed uncollectible, it is written off against the related provision for impairment. Subsequent recoveries are credited to the income statement if previously written off. Trade Receivables Trade receivables have a maturity range of days and are recognized at original invoice amount and carried at amortized cost less an allowance for any uncollectible amounts. An estimate for doubtful debt is made when collection of the full amount is no longer probable. Bad debts are written off when identified. Trade Payables Trade payables have average maturities changing between days and consist of the amounts invoiced or not invoiced related with the realized material or service purchases, and are carried at amortized cost. Inventories Inventories are valued at the lower of cost or net realizable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows: Raw materials - purchase cost on a monthly average basis; finished goods and work-in-process - cost includes the applicable allocation of fixed and variable overhead costs on the basis of monthly average basis. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale. The scrap inventory is written off when identified. (8) As of 3. ACCOUNTING POLICIES AND PRINCIPLES (continued) Property, Plant and Equipment Property, plant and equipment (PP&E) are stated at cost less accumulated depreciation and accumulated impairment loss. When assets are sold or retired, their costs and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is included in the income statement. The initial cost of PP&E comprises its purchase price, including import duties and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the PP&E have been put into the operation, such as repairs and maintenance and overhaul costs are normally charged to income in the period the costs are incurred. Expenditures are added to cost of assets if the expenditures provide economic added value for the future use of the related PP&E. Depreciation is computed on a straight-line basis over the estimated useful lives. The useful lives and depreciation methods are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of PP&E. The depreciation terms are as follows : Duration (years) Land improvements 33 Buildings 33 Machinery and equipment Motor vehicles 4-8 Furnitures and fixtures 8 Moulds and models 6-8 Leasehold improvements 30 The Group has performed a review of the useful lives of its fixed assets and revised the useful lives of certain assets effective from January 1,. In case of any indication of the impairment in the carrying value of property, plant and equipment, the recoverable amount is re-assessed and provision for impairment is reflected in the financial statements. Intangible Assets Intangible assets acquired separately from a business are capitalized at cost. Intangible assets, created within the business are not capitalized and expenditure is charged against profits in the year in which it is incurred. Intangible assets are amortized on a straight-line basis over their useful lives (5 years). The depreciation period for the intangibles capitalized in relation with the new models will be started after the production of these models is started. The carrying values of intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. (9) As of 3. ACCOUNTING POLICIES AND PRINCIPLES (continued) Research and Development Costs Expenditures for research and development are charged against income in the period incurred except for project development costs which comply with the following criteria: - The product or process is clearly defined and costs are separately identified and measured reliably, - The technical feasibility of the product is demonstrated, - The product or process will be sold or used in-house, - A potential market exists for the product or its usefulness in case of internal use is demonstrated, and - Adequate technical, financial and other resources required for completion of the project are available. The costs related to the development projects are capitalized when the criteria above are met and amortized by straight-line basis over the useful lives of related projects (8 years). Interest Income and Expense Interest income and expense are recognized in the income statement on accrual basis using the effective yield method. Interest income is s
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