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Illustrative Financial Statements

February February 2004 2004

Preface These Illustrative Financial Statements were developed by KPMG Romania to provide a guide for those preparing or reading Romanian Financial Statements in accordance with Ministry of Public Finance Order no. 94/2001. They provide accessible and concise guidance on the format of a complete set of financial statements in accordance with MOPF 94/2001 as at 31 December 2003. We would be pleased to assist you further with the analysis and interpretation of the financial statements.

Contact: KPMG Romania Calea Serban Voda 133, Sector 4, Bucharest Romania Tel: +40 (21) 336 22 66 Fax: +40 (21) 336 11 77 E-mail: kpmgro@kpmg.ro Web site: www.kpmg.ro

S.C. Alfa S.R.L

Illustrative Financial Statements


as at 31 December 2003

Prepared in accordance with OMFP no. 94/2001 (Free translation from Romanian)
February 2004

2004 KPMG Audit SRL. All rights reserved. Printed in Romania Publication "Illustrative Financial Statements as at 31 December 2003 prepared in accordance with OMFP 94/2001" gives one possible example of preparation of Financial Statements as at 31 December 2003 in accordance with Romanian statutory requirements. This publication is for illustrative purposes only and it is not a comprehensive study of the application and interpretation of Romanian legislative requirements relevant to preparation of Financial Statements. Whilst care has been taken in its preparation, reference to the legal enactments relevant to preparation of Financial Statements should be made, and specific advice sought, for a complete understanding. No responsibility for loss to any person acting or refraining from action as a result of any material in this publication is accepted by KPMG.

Financial Statements
KPMG Audit S.R.L. has prepared these Illustrative Financial Statements in accordance with Ministry of Public Finance Order no. 94/2001 for approval of the accounting regulations harmonised with the lV Directive of the European Economic Communities and International Accounting Standards.* ("OMFP 94/2001"), with all the subsequesnt amendments, effective starting with the financial statements for the year ended 31 December 2000.

A complete set of annual financial statements includes the following components: Balance Sheet Statement of Income Statement of Changes in Shareholders' Equity Statement of Cash Flows and Notes to the Financial Statements.

S.C. Alfa S.R.L. ("The Company") must also present with the annual financial statements two supplementary forms (Additional Data - Code 30, Fixed Assets - Code 40), these are not part of the financial statements and are not audited. Any item to be presented in an entity's financial statements may be shown in more detail than required by the format adopted if this greater detail will help to present the information in a more relevant way for the users.

*The International Accounting Standards have been renamed the International Financial Reporting Standards by the International Accounting Standards Board. 1) The International Financial Reporting Standards (IFRS) include: a) The International Financial Reporting Standards; b) The International Accounting Standards; and c) The interpretations issued by the International Financial Reporting Interpretations Committee or by the former Standing Interpretations Committee and adopted by IASB. 2) IFRS, the English abreviation for the International Financial Reporting Standards.

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3

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 and income 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.

Illustrative Financial Statements

The Statement of Changes in Shareholders' 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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4
Illustrative Financial Statements

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Balance Sheet Statement of Income Statement of Changes in Shareholders' Equity Statement of Cash Flows Notes to Financial Statements Additional data

Contents

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7 10

M X A
5

Illustrative Financial Statements

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12 13 15-38 39-43

Illustrative Financial Statements

County: Dolj Address: Florilor Street, no. 25, Oras Phone: 0235 123 456; Fax: 0235 123 457 Company register no.: J16/3456/1991 Country: Romania Main activity (CAEN group name): CAEN Group Code: Fiscal Code: R 1 2

Construction of industrial equipment

BALANCE SHEET
at 31 December 2003

(Free translation from Romanian)

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Row no. 02 03 06 07 08 09 10 11 12 17 19 20 21 22
7

COD 10 Thousand ROL

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2002 2003 12,626 756,329 768,955 474,242,340 25,735,565 216,200 415,493 500,609,598 1,000,000 151,056 1,151,056 502,529,609 2,773 275,366 278,139 491,717,741 29,770,478 355,026 2,407,315 524,250,560 1,000,000 25,854 1,025,854 525,554,553 18,723,491 127,277,161 32,125,911 123,955,388

A. NON-CURRENT ASSETS I. INTANGIBLE ASSETS Set-up costs (acc. 203-2803-2903) Concessions, patents, licenses, trademarks and similar rights and assets (acc. 2051+2052+208-2805-2808-2905-2908) TOTAL: (rows 01 to 05) II. TANGIBLE ASSETS Land and buildings (acc. 211+212-2811-2812-2911-2912) Plant and machinery and motor vehicles (acc. 213-2813-2913) Fixtures and fittings (acc. 214-2814-2914) Fixed assets in progress and advance payments for fixed assets in progress (acc. 231+232-2931) TOTAL: (rows 07 to 10) III. FINANCIAL ASSETS Investment in Group Companies Other financial assets (acc. 2673+2674+2678+2679-2966-2969) TOTAL FINANCIAL ASSETS: (rows 12 to 18) TOTAL NON-CURRENT ASSETS B. CURRENT ASSETS I. INVENTORIES Raw materials and consumables (acc. 301+3021+3022+3023+3024+3025+3026+3028+303+/308+351+358+381+/-388-391-3921-3922-3951-3958-398) Work in progress (acc. 331+332+341+/-3481+3541-393-3941-3952)

Illustrative Financial Statements

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3456 6 3 4 5

Legal entity: S.C. Alfa S.R.L.

Type of property:

Private

35

Finished products and goods for resale (acc. 345+346+/-3485+/-3486+3545 +3546+356+357+361+/-368+371+/-378-3945-3946-3953-3954-3956-3957 -396-397-4428) Advance payments for the purchase of inventories (acc. 4091) TOTAL INVENTORIES: (rows 21 to 24) II. RECEIVABLES Trade receivables (acc. 4092+4111+4118+413+418-491) Other receivables (acc. 425+4282+431+437+4382+441+4424+4428+444 +445+446+447+4482+ 4582+ 461+473-496+5187) TOTAL: (rows 26 to 30) III. SHORT TERM FINANCIAL INVESTMENTS IV. CASH AND BANK ACCOUNTS (acc. 5112+5121+5124+5125+5311 +5314+5321+5322+5323+5328+5411+5412+542) TOTAL CURRENT ASSETS (rows 25+31+35+36) C. ACCRUED EXPENSES (acc. 471) D. CURRENT LIABILITIES Liabilities to credit institutions (acc. 1621+1622+1624+1625+1627+1682 +5191+5192+5198) Advances from clients (acc 419) Trade payables (acc. 401+404+408) Other liabilities, including fiscal and social security liabilities (acc.1623+1626+167+1687+2698+421+423+424+426+427+4281+431 +437+4381+441+4423+4428+444+446+447+4481+4551+4558+456 +457+4581+462+473+509+5186+5193+5194+5195+5196+5197) TOTAL: (rows 39 to 46) E. CURRENT ASSETS, NET CURRENT LIABILITIES (rows 37+38-47-64) F. TOTAL ASSETS LESS CURRENT LIABILITIES (rows 20+48 - 63) G. DEBTS THAT HAVE TO BE PAID IN MORE THAN A YEAR Other liabilities, including tax liabilities and other social charges (acc.1623+1626+167+1687+2698+421+423+424+426+427+4281+431 +437+4381+441+4423+4428+444+446+447+4481+4551+4558+456 +457+4581+462+473+509+5186+5193+5194+5195+5196+5197) TOTAL: (rows 50 to 57) H. PROVISIONS FOR RISKS AND CHARGES Other provisions (acc. 151) TOTAL PROVISIONS: (rows 59 + 60) I. DEFFERED REVENUE (rows 63+64) Deffered revenue (acc. 472) J. CAPITAL AND RESERVES I. CAPITAL (rows 66 to 68), out of which: - subscribed and paid-in capital (acc. 1012)

23 24 25 26 29 31

177,882 18,249,574 164,428,108

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36 37 38 40 41 42 46 47 48 49 57 58 59 60 61 62 64 65 67

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8

14,984,273 206,124,374 382,078

21,382,999 157,638,838 73,806,714

394,493,682 647,322,233 (441,012,753) 61,516,856

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18,630,724 8,081,269 26,711,993 96,791,621 96,791,621 7,706,196 7,706,196 196,972 196,972

170,464 9,212 156,260,975 185,895,768 29,665,072 215,560,840

147,059,606 518,881,421 147,872

30,118,957 93,334,151 114,779,774

740,325,877 978,558,759 (459,529,466) 66,025,087

13,092,017 13,092,017 296,892,431 296,892,431

296,892,431 296,892,431

Illustrative Financial Statements

III. REVALUATION RESERVES (acc. 105)

IV. RESERVES (acc. 106) (rows 73 to 76) Legal reserves (acc. 1061) Other reserves (acc. 1068+/-107) V. RETAINED EARNINGS (acc. 117) - Credit balance - Debit balance VI. PROFIT/LOSS OF THE PERIOD (acc. 121) - Credit balance - Debit balance TOTAL EQUITY (rows 65+69+70-71+72+77-78+79-80-81) TOTAL EQUITY AND RESERVES (rows 82+83)
ADMINISTRATOR, Full name Signature Companys stamp

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Full name Signature

77 78

232,720,476

79 80 82 84

209,131,094 (42,980,961) (42,980,961)

PREPARED BY,

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9
Illustrative Financial Statements

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6,020,724 2,572,838 3,447,886

- Credit balance - Debit balance

70 71 72 73 76

95,957,454

122,794,493 6,020,724 2,572,838 3,447,886

441,851,570 69,076,992 52,933,070 52,933,070

County: Dolj Legal entity: S.C. Alfa S.R.L. Address: Florilor Street, no. 25, Oras Phone: 0235 123 456; Fax: 0235 123 457 Company register no.: J16/3456/1991 Country: Romania Type of ownership: Main activity (CAEN group name): Construction of industrial equipment CAEN Group Code: Fiscal Code: R 1 2 Private 35

for the year ended 31 December 2003


Free translation from Romanian

Thousand ROL 1. Net turnover (rows 02 to 04) Turnover (acc. 701+702+703+704+705+706+708) Revenues from goods for resale (acc. 707) 2. Variation in inventories (acc. 711)

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Row no. 01 02 03 05 07 08 09 10 11 12 13 14 15 16 17 18 20 21 22 23 24 25

COD 20

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2002 279,533,981 272,257,918 7,276,063 68,469,361 5,179,271 77,702 353,260,315 105,212,628 4,154,704 20,921,374 6,020,074 201,348,482 140,971,225 60,377,257 11,698,027 11,698,027 (7,993,253) 35,587,854 43,581,107 145,160,633 71,755,891 12,573,320 2003 690,107,045 683,094,699 7,012,346 (11,279,558) 1,846,853 2,734,789 683,409,129 108,037,585 6,095,688 25,343,678 5,806,849 239,664,624 171,736,969 67,927,655 13,338,440 13,338,440 (6,765,554) 29,642,406 36,407,960 163,604,524 93,438,285 10,050,146

STATEMENT OF INCOME

3. Own work capitalized (acc. 721+722)

4. Other operating income (acc. 758+7417)

TOTAL OPERATING INCOME (rows 01+05-06+07+08)

5.a) Raw materials and consumables (acc. 601+602-7412) b) Electricity, heating and water expenses (acc. 605-7413) Goods for resale (acc. 607) a) Salaries (acc. 641-7414) 6. Personnel expenses (rows 15+16)

Other expenses related to inventories (acc. 603+604+606+608)

b) Social security contributions (acc. 645-7415) 7.a) Adjustments on the value of tangible and intangible assets (rows 18-19) a.1) Expenses (acc. 6811+6813) 7.b) Adjustments on the value of current assets (rows 21-22) b.1) Expenses (acc. 654+6814) b.2) Revenues (acc. 754+7814)

8. Other operating expenses (rows 24 to 26) 8.1. Third party services (acc. 611+612+613+614+621+622+623+624 +625+626+627+628-7416) 8.2. Other taxes, duties and similar expenses (acc. 635)

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10

Illustrative Financial Statements

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3456 6 3 4 5

8.3. Compensations, donations and net value of assets disposed (acc. 658) 8.4. Adjustments regarding the provisions for risks and charges (rows 28-29) Expenses (acc. 6812) Revenues (acc. 7812) TOTAL OPERATING EXPENSES (rows 10 to 14+17+20+23+27) PROFIT/LOSS FROM OPERATIONS: - Profit (row 09-30) - Loss (row 30-09) 11. Interest income (acc. 766) - Out of which, related to group companies Other financial revenues (acc. 7617+762+763+764+765+767+768+788) TOTAL FINANCIAL REVENUES (rows 33+35+37+39) 13. Interest expense (acc. 666-7418) Other financial expenses (acc. 663+664+665+667+668+688) TOTAL FINANCIAL EXPENSES (rows 41+44+46) FINANCIAL RESULT - Loss (row 47-40) 14. CURRENT RESULT:

26 27 28 29 30

60,831,422 3,258,540 5,032,980 1,774,440 489,781,209

60,116,093 5,385,821 9,741,582 4,355,761 560,511,655

31 32 37 38

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39 40 44 46 47 49 50 51 56 57 58 59 60 61 65 66 67 68
PREPARED BY,

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Full name Signature

- Loss (rows 32+49) TOTAL REVENUES (rows 09+40+52) TOTAL EXPENSES (rows 30+47+53) GROSS RESULT Profit (row 56-57)

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11

- Profit (rows 31+48)

18. INCOME TAX (acc. 691-791)

Loss (rows 57-56)

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136,520,894 987,072 987,072 5,595,704 6,582,776 4,467,901 74,713,960 79,181,861 72,599,085 209,119,979 359,843,091 568,963,070 209,119,979 11,115 209,131,094 (17,600) (17,600)

122,897,474

440,750 440,750 7,397,320 7,838,070 1,786,195 59,872,357 61,658,552

53,820,482

69,076,992

691,247,199 622,170,207

69,076,992

Current tax on profit expenses (acc. 6911)

20. NET RESULT OF THE PERIOD (rows 58-60) - Profit 69,076,992

21. Earnings per share (ROL) - basic

- Loss

5,820 5,820

- diluted
ADMINISTRATOR, Full name Signature Companys stamp

Illustrative Financial Statements

County: Dolj Legal entity: S.C. Alfa S.R.L. Address: Florilor Street, no. 25, Oras Phone: 0235 123 456; Fax: 0235 123 457 Company register no.: J16/3456/1991 Country: Romania Type of ownership: Main activity (CAEN group name): CAEN Group Code: Fiscal Code: R 1 2 Construction of industrial equipment Private 35

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY


for the year ended 31 December 2003
(Free translation from Romanian)

Balance at 1 January Thousand ROL Share capital 296,892,431 Revaluation reserve 95,957,454 Legal reserve 2,572,838 Other reserves 3,447,886 Retained earnings (78,542,202) Retained earnings from first applications of IAS less IAS 29 (154,178,274) Profit/ (Loss) for the year (209,131,094) Total shareholders' equity (42,980,961)

Additions

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Transfers PREPARED BY, Full name Signature

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Disposals Total, out of which: 9,146,370 (205,677,244) (196,530,874)

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35,983,409 3,453,850 (209,131,094) 69,076,992 (100,616,843)
12

Total, out of which:

(209,131,094)

(209,131,094)

ADMINISTRATOR,

Full name Signature

Companys stamp

Illustrative Financial Statements

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3456 6 3 4 5

Balance at 31 December

Transfers - 296,892,431 - 122,794,493 6,026,688 3,447,886 - (287,673,296)

- (154,178,274) (205,677,244) (205,677,244) 65,623,142 52,933,070

County: Dolj Legal entity: S.C. Alfa S.R.L. Address: Florilor Street, no. 25, Oras Phone: 0235 123 456; Fax: 0235 123 457 Company register no.: J16/3456/1991 Country: Romania Type of ownership: Main activity (CAEN group name): CAEN Group Code: Fiscal Code: R 1 2 Private 35

STATEMENT OF CASH FLOWS


for the year ended 31 December 2003
Free translation from Romanian

Thousand ROL OPERATING ACTIVITIES Net profit (loss) before taxation and extraordinary items Adjustments for: Depreciation and amortization Revenue from interest Interest expense Operating profit before working capital changes Increase in short term payables

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2002

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2003 69,076,992 5,385,821 13,338,440 (2,734,789) (440,750) 1,786,195 86,411,909 193,668,888 (252,919,328) 8,167,133 35,328,602 (1,786,195) 33,542,407 (22,508,454) 15,716,898 440,750 (6,350,806)

Increase of provisions for risks and charges Net value of disposals of fixed assets

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13

(209,131,094) -

11,698,027 (77,702) (987,072) 4,467,901

(194,029,940) 356,537,003 (7,742,449) (83,549,067) 71,215,547 (4,582,013) 669,749 67,303,283

Increase in trade and other receivables (Increase)/ Decrease in inventories Cash generated from operations Interest paid Income tax received

INVESTING ACTIVITIES

Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Interest received CASH FLOW FROM INVESTING ACTIVITIES

CASH GENERATED BY OPERATING ACTIVITIES

(7,315,923) 2,896,949 987,072 (3,431,902)

Illustrative Financial Statements

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3456 3 4 5 6

Construction of industrial equipment

FINANCING ACTIVITIES Proceeds from issuance of share capital Payment of finance lease liabilities Repayment of borrowings Proceeds from long-term borrowings NET CASH FROM FINANCING ACTIVITIES Net increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December ADMINISTRATOR, Full name Signature Companys stamp Full name Signature (62,080,976) 88,783 (61,992,193) 1,879,188 13,105,085 14,984,273 96,698,880 (551,106)

PREPARED BY,

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14
Illustrative Financial Statements

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(21,382,999) 104,883,732 30,118,957 132,075,333 14,984,273 147,059,606

Note 1. Non-current assets


Movements in the gross book value, depreciation and net book value during financial year ended 31 December 2003 for each group of intangible assets is detailed below:

1.1 Intangible assets


Cost
Thousand ROL Set up and development costs Other intangibles (licenses) Total 31 December 2002 21,472

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1,708,174 1,729,646 31 December 2002 8,846 951,845 960,691 768,955

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Additions Disposals 10,379 1,150,592 1,160,971 31 December 2003 11,093 557,582 568,675 Amortization charge for the year Accumulated amortization of disposals 10,379 1,150,592 1,160,971 8,320 282,216 290,536 278,139 31 December 2003 9,853 480,963 490,816

Accumulated amortization
Thousand ROL

Set up and development costs Other intangibles (licenses) Total

Net book value

15

Illustrative Financial Statements

1.2 Tangible assets


Cost or valuation
Thousand ROL Freehold land Buildings Plant, machinery and motor vehicles Fixtures and fittings Fixed assets in progress Advances to fixed assets suppliers Total 53,164,643 387,989 353,169 62,324 620,036,530 9,749,793 212,360 11,488,717 2,027,421 278,473,118 2,922,541 81,420 59,991,895 518,929 2,046,217 361,098 881,772,448 31 December 2002 172,059,013 394,009,392 Acquisitions 254,994,827 Disposals 200 2,208,723 31 December 2003 172,058,813

Thousand ROL

31 December 2002

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Depreciation year* charge for the 236,677,223 4,065,269 1,044,621 62,934 241,850,047

Accumulated depreciation

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9,795,669 1,728,647 16,737,200 Accumulated disposals 1,366,720 2,004,422 313,129 70,820 3,755,091 depreciation of

Plant and machinery and motor vehicles Impairment provision Fixtures and fittings Total

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21,732,866 5,696,212 171,789 119,426,932 500,609,598

Buildings

91,826,065

Net book value

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

The land owned by the Company is located in Oras having a surface of 733,121 square meters. The buildings are stated at their revalued amounts less subsequent accumulated depreciation, as allowed by the alternative treatment as per OMFP 94/2001. At 10 May 2003, the buildings have been revalued in accordance with HG 403/2000, by an independent valuer S.C. Evaluarea S.A, a certified ANEVAR member. For the

S.C. Alfa S.R.L. concluded a lease agreement (contract no. 4002/03/01/2003) with SC Leasing Romania S.R.L. for the acquisition of equipment necessary to the acetylene supply with a total value of ROL 1,798,200 thousand.

computation of the revalued amounts the valuer used the Consumer Price Index (CPI) published by the National Statistics Office of Romania. The gross revalued amounts were subsequently adjusted to the market value/replacement cost appraised by the independent valuer. The Company recorded as at 31 December 2003 differences from the revaluation of the building amounting to ROL 255,994,679 thousands related to the gross book value and ROL 227,957,640 thousand related to accumulated depreciation. These differences are presented in the table of movements above, as additions and depreciation charge related to year ended 31 December 2003.

16

Illustrative Financial Statements

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2003

646,795,496

31 December

327,136,568 23,793,713 6,427,704 163,903 357,521,888 524,250,560

1.3 Financial assets

Thousand ROL Investment in subsidiary Other investments Total

31 December 2002 1,000,000 151,056 1,151,056

31 December 2003

The investment in subsidiary represents the investment in S.C. ABC SRL, a company with headquarters in Bucharest. S.C. Alfa S.R.L owns 100% of this company. The main object of activity of the company is design of industrial equipment. The investment in S.C. ABC SRL is stated at cost. The company has not consolidated the

financial statements of S.C. ABC S.R.L, as OMFP 94/2001. The presentation of unconsolidated financial statements is in accordance with the provisions of the Ministry of Public Finance Order no. 1827/2003 (OMFP 1.827/2003)

Note 2. Provision for risks and charges

Thousand ROL

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31 December 2002 7,706,196

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Movements Increase Decrease 4,355,761 4,355,761 1,440,964 11,651,053 13,092,017 31 December 2003 Provision for litigation and claims to customers Total 1,440,964 8,300,618 9,741,582

Provision for warranties granted

7,706,196

S.C. Activitatea S.A. claims penalties for non-compliance with their deadline in the amount of 1,440,964 thousand ROL.

The Company is in litigation with S.C. Activitatea S.A. for the service performed by S.C. Alfa S.R.L.

The warranty provision represents the best estimate of the Company's liability under the 12 months warranty granted, based on prior experience.

17

Illustrative Financial Statements

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1,000,000 25,854 1,025,854

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:

Thousand ROL Legal reserves Reserves related to fiscal incentives Profit carried forward Total Partial recovery of loss recorded in previous years

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2002 279,533,981 230,013,027 132,182,745 18,386,805 79,443,477 49,520,954 189,936,244 3,894,396

The Company approved the distribution of profit according to the legislation in force as follows: 3,453,850 thousand ROL: 5% from the gross profit of the year has been transferred to the legal reserve. The Company will stop this transfer when the legal reserve equals 20% of the social capital.

Note 4. Analysis of operating result


Thousand ROL 1. Net turnover

M
18

The undistributed profit carried forward consists of dividends approved after the year ended 31 December 2003 amounting to 4,144,620 thousand ROL, dividends that will be distributed to shareholders in 2004.

13,815,398 thousand ROL: the Company received a fiscal credit (50% reduction in income tax) for the investments made from reinvested profit, having the obligation to transfer to its development funds both the fiscal credit and the reinvested profit. 47,663,124 thousand ROL: partial recovery of the loss recorded in previous years.

The legal reserves and the reserves related to fiscal incentives cannot be distributed.

2. Cost of sales (3+4+5) 3. Operating expenses 5. Indirect expenses 4. Auxiliary expenses 6. Gross profit (1-2)

7. Distribution expenses

E
2003
Illustrative Financial Statements

2003

3,453,850 13,815,398 47,663,124 4,144,620 69,076,992

690,107,045 412,437,379 297,342,931 21,631,534 93,462,914 277,669,666 159,353,834 4,581,642 122,897,474

8. Administrative expenses 9. Other operating revenues 10. Operating result (6-7-8+9)

(136,520,894)

The Company includes in production cost both direct and indirect production costs. Administrative expenses are not included. To obtain the cost of sales, production cost was adjusted with the change in the stocks (balance of account 711 in the income statement).

Operational result presented above includes also the net loss from the disposal of fixed assets amounting to ROL 536,000 thousands for 2003. For information regarding rent and operational leasing contracts, see Note 10.5.

Note 5. Trade receivables and payables


5.1 Trade receivables
Thousand ROL 31 December 2002 Trade receivables Allowance for trade receivables Other receivables Total 27,588,059 (8,957,335) 8,081,269 26,711,993 31 December 2003 194,502,919 (8,911,928) 29,969,849 year

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Due term less than one 194,502,919 (8,911,928) 29,969,849 more than one year 31 December 2002

As at 31 December 2003, the Company included in the short term receivable the following receivables:

- ROL 31,825 million S.C. Epsilon S.R.L., - ROL 50,250 million Alfa Standard Corporation and - ROL 45,225 million S.C. Gamma S.R.L., representing the value of services provided by the Company in favour of customers, and which are currently under

5.2 Trade payables


Thousand ROL

A
31 December 2003 30,118,957 93,334,151 114,779,774 740,325,877 978,558,759 year 21,382,999 157,638,838 73,806,714 394,493,682 647,322,233 30,118,957 93,334,151 114,779,774 740,325,877 978,558,759 Due term less than one more than one year -

Liabilities to credit institutions Advance payments from clients Trade payables Other payables Total

M
19

P
215,560,840

215,560,840

dispute. Management estimates that the value of these services will be recovered. As at 31 December 2003 the Company recorded in the financial statements an allowance for doubtful debts amounting to ROL 8,911,928 thousand, collection considered by the management of the company as uncertain.

Illustrative Financial Statements

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;

The item "Other liabilities" comprise the following

Thousand ROL

31 December 2002

31 December 2003 6,383,495 3,520,717

L
less than one year 6,383,495 3,520,717 5,004,171 295,488,104 331,983,416 96,698,880 1,247,094 740,325,877

elements:

Amounts payable to state budget Dividends payable from 2002 Sundry creditors Other liabilities Contribution to share capital Payables leasing Total

183,476,314 3,716,233 3,338,588 199,323,762 -

P
295,488,104 5,004,171 331,983,416 96,698,880 1,247,094 740,325,877

Personnel related payables

4,638,785

M
394,493,682

The contribution to the share capital represents the amount paid by S.C. Beta S.A. in order to increase the share capital (refer to Note 18).

20

Illustrative Financial Statements

E
Due term year -

First rank pledge for an amount of USD 1,266,111 over the Company's receivables, in accordance with the pledge contract.

more than one

Note 6. Significant accounting principles and policies


A. Accounting principles The financial statements for the year ended 31 December 2003 have been prepared in accordance with the following accounting principles: Going concern principle - it is assumed that the Company 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 ownership 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. 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 European Committee Fourth Directive and with the International Financial Reporting Standards". The year 2003 represents the second year of effective application of the accounting regulations harmonized with Economic European Committee and with the International Financial Reporting Standards. The annual financial statements comprise of: Balance Sheet Statement of Income Statement of Changes in Stockholders' Equity Statement of Cash Flows Notes to the Financial Statements.

Valuation of Asset and Liability items - in determining the aggregate amount of any item in the balance sheet, the amount of each individual asset or liability has been determined separately. Opening balance - The opening balance sheet of a financial year must correspond to the closing balance sheet of the previous financial year, except for certain reclassifications of accounts necessary to ensure comparability with the financial statements for the year ended 31 December 2003. Offsetting - Items representing assets or income may not be net off against items representing liabilities or expenditure, except for the netting off between assets and liabilities approved by OMFP 94/2001.

Substance over form - The information presented in the financial statements should reflect the economic substance of events and transactions and not only their legal form. Materiality - Each significant item should be presented separately in the financial statements.

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21

First year of applying OMFP 94/2001 [if the case] The first financial year in which the Company issued its financial statements in accordance with the provisions of the Ministry of Finance Order 94/2001 is the year ended 31 December 2003. The financial statements for the previous years were prepared and issued in accordance with the Romanian accounting rules provided in Law 82/1991. The Company did not show comparative financial statements for year 2002 and, also, it did not show the cash flow statement and the statement of changes in equity for the financial year ended 31 December 2003, as stated in OMFP 94/2001. Also, the effect of the adjustments of adopting for the first time the OMFP 94/2001 are shown in the retained earnings, the profit and loss account for the year not being affected. These statements include: Balance Sheet Statement of Income Notes to the Financial Statements.

Illustrative Financial Statements

[Note: The Illustrative financial statements prepared in accordance with OMFP 94/2001, in the first year of applying OMFP 94/2001, do not include the Statement of Changes in Equity and the Statement of Cash Flows]. (c) Standards applicable in hyperinflationary economies and foreign currency translations Measurement currency The Company operates in a highly inflationary economy. The Company's management considers that the measurement currency, as defined by SIC 19 "Reporting Currency-Measurement and Presentation of Financial Statements Under IAS 21 and IAS 29" is the USD/EUR, due to the following reasons: selling prices for the main products and services are linked to the USD/EUR; imports are made mainly in USD/EUR; the Company is to a large extent financed in USD/EUR; management uses USD/EUR-based reports to monitor the Company's financial performance; other reasons. In accordance with SIC 19, since the measurement currency of the Company is USD/EUR, the financial statements should be prepared in USD/EUR and transactions in foreign currencies (all currencies other than USD/EUR) should be recorded at the exchange rate from the date of the transaction, according to International Accounting Standard "The Effects of Changes in Foreign Exchange Rates" (IAS 21).

ii) Leased Assets

Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Plant and equipment acquired by way of finance leasing are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. Lease payments are accounted for as described in accounting policy at paragraph (p) below. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term. iii) Subsequent repair and maintenance expenditure Repair and maintainance expenditure made in order to restore or maintain the value of the fixed assets is included in the profit and loss account when incurred. Expenses perfomed towards improvement of technical performance are capitalised and depreciated over the remaining period of depreciation of the specific fixed asset. iv) Depreciation Depreciation is provided to write off the cost (or valuation) less the estimated residual value by using the straight line method of depreciation over the estimated useful lives of items of property, plant and equipment, and major components that are accounted for separately. Estimated useful lives are as follows: Buildings Plant and equipment Vehicles Fixtures and fittings 40 5-12 5 5-10 years years years years

(d) Foreign currency transactions

Foreign currency transactions are presented at the foreign exchange rate ruling at the date of the transaction. At year end, monetary assets and liabilities denominated in foreign currencies are translated to ROL at the foreign exchange rate ruling at the balance sheet date, and the foreign exchange rate differences arising on translation are recognized in the income statement.

The Company's management decided to prepare the financial statements based on historical cost. Therefore, the Company chose the alternative accounting treatment stipulated by OMFP 94/2001 and did not adjust the financial statements in accordance with IAS 21 "The effects of changes in foreign exchange rates".

(e) Property, plant and equipment i) Own assets Land and buildings are stated in the balance sheet at their revalued amount less accumulated depreciation and i) Intangible assets that are acquired by the Company are stated at cost less accumulated amortization (see below) and impairment losses (refer accounting policy (k) below). ii) Amortization is charged to the income statement on a

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22

P
(f) Intangible assets

Land and fixed assets under construction are not depreciated.

Illustrative Financial Statements

impairment losses (refer to accounting policy (k)). The cost of self-constructed assets includes the cost of materials, direct labor and an appropriate proportion of production overheads. The historic cost has been revalued in accordance with Government decisions: 945/1990, 26/1992, 500/1994, 983/1998 and 403/2000 using indexes established by the respective normative acts.

straight-line basis over the estimated useful lives of intangible assets. The most significant part of the intangible assets recorded by the Company comprise software. Software is depreciated using the straight-line method over the estimated useful life, which does not exceed 5 years. (g) Investments Investments held to maturity by the Company are stated at amortized cost less impairment losses (refer to accounting policy (k)). (h) Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventory is based on the First In First Out principle (or Weighted Average principle) and includes expenditure incurred in acquiring the inventories and bringing them to their existing condition and location. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity. (i) Trade and other receivables

ii) Reversals of impairment

An impairment loss in respect of a held-to-maturity receivable is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognized. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. (l) Issued capital Dividends Dividends are recognized as a liability in the period in which their distribution is approved. (m) Interest-bearing borrowings Interest-bearing borrowings are recognized initially at cost, less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortized cost with any difference between cost and redemption value being recognized in the income statement over the period of the borrowings on an effective interest basis. (n) Trade and other payables Trade and other payables are stated at their cost, which is the fair value of the consideration to be paid in the future for goods and services received. (o) Lease obligation Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The corresponding liability to the lessor is included in the

Trade and other receivables are stated at their cost less impairment losses. (j) Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits. (k) Impairment

The carrying amounts of the Company's assets other than inventories and deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset or its cashgenerating unit exceeds its recoverable amount. Impairment losses are recognized in the income statement or in equity [if the case]. i) Calculation of recoverable amount

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23

Illustrative Financial Statements

The recoverable amount of the Company's investments in held-to-maturity securities and receivables is calculated as the present value of expected future cash flows, discounted at the original effective interest rate corresponding to these assets. Receivables with a short duration are not discounted.

balance sheet as a finance lease obligation. Finance costs are charged to the statement of income over the term of the relevant lease so as to produce a constant periodic rate of interest on the remaining balance of the obligations for each accounting period. Operating lease rentals are charged to the profit and loss account on a straight-line basis over the period of the lease. Lease rentals discounts granted are recognised in the profit and loss account as a reduction of expense. (p) Provisions A provision is recognized in the balance sheet when the Company has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. The provisions are revised at the end of each period and adjusted in order to reflect the most accurate estimate. Warranties

taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized. The effect on deferred tax of any changes in tax rates is charged to the income statement, except to the extent that it relates to items previously charged or credited directly to equity. (t) Related parties Parties are considered related when one party, either through ownership, contractual rights, family relationship or otherwise, has the ability to directly control or significantly influence the other party. (u) Estimates In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenue and expenses for the year. Actual results could differ from those estimates. Estimates are used when accounting for items and matters such as allowance for un-collectable accounts receivable, discounted non-current receivables, inventory obsolescence, amortization/depreciation and taxes. The effect of changes in accounting estimates is computed prospectively and is included in the determination of net profit or loss in: the period of the change, if the change affects the period only; or the period of the change and future periods, if the change affects both. (v) Comparative information [if applicable]

A provision for warranties is recognized when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities. (q) Revenue Goods sold

Revenue from the sale of goods is recognized in the income statement when the significant risks and rewards of ownership over the goods have been transferred to the buyer. (r) Financial result This includes interest payable on borrowings, interest receivable on funds invested, interest payable on finance leases and foreign exchange gains and losses. The principal of separate financial statements is followed in order to recognise these elements. The interest expense component of finance lease payments is recognized in the income statement using the effective interest rate method. (s) Income tax

Tax on the profit or loss for the year comprises current and deferred tax. Current tax is the expected tax payable calculated on the

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24

Illustrative Financial Statements

Certain items from the 2002 financial statements have been reclassified to conform to the 2003 financial statements presentation. (w) Pensions and other post retirement benefits During its normal activity, the Company pays to the state taxes due for its employees. All Company's employees are members of the Romanian Pensions Fund. The Company's policy does not include any other pensions scheme or any plan of supplementary benefits after retiring, consequently, it has no other obligations regarding the pensions system. In addition, the Company has no obligation in granting any other benefits to its employees at the retirement date.

X
25
Illustrative Financial Statements

Note 7. Share capital


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 Beta S.A. Company M Company T Other shareholders Total

% 82.93 6.62 2.38 8.07 100

No of shares 9,847,250 786,541 282,963

L
958,943 11,875,697 personnel is as follows: of Directors' members were:
Illustrative Financial Statements

The revaluation reserve relating to property, plant and equipment, amounting to ROL 102,565,653 thousand (increase in the fair value of the property at the date of revaluation), is included in the Company's share capital in accordance with GD 945/1990, GD 26/1992 and GD 500/1994.

Note 8. Information regarding employees, administrators and directors


During 2003, the average number of employees was 2,659 (in 2002: 2,751). The functional structure of

Category Managers Workers

Production Technicians Administration IT Total

The Company is managed by the Board of Directors, which has 3 members. At 31 December 2003, the Board Name Florian Popescu Gheorghe Mincu Nicoleta Vornicu Position General manager Member Member

M
Number 9 2,089 479 68 14 2,659

P
26

As mentioned in Note 18, on 30 March 2004 the Company's share capital increased as a result of issuing 3,862,771 shares in accordance with the General Shareholder's Meeting held on 9 January 2004 with the ROL equivalent of USD 2,880,000.

E
Share capital 246,181,256 19,663,515 7,074,075 23,973,585 296,892,431

The current Board of Directors has been appointed by the General Shareholders Meeting held on 30 August 2003. The Company's Directors have been appointed by the Decisions of the Board of Directors from 5 September

2003 and 22 September 2003. As at 31 December 2003, the Company's Management has the following structure:

Name Eng. Florian Popescu Eng. Claudiu Postelnicu Eng. Adrian Popovici Eng. Vlad Solomon Eng. Marius Grigore Eng. Alina Oprea Ec. Mariana Calin Eng. Elena Ionescu Law. Cristian Tudor

Position General Director Technical Director Production Director Quality Director Logistics Director Finance Director Human Resources Director Legal Director Marketing Director

The Company's payroll expenses in 2003 were: Thousand ROL Employees - salaries payable Company's contribution to social security Company's contribution to health fund

P
2003 171,736,969 43,824,046 8,597,562 12,090,280 3,415,767 239,664,624

Company's contribution to unemployment fund

Company's contribution to support fund for disabled persons Total The management's wages represent 4% from the total salary expenses in 2003.

X
27
Illustrative Financial Statements

Note 9. Performance measurement


Thousand ROL 2002 I. Liquidity ratios Current ratio Current assets (A) Current liabilities (B) A/B - number of times 206,124,374 647,322,233 0.32 2003

Quick ratio (acid test) Current assets (A) Inventories (B) Current liabilities (C) (A-B)/C - number of times

206,124,374 164,428,108

P
647,322,233 0.06

L M
28
96,791,621 (42,980,961) N/A (204,652,078) 4,467,901 N/A 164,428,108 115,387,406 520
Illustrative Financial Statements

II. Risk ratios Degree of indebtness ratio Borrowed capital (A) Equity (B) A/B (if negative, N/A)

Interest cover ratio Profit before interest and tax (A) Interest expense (B)

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

Inventory turnover Inventory (A)

III. Efficiency ratios

Cost of sales (B) (A/B)*365 - number of days

E
518,881,421 978,558,759 0.53 518,881,421 156,260,975 978,558,759 0.37 52,933,070 70,863,187 1,786,195 39.67 156,260,975 119,940,122 476

Thousand ROL 2002 Accounts receivable turnover Trade receivables (A) Net turnover (B) (A/B)*365 - number of days 18,630,724 279,533,981 24 185,895,768 690,107,045 2003

Accounts payable turnover Trade payables (A) Net turnover (B) (A/B)*365 - number of days 73,806,714 279,533,981 96

L
279,533,981 502,529,609

Non-current assets turnover Net turnover (A) Non-current assets (B) (A/B) - number of times

P
0.56 279,533,981 709,036,061

Asset turnover Net turnover (A) Total assets (B) (A/B) - number of times

M
29

0.39

IV. Profitability ratios Gearing ratio Profit before interest and tax (A)

(204,652,078) 61,516,856 -

Total assets less current liabilities (B)

Gross profit margin

Gross profit from sales (A) Net turnover (B) (A/B)

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

49,520,954 279,533,981 18%

V. Earning per share ratios Earning per share

Net result atributable to ordinary shareholders (A) Number of outstanding ordinary shares (B) (A/B) - Thousand ROL

(209,131,094) 11,875,697 (17.6)

Illustrative Financial Statements

E
98 114,779,774 690,107,045 61 690,107,045 525,554,553 1.31 690,107,045 1,044,583,846 0.66 70,863,187 66,025,087 1.07 277,669,666 690,107,045 40% 69,076,992 11,875,697 5.82

[The following comments are to be tailored by the Company to reflect its specific situation.]

I. Liquidity ratios Current ratio, respectively quick ratio (acid test), shows how many times the current liabilities are covered by the current assets, respectively by current assets less inventory. The ratios obtained are low in comparison with the recommended figure (around 2), illustrating a reduced capacity of current assets (mainly trade receivables and cash and cash equivalents) to cover the amount of current liabilities.

Accounts receivable turnover indicates the number of days until the debtors pay their debt to the company, showing the effectiveness of the company in collecting its receivables. The increase in the number of days in 2003 may indicate problems connected to the control of credit given to clients. Accounts payable turnover indicates the number of credit days the company obtains from its suppliers. Non-current assets turnover evaluates the efficiency in managing the non-current assets by examining the value of the turnover generated by operating these. Assets turnover evaluates the efficiency in managing the total assets by examining the value of the turnover generated by the companys assets.

II. Risk ratios The degree of indebtness ratio shows how many times the borrowed capital (long term debts) can be covered by own capital and reflects the financing structure of the Company at the end of the financial year. As the ratio has a negative value at 31 December 2002 and a nil value at 31 December 2003, it is not relevant to compute it. Interest cover ratio shows how many times interest expense is covered by profit before interest and tax. The lower the ratio, the more risky the position of the company is considered to be. For 2002, the analysis of the indicator is not relevant, as the indicator has a negative value.

IV. Profitability ratios Gearing ratio represents the profit the company obtains from one unit of resource, invested in the business. The company recorded a loss in 2002 and a profit in 2003. Gross profit margin has a high level in 2003.

III. Efficiency ratios

Inventory turnover indicates the number of days goods are held by the company.

Note 10. Other Information


10.1 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.

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30

V. Earnings per share ratios Earnings per share ratio was ROL 5,820 per share in 2003, and in 2002 the company recorded losses of ROL 17,610 per share.

The Company's headquarters is located in Oras, Florilor Street no. 25.

Illustrative Financial Statements

10.2 Related Parties


The Company carried on commercial transactions in 2002 and 2003 with the following related parties: Company S.C. Eficienta S.R.L. S.C. Contractul S.R.L. Country of origin Romania Romania Address

Oras, Ardeziei Street, no. 137 Oras, Victoriei Street, no. 20

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

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

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 - Year 2002

1. accounting profit for the year 2. non taxable revenues 3. total non deductible expenses

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31

P
ROL ROL ROL ROL ROL ROL ROL

The accumulated fiscal losses can be carried forward over maximum five years. In the financial year ended 31 December 2003, the Company recorded an accounting profit of ROL 69,076,992 thousand in the financial statements in nominal terms and a fiscal profit of ROL 75,076,992 thousand. The reconciliation between the fiscal result and the accounting result is presented below:

5. recoverable fiscal loss from previous years 6. accumulated fiscal loss (row4+row5) 7. tax on profit 25 %

4. fiscal profit (row1-row2+row3)

L
ROL 12,215,922 thousand - Loss ROL 173,503,970 thousand - Loss 69,076,992 thousand 61,077,251 thousand 67,077,251 thousand 75,076,992 thousand (260,796,884) thousand (185,719,892) thousand 0 thousand The most important foreign clients are the German company Foreign Business AG and the Swedish Business Company from Sweden.
Illustrative Financial Statements

10.4 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.

10.5 The amount of future payments for rent and operating lease contracts.
Rent

31 December 2002 Less than 1 year Between 1 and 5 years More than 5 year Total 3,325,623 6,964,497 10,290,120

31 December 2003 3,831,413 8,275,837 -

Operating leasing
Thousand ROL Instalments to be paid at 31 December 2002 Less than 1 year Between 1 and 5 years More than 5 year Total 1,421,450 1,097,965 Instalments to be paid at 31 December 2003 1,421,450 1,729,850 3,151,300

2,519,415

10.6 Auditors

The Company's auditor is Audit S.R.L. The audit fees are based on the existing agreement between the two parties

a) Letters of guarantee (collateral cash) Contract no. 544 545 553

A
555 Total 566 Total

10.7 Security granted

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32

P
Beneficiary Beneficiary

and is stated in the service contract signed by the company and by Audit S.R.L.

L
EUR 69,025 69,025 30,677 107,371 276,098 EUR 60,000 60,000
Illustrative Financial Statements

12,107,250

Foreign Business AG Foreign Business AG Foreign Business AG Foreign Business AG

Contract no.

Swedish Business

Thousand ROL

Instalments to be paid at

Instalments to be paid at

b) Letters of guarantee in the favor of Customs Security Bureau Constanta (collateral cash)

Beneficiary

Value ROL

Duane Duane Total

600,000,000 600,000,000 1,200,000,000

10.8 Pledges received


There were no letters of guarantee issued in the Company's favor.

Note 11. Inventory


Thousand ROL 31 December 2002

P
193

Raw materials Provisions for raw materials Consumables Provisions for consumables Small inventory Work in progress Provisions for work in progress Semi-finished goods, finished goods, residual products Inventory held by third parties

12,516,187 (172,565)

L
31 December 2003 25,253,066 (1,115,892) 7,535,193 (784,817) 1,074,262 150,850,786 (26,895,398) 4,466,108 (311,922) 250,941 162,308,928 (35,031,767) 12 164,099 1,974,742 177,689 18,249,574 170,452 9,212 164,428,108 156,260,975 booked a provision for work in progress amounting to ROL 26,895,398 thousand.

Goods for resale and packaging materials

Advances for inventory purchase

The recoverability of the debt related to Utility International litigation was evaluated by the management of the Company as doubtful and the Company has

Total

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Illustrative Financial Statements

Note 12. Cash and cash equivalents


Thousand ROL 31 December 2002 31 December 2003

Cash at bank Petty cash Other cash and cash equivalents

14,899,201 5,434 79,638

Total

14,984,273

Note 13. Lease obligation


Financial leases as at 31 December 2003 are as follows: Thousand ROL 31 December 2002 Period

P
31 December 2003 Payments 1,371,803 1,371,803

L
31 December 2003 Interest 31 December 2003 Principal 124,709 1,247,094 124,709 1,247,094 31 December 2003 3,637,973 1,771,443 5,409,416

Between one year and five years More than five years

Total

Note 14. Related parties


14.1 Balances as at 31 December 2003

S.C. Alfa S.R.L. concluded a lease agreement (contract no. 4002/03/01/2003) with SC Leasing Romania for the acquisition of equipment necessary in the acetylene

Thousand ROL

As at 31 December 2003, the amounts receivable from

Receivables from related parties S.C. Eficienta S.R.L. S.C. Contractul S.R.L. 2,790,676 1,741,780

Total

M
4,532,456

Less than one year

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.

related parties are as follows:

31 December 2002

34

Illustrative Financial Statements

E
146,978,987 6,320 74,299 147,059,606

As at 31 December 2003, the balances payable to related parties are as follows:

Thousand ROL

31 December 2002

31 December 2003

Payables to related parties Trade Suppliers (related parties) S.C. Eficienta S.R.L. S.C. Contractul S.R.L. Suppliers of fixed assets (related parties) S.C. Contractul S.R.L. 20,137,624 20,893,299

Total

41,030,923

14.2.1 Purchases
Thousand ROL

2002

P
2003 10,250,670 10,250,670 2003 45,908,220 44,535,236 90,443,456 2003 654,003 654,003

14.2 Transactions with related parties

S.C. Contractul S.R.L.

Total

Thousand ROL

Raw material purchases S.C. Eficienta S.R.L.

S.C. Contractul S.R.L.

Total

Thousand ROL

Purchases of consumables S.C. Eficienta S.R.L. 559,301

Total

M
10,191,496 10,191,496 2002 32,135,754 31,410,773 63,546,527 2002 559,301

Fixed assets purchases

35

Illustrative Financial Statements

E
35,476,432 14,993,841 10,250,670 60,720,943

14.2.2 Sales
Thousand ROL 2002 2003

Sales of merchandise S.C. Eficienta S.R.L. 2,060,952

Total

2,060,952

At 31 December 2003, the deferred tax asset was not recorded in the financial statements as its realisation was not considered probable. The deferred tax asset is generated by the items presented in the following table,

representing temporary differences between their fiscal base and their accounting base, and by the fiscal loss brought forward (refer to note 10.3).

Thousand ROL Property, plant and equipment Intangible assets Investment property Other investments Inventories

P M
36

Interest-bearing loans and borrowings Employee benefits Deferred government grants Provisions Other items

Total

Tax value of loss carried forward

Note 16. Contingent liabilities


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 additional penalties 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.

Alfa S.A. is involved in the following litigations: Litigation with S.C. Popescu S.A. for the recovery of penalties computed in relation with delivered equipment. According to the Company's lawyers, the probability that the Company will lose the litigation and incur losses is remote. Therefore, no provision was recorded in the financial statements.

Illustrative Financial Statements

L
1,013,129 506,565 593,948 848,497 254,549 151,964 1,696,994 5,065,646

Note 15. Deferred tax

31 December 2003

E
2,265,374 2,265,374

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.

Shareholder

Number of shares

P
13,710,021 786,541 282,963 958,943 15,738,468 (ii) Market risk

The General Shareholders Meeting has decided on 9 January 2004 the increase of the share capital by cash subscription - the ROL equivalent of USD 2,880,000, representing 3,862,771 shares with a nominal value of ROL 25,000. As the other shareholders did not take their preemptive right, the amount was subscribed and paid in

entirely by Beta S.A.

The share capital increase was recorded at the Trade Register on 30 March 2004. The structure of the shareholders of the Company after the share capital increase is as follows:

Beta S.A. Company M Company T. Other shareholders

87.11

M
1.80 6.09 100

5.00

Total

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).

The Romanian Economy is in transition, and there exists uncertainty regarding the future evolution of the political and economic development. The management cannot

37

Illustrative Financial Statements

L
Value of capital (thousand ROL) 342,750,525 19,663,515 7,074,075 23,973,585 393,461,700

Note 18. Subsequent events

foresee the changes that may occur in Romania and the effects that these changes may have onto the financial status, operating results and Company's cash flows. (iii) Interest rate risk The Company has concluded a short-term loan with Delta Bank S.A. The interest rate is variable, being the bank base rate plus a 1.5% margin.

(iv) Credit risk In the normal course of its business, the Company is subject to credit risk principally from trade debtors. Management closely monitors its exposure to credit risk on a regular basis. Credit risk with respect to trade receivables is limited due to a large number of customers comprising the Company's customer base. Accordingly, management believes there are no significant concentrations of credit risk.

X
38
Illustrative Financial Statements

ADDITIONAL DATA

(not part of the financial statements)

X
39
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A
40

M
ADMINISTRATOR, PREPARED BY, Name and surname ______________________ Signature _______________________________ Companys stamp Name and surname ______________________ Signature _______________________________ Companys stamp

P
Illustrative Financial Statements

E M P
Companys stamp PREPARED BY,

X L

A
ADMINISTRATOR, Name and surname ______________________ Signature _______________________________

41

Illustrative Financial Statements

Name and surname ______________________

Signature _______________________________

Companys stamp

E M P
Companys stamp PREPARED BY,

X
Name and surname ______________________ Signature _______________________________

A L E

42

ADMINISTRATOR,

Illustrative Financial Statements

Name and surname ______________________

Signature _______________________________

Companys stamp

E M P
Companys stamp PREPARED BY,

X L
Name and surname ______________________ Signature _______________________________

43

Illustrative Financial Statements

ADMINISTRATOR,

Name and surname ______________________

Signature _______________________________

Companys stamp

For further information, please contact:

KPMG Romania
Bucharest Calea Serban Voda, 133 Sector 4 Tel: +40 (21) 336 22 66 Fax: +40 (21) 336 11 77 Timisoara Str. Victor Babes nr. 17 Timisoara, cod 300 595 Tel: 0256 499 055 Fax: 0256 499 361 E-mail: kpmgro@kpmg.ro Web site: www.kpmg.ro

Contacts
Victor Kevehazi, Senior Partner vkevehazi@kpmg.ro Bill Bowman, Partner bbowman@kpmg.ro John Lane, Partner johnlane@kpmg.ro Serban Toader, Partner Stoader@kpmg.ro Aura Giurcaneanu, Senior Manager agiurcaneanu@kpmg.ro

44

Illustrative Financial Statements

The information contained herein is of a general nature and is not intended to address the KPMG Assurance, Romania circumstances of any particular individual or entity. Although we endeavor to provide accurate and Designed and produced timely information, there can be no guarantee that such information is accurate as of the date it KPMG Romania by is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular Calea Serban Voda 133, Sector 4, Bucharest situation.

February 2004

2004 KPMG Romania SRL, the Romanian member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in Romania.

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