Eczacıbaşı Yapı Gereçleri Sanayi ve Ticaret A
Transkript
Eczacıbaşı Yapı Gereçleri Sanayi ve Ticaret A
ECZACIBASI YAPI GERECLERI SAN. VE TIC. A.S. BOARD OF DIRECTORS ANNUAL REPORT PREPARED PURSUANT TO COMMUNIQUE SERIAL:XI NO:29 I. INTRODUCTION 1. Period Covered by the Report This report covers the activities of Eczacibasi Yapi Gerecleri Sanayi ve Ticaret A.S. between 1 January 2009 and 31 December 2009. 2. Company Name Eczacibasi Yapi Gerecleri Sanayi ve Ticaret A.S. 3. Boards in Charge during the Period Board of Directors Bülent Eczacıbaşı Erdal Karamercan Haluk Bayraktar Hüsamettin Onanç Mustafa Sacit Basmacı Atalay Muharrem Gümrah Ahmet TahsinYamaner Chairman Vice Chairman Member-General Manager Member Member Member Member The Directors were elected at the General Assembly Meeting on 3 April 2009 for a period of one year. Audit Committee Bülent Avcı Tayfun İçten Auditor Auditor The auditors were appointed to serve until the examination of the 2009 accounts at the following Ordinary General Assembly Meeting. 4. Registered and Paid-in Capital of the Company Registered Capital Paid-in Capital TRY 300,000,000.TRY 112,830,900.- As EYAP is a publicly-traded company, the exact number of its shareholders is not known. The value of EYAP’s shares fluctuated over the year parallel to movements in the composite index of the Istanbul Stock Exchange. The 2009 closing price per share was TRY 2.62. No dividends were distributed during the previous three years. Shareholders owning more than 10% of EYAP’s capital are listed below. Shareholders Eczacıbaşı Holding A.Ş. Eczacibasi Yatırım Holding Ort. A.S. Share Value (TRY) 78,937,180 8,455,335 Share (%) 69.96 7.49 As of 31 December 2009, the value and percentage of shares held by the principal shareholders of publicly-owned shares were as follows. Shareholders Eczacıbası Holding A.S. Eczacıbaşı Yatırım Holding Ort. A.Ş. Share Value (TRY) 4,810,227 2,799,999 1 Share (%) 4.26 2.49 ECZACIBASI YAPI GERECLERI SAN. VE TIC. A.S. BOARD OF DIRECTORS ANNUAL REPORT PREPARED PURSUANT TO COMMUNIQUE SERIAL:XI NO:29 5. Main Factors Affecting Performance and Expectations: EYAP’s total sales decreased by 6% in 2009 compared to the same period of the previous year due to the continuing impact of the global economic crisis. Despite the decline in sales, measures taken in previous years to increase productivity and profitability enabled us to transform our operating loss of TRY28,471,991 in 2008 into an operating profit of TRY 3,693,987. On 30 June 2009, we took over Vitra Küvet AŞ through a forward-looking merger transaction. Consequently, our consolidated income statement for the year as a whole includes the operating results of Vitra Kuvet for the July 2009-December 2009 period. 6. Outlook: Our shareholding in our affiliate Burgbad reached 95.02% following the acquisition of 100,000 shares in October 2009. With this purchase, EYAP obtained the position of majority shareholder of Burgbad AG pursuant to the German Joint Stock Company Law, enabling us to purchase the shares held by the minority shareholders of Burgbad AG at a price determined by a court expert. One of the assets we acquired on taking over VitrA Küvet AŞ was a kitchen furniture plant that was being rented to Intema Insaat ve Tesisat Malzemeleri Yatirim ve Pazarlama AŞ, one of our affiliates. Starting on 1 January 2010, we have decided to use the plant ourselves, this way expanding our furniture production to include kitchen as well as bathroom furniture and increasing the productivity of this business. In 2009, we began work on our R&D center in Bozüyük, which we plan to begin operating in 2010. The center will coordinate all of our R&D, innovation, and global collaboration activities so as to position us at the forefront of our sector. 7. Market Position: According to the market share report prepared by the international market research company GFK, EYAP maintains its leadership in the Turkish ceramic sanitary ware, faucet, and concealed cistern markets. 8. Developments in Manufacturing Units, Capacity Usage Rates, Goods and Services Produced, and Comparisons of Quantity, Quality, Demand and Prices with Previous Period Figures: In January 2009, EYAP completed the transportation of its concealed cistern and bathroom accessory production plant in Gebze to Bozüyük, as planned. The move to a single production site has significantly reduced costs and increased productivity. Upon transfer of the complementary products plant in Kartal, İstanbul, to Bozüyük, we expect to reduce costs and increase productivity further in this product group. 2 ECZACIBASI YAPI GERECLERI SAN. VE TIC. A.S. BOARD OF DIRECTORS ANNUAL REPORT PREPARED PURSUANT TO COMMUNIQUE SERIAL:XI NO:29 9. Developments in Prices of Goods and Services, Sales Proceeds and Conditions, Output and Productivity, and Reasons Thereof: In 2009, our sales in Turkey decreased by 6% in TRY terms, while our international sales dropped by 17% in Euro terms. The main reasons for these declines were the contraction of the American and European markets caused by the global crisis and our strategic decision to reduce OEM sales. In light of the downturn in sales to North America and Europe, we decided to restructure our sales operations and review our activities in all markets, with the aim of switching our focus to alternative markets with promising growth potential. 10. Measures to Improve our Financial Structure: During the global crisis, we implemented a series of measure aimed at limiting the impact of the crisis on our financial health. We extended the payment terms for domestic purchases, postponed non-essential investments, implemented measures to reduce stocks, and reviewed expense items so as to increase savings. 11. Information on Interests in Enterprises subject to Consolidation in the Parent Company Capital (Cross-Shareholding): As of 31 December 2009, Eczacıbaşı Holding A.Ş. had a 74.22% shareholding in our company, including its shares in the publicly-owned portion of our company. EYAP does not have a cross-shareholding relationship with Eczacıbaşı Holding A.Ş. nor an influence on this company’s business and management policies. EYAP acquired a majority share of Burgbad AG in July 2008 and now has a shareholding of 95.02% in this German company. 12. Descriptions of the Main Components of the Building Products Division’s Internal Audit and Risk Management Systems with respect to the Preparation of its Consolidated Financial Statements: An international independent auditing company located in Germany has audited the 31 December 2009 financial statements of the subsidiary included in the consolidation to ensure their compliance with the legislation of Turkey’s Capital Markets Board and International Financial Reporting Standards. 3 ECZACIBASI YAPI GERECLERI SAN. VE TIC. A.S. BOARD OF DIRECTORS ANNUAL REPORT PREPARED PURSUANT TO COMMUNIQUE SERIAL:XI NO:29 I. OPERATIONS A) Investments EYAP invested TRY 5,506,116 (USD 3,564,060) in the modernization of its ceramic sanitary ware plant during the 1 January 2009-31 December 2009 period. B) Developments in Production of Goods and Services Capacity Utilization Rates (%) Production Units Ceramic Sanitary Ware Sanitary Fittings Bathtubs 2009/12 69 56 87 2008/12 80 72 104 Changes in Production Volume 2009/12-2008/12 Production (1000 Units) Ceramic Sanitary Ware Duroplast Toilet Seats Concealed Cisterns Furniture Chrome-Plated Products+ Colored Products Bathtubs and Panels Shower Trays 2009/12 3,438 368 128 22 2008/12 4,002 441 139 31 Change (%) (14) (17) (8) (29) 1,754 125 58 2,279 155 65 (23) (19) (12) The foreign currency value of exports slipped from Euro 97.58 million in 2008 to Euro 81.01 million in 2009. Export Revenue: Eczacibasi Yapi Gerecleri Exports - Million € 120.00 97.58 100.00 81.01 80.00 60.00 40.00 20.00 2009/12 4 2008/12 ECZACIBASI YAPI GERECLERI SAN. VE TIC. A.S. BOARD OF DIRECTORS ANNUAL REPORT PREPARED PURSUANT TO COMMUNIQUE SERIAL:XI NO:29 Eczacibasi Yapi Gerecleri Main Export Markets (% of Total) Germany 27% Germany USA Other Countries 55% USA 4% UK Other Countries UK 14% C. Major Financial Ratios Current Ratio Liquidity Ratio Total of Debts / Assets Total of Equity / Assets Total of Equity / Debts 2009/12 2008/12 0.85 0.58 0.80 0.20 0.25 1.07 0.57 0.58 0.42 0.72 D. Administrative Operations 1. Company Directors and their Functions: Name Surname Haluk Bayraktar Levent Giray Hakan Şahin Cem Görürgöz Mustafa Akdoğan D.Erhan Arpaç Berna Erbilek Mustafa Manavoğlu Mehmet Mercan Oktay Pehlevan Ayşegul Uzel Function General Manager Assistant General Manager Projects Director Factory Manager-Kuvet Purchasing Manager HR Manager Marketing Manager Product Development Manager. Factory Manager-VitrA Factory Manager-Artema Financial Affairs Manager 2. Personnel and Labor Changes: 5 Profession MSc. Mechanical Engineer MSc. Industrial Engineer Industrial Engineer Mechanical Engineer Industrial Engineer Lawyer Business Manager Mechanical Engineer Metallurgy Engineer Mechanical Engineer Business Manager-S.M.M.M ECZACIBASI YAPI GERECLERI SAN. VE TIC. A.S. BOARD OF DIRECTORS ANNUAL REPORT PREPARED PURSUANT TO COMMUNIQUE SERIAL:XI NO:29 Status Union Non-Union Total Entries 185 82 267 Departures 98 70 168 Year-end headcount 1,260 410 1,670 3. Collective Bargaining Agreements: On 1 August 2009, EYAP signed a new Collective Bargaining Agreement with the Union for the VitrA unit that is effective for the period 1 January 2009-31 December 2010. The Collective Bargaining Agreement for the Artema unit that EYAP signed on 5 December 2008 is valid for the period 1 September 2008-31 August 2010. 4. Research & Development Activities: In 2009, EYAP spent TRY 4,404,725 on research and development activities. 5. Donations: In 2009, EYAP donated a total of TRY 259,440 to various projects, including TRY 154,840 in materials and services to Primary Boarding Schools involved in the Eczacıbaşı Group Hygiene Project and TRY 57,000 to the Dr. Nejat Eczacıbaşı Foundation. III) RECOMMENDED DISTRIBUTION OF PROFITS AND RESULT EYAP has no profit to distribute due to its net loss for the period. BOARD OF DIRECTORS 6 ECZACIBASI YAPI GERECLERI SAN. VE TIC. A.S. BOARD OF DIRECTORS ANNUAL REPORT PREPARED PURSUANT TO COMMUNIQUE SERIAL:XI NO:29 Eczacibasi Yapi Gerecleri Sanayi ve Ticaret A.S. Report on Compliance with Corporate Governance Principles 1. Declaration of Compliance with Corporate Governance Principles: During the period 1 January 2009 – 31 December 2009, we implemented some but not all of the principles issued by the Capital Markets Board (CMB). Detailed information is given below. PART I. SHAREHOLDERS 2. Division of Relations with Shareholders: EYAP does not have a shareholder relations unit because there is little demand for a unit of this kind. Instead, we manage these relations through the Finance Department, which oversees communication with the CMB, Istanbul Stock Exchange, Central Registry Agency, Takasbank and shareholders. In 2009, we received and responded to four inquiries and 15 requests for annual reports. 3. Exercise of Shareholders Right to Obtain Information: Shareholders’ requests for information are usually transmitted by intermediary organizations. These requests are accepted by appointment and the required meetings arranged. Individual requests are generally received in written form and answered as soon as possible. In 2009, we received and responded to five written requests. Shareholders’ rights and developments that can affect these rights are announced by the Istanbul Stock Exchange; hence, we did not use the electronic media for this purpose during the period. Our articles of association do not contain any clause about appointing a special auditor, nor did we receive any demand for one during the period. 4. Information on the General Meeting: The general shareholders’ meeting was held punctually during the period, and the attendance rate was 89.6%. Shareholders were invited to the meeting through announcements in the press and the bulletin of the Istanbul Stock Exchange. Fifteen people attended the meeting including members of the media and shareholders from the publicly-owned part of the Company. The Company made its annual report and financial statements available to shareholders at its headquarters during the two weeks before the meeting. Shareholders exercised their right to ask questions at the general meeting and received responses from the Board of Directors. There is no provision in the Company’s articles of association that decisions regarding the sales, purchase and lease of large assets be taken up at the general meeting, but they are put on the agenda anyway. To facilitate attendance, the general meeting is announced in popular newspapers and held in the city center. The minutes of the general meeting are sent to the Istanbul Stock Exchange and CMB; they can also be freely viewed at the Company’s headquarters and on the Investor Relations page of Eczacıbaşı Holding’s web site: (www.eczacıbasi.com.tr). 7 ECZACIBASI YAPI GERECLERI SAN. VE TIC. A.S. BOARD OF DIRECTORS ANNUAL REPORT PREPARED PURSUANT TO COMMUNIQUE SERIAL:XI NO:29 5. Voting Rights and Minority Rights: There are no privileged voting rights or mutual affiliate relationships. To date, there has been no shareholder demand concerning minority shares. The Company does not use the cumulative voting procedure. 6. Dividend Policy and Time of Dividend: At a meeting held on 17 March 2006, the Board of Directors established the following corporate governance principles with regard to the Company’s profit distribution policy: There are no special references in the Company’s articles of association to privileged shares, founder benefit shares, the distribution of profit to members of the Board of Directors and employees, and advanced dividends. The Company’s articles of association accept the principle of distribution of the first dividend based on the ratio and amount decided by the CMB. The Board of Directors proposes to the General Meeting how much profit should be distributed based on the principle of maintaining a balance between company profitability, shareholder expectations, and growth strategies. Dividend payments (cash or bonus shares) are to be made as soon as possible within the legal time limit. 7. Transfer of Shares: The Company’s articles of association do not include any provision restricting share transfers. PART II – PUBLIC DISCLOSURE AND TRANSPARENCY 8. Company Information Policy: The Company’s principle is to present all non-confidential information whenever requested and as soon as possible. The Finance Department provides written or oral responses to all requests from shareholders, media or potential investors. 9. Disclosure of Special Cases: In 2009, the Company made 21 special event disclosures to the PDP (Public Disclosure Platform) and the Istanbul Stock Exchange and CMB. Neither institution requested further information. Since the Company’s stocks are not traded in international markets, the disclosures were timely and the CMB did not issue warnings. 10. Company Website and Content: The Company has a website with general information for customers and business partners, www.vitra.com.tr. Information for investors is available on the Investor Relations page of Eczacıbaşı Holding’s web site, www.eczacibasi.com.tr. 8 ECZACIBASI YAPI GERECLERI SAN. VE TIC. A.S. BOARD OF DIRECTORS ANNUAL REPORT PREPARED PURSUANT TO COMMUNIQUE SERIAL:XI NO:29 11. Statement of Final and Real Person Shareholder/Shareholders: The Company is a member of the Eczacıbaşı Group and no study has been done on this subject. 12. Public Disclosure of Potential Insiders: The Company has disclosed this list to the CMB but not to the public. The list includes management, the board of auditors and other boards established according to CMB requirements as listed in the annual report. PART III – STAKEHOLDERS 13. Informing Stakeholders: Stakeholders are informed through general meetings, supplier and customer meetings, strategic planning meetings, general manager meetings and departmental meetings. (Targets, changes in wages, social benefits, travel allowances and satisfaction surveys are reviewed in these meetings.) The Company shares information with customers and suppliers in every area and undertakes joint efforts to develop processes. Strategic meetings with employees are held once a year; general manager meetings are held at least four times a year. Meetings to evaluate customers and suppliers are held at least once a year and related sales and marketing departments make customer visits. 14. Contribution of Stakeholders in Management: Stakeholders contribute to management through strategic planning meetings for employees, general meetings for shareholders, supplier meetings, customer meetings and customer visits. 15. Human Resources Policy: Relations with employees are managed by the Human Resources Department. Our human resources policy aims to: -Establish an organizational structure that is flexible and open to change, while ensuring that human resources are used effectively and productively to achieve the Company’s strategic goals; -Continually review and improve the Company’s human resources processes and systems, and encourage employees to learn so that they might improve their knowledge, competencies, and behavior, thus enhancing their individual performance as well as the performances of their teams and the Company; -Create opportunities for personal and career development that respond to the needs of the Company and reflect performance evaluation results; -Attract employees who have the right competencies for their jobs: who are creative, innovative, participative, open to change, entrepreneurial, energetic and strong communicators; who want to develop personally and professionally and who are able to train others; who share our values; To date, there have been no complaints of discrimination from Company employees. 9 ECZACIBASI YAPI GERECLERI SAN. VE TIC. A.S. BOARD OF DIRECTORS ANNUAL REPORT PREPARED PURSUANT TO COMMUNIQUE SERIAL:XI NO:29 16. Information about Relations with Customers and Suppliers: Customer satisfaction is evaluated through semi-annual surveys carried out by wholesalers and retailers in Turkey and international markets. Apart from surveys, the Company organizes retailer meetings, visits, and trips to the plant. A supplier satisfaction survey is held once a year on “Suppliers’ Day”. 17. Social Responsibility: The Company supports many social, cultural and sports activities, in line with the principles of the Eczacıbaşı Group. There are no legal claims on the Company related to environmental pollution. PART IV – BOARD OF DIRECTORS 18. Structure and Composition of Board of Directors and Independent Members: The Board of Directors consists of 7 members, one of which is an executive officer. Bülent Eczacıbaşı Erdal Karamercan Haluk Bayraktar Hüsamettin Onanç Mustafa Sacit Basmacı Atalay Muharrem Gümrah Ahmet Tahsin Yamaner Chairman Vice Chairman Member-General Manager Member Member Member Member The Board does not have any independent members. The Company’s view is that independent members are not needed since the Board is careful to listen to the views of shareholders and outsources consultancy services when required. 19. Qualifications of Board Members: The structure of the Board of Directors is in accordance with Articles 3.1.1, 3.1.2 and 3.1.5 of the CMB’s Corporate Governance Principles. Related procedures, however, are not included in the Company’s articles of association. 20. Mission, Vision and Strategic Targets of the Company: The Board of Directors’ vision for EYAP in 2009 was to “make VitrA an internationally recognized brand offering complete bathroom solutions”. Its 2009 strategic targets, in line with the Eczacıbaşı Group’s three-year strategic plan for the Building Products Division, were to defend its market leadership in Turkey, expand international sales of branded products, reinforce its financial structure and improve its profitability. The Board of Directors reviews these targets at monthly meetings. 21. Risk Management and Internal Control Mechanism: The Company receives support on every issue from the Audit Committee, which comprises two members of the Board of Directors, as well as from the Financial Coordination Unit of Eczacıbaşı Holding and the Company’s independent auditor. 10 ECZACIBASI YAPI GERECLERI SAN. VE TIC. A.S. BOARD OF DIRECTORS ANNUAL REPORT PREPARED PURSUANT TO COMMUNIQUE SERIAL:XI NO:29 22. Authorization and Duties of Board Members and Directors: These are clearly defined in the articles of association. 23. Operating Principles of the Board of Directors: The Chairman assigns the General Manager the duty of preparing the agenda of Board meetings. Over the year, the Board held 27 meetings that were attended by a majority of the members. Invitations were made by phone or e-mail. The office of the Vice President of the Building Products Division is responsible for organizing meetings and distributing related information No member opposed the Board’s resolutions during the year. All Board members have attended meetings on the subjects listed in Part IV, Article 2.17.4 of the CMB’s Corporate Governance Principles. None of the members have special voting or veto rights. 24. Prohibition on Transactions with the Company and Competition: In line with the general principles of the Eczacibasi Group, no member of the Board of Directors can make a transaction with the Company. 25. Ethical Rules: The Company abides by the ethical rules of the Eczacıbaşı Group. These are distributed to all employees in written format but are not disclosed to the public. 26. Number, Structure and Independence of Committees established by the Board of Directors: The Board only has one Corporate Governance committee, the Audit Committee. The reason for this is that the Company outsources consultancy services when needed. 27. Financial Benefits provided to the Board of Directors: In accordance with the decisions of the general assembly, members of the Board of Directors do not receive wages, make financial transactions with the Company, nor receive performance awards. In 2009, no member of the Board of Directors received guarantees, credit or loans from the Company. 11 ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD 1 JANUARY - 31 DECEMBER 2009 TOGETHER WITH INDEPENDENT AUDITOR’S REPORT 12 Başaran Nas Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. a member of PricewaterhouseCoopers BJK Plaza, Süleyman Seba Caddesi No:48 B Blok Kat 9 Akaretler Beşiktaş 34357 İstanbul-Turkey www.pwc.com/tr Telephone +90 (212) 326 6060 Facsimile +90 (212) 326 6050 CONVENIENCE TRANSLATION INTO ENGLISH OF INDEPENDENT AUDITOR’S REPORT ORIGINALLY ISSUED IN TURKISH INDEPENDENT AUDITOR’S REPORT To the Board of Directors of Eczacıbaşı Yapı Gereçleri Sanayi ve Ticaret A.Ş. 1. We have audited the accompanying consolidated financial statements of Eczacıbaşı Yapı Gereçleri Sanayi ve Ticaret A.Ş. and its subsidiaries (the “Group”) which comprise the consolidated balance sheet as of 31 December 2009 and the consolidated statement of income, consolidated statement of changes in shareholders’ equity and the consolidated statement of cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes. Management’s Responsibility for the Financial Statements 2. The Group management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with the financial reporting standards issued by the Capital Markets Board (“CMB”). 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 3. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the auditing standards issued by the CMB. 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. 13 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 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 financial statements. We believe that the audit evidence we have obtained in sufficient and appropriate to provide a basis for our audit opinion. Opinion 4. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of Eczacıbaşı Yapı Gereçleri Sanayi ve Ticaret A.Ş. as of 31 December 2009, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with the financial reporting standards issued by the CMB (Note 2). Additional paragraph for convenience translation into English 5. The accounting principles described in Note 2 to the consolidated financial statements differ from International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board with respect to the application of inflation accounting for the period between 1 January - 31 December 2005. Accordingly, the accompanying consolidated financial statements are not intended to present the consolidated financial position and results of operations of the Group in accordance with IFRS. Başaran Nas Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. a member of PricewaterhouseCoopers Originally issued and signed in Turkish Coşkun Şen, SMMM Partner Istanbul, 15 March 2010 14 FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD 1 JANUARY - 31 DECEMBER 2009 CONTENTS PAGE CONSOLIDATED BALANCE SHEETS ................................................................................... 1-2 CONSOLIDATED STATEMENTS OF INCOME .................................................................... 3 CONSOLIDATED COMPREHENSIVE STATEMENTS OF INCOME ............................... 4 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY ........................................... 5 CONSOLIDATED STATEMENTS OF CASH FLOW ............................................................ 6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ...................................... 7-67 NOTE 1 NOTE 2 NOTE 3 NOTE 4 NOTE 5 NOTE 6 NOTE 7 NOTE 8 NOTE 9 NOTE 10 NOTE 11 NOTE 12 NOTE 13 NOTE 14 NOTE 15 NOTE 16 NOTE 17 NOTE 18 NOTE 19 NOTE 20 NOTE 21 NOTE 22 NOTE 23 NOTE 24 NOTE 25 NOTE 26 NOTE 27 NOTE 28 NOTE 29 ORGANISATION AND NATURE OF OPERATIONS ......................................................................... BASIS OF PRESENTATION OF FINANCIAL STATEMENTS .......................................................... BUSINESS COMBINATIONS ............................................................................................................... SEGMENT REPORTING ....................................................................................................................... CASH AND CASH EQUIVALENTS ..................................................................................................... FINANCIAL INVESTMENTS ............................................................................................................... FINANCIAL LIABILITIES .................................................................................................................... TRADE RECEIVABLES AND PAYABLES ......................................................................................... OTHER RECEIVABLES AND PAYABLES ......................................................................................... INVENTORIES ....................................................................................................................................... PROPERTY, PLANT AND EQUIPMENT ............................................................................................. INTANGIBLE ASSETS .......................................................................................................................... GOODWILL ............................................................................................................................................ GOVERNMENT GRANTS..................................................................................................................... PROVISIONS, CONTINGENT ASSETS AND LIABILITIES .............................................................. EMPLOYEE BENEFITS ........................................................................................................................ OTHER ASSETS AND LIABILITIES ................................................................................................... EQUITY .................................................................................................................................................. REVENUE AND COST OF SALES ....................................................................................................... EXPENSES BY NATURE ...................................................................................................................... OTHER OPERATING INCOME/EXPENSES ....................................................................................... FINANCIAL INCOME ........................................................................................................................... FINANCIAL EXPENSES ....................................................................................................................... TAX ASSETS AND LIABILITIES ........................................................................................................ EARNINGS PER SHARE ....................................................................................................................... TRANSACTIONS AND BALANCES WITH RELATED PARTIES .................................................... FINANCIAL RISK MANAGEMENT .................................................................................................... FINANCIAL INSTRUMENTS................................................................................................................ EVENTS AFTER THE BALANCE SHEET DATE ................................................................................ 15 7-8 8-23 24-26 27-30 30 31 32-33 33-34 34 35 36-37 38-39 40 40 40-41 41-42 43 44-46 47 47-48 48 49 49 49-53 54 54-57 58-66 66-67 67 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. CONSOLIDATED BALANCE SHEETS AT 31 DECEMBER 2009 AND 2008 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) Notes 2009 2008 ASSETS Current assets: Cash and cash equivalents Trade receivables Due from related parties Other receivables Inventories Other current assets 5 8 26 9 10 17 25,012,485 14,924,793 92,234,000 7,053,485 57,576,479 5,345,162 38,533,767 10,428,148 76,200,736 5,258,738 66,645,278 4,101,561 202,146,404 201,168,228 73,154 4,370,041 188,019,654 87,112,324 32,183,470 1,543,331 1,239,840 51,320 4,370,041 196,495,039 88,569,557 32,183,470 238,182 1,309,049 Total non-current assets 314,541,814 323,216,658 Total assets 516,688,218 524,384,886 Total current assets Non-current assets: Other receivables Financial investments Property, plant and equipment Intangible assets Goodwill Deferred income tax assets Other non-current assets 9 6 11 12 13 24 17 The accompanying notes form an integral part of these consolidated financial statements. 16 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. CONSOLIDATED BALANCE SHEETS AT 31 DECEMBER 2009 AND 2008 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) Notes 2009 2008 LIABILITIES Current liabilities: Financial liabilities Trade payables Due to related parties Other payables Current income tax liabilities Provisions Other current liabilities 7 8 26 9 24 15 17 138,743,127 63,690,390 4,386,279 7,741,732 1,344,227 11,588,399 11,305,124 203,411,204 42,619,839 8,921,150 4,814,753 131,972 11,950,799 14,929,906 238,799,278 286,779,623 130,745,175 17,012,611 25,920,547 163,319 80,913,688 15,211,123 27,844,457 1,333,290 Total non-current liabilities 173,841,652 125,302,558 Total liabilities 412,640,930 412,082,181 18 18 98,654,349 112,830,900 102,262,544 100,000,000 18 18 18 18 18 18 4,555,100 2,058,373 10,542,660 (14,441,272) (16,891,412) 5,392,939 1,303,016 9,777,150 76,603,199 (85,420,821) 10,040,161 Total equity 104,047,288 112,302,705 Total liabilities and equity 516,688,218 524,384,886 Total current liabilities Non-current liabilities: Financial liabilities Provisions for employee benefits Deferred income tax liabilities Provisions 7 16 24 15 EQUITY Attributable to equity holders of the parent Share capital Additional contribution to shareholders’ equity related to merger Restricted reserves Translation reserve Retained earnings Net loss for the period Minority interests Commitments, contingent assets and liabilities 15 The accompanying notes form an integral part of these consolidated financial statements. 17 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED 31 DECEMBER 2009 AND 2008 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) Notes Revenue Cost of sales (-) 4, 19 4, 20 GROSS PROFIT Marketing, selling and distribution expenses (-) General administrative expenses (-) Research and development expenses (-) Other operating income Other operating expense (-) 20 20 20 21 21 OPERATING PROFIT / (LOSS) Financial income Financial expense (-) 22 23 LOSS BEFORE TAX Income tax expense - Taxes on income - Deferred income tax income/(expense) 24 NET LOSS 2009 2008 484,690,909 (303,141,012) 382,207,691 (252,986,750) 181,549,897 129,220,941 (114,451,400) (56,828,824) (6,936,967) 2,953,945 (2,592,664) (86,979,660) (66,544,558) (5,105,264) 2,551,682 (1,615,132) 3,693,987 (28,471,991) 42,376,785 (58,930,419) 36,036,131 (89,845,366) (12,859,647) (82,281,226) (6,545,235) 2,849,489 (800,336) (2,328,892) (16,555,393) (85,410,454) (16,891,412) 336,019 (85,420,821) 10,367 (16,555,393) (85,410,454) Net loss attributable to: - Equity holders of the parent - Minority interests Losses per 1,000 shares (Kr) 25 (0.78) The accompanying notes form an integral part of these consolidated financial statements. 18 (14.61) CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. CONSOLIDATED COMPREHENSIVE STATEMENTS OF INCOME FOR THE YEARS ENDED 31 DECEMBER 2009 AND 2008 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) 2009 NET LOSS 2008 (16,555,393)(85,410,454) Other comprehensive income: Translation reserve 868,616 10,808,257 Other comprehensive income 868,616 TOTAL COMPREHENSIVE LOSS (15,686,777) (74,602,197) (16,125,902) 439,125 (75,643,671) 1,041,474 (15,686,777) (74,602,197) 10,808,257 TOTAL COMPREHENSIVE LOSS ATTRIBUTABLE TO: - Equity holders of the parent - Minority interests The accompanying notes form an integral part of these consolidated financial statements. 19 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2009 AND 2008 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) Share capital Additional equity contribution due to legal merge Restricted reserves Translation reserve Retained earnings Net loss for the period Equity attributable to equity holders of the parent Minority interests Balances at 1 January 2008 56,250,000 - 1,303,016 - 119,070,775 (42,567,115) 134,056,676 Capital increase Transfers Business combinations (Note 3) Effect of change in the effective rate of subsidiary (Note 2) Total comprehensive expense 43,750,000 - - - - (42,567,115) - 42,567,115 - 43,750,000 - - - 9,777,150 99,539 - (85,420,821) 99,539 (75,643,671) - 9,346,793 (348,106) 1,041,474 Total equity 134,056,676 43,750,000 9,346,793 (248,567) (74,602,197) Balances at 31 December 2008 100,000,000 - 1,303,016 9,777,150 76,603,199 (85,420,821) 102,262,544 10,040,161 112,302,705 Balances at 1 January 2009 100,000,000 - 1,303,016 9,777,150 76,603,199 (85,420,821) 102,262,544 10,040,161 112,302,705 - - - (85,420,821) - 85,420,821 - 755,357 - (3,166,518) - - 765,510 (2,457,132) - (16,891,412) (2,457,132) (16,125,902) 4,555,100 2,058,373 (14,441,272) (16,891,412) 98,654,349 Transfers Dividend paid Business combinations (Note 3) Additional equity contribution Due to acquisition (Note 3) Effect of change in the effective rate of subsidiary (Note 2) Total comprehensive expense Balances at 31 December 2009 12,830,900 112,830,900 4,555,100 10,542,660 - The accompanying notes form an integral part of these consolidated financial statements. 20 14,974,839 (828,300) (133,680) (4,124,367) 439,125 5,392,939 (828,300) (133,680) 14,974,839 (6,581,499) (15,686,777) 104,047,288 CONVENIENCE TRANSLATION INTO ENGLISH OF ONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2009 AND 2008 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) Notes 2009 2008 Operating activities: Net loss attributable to equity holders of the parent (16,891,412) Adjustments to reconcile net loss to net cash generated from /(used in) operating activities: Minority interests Depreciation Amortisation Impairment on financial investments Provision for employment termination benefits Provision for doubtful receivables Provision for unused vacation pay liability Provision for lawsuits Accrual for forward foreign exchange contracts Provision for warranty expenses Expense accruals Tax expense Deferred income tax (expense)/income Provision for impairment of inventory Interest expense Interest income Expenses due to business acquisition Gain on sale of property, plant and equipment-net 11 12 6 15 15 17 15 24 24 10 23 22 3 Cash flows generated from/(used in) operating activities before changes in operating assets and liabilities 336,019 31,184,693 9,270,953 5,410,122 3,003,205 2,238,621 475,942 776,434 576,989 6,545,235 (2,849,489) 720,921 19,258,576 (1,699,217) 447,354 (158,839) 58,646,107 Changes in assets and liabilities: Trade receivables Due from related parties Inventories Other receivables Other current assets Other non-current assets Trade payables Due to related parties Other payables Other liabilities Income taxes paid Employment termination benefits paid Utilised provision for lawsuit expenses Annual vacation paid or used Utilised provision for warranty expenses Premiums paid 16 Net cash generated from/(used in) operating activities (5,886,705) (8,488,513) 11,756,865 (1,812,585) (427,553) 203,558 14,282,325 (5,631,640) 2,534,552 (3,122,982) (5,332,980) (3,621,219) (2,017,028) (3,050,636) (987,449) (1,196,116) 45,848,001 Cash flows from investing activities: Cash outflow on acquisition of subsidiary Purchases of property, plant and equipment Purchase of intangible assets Purchase of financial investments Proceeds from sale of property, plant and equipment Interest received Cash outflow on additional share purchase of subsidiary Cash inflow on business acquisition 3 11 12 (85,420,821) 10,367 29,656,633 5,720,930 652,522 8,122,016 1,953,680 373,544 1,666,385 1,437,194 294,398 7,704,046 800,336 2,328,892 1,766,582 14,254,609 (710,619) (214,972) (9,604,278) 17,195,782 3,543,452 5,706,390 194,180 1,010,355 (335,467) 9,256,904 737,373 308,470 (17,275,999) (2,571,289) (9,355,564) (1,056,025) (2,880,082) (5,125,798) (282,312) (13,940,217) (4,224,462) 497,695 1,699,217 (6,581,499) 2,681,271 (118,644,826) (20,138,883) (2,053,694) (377,363) 468,676 710,619 (248,567) - Net cash used in investing activities (20,150,307) (140,284,038) Cash flows from financing activities: Share capital increase Increase in bank borrowings, net Interest paid Dividend paid (16,918,309) (21,395,549) (828,300) 43,750,000 148,582,283 (10,512,973) - Net cash (used in)/ generated from financing activities (39,142,158) 181,819,310 Currency translation differences (76,818) (1,218,439) Net increase in cash and cash equivalents (13,521,282) 35,191,035 Cash and cash equivalents at the beginning of the period 5 38,533,767 3,342,732 Cash and cash equivalents at the end of the period 5 25,012,485 38,533,767 The accompanying notes form an integral part of these consolidated financial statements. 21 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 1 - ORGANISATION AND NATURE OF OPERATIONS Eczacıbaşı Yapı Gereçleri Sanayi and Ticaret A.Ş. (“EYAP” or the “Company”) is a manufacturing company involved in the production of a wide range of ceramic sanitary ware units and complementary products for bathrooms, acyrylic bathtubs and shower cabins, and sanitary fittings and bathroom accessories under the Vitra and Artema brand names. The Company manufactures ceramic sanitary ware, faucets and complementary products for bathrooms in the Bozüyük-Bilecik factory, and bathroom furniture in the Kartal-İstanbul factory. EYAP is a member of the Eczacıbaşı Group of companies, one of the oldest and most prominent industrial groups in Turkey. At the Board of Directors meeting of the Company held on 30 January 2009, the decision was taken to merge Vitra Küvet San. ve Tic. A.Ş., another Eczacıbaşı Group company, into EYAP by taking over the whole of its assets and liabilities as of 31 December 2008 in line with Turkish Law No:451 and Corporate Tax Law No:18-20 and based on the balance sheets prepared in accordance with CMB regulations at 31 December 2008. The aforementioned legal merger was approved at the Extraordinary General Assembly meeting of the Company on 29 June 2009 and realized on 30 June 2009. At the aforementioned meeting at 30 June, it was decided to increase the share capital of the Company from TL100,000,000 to TL112,830,900 and to give the increased capital of TL12,830,900 to the shareholders of the dissoluted company; Vitra Küvet, in return for 1,283,090,000 nominal EYAP shares with 1Kr par value. Vitra Küvet produces acrylic bathtubs and shower cabins. EYAP is registered with the Capital Markets Board (“CMB”) and its shares have been quoted on the Istanbul Stock Exchange (“ISE”) since 15 June 1995. As of 31 December 2009, 16.70% (2008: 18.84%) of the Company's shares were held by the public (Note 18). After the share purchases made by Eczacıbaşı Holding A.Ş. and Eczacıbaşı Yatırım Holding A.Ş. from the ISE, the publicly held share dropped to 9.95% of the Company’s total shares (2008: 18.84%). The address of the registered office is as follows: Kanyon Ofis Büyükdere Cad. No: 185 Kat: 20-21 Levent-İstanbul Subsidiaries: The subsidiaries consolidated in these consolidated financial statements as of 31 December 2009 and the nature of their businesses are as follows: Country Nature Subsidiaries of incorporation of business Burgbad Aktiengesellschaft (“Burgbad”) Burgkama GmbH Burgbad Produktions GmbH Miral Gmbh KAMA Bad Verwaltungs GmbH Société d’Equipement Postformé (S.E.P.) S.C.I. Convention Burg Nederland Burg North America Inc. Burg Belux BVBA Germany Germany Germany Germany Germany France France Netherlands U.S.A. Belgium 22 Bathroom accessories Bathroom accessories Bathroom accessories Bathroom accessories Bathroom accessories Bathroom accessories Bathroom accessories Bathroom accessories Bathroom accessories Bathroom accessories CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 1 - ORGANISATION AND NATURE OF OPERATIONS (Continued) These consolidated financial statements were approved for issue by Haluk Bayraktar and Hüsamettin Onanç in the name of the Board of Directors on 15 March 2010. The owners of EYAP have the power to amend the consolidated financial statements after their issue in the General Assembly meeting of EYAP. NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS 2.1 Basis of presentation A) Financial Reporting Standards The Capital Markets Board of Turkey (“CMB”) regulates the principles and procedures of preparation, presentation and announcement of financial statements prepared by the entities with the Communiqué No: XI-29, “Principles of Financial Reporting in Capital Markets” (“the Communiqué”). This Communiqué is effective for the annual periods starting from 1 January 2008 and supersedes the Communiqué No: XI-25 “The Financial Reporting Standards in the Capital Markets”. According to the Communiqué, entities shall prepare their financial statements in accordance with International Financial Reporting Standards (“IAS/IFRS”) endorsed by the European Union. Until the differences between the IAS/IFRS as endorsed by the European Union and the ones issued by the International Accounting Standards Board (“IASB”) are announced by Turkish Accounting Standards Board (“TASB”), IAS/IFRS issued by the IASB shall be applied. Accordingly, Turkish Accounting Standards/Turkish Financial Reporting Standards (“TAS/TFRS”) issued by the TASB which are in line with the aforementioned standards shall be considered. With the decision taken on 17 March 2005, the CMB has announced that, effective from 1 January 2005, for companies operating in Turkey and preparing their financial statements in accordance with CMB Financial Reporting Standards the application of inflation accounting is no longer required. Accordingly, the Group did not apply IAS 29 “Financial Reporting in Hyperinflationary Economies” issued by IASB in its financial statements for the accounting periods starting 1 January 2005. As the differences between the IAS/IFRS endorsed by the European Union and the ones issued by the IASB have not been announced by TASB as of the date of preparation of these consolidated financial statements, the consolidated financial statements have been prepared within the framework of Communiqué XI, No: 29 and related promulgations to this Communiqué as issued by the CMB in accordance with the accounting and reporting principles accepted by the CMB (“CMB Financial Reporting Standards”) which are based on IAS/IFRS. The consolidated financial statements and the related notes to them are presented in accordance with the formats required by the CMB including the compulsory disclosures. As per CMB’s Communiqué Serial XI, No:29 and its announcements clarifying this communiqué enterprises are obliged to present the hedging rate of their total foreign exchange liability and total export and import amounts in the notes to the financial statements. Accordingly, required reclassifications have been made in the comparative financial statements (Note 2.4). All consolidated financial statements are prepared in Turkish Lira (“TL”) based on the historical cost convention except for the financial assets and liabilities which are expressed with their fair values. 23 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.1 Basis of presentation (Continued) Amendments in International Financial Reporting Standards (a) Standards, amendment and interpretations effective in 2009 and relevant to the Group The Group has adopted the following new and amended IFRS as of 1 January 2009; - IAS 1 (Revised), “Presentation of financial statements” (effective from 1 January 2009): The revised standard prohibits the presentation of items of income and expenses (that is, “non-owner changes in equity”) in the statement of changes in equity, requiring “non-owner changes in equity” to be presented separately from owner changes in equity in a statement of comprehensive income. All non-owner changes in equity are required to be shown in a performance statement, but entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income). Where entities restate or reclassify comparative information, they are required to present a restated balance sheet as at the beginning comparative period in addition to the current requirement to present balance sheets at the end of the current period and comparative period. The Company has decided to present two statements and disclose other comprehensive income in the statement of comprehensive income - IFRS 8 has been effective as a replacement to “Operating Segments”- IFRS 8, IAS 14 “Segment reporting” Standard. The new Standard necessitates a “Corporate Approach” in order to make segment reporting and the information used in internal reporting consistent with each other. The Group began applying IFRS 8 on 1 January 2009. - IFRS 7 (Amendment), “Financial instruments - Disclosures” (effective 1 January 2009): The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy. As the change in accounting policy only results in additional disclosures, there is no impact on prior year decisions. - IAS 23 (Amendment), “Borrowing costs”: The Standard was amended by IASB on 29 March 2007. Revised IAS 23 is applicable from 1 January 2009 on, with early application permitted. The Group has voluntarily applied the accounting policy about borrowing costs in IAS 23 since 1 January 2007. The financial costs arising from borrowings are added on the purchasing or building cost of a qualifying asset in cases where the borrowing cost is related to the purchase or building of the qualifying asset. Other borrowing costs are disclosed in the statement of income of the related period. 24 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.1 Basis of presentation (Continued) (b) Standards, amendments and interpretations, effective in 2009 but not relevant to the Group’s consolidated financial statements • • • • • • • (c) Effective on 1 July 2009 or effective in the annual reporting period that beginning after this date: • • • • • • B) IAS 32, “Financial instruments: Presentation” and IAS 1 (Amendment), “Presentation of financial statements” - Puttable financial instruments and obligations arising on liquidation IAS 39 (Amendment), “Financial instruments: Recognition and measurement” IFRS 2 (Amendment) “Share-based payment” IFRS 1 (Amendment), “First time adoption of IFRS” IFRIC 13, “Customer Loyalty Programmes” IFRIC 15, “Agreements for the construction of the real estates” IFRIC 16, “Hedges of a net investment in a foreign operation” IFRS 3, “Business combinations” IAS 27, “Consolidated and Separate Financial Statements” IAS 28, “Investments in associates” UMS 31 “Interests in joint ventures” (Amendment), IFRIC 17, “Distributions of Non-Cash Assets to Owners” UFRYK 18, “Transfer of assets from customers” Translation of Financial Statements of Foreign Subsidiaries Financial statements of subsidiaries operating in foreign countries are prepared according to the legislation of the country in which they operate and adjusted to the CMB Financial Reporting Standards to reflect the proper presentation and content. Foreign subsidiaries’ assets and liabilities are translated into TL using the foreign exchange rate at the balance sheet date and income, and expenses are translated into TL using the average foreign exchange rate. Exchange differences arising from the retranslation of the opening net assets of foreign undertakings and differences between the average and balance sheet date rates are included in the “translation reserve” under equity. C) Basis of Consolidation a) The consolidated financial statements include the accounts of the parent company, Eczacıbaşı Yapı Gereçleri Sanayi ve Ticaret A.Ş., and its subsidiaries (“Group”) on the basis set out in sections (b), (c), (d) and (e) below. The financial statements of the companies included in the scope of consolidation have been prepared as of the date of the consolidated financial statements and in accordance with CMB Financial Reporting Standards, applying uniform accounting policies and presentation. The results of subsidiaries are included or excluded from their effective dates of acquisition or disposal respectively. 25 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.1 Basis of presentation (Continued) b) Subsidiaries are companies in which the Company has the power to control the financial and operating policies for the benefit of the Company, either (a) through the power to exercise more than 50% voting rights relating to shares in the companies or (b) although not having the power to exercise more than 50% of the voting rights, through the exercise of actual dominant influence over financial and operating policies. The table below sets out the subsidiaries and their shareholding structure as of 31 December 2009 and 2008: Subsidiaries Direct shareholding by the Group (%) 2009 2008 Proportion of effective interest (%) 2009 2008 Burgbad (*) Burgkama GmbH Burgbad Produktions GmbH miral Gmbh KAMA Bad Verwaltungs GmbH Société d’Equipement Postformé (S.E.P.) S.C.I. Convention Burg Nederland Burg North America Inc. Burg Belux BVBA 95.02 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 50.48 95.02 95.02 95.02 95.02 95.02 95.02 95.02 95.02 95.02 47.97 (*) 90.78 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 - 90.78 90.78 90.78 90.78 90.78 90.78 90.78 90.78 90.78 - On 2 July 2008 the Group acquired 47.16% of Burgbad shares owned by Ruddies Beteiligungsund Vermögensverwaltungsgesellschaft mbH for EUR33,399,220. The Group acquired another 41.76% on 31 July 2008 and 1.54% on 20 August 2008 for EUR29,577,245 and EUR1,090,323 respectively, in compliance with the call liability arising from the public trading of Burgbad shares in the Frankfurt and Duesseldorf stock exchanges The Group acquired another 0.26% of Burgbad shares for EUR98,940 (TL203,252) between dates 7 November 2008 and 31 December 2008. As a result of these purchases, the Company’s effective shareholding in Burgbad increased to 90.78% as of 31 December 2008. Additionally the Group acquired 4.24% of Burgbad shares for EUR3,011,341 (TL6,581,499) between 6 March 2009 and 16 October 2009. As a result of these purchases, the Company’s effective shareholding in Burgbad increased to 95.02% as of 31 December 2009. The difference between the cost of the share purchase and the carrying amount of the shares acquired from minority interest holders has been accounted for under retained earnings. After the aforementioned acquisition of shares, the effective shareholding of Eyap increased to 95.02%, which made EYAP the only controlling shareholder per German Stock Corporation Law. Consequently EYAP had the right to purchase the minority shares of Burgbad on a price determined by a court expert. Therefore, on 19 October 2009 the Board of Directors of EYAP requested Burgbad to summon an Extraordinary General Assembly. In the Extraordinary General Assembly meeting it was decided, in line with German Stock Corporation Law, to assign a court expert to determine a purchase price. The results of Burgbad are included from its effective date of acquisition in the consolidated financial statements and reported under the “Bathroom furniture” segment. 26 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.1 Basis of presentation (Continued) The balance sheets and statements of income of the subsidiaries are consolidated on a line-by-line basis and the carrying value of the investment held by EYAP and its subsidiary is eliminated against the related equity. Intercompany transactions and balances between EYAP and its subsidiaries are eliminated during the consolidation. The cost of, and the dividends arising from, shares held by EYAP in its subsidiaries are eliminated from equity and income for the period. c) Investments in which the Group has interests below 20%, or over which the Group does not exercise a significant influence, or which are considered not having a significant impact on the consolidated financial statements are classified as available for sale. Available for sale investments that do not have a quoted market price in active markets and whose fair value cannot be measured reliably are carried at cost less any provision for impairment (Note 6). d) The results of subsidiaries are included or excluded from consolidation on the basis of to their effective dates of acquisition and disposal, e) The minority shareholders’ share in the net assets and results for the period for subsidiaries are separately classified respectively in the consolidated balance sheet and statement of income as minority interest and income or loss attributable to minority interest. 2.2 Changes in the Accounting Policies and Errors Significant changes in accounting policies or significant errors are corrected retrospectively by restating the prior period consolidated financial statements. There are no changes in the accounting policies as of 31 December 2009 and 2008. 2.3 Changes in the Accounting Estimates The effect of changes in accounting estimates affecting the current period is recognised in the current period; the effect of changes in accounting estimates affecting current and future periods is recognised in the current and future periods. There are no changes in the accounting estimates for the period 1 January - 31 December 2009. 2.4 Convenience translation into English of consolidated financial statements originally issued in Turkish The accounting principles for the consolidated financial statements (defined as “CMB Financial Reporting Standards”) differ from the IFRS issued by the International Accounting Standards Board with respect to the application of inflation accounting for the period 1 January - 31 December 2005, measurement principles and disclosure requirements for retirement benefits, and the presentation of basic financial statements and the notes to them. Accordingly, the accompanying consolidated financial statements are not intended to present the financial position and results of operations in accordance with IFRS. 27 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies The significant accounting policies applied in the preparation of these consolidated financial statements are summarized below. These accounting policies are applied on a consistent basis to comparative balances and results, unless otherwise indicated. a) Cash and cash equivalents Cash and due from banks are presented on the balance sheet with their acquisition values. Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with insignificant risk of value in exchange and original maturities of 3 months or less, and marketable securities with original maturities of less than 3 months (Note 5). b) Trade receivables and provision for doubtful receivables Trade receivables that are created by the Group by way of providing goods or services directly to a debtor are carried at amortised cost using the effective yield method. Short duration receivables with no stated interest rate are measured at the original invoice amount unless the effect of imputing interest is significant. EYAP uses a direct collection system for receivables arising from domestic sales as a form of guarantee. EYAP carries out its domestic sales via İntema İnşaat ve Tesisat Mlz. Yat. Paz. A.Ş. (“İntema”); the premiums paid by İntema to dealers that make payments through this system, on the collection amounts at the time of collection, are charged to EYAP. Premiums amounting to TL1,208,853 for the period 01 January – 31 December 2009 period (2008: TL1,015,260) have been accounted for under financial expenses (Note 23). EYAP uses an advance payment system to minimise collection risk and create funds for itself as a requirement of its sector. According to this method, the premiums paid by İntema to dealers with a cash surplus for collections made before the maturity date are charged to EYAP. Premiums amounting to TL4,488,787 for the 01 January – 31 December 2009 period (2008: TL1,335,108) have been accounted for under financial expenses (Note 23). A credit risk provision for trade receivables is established if there is objective evidence that the Group will not be able to collect all amounts due. The amount of the provision is the difference between the carrying amount and the recoverable amount. The recoverable amount is the present value of all cash flows, including amounts recoverable from guarantees and collateral, discounted by the original effective interest rate of the originated receivables at inception. If the amount of the impairment subsequently decreases due to an event occurring after the write-down, the release of the provision is credited to other income (Note 8). 28 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) c) Credit finance income/expenses Credit finance income/expenses represent imputed finance charges on credit sales and purchases. Such income and expenses are recognised using the effective yield method over the year of credit sales and purchases, and included under financial income and expenses. d) Inventories Inventories are valued at the lower of cost or net realisable value less costs to sell. Cost of inventories is comprised of the purchase cost and the cost of bringing inventories into their present location and condition. Cost is determined by the monthly moving weighted average method. Net realisable value less costs to sell is the estimated selling price in the ordinary course of business, less the estimated costs necessary to sell (Note 10). e) Property, plant and equipment Property, plant and equipment are carried at the acquisition value less accumulated depreciation and, if any, impairment (Note 11). Depreciation is provided over the economically useful lives for property, plant and equipment on a straight-line basis The depreciation periods for property, plant and equipment, which approximate the economic useful lives of such assets, are as follows: Years Land improvements Buildings Machinery and equipment Motor vehicles Furniture and fixtures Special costs Other tangible assets 5-30 20-50 2-30 2-15 2-15 2-5 2-15 Gains or losses on disposals of property, plant and equipment are determined by comparing proceeds with their carrying amounts and are included in the related income and expense accounts, as appropriate. Where the carrying amount of an asset is greater than its recoverable amount, it is written down immediately to its recoverable amount. The recoverable amount of an asset is the higher of its fair value less cost to sell and its value in use. Fair value less cost to sell is the amount obtainable from the sale of an asset less the costs of disposal. Value in use is the present value of the future cash flows expected to be derived from an asset. Expenses for the repair of property, plant and equipment are normally charged against income. They are, however, capitalised in exceptional cases if they result in an enlargement or substantial improvement of the respective assets. 29 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) f) Intangible assets Intangible assets comprise trademarks, order backlogs, customer relationships, production knowhow, acquired rights and computer software. The value of trademarks, order backlogs, customer relationships and production knowhow were determined through independent valuations made during business combinations. Intangible assets are carried at cost less accumulated amortisation. The amortisation periods for intangible assets, which approximate the useful lives of such assets, are as follows: Years Trademark Customer relationships Production knowhow Computer software and other rights 20 11 11 2-15 Where an indication of impairment exists, the carrying amount of any intangible asset is assessed and written down immediately to its recoverable amount (Note 12). g) Business combinations and goodwill A business combination is the bringing together of separate entities or businesses into one reporting entity. Business combinations are accounted for by applying the purchase method in accordance with IFRS 3. The cost of a business combination is allocated by recognising the acquiree’s identifiable assets, liabilities and contingent liabilities at the date of acquisition. Goodwill has been recognised as an asset and has initially been measured as the excess of the cost of the combination over the fair value of the acquiree’s assets, liabilities and contingent liabilities. In business combinations, the acquirer recognises identifiable assets (such as deferred income tax on carry forward losses), intangible assets (such as trademarks) and/or contingent liabilities which are not included in the acquiree’s financial statements at their fair values in the consolidated financial statements. The goodwill previously recognised in the financial statements of the acquiree is not considered as an identifiable asset. Goodwill recognized as a result of business combinations is not amortised and its carrying value is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. If the acquisition cost is lower than the fair value of the identifiable assets, liabilities and contingent liabilities acquired, the difference is accounted for as income in the related period. The Group treats transactions with minority interests as transactions with equity owners of the Group. Accordingly, for purchases from minority interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is deducted from equity. Gains and losses on disposals to minority interests are also recorded in equity. 30 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) h) Available-for-sale financial instruments Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; these are included in noncurrent assets unless management has the intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Management determines the appropriate classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. All financial assets are initially recognized at cost, being the fair value of the consideration given and including acquisition charges associated with the investment. After initial recognition, financial assets that are classified as available-for-sale are measured at fair value unless fair value cannot be reliably measured. Other financial assets in which the Group has an interest below 20%, that do not have a quoted market price in active markets, and whose fair value cannot be measured reliably are carried at cost, if applicable, less any provision for impairment. Available-for-sale investments that have a quoted market price in active markets and whose fair values can be measured reliably are carried at fair value. In accordance with the revised IAS 39 “Financial Instruments”, unrealised gains and losses arising from changes in the fair value of financial assets classified as available-for-sale are deferred in the equity until the financial asset is sold, collected, or otherwise disposed of. When the marketable securities availablefor-sale are derecognized from the consolidated financial statement, the related income and expenses followed in the fair value reserve of financial assets under equity are transferred to the consolidated income statement. There is no fair value reserve in the accompanying consolidated financial statements for the periods presented. i) Share capital Ordinary shares are classified as equity. Dividends payable are recognised as an appropriation of profit in the period in which they are declared. In the restatement of shareholders’ equity items, the addition of funds formed due to hyperinflation, such as the revaluation value increase fund in share capital, is not considered a contribution from shareholders. Additions of legal reserves and retained earnings to share capital are considered contributions by shareholders. In the restatement of shareholders’ equity items added to share capital, the capital increase registry dates or the payment dates are considered. In the restatement of share premiums, the payment dates are considered (Note 18). 31 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) j) Taxes on income Taxes on income for the period comprise current tax and the change in deferred income taxes. Current year tax liability consists of the taxes calculated over the taxable portion of the current year income by reference to corporate income tax rates enacted as of the balance sheet date and adjustments provided for previous years’ income tax liabilities. Deferred income tax is provided, using the liability method, for all temporary differences arising between the tax base of assets and liabilities and their carrying values for financial reporting purposes. Currently enacted tax rates are used to determine deferred income taxes. Deferred income tax liabilities are recognised for all taxable temporary differences, whereas deferred income tax assets resulting from deductible temporary differences are recognised to the extent that it is probable that future taxable profit will be available against which the deductible temporary difference can be utilised. Deferred income tax assets and deferred income tax liabilities related to income taxes levied by the same taxation authority are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities (Note 24). Deferred income tax assets and deferred income tax liabilities are classified as long term in the consolidated financial statements. k) Revenue recognition Revenues are recognised on an accrual basis at the time deliveries are made, when the amount of revenue can be measured reliably, and it is probable that the economic benefits associated with the transaction will flow to the Group at the fair value of considerations received or receivable. The Group carries out domestic and foreign sales through İntema İnşaat ve Tesisat Mlz.Yat.Paz. A.Ş. and Eczacıbaşı Dış Ticaret A.Ş. respectively. Revenue from domestic sales is recognized when the goods are delivered to dealers. Revenue from foreign sales is recognized when the goods are delivered to the related custom office or port. Net sales represent the invoiced value of goods sold less sales returns and commission, and exclude sales taxes. When the arrangement effectively constitutes a financing transaction, the fair value of the consideration is determined by discounting all future receipts using an imputed rate of interest. The difference between the fair value and the nominal amount of the consideration is recognized as interest income on a time proportion basis that takes into account the effective yield on the asset. Other revenues earned by the Group are recognised on the following bases: Royalty and rental income - on an accrual basis. Interest income - on an effective yield basis. Dividend income - when the Group’s right to receive payment is established. 32 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) l) Foreign currency transactions and translations Transactions in foreign currencies during the period have been translated at the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies have been translated at the exchange rates prevailing at the balance sheet date. Exchange gains or losses arising on the settlement and translation of foreign currency items have been included in the statement of income. m) Borrowings and borrowing costs Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds, net of transaction costs, and the redemption value is recognised in the income statement over the period of the borrowings. Borrowing costs are charged to the income statement when they are incurred (Note 7). IAS 23 (Amendment), “Borrowing costs” was amended by IASB at 29 March 2007. The revised IAS 23 is applicable from 1 January 2009 onward, with early application permitted. The Group has voluntarily applied the accounting policy about borrowing costs in IAS 23 on 1 January 2007. The financial costs arising from borrowings are added on the purchasing or building cost of a qualifying asset when the borrowing cost is related with the purchase or building of the qualifying asset. Qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use. Other borrowing costs are disclosed in the statement of income of the related period. n) Employee benefits /Provision for employment termination benefits The provision for employment termination benefits represents the present value of the estimated total reserve of the future probable obligation of the Group arising from the retirement of employees in accordance with Turkish Labour Law and calculated by applying actuarial valuation methods (Note 16). o) Provisions, contingent liabilities and contingent assets The conditions that must be met in order to recognise a provision in the consolidated financial statements are that the Group has a present legal or constructive obligation as a result of past events, that it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and that a reliable estimate can be made of the amount of the obligation. Liabilities or assets that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events which are not wholly within the control of the entity are not recognised as liabilities or assets and should be disclosed as contingent liabilities or assets (Note 15). 33 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) p) Related parties The Group is under the control of Eczacıbaşı Holding A.Ş., which owns 70% of the shares. For the purpose of these consolidated financial statements, shareholders, key management personnel and Board members, including their families and companies controlled by or affiliated with them as well as associated companies, are considered and referred to as related parties (Note 26). r) Warranties Warranty expenses are recorded as a result of repair and maintenance expenses for products produced and sold, authorised services’ labour and material costs for products under the scope of the warranty terms without any charge to the customers, initial maintenance costs and estimated costs based on statistical information for possible future warranty services and returns of products with respect to products sold during the year (Note 15). s) Earnings per share Earnings per share disclosed in the consolidated statement of income are determined by dividing net profit by the weighted average number of outstanding shares during the period concerned. In Turkey, companies can increase their share capital through a pro-rata distribution of shares (“Bonus Shares”) to existing shareholders from retained earnings. For the purpose of earnings per share computations, such Bonus Share issuances are regarded as issued shares. Accordingly the weighted average number of shares used in earnings per share computations is derived by giving retrospective effect to share issuances without consideration. Profit or loss derived from changes in fair values of derivative financial instruments is recorded as income or expense in the consolidated statement of income. t) Statement of cash flows Cash flows during the period are classified and reported by operating, investing and financing activities in the cash flow statements. Cash flows from operating activities represent the cash flows of the Group generated from operating activities. Cash flows related to investing activities represent the cash flows that are used in or provided from the investing activities of the Group (fixed investments and financial investments). Cash flows arising from financing activities represent the cash proceeds from the financing activities of the Group and the repayments of these funds. Cash and cash equivalents comprise cash on hand and bank deposits and short-term, highly liquid investments that are readily convertible to known amounts of cash with maturities equal or less than three months and which are subject to an insignificant risk of change in value (Note 5). 34 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) u) Derivative financial instruments Derivative financial instruments are initially recognised in the consolidated balance sheet at cost (including transaction costs) and subsequently measured at their fair value. The derivative financial statements of the Group consist of forward foreign exchange contracts and commodity swap agreements. The fair value of over-the-counter forward foreign exchange contracts is determined based on the comparison of the original forward rate with the forward rate calculated in reference to the market interest rates of the related currency for the remaining period of the contract, discounted to 31 December 2009. All derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. v) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker responsible for allocating resources and assessing the performance of operating segments has been identified as the steering committee, which makes strategic decisions. Management has determined the operating segments based on reports for the steering committee’s strategic decisions. Management approaches its business from a product perspective: ceramic sanitary ware, faucets, bathroom furniture, and bathtubs. Reportable operating segments derive their revenue primarily from domestic and international manufacturing and wholesaling. The steering committee assesses the performance of operating segments based on a measure of Earnings Before Interest, Tax, Depreciation and Amortisation (“EBITDA”) (Note 4). y) Offsetting Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. 35 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.6 Critical Accounting Estimates and Assumptions Preparation of the consolidated financial statements in accordance with CMB Financial Reporting Standards necessitates the usage of estimates and assumptions that can affect amounts of reported assets and liabilities as of the balance sheet date, as well as the explanations for contingent assets and liabilities and income and expenses reported during the accounting period. Although these estimates and assumptions are based on the best judgment of Group management with regard to existing conditions and transactions, actual results may differ from these estimates. Estimates are reviewed on a regular basis and the necessary adjustments and corrections are made; they are included in the income statement when they accrue. Estimates and assumptions subject to the risk of being corrected in the registered value of assets and liabilities in the next financial period are stated below: (a) Estimated impairment of goodwill The Group tests annually whether goodwill has been impaired, in accordance with the accounting policy stated in Note 2.5. The recoverable amount of a cash-generating unit has been determined based on value-in-use calculations. These value-in-use calculations include discounted after-tax cash flow projections based on EUR-denominated financial budgets covering a three-year period and approved by Group management. Cash flows beyond three years are extrapolated. The fair value in EUR is converted into TL using the related foreign exchange rate on the date of the balance sheet. Therefore, the value-in use calculations are affected by fluctuations in the foreign exchange market. The discount rate used in the value-in-use calculations is 8.20%. The discount rates used are before tax and reflect specific risks relating to the Company. As of 31 December 2009, the Group did not determine any impairment in the amount of goodwill as a result of the impairment test performed with the aforementioned assumptions. The sensitivity analysis below presents the changes in value-in-use when the discount rate used in the goodwill impairment test changes: Value-in-use (TL) Basic discount rate +1 Basic discount rate 0 Basic discount rate -1 250,916,898 282,916,556 323,838,414 36 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.6 Critical Accounting Estimates and Assumptions (Continued) (b) Estimated impairment of property, plant and equipment In accordance with the accounting policy stated in Note 2.5, tangible assets were analysed for impairment by the Group. The recoverable amount of property, plant, and equipment has been determined based on value-in-use calculations. These value-in-use calculations include discounted before-tax cash flow projections based on three-year, TL financial budgets approved by Group management. The discount rate used in the value-in-use calculations is 12.80%. This rate is before tax and reflects the company’s specific risks. As of 31 December 2009, the Group did not determine any impairment in the amount of property, plant, and equipment through an impairment test performed with the aforementioned assumptions. The sensitivity analysis below presents the changes in value-in-use when the discount rate used in the property, plant and equipment impairment test changes: Value-in-use (TL) Basic discount rate +1 Basic discount rate 0 Basic discount rate -1 (c) 306,547,419 321,589,346 337,751,236 Net realisable value Inventories are valued at the lower of cost or net realisable value as described by the accounting policy in Note 2.5. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. (d) Useful lives of tangible and intangible assets In accordance with the accounting policy stated in Note 2.5, tangible and intangible assets are stated at historical cost less depreciation and net of any impairment. Depreciation on tangible assets is calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives. Useful lives depend on the best estimates of management, and are reviewed in each financial period and corrected accordingly. (e) Provision for doubtful receivables The Group calculates the provision for impairment of trade receivables to cover the estimated losses resulting from customers’ inability to make required payments. The estimates used in evaluating the adequacy of the provision for impairment of trade receivables are based on the aging of the trade receivable balances and the trend of collection performance. The provision for doubtful trade receivables is a critical accounting estimate that is formed by past payment performance and the financial position of customers. (f) Provisions In accordance with the accounting policy stated in Note 2.5, provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. 37 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.7 Going concern The Group prepares its consolidated financial statements based on the assumption that the Group will continue as a going concern. As of 31 December 2009, the Group’s total current liabilities exceeded its total current assets by TL36,652,874. The operating profit of the Group as of 31 December 2009 was TL3,693,987, while its loss before tax as of 31 December 2009 was TL12,859,647. The Group managed to turn an operating loss of TL28,471,991 in 2008 into an operating profit of TL3,693,987 in 2009 through actions to increase efficiency and profitability, despite the decrease in sales caused by the continuing effects of the global economical crisis. In order to reduce the cost of production and increase efficiency, Group management; Moved the ceramic sanitary ware factory in İstanbul-Kartal to the factory in Bozüyük in 2007 and the bathroom accessory and concealed cistern plant in Kocaeli-Gebze to the factory in Bozüyük in 2008. In 2009, Group management also moved the complementary products production facility to Bozüyük. In 2008, the Group acquired the shares of Burgbad, a premium brand in the European bathroom furniture market, in order to become a global brand in the bathroom furniture segment (Note 3). In 2009, the Group sought to create synergy in its European sales organizations by taking advantage of Burgbad’s power and efficiency. In order to gain a competitive advantage and increase its market share, the Group decided to add acrylic bathtubs and shower cabins to its product line by merging with Vitra Küvet (Note 4). Through this merger, the Group aims to create synergy and decrease costs, strengthen its “complete bathroom” concept, and differentiate itself from competitors in domestic and international markets. The Group has decided to begin kitchen furniture production, effective from 1 January 2010, utilizing the kitchen furniture production facilities previously rented to İntema İnşaat ve Tesisat Malzemeleri Yatırım ve Pazarlama A.Ş. by Vitra Küvet, in order to increase the efficiency of furniture production (Note 29). The Group is continuing to implement measures to increase operating efficiency by reviewing administrative processes and taking measures to increase savings. Group management believes that the strategy and market developments described above will help EYAP become more competitive and contribute to improved results. 38 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 3 - BUSINESS COMBINATIONS 31 December 2009 Business combinations: Burgbad, one of the subsidiaries of EYAP, acquired a 50.48% of Burg Belux BVBA’s shares for EUR144,000 in November 2009. The portion of the acquisition cost which exceeds the fair values of identifiable assets, liabilities and contingent liabilities has been added into the consolidated statement of income since no future benefit is expected from future operations (Note 20). The rest of the shares of Burg Belux BVBA will be acquired by Burgbad for EUR141,000 in 2010 according to the agreement signed, and a provision for such additional amount has been accounted for in the consolidated statement of income as of 31 December 2009. The fair value of the acquired identifiable intangible assets and liabilities and the cost of acquisition are as shown below: TL Acquisition cost Acquired net assets 311,083 136,271 Direct costs relating to the acquisition 447,354 The fair value of assets and liabilities arising from the acquisition are as follows: Cash and cash equivalents Trade receivables Inventories Intangible assets Property, plant and equipment Deferred income tax asset Other current/non-current assets Trade payables 28,771 83,703 6,585 455,733 118,232 95,831 23,486 (1,082,292) Total of net assets (269,951) Minority interests 133,680 Net assets acquired (136,271) Purchase consideration settled in cash Acquired cash and cash equivalents (311,083) 28,771 Cash outflow on acquisition (net) (282,312) 39 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 3 - BUSINESS COMBINATIONS (Continued) Legal Merge of Entities Under Common Control: At the Board of Directors Meeting of EYAP, held on 30 January 2009, it was decided that Vitra Küvet be merged with EYAP, that the merger be reflected in the balance sheets of the companies dated 31 December 2008, prepared in accordance with the relevant regulations of the CMB, and that all the assets and liabilities of Vitra Küvet’s balance sheet dated 31 December 2008 be transferred to EYAP as a whole; the merger was approved at the EYAP Extraordinary General Assembly meeting held on 29 June 2009 and realised on 30 June 2009. At the EYAP Extraordinary General Assembly meeting held on 29 June 2009, it was decided that the merger be done via EYAP’s taking over of all the assets and liabilities on the balance sheet of Vitra Küvet San. ve Tic. A.Ş. dated 31 December 2008, based on file No. 2009/1000 D.İş of the Istanbul 9th Commercial Court of First Instance, in accordance with Article 451 of the Turkish Commercial Code, Articles 18 and 20 of the Corporate Tax Law, and provisions of Capital Markets Board Communiqué Serial I No. 31 on the Principles of Merger Transactions. The Istanbul Trade Registry announced in Trade Registry Gazette No. 7347, dated 06 July 2009, that EYAP’s Extraordinary General Assembly Decision dated 29 June 2009 and merger agreement were registered on 30 June 2009. The merger transaction was made by taking the merger rate as 0.886282 and the change rate as 0.738001 and according to the equity method stated in the expert report prepared by the experts assigned based on file No. 2009/1000 D.İş of the Istanbul 9th Commercial Court of First Instance, on the balance sheets dated 31 December 2008, prepared as per the relevant regulations of the CMB; and due to the merger, the issued capital of EYAP was increased by TL12,830,900 to TL112,830,900. Since the merger took place between two companies controlled by Eczacıbaşı Holding A.Ş. as of 30 June 2009 and because EYAP took over all the existing assets and liabilities of Vitra Küvet as a whole in this merger, EYAP’s balance sheet dated 31 December 2009 was prepared by consolidating the two companies’ balance sheets, prepared according to CMB Financial Reporting Standards. As the merger was applied prospectively, the activity results of Vitra Küvet arising after 30 June 2009 have been included in the consolidated income statement for the year ending 31 December 2009. Since the difference of TL4,555,100 arising after this merger is not an item relevant to the presentation of financial statements required by the CMB, it has been indicated as “additional equity contribution due to legal merge” under the consolidated statements of changes in equity. 40 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 3 - BUSINESS COMBINATIONS (Continued) 31 December 2008 On 2 July 2008 the Group acquired 47.16% of Burgbad shares owned by Ruddies Beteiligungs-und Vermögensverwaltungsgesellschaft mbH for EUR33,399,220. The Group acquired another 41.76% on 31 July 2008 and 1.54% on 20 August 2008 for EUR29,577,245 and EUR1,090,323 respectively, in compliance with the call liability arising from the public trading of Burgbad shares in the Frankfurt and Duesseldorf stock exchanges. The fair values of identifiable assets, liabilities and contingent liabilities acquired, and the cost of acquisition are as follows: TL Acquisition cost Direct costs relating to the acquisition 117,384,647 3,426,795 Purchase consideration settled in cash Net assets acquired 120,811,442 (88,627,972) Goodwill (Note 13) 32,183,470 The fair value of assets and liabilities arising from the acquisition are as follows: TL Cash and cash equivalents Trade receivables Other receivables Inventories Intangible assets Property, plant and equipment Deferred income tax asset Other current/non-current assets Trade payables Provisions for pensions Other non-current provisions Deferred income tax liabilities Provisions Financial liabilities Other liabilities Taxes on income 2,166,616 27,542,398 2,558,565 15,376,326 73,627,828 49,433,074 109,848 788,635 (6,654,332) (6,595,127) (472,140) (25,349,055) (11,494,173) (1,109,766) (20,052,441) (1,901,491) Total of net assets 97,974,765 Minority interests (9,346,793) Net assets acquired 88,627,972 Purchase consideration settled in cash Acquired cash and cash equivalents (120,811,442) 2,166,616 Cash outflow on acquisition (net) (118,644,826) 41 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 4 - SEGMENT REPORTING Ceramic sanitary ware and complementary products are classified as Ceramic Sanitary Ware, faucets, accessories and reservoirs are classified as Sanitary Fittings, bathroom furniture is classified as Bathroom Furniture, and acrylic bathtubs are classified as Bathtubs by Group management in order to make strategic decisions about product groups and track business performance. Management takes EBITDA into consideration when evaluating the business performance of segments. EBITDA has been calculated without taking the adjustments and reclassifications for true presentation mentioned in Note 2.1 into consideration. Segment reporting presented to the Group management as of 31 December 2009 and 2008 is as follows: Ceramic Sanitary Ware Gross sales Less: Discounts Less: Returns Net sales Cost of sales (-) Gross profit Marketing, selling and distribution expenses (-) General administrative expenses (-) Research and development expenses (-) Operating (loss)/profit Sanitary Fittings 2009 Bathroom Furniture Bathtubs Total 243,350,265 (48,603,855) (386,178) 168,516,397 (67,780,043) (1,056,181) 234,535,744 (58,192,750) (8,209) 27,480,183 (9,718,823) (44,104) 673,882,589 (184,295,471) (1,494,672) 194,360,232 99,680,173 176,334,785 17,717,256 488,092,446 (119,637,577) (61,869,956) (102,415,956) (10,687,142) (294,610,631) 74,722,655 37,810,217 73,918,829 7,030,114 193,481,815 (49,187,749) (16,082,270) (47,609,212) (3,124,006) (116,003,237) (23,118,417) (10,679,645) (15,575,932) (2,190,575) (51,564,569) (3,297,088) (880,599) (907,703) (3,647,767) 10,140,599 7,085,918 Depreciation and amortisation 15,381,560 1,762,400 14,587,074 EBITDA 14,500,961 11,902,999 21,672,992 42 (46,229) 1,669,304 617,798 2,287,102 (7,898,787) 18,015,222 32,348,832 50,364,054 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 4 - SEGMENT REPORTING (Continued) Ceramic Sanitary Ware Gross sales Less: Discounts Less: Returns Net sales Cost of sales (-) Sanitary Fittings 2008 Bathroom Furniture 251,390,007 184,342,197 (50,788,471) (71,381,638) (362,711) (728,228) 200,238,825 112,232,331 (117,953,201) (78,116,713) 82,285,624 34,115,618 Gross profit Marketing, selling and distribution expenses (-) General administrative expenses (-) Research and development expenses (-) (49,464,955) (17,561,315) (29,397,235) (14,480,150) (1,865,474) (937,952) Operating profit Total 107,426,232 543,158,436 (26,858,223) (149,028,332) (43,660) (1,134,599) 80,524,349 392,995,505 (52,212,477) (248,282,391) 28,311,872 144,713,114 (20,384,039) (5,593,932) (1,889,019) (87,410,309) (49,471,317) (4,692,445) 1,557,960 1,136,201 444,882 3,139,043 Depreciation and amortisation 13,258,150 1,811,800 7,937,404 23,007,354 EBITDA 14,816,110 2,948,001 8,382,286 26,146,397 The reconciliation of EBITDA and loss before tax presented in the consolidated statement of income is as follows: 2009 EBITDA Due date difference on term purchases Utilised/(additional) provision for lawsuit Depreciation and amortisation Due date charges on term sales Provision for doubtful receivables Provision for employment termination benefits, net Other 2008 50,364,054 1,605,976 1,541,086 (40,455,646) (2,668,611) (1,448,899) (3,614,717) (1,990,537) 26,146,397 4,789,605 (1,666,385) (35,377,563) (11,696,883) (1,380,091) (8,122,015) (2,101,606) 3,332,706 (29,408,541) Other operating income Other operating expense 2,953,945 (2,592,664) 2,551,682 (1,615,132) Operating profit/(loss) 3,693,987 (28,471,991) Financial income Financial expense 42,376,785 (58,930,419) 36,036,131 (89,845,366) Loss before tax (12,859,647) (82,281,226) 43 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 4 - SEGMENT REPORTING (Continued) Segment assets 2009 2008 Ceramic sanitary ware Sanitary fittings Bathroom furniture Bathtubs 176,598,682 58,503,842 187,753,259 24,435,189 195,949,904 55,702,488 188,149,491 - Segment assets (*) 447,290,972 439,801,883 Unallocated assets 58,815,845 62,064,685 506,106,817 501,866,568 Total assets (*) Segment assets are generally related to segment operations. The reconciliation of segment assets with the total assets presented in consolidated financial statements is as follows; 2009 2008 Segment assets 506,106,817 501,866,568 Depreciation and amortisation Impairment on property, plant and equipment Provision for doubtful receivables Written-off tangible and intangible assets Impairment on inventory Impairment on financial assets Deferred tax assets Other 21,924,374 (3,830,304) (2,711,034) (3,261,972) (1,695,232) (1,225,009) 1,164,294 216,284 33,407,960 (3,830,304) (2,391,361) (1,374,989) (2,417,804) (1,225,009) 349,825 Total assets 516,688,218 524,384,886 Segment liabilities 2009 2008 Ceramic sanitary ware Sanitary fittings Bathroom furnitures Bathtubs 10,422,355 13,246,342 75,875,030 3,065,135 8,891,207 28,981,969 74,707,558 - Segment liabilities (*) 102,608,862 112,580,734 Unallocated liabilities 293,937,456 279,845,502 Total liabilities 396,546,318 392,426,236 (*) Segment liabilities generally comprise operating liabilities. 44 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 4 - SEGMENT REPORTING (Continued) The reconciliation of segment liabilities with the total liabilities presented in consolidated financial statements is as follows; 2009 Segment liabilities Provision for employment termination benefits Provision for unused vacation pay liability Provision for lawsuits Unrecognized financial expenses Deferred tax liability Forward foreign exchange contracts Premiums paid Other Total liabilities 2008 396,546,318 392,426,236 10,596,601 4,101,874 1,756,144 (360,007) - 9,441,731 4,160,815 3,274,468 (403,280) 301,511 1,437,194 1,196,116 247,390 412,640,930 412,082,181 NOTE 5 - CASH AND CASH EQUIVALENTS 2009 Cash Banks - TL demand deposits - Foreign currency demand deposits - TL time deposits - Foreign currency time deposits 2008 32,589 24,905 30,773 16,553,561 7,381,855 1,013,707 70,376 11,382,370 17,292,000 9,764,116 25,012,485 38,533,767 The terms of the time deposits are up to one year as of 31 December 2009 and 2008. The interest rates applied are 8.50% and 0.25% for TL and EUR time deposits respectively (2008: Interest rates for TL time deposits are 16.18%. Interest rates for EUR time deposits are 4.79%). 45 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 6 - FINANCIAL INVESTMENTS 2009 Percentage of shareholding % Vitra Bathroom Products LLC OOO Vitra Bath and Tiles JSC Vitra Bulgaria Ood Vitra U.S.A. Inc. Seramik Araştırma Merkezi Akenerji Elektrik Üretimi ve Otoprodüktör A.Ş. 100 50 50 49 1< 1< Less: Diminution in value (-) 2008 Percentage of Amount shareholding % 3,331,687 1,006,138 682,509 572,488 2,000 229 100 50 50 49 1< 1< Amount 3,331,687 1,006,138 682,509 572,488 2,000 229 5,595,051 5,595,051 (1,225,010) (1,225,010) 4,370,041 4,370,041 Financial investments are carried at acquisition cost and shareholding percentages are calculated using nominal values. The financial assets have neither been accounted for using the equity method nor consolidated line-by-line due to the insignificance of their combined impact on the net profit, financial position and results of the Group. The movements of financial assets as of 31 December 2009 and 2008 are below: 2009 1 January 4,370,041 Contribution of capital increase Diminution in value (Note 21) - 31 December 4,370,041 46 2008 4,645,200 377,363 (652,522) 4,370,041 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 7 - FINANCIAL LIABILITIES 2009 Weighted average interest rate p.a. TL 2008 Weighted average interest rate p.a. TL Short-term bank borrowings USD borrowings TL borrowings EUR borrowings Interest accrual 5.24 7.90 - 6,926,220 5,266,219 400,849 4.54 5.57 12,593,288 12,105,206 114,464 19,435,273 982,255 32,637,198 Current portion of long-term bank borrowings EUR borrowings USD borrowing GBP borrowing TL borrowing Interest accrual 3.59 5.75 5.90 - 108,860,839 10,625,940 3,583,800 3,079,260 2009 Weighted average interest rate p.a. 7.30 4.38 5.22 16.50 126,661,971 34,688,608 3,288,600 1,500,000 4,634,827 126,149,839 170,774,006 138,743,127 203,411,204 TL 2008 Weighted average interest rate p.a. TL Long-term bank borrowings EUR borrowings USD borrowings 5.12 5.50 100,222,485 30,522,690 6.77 4.29 130,745,175 79,371,908 1,541,780 80,913,688 The redemption schedule of long-term bank borrowings is as follows: 2009 2010 2011 2012 47 2008 130,745,175 80,913,688 - 130,745,175 80,913,688 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 7 - FINANCIAL LIABILITIES (Continued) The carrying amounts and fair values of bank borrowings are as follows: Carrying amount 2009 2008 Bank borrowings Fair value 2009 2008 269,488,302 284,324,892 277,600,362 289,688,936 269,488,302 284,324,892 277,600,362 289,688,936 The fair values are based on cash flows discounted with the weighted average interest rates of 2.17% (2008: 4.78 %), 2.46% (2008: 4.41%), 1.11% (2008: 5.22%) and 9.67% (2008: 15.33%) per annum for EUR, USD, GBP and TL borrowings respectively. NOTE 8 - TRADE RECEIVABLES AND TRADE PAYABLES Trade receivables 2009 Trade receivables Notes receivables Other trade receivables Less: Provision for doubtful receivables 2008 15,696,029 880,467 1,842,435 11,801,938 785 342,420 18,418,931 12,145,143 (3,494,138) (1,716,995) 14,924,793 10,428,148 The weighted average term of trade receivables is less than 3 months. The balances are calculated based on cash flows discounted using weighted average interest rates of 0.89% (2008: 2.83%), 0.44% (2008: 1.02%), 0.66% (2008: 2.80%) and 0.30% (2008: 0.15%) per annum for EUR, USD, GBP and TL trade receivables, respectively. Movement schedules of provision for doubtful receivables as of 31 December 2009 and 2008 are as follows: 2009 1 January 1,716,995 Current year charge Disposals and collections Additions due to business combinations Currency translation differences 31 December 48 2008 644,590 1,797,948 (29,806) 9,001 182,934 (215,060) 1,017,167 87,364 3,494,138 1,716,995 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 8 - TRADE RECEIVABLES AND TRADE PAYABLES (Continued) Trade payables 2009 Trade payables 64,050,398 Less: Unrealised credit finance expense (360,008) 63,690,390 2008 43,023,119 (403,280) 42,619,839 The weighted average term of trade payables is less than 3 months. The balances are calculated based on cash flows discounted using weighted average interest rates of 5.10% (2008: 2.37%), 3.07% (2008: 0.35%), 2.81% (2008: 2.40%) and 6.20% (2008: 16.95%) per annum for EUR, USD, GBP and TL trade payables, respectively. NOTE 9 - OTHER RECEIVABLES AND PAYABLES 2009 Other Short-Term Receivables VAT receivable Prepaid taxes and funds Receivables from personnel Other receivables 6,541,844 233,792 166,844 111,005 5,111,173 146,515 1,050 7,053,485 5,258,738 2009 Other Long-Term Receivables Deposits and guarantees given Other receivables 49 2008 67,582 5,572 45,748 5,572 73,154 51,320 2009 Other Short-Term payables Payable to personnel Social security payable Taxes and dues payable Order advances taken Deposits and guarantees taken 2008 2008 2,851,334 2,440,554 2,356,316 90,970 2,558 972,170 2,222,270 1,620,313 - 7,741,732 4,814,753 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 10 - INVENTORIES 2009 Raw materials and supplies Semi-finished goods Finished goods Trade goods Less: Provision for impairment on inventories 2008 27,067,878 11,202,162 20,846,642 17,281 25,938,480 9,012,580 33,918,084 - 59,133,963 68,869,144 (1,557,484) (2,223,866) 57,576,479 66,645,278 The cost of inventories recognised as expense and included in “cost of sales” amounted to TL153,251,080 (2008: TL127,271,627). Movement schedules for provision for impairment on inventories are as follows: 2009 1 January 2,223,866 Current year charge Cancelled provisions 720,921 (1,387,303) 31 December 1,557,484 50 2008 1,812,580 1,766,582 (1,355,296) 2,223,866 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 11 - PROPERTY, PLANT AND EQUIPMENT 1 January 2009 Cost: Land Land improvements Buildings Machinery and equipment Motor vehicles Furniture and fixtures Special costs Other tangible assets Construction in progress and advances given Accumulated depreciation: Land improvements Buildings Machinery and equipment Motor vehicles Furniture and fixtures Special costs Other tangible assets Net book value Additions Additions due to legal merge 494,021 10,873,134 10,328,095 81,732 3,243,303 396,355 682,486 Additions due to business combinations 2,770,046 9,953,713 592,390,737 13,940,217 26,112,587 118,232 2,200,865 42,780,743 304,808,138 1,233,345 37,987,507 6,107,015 778,085 180,948 3,256,514 23,565,356 65,562 3,271,263 728,973 116,077 421,429 3,703,572 7,662,984 80,808 3,089,528 396,355 539,643 - (19,754) (1,854,559) (494,603) (3,074,341) - - 204,085 231,187 178,885 - 2,803,242 49,925,160 334,413,106 885,112 41,452,842 7,232,343 1,433,805 395,895,698 31,184,693 15,894,319 - (5,443,257) - 614,157 438,145,610 196,495,039 (5,782,113) 868,401 2,942,195 - 31 December 2009 6,406 328,123 1,383,125 47,241 2,172,214 30,100 19,295 - (31,383) (2,029,102) (544,242) (3,177,386) - Transfers 1,091,822 3,954,222 100,931,129 423,430,835 1,524,409 49,739,392 8,006,396 942,486 13,461 25,870 92,362 - Disposals Currency translation differences (5,574,629) (1,764,033) 517,996 343,343 265,436 - 1,091,822 4,454,649 113,487,400 436,424,361 1,109,140 52,335,321 8,432,851 1,644,267 22,862 7,185,453 1,149,637 626,165,264 188,019,654 As of 31 December 2009 and 2008, there are no mortgages on property, plant and equipment. Transfers amounting to TL1,764,033 are related to intangible assets (Note 12). Depreciation and amortisation expenses of TL30,594,345 have been recorded in “cost of sales”, of TL1,653,098 in “research and development expenses”, of TL1,780,137 in ‘general administrative expenses’ and of TL6,428,066 in “marketing and selling expenses”. 51 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 11 - PROPERTY, PLANT AND EQUIPMENT (Continued) 1 January 2008 Cost: Land Land improvements Buildings Machinery and equipment Motor vehicles Furniture and fixtures Special costs Other tangible assets Construction in progress and advances given Accumulated depreciation: Land improvements Buildings Machinery and equipment Motor vehicles Furniture and fixtures Special costs Other tangible assets Net book value 1,093,794 3,356,360 43,871,028 375,801,600 1,838,476 19,934,616 8,079,833 949,595 465,269 Additions Additions due to business combinations 29,746 2,184,212 9,338,774 67,819 1,525,958 37,218 - 29,933,687 10,466,121 8,728,610 - 6,955,156 304,656 455,390,571 20,138,883 49,433,074 2,054,148 19,660,564 257,097,329 1,419,519 17,376,787 5,358,321 673,249 146,717 2,170,184 24,221,646 147,816 2,044,220 819,782 106,268 - 303,639,917 29,656,633 - 151,750,654 Disposals (1,972) (232,418) (649,184) (381,886) (428,555) (110,655) (7,109) (1,811,779) (232,418) (489,472) (333,990) (429,675) (71,088) (1,432) (1,558,075) Transfers 568,116 485,478 3,215,494 (5,016,212) Currency translation differences 31 December 2008 24,689,142 25,258,030 19,978,763 61,177 1,091,822 3,954,222 100,931,129 423,430,835 1,524,409 49,739,392 8,006,396 942,486 2,770,046 (747,124) 69,987,112 592,390,737 - 21,182,413 23,978,635 18,996,175 - 2,200,865 42,780,743 304,808,138 1,233,345 37,987,507 6,107,015 778,085 - 64,157,223 395,895,698 196,495,039 Transfers amounting to TL747,124 are related to intangible assets (Note 12). Depreciation and amortisation expenses of TL23,883,447 have been recorded in “cost of sales”, of TL1,146,158 in “research and development expenses”, of TL3,878,141 in “general administrative expenses” and of TL6,469,817 in “marketing and selling expenses”. 52 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 12 - INTANGIBLE ASSETS 1 January 2009 Cost: Rights Order backlog Computer software Brand name Customer relationships Production know-how Advances given Accumulated amortisation: Rights Order backlog Computer software Brand name Customer relationships Production know-how Net book value Additions Additions due to legal merge Additions due to business combinations Disposals Transfers Currency translation differences 31 December 2009 32,650,141 813,504 8,561,882 23,790,710 25,873,709 27,162,471 595,191 1,431,636 91,527 2,701,299 772,783 1,488,669 - 455,733 - (2,196,309) (817,299) - 1,764,033 - 186,635 3,795 216,703 235,677 247,416 17,371 35,064,652 10,142,078 24,007,413 26,109,386 27,409,887 3,313,861 119,447,608 4,224,462 2,261,452 455,733 (3,013,608) 1,764,033 907,597 126,047,277 20,665,718 813,504 6,393,328 594,768 1,176,076 1,234,657 2,526,415 705,494 1,195,084 2,363,127 2,480,833 396,609 1,199,097 - - (2,196,309) (817,299) - - 145,965 3,795 10,704 21,166 22,221 21,538,398 8,297,919 1,800,556 3,560,369 3,737,711 30,878,051 9,270,953 1,595,706 - (3,013,608) - 203,851 38,934,953 88,569,557 87,112,324 53 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 12 - INTANGIBLE ASSETS (Continued) 1 January 2008 Cost: Rights Order backlog Computer software Brand name Advances given Customer relationships Production know-how Accumulated amortisation: Rights Order backlog Computer software Brand name Customer relationships Production know-how Net book value Additions Additions due to business combinations Disposals Transfers Currency translation differences 31 December 2008 11,191,351 8,180,760 - 1,255,187 381,122 417,385 - 20,446,508 732,298 21,415,862 153,879 23,290,931 24,451,045 (3,082,434) - 785,125 (38,001) - 2,054,404 81,206 2,374,848 61,928 2,582,778 2,711,426 32,650,141 813,504 8,561,882 23,790,710 595,191 25,873,709 27,162,471 19,372,111 2,053,694 90,490,523 (3,082,434) 747,124 9,866,590 119,447,608 3,828,493 5,541,569 - 1,454,027 727,476 851,759 531,871 1,051,705 1,104,092 16,862,695 - (3,082,434) - - 1,602,937 86,028 62,897 124,371 130,565 20,665,718 813,504 6,393,328 594,768 1,176,076 1,234,657 9,370,062 5,720,930 16,862,695 (3,082,434) - 2,006,798 30,878,051 10,002,049 88,569,557 54 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 13 - GOODWILL Goodwill amounting to TL32,183,470 resulted from the acquisition of shares of Burgbad on 2 July 2008 (Note 3). The Group has not identified any impairment of goodwill based on the test performed as of 31 December 2009. NOTE 14 - GOVERNMENT GRANTS The Group is entitled to the following incentives and rights: i) Exemption from customs duty on imported machinery and equipment ii) Exemption from customs duty on imported investment goods; exemption from VAT, duties and charges on investment goods purchased from local suppliers. NOTE 15 - PROVISIONS, CONTINGENT ASSETS AND LIABILITIES Short-term provisions 2009 Provision for unused vacation pay liability Provision for warranty expenses Provision for lawsuits Provision for employment termination benefits Long -term provisions 7,003,760 2,174,126 1,756,144 654,369 7,343,242 1,193,091 3,274,468 139,998 11,588,399 11,950,799 2009 Provision for warranty expenses 2008 2008 163,319 1,333,290 163,319 1,333,290 Movements of provisions are as follows: 2009 1 January 13,284,089 Charge for unused vacation pay liability Charge for warranty provision Additions due to legal merge Additions due to business combinations Charge for lawsuits Charge for employment termination benefits Paid employment termination benefits Paid warranty liability Utilised provision for lawsuit expenses Paid or used unused vacation pay liability Currency translation differences 31 December 55 2008 6,698,769 2,238,621 776,434 528,446 475,942 654,369 (139,998) (987,449) (2,017,028) (3,050,636) (11,072) 373,544 294,398 4,619,896 1,666,385 139,998 (1,056,025) 547,124 11,751,718 13,284,089 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 15 - PROVISIONS, CONTINGENT ASSETS AND LIABILITIES (Continued) Provisions in the amount of TL1,756,144 (2008: TL3,274,468) were recorded in light of legal consultations and past experiences of legal, labour, trade and administrative lawsuits against the Group. Guarantees received 2009 Guarantee bills received Letter of guarantees received Guarantee cheques received Mortgages received Guarantees given 6,265,667 2,037,820 1,974,647 159,000 7,060,439 1,706,732 1,321,140 140,000 10,437,134 10,228,311 2009 Letter of guarantees given 2008 5,628,198 2008 6,526,646 NOTE 16 - EMPLOYEE BENEFITS 2009 Provision for employment termination benefit Provision for pensions 2008 9,942,232 7,070,379 8,120,249 7,090,874 17,012,611 15,211,123 Turkey Provision for employment termination benefits is allocated in accordance with the disclosures given below. Under Turkish Labour Law, the Company is required to pay termination benefits to each employee who has completed one year of service and whose employment is terminated without due cause, is called up for military service, dies, or retires after completing 25 years of service (20 years for women) and achieves the retirement age (58 for women and 60 for men). Since the legislation was changed on 23 May 2002, there are certain transitional provisions relating to length of service prior to retirement. At 31 December 2009, the amount payable consists of one month’s salary limited to a maximum of TL2,365 (2008: TL2,173) for each year of service. The liability is not funded, as there is no funding requirement. The provision has been calculated by estimating the present value of the future probable obligation of the Company arising from the retirement of employees. 56 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 16 - EMPLOYEE BENEFITS (Continued) IAS 19 “Employee Benefits” requires actuarial valuation methods to be developed to estimate the enterprise’s obligation under defined benefit plans. Accordingly, the following actuarial assumptions were used in the calculation of the total liability: Discount rate (%) Turnover rate to estimate the probability of retirement (%) 2009 2008 5.92 94.00 6.26 97.00 The principal assumption is that maximum liability for each year of service will increase in line with inflation. Thus, the discount rate applied represents the expected real rate after adjusting for the anticipated effects of future inflation. As the maximum liability is revised semi-annually, the maximum amount of TL2,427 (1 January 2009: TL2,260), which is effective from 1 January 2010, has been taken into consideration in calculating the Company’s provision for employment termination benefits. Movements in the provision for employment termination benefits during the year are as follows: 1 January Increase during the year Additions due to legal merge Actuarial gain Paid during the year 31 December 2009 2008 8,120,249 4,955,473 462,368 (621,214) (2,974,644) 9,283,108 8,416,758 (434,740) (9,144,877) 9,942,232 8,120,249 Germany Pension provisions have been stated for obligations resulting from pension plan commitments for retirement, invalidity and dependants payments which guarantee a spesific pension entitlement to employees of Burgbad. The pension provisions are measured using the projected unit credit method on the basis of actuarial surveys. The calculation of provisions has been based on the assumed rate of interest and pension trend which are 5.75% and 2.00% respectively. The movement schedule of provision for employment retirement benefit plans is as follows: 2009 1 January 7,090,874 Addition due to business combinations Increase during the year Payments Currency translation differences 421,494 (506,577) 64,588 31 December 7,070,379 57 2008 6,595,129 (210,687) 706,432 7,090,874 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 17 - OTHER ASSETS AND LIABILITIES 2009 2008 Other current assets Order advances given Prepaid expenses Prepaid taxes and funds Job advances Income accruals Advances given to personnel Other current assets 2,553,178 1,689,797 661,053 58,256 47,407 4,842 330,629 186,788 2,223,137 1,073,725 68,457 1,962 547,492 5,345,162 4,101,561 Other non-current assets Prepaid expenses Other non-current assets 902,929 336,911 948,119 360,930 1,239,840 1,309,049 4,360,554 2,211,751 761,019 564,430 432,060 92,160 21,320 2,861,830 3,844,398 5,457,791 777,922 235,488 98,704 31,702 1,437,194 690,927 2,355,780 11,305,124 14,929,906 Other liabilities Accrued salaries and wages Bonus accrual Deferred income Order advances received Accrual for marketing expenses Accrual for commission expenses Accrual for energy expenses Forward foreign exchange contacts Accrual for reclaims Other 58 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 18 - EQUITY Paid-in capital The total authorised number of ordinary shares of par value YKr1 each at 31 December 2009 is 11,283,090,000 (2008: 10,000,000,000). There is no preferred stock. The movement of ordinary shares issued that are fully paid is as follows: 2009 2008 1 January Issued for legal merge Issued for cash 10,000,000,000 1,283,090,000 - 5,625,000,000 4,375,000,000 31 December 11,283,090,000 10,000,000,000 The Company’s shareholders and their shareholding percentages as of 31 December 2009 and 2008 are as follows: 2009 Eczacıbaşı Holding A.Ş. İntema İnşaat ve Tesisat Malzemeleri Yatırım ve Pazarlama A.Ş. Eczacıbaşı Yatırım Holding Ortaklığı A.Ş. İslam Kalkınma Bankası Kale Seramik A.Ş. Other Publicly owned Total capital Adjustment to share capital (*) Total paid-in capital (*) Share (%) 2008 Share (%) 78,937,180 70 69,562,424 70 6,187,500 5 6,187,500 6 8,455,335 400,604 12,013 809 18,837,459 7 <1 <1 <1 17 5,000,000 400,604 12,013 18,837,459 5 <1 <1 19 112,830,900 100 100,000,000 100 57,797,233 170,628,133 56,796,542 156,796,542 Adjustment to share capital presents the difference between the cash and cash equivalent capital additions adjusted per inflation and the amount before adjustment has been made. After the share purchases made by Eczacıbaşı Holding A.Ş. and Eczacıbaşı Yatırım Holding A.Ş. from the ISE, the shares of Eczacıbaşı Holding A.Ş. and Eczacıbaşı Yatırım Holding A.Ş. have increased to 74.22% and 9.98%, respectively. 59 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 18 - EQUITY (Continued) Restricted Reserves As of 31 December 2009, restricted reserves comprise legal reserves amounting to TL2,058,373 (2008: TL1,303,016). Legal reserves consist of first and second reserves, appropriated in accordance with the Turkish Commercial Code (“TCC”). The TCC stipulates that the first legal reserve is appropriated out of statutory profits at the rate of 5% per annum, until the total reserve reaches 20% of the company’s paid-in share capital. The second legal reserve is appropriated at the rate of 10% per annum of all cash distributions in excess of 5% of the paid-in share capital. Under the TCC, legal reserves can only be used to offset losses and are not available for any other usage unless they exceed 50% of paid-in share capital. These amounts should be classified as restricted reserves according to CMB Financial Reporting Standards. As of 31 December 2009\ restricted reserves comprise legal reserves amounting to TL2,058,373 (2008: TL1,303,016). In accordance with the CMB regulations effective until 1 January 2008, inflation adjustment differences arising at the initial application of inflation accounting which are recorded under “accumulated losses” can be netted off from the profit to be distributed based on CMB profit distribution regulations. In addition, the aforementioned amount recorded under “accumulated losses” can be netted off from net income for the period, if there is any, undistributed prior period profits, and inflation adjustment differences of extraordinary reserves, legal reserves and capital, respectively. In addition, in accordance with the CMB regulations effective until 1 January 2008, “Capital, Share Premiums, Legal Reserves, Special Reserves and Extraordinary Reserves” were recorded at their statutory carrying amounts and the inflation adjustment differences related to such accounts were recorded under “inflation adjustment differences” at the initial application of inflation accounting. “Equity inflation adjustment differences” could be utilised in issuing bonus shares and offsetting accumulated losses, and the carrying amount of extraordinary reserves could be utilised in issuing bonus shares, cash dividend distribution and offsetting accumulated losses. In accordance with Communiqué No:XI-29 and related announcements of the CMB, effective from 1 January 2008, “Share capital”, “Restricted Reserves” and “Share Premiums” should be carried at their statutory amounts. The valuation differences (such as inflation adjustment differences) should be disclosed as follows: - if the difference arises from the inflation adjustment of “Paid-in Capital” and has not yet been transferred to capital, it should be classified under the “Inflation Adjustment to Share Capital”; - if the difference is due to the inflation adjustment of “Restricted Reserves” and “Share Premium” and the amount has not been utilised in dividend distribution or capital increase yet, it should be classified under “Retained Earnings”. Other equity items should be carried at the amounts calculated based on CMB Financial Reporting Standards. Capital adjustment differences have no other use other than being transferred to share capital. 60 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 18 - EQUITY (Continued) In accordance with the CMB Decision No. 02/51 and dated 27 January 2010, concerning the allocation basis of profit from operations in 2009, the minimum profit distribution will not be applied for the year 2009 (31 December 2008: 20%). According to the Board’s decision and Communiqué No. IV-27 issued by the CMB regarding the allocation basis of profit of publicly owned companies, the distribution of the relevant amount may be realised as cash or as bonus shares or partly as cash and bonus shares; and in the event that the first dividend amount to be specified is less than 5% of the paid-up capital, the relevant amount can be retained within the Company. However, companies that made capital increases before distributing dividends related to the prior period, whose shares are therefore classified as "old" and "new", and that will distribute dividends from the profit made from 2008 operations are required to distribute the initial amount in cash. In accordance with the CMB Decision No. 7/242 on 25 February 2005, if the amount of net distributable profit based on the CMB’s requirement regarding the minimum profit distribution arrangements, which is computed over the net profit determined according to CMB regulations, does not exceed net distributable profit in the statutory accounts, then the whole amount calculated per CMB regulations should be distributed. Similarly, if the amount of net distributable profit based on the CMB’s requirement regarding the minimum profit distribution arrangements, which is computed over the net profit determined according to CMB regulations, exceeds net distributable profit in the statutory accounts, then distributable profit is limited to the profit per statutory accounts. When there is a net loss per statutory accounts or financial statements prepared in accordance with CMB financial reporting standards, a distribution of profit is prohibited. Equity table of the Group as of 31 December 2009 and 2008 is as follows; 2009 Share capital Additional equity contribution due to acquisition Restricted reserves Exraordinary reserves Equity inflation adjustment differences Net loss Retained earnings 2008 112,830,900 100,000,000 4,555,100 2,058,373 30,182,811 102,708,895 (16,891,412) (147,332,978) 1,303,016 30,182,811 101,708,204 (85,420,821) (55,287,816) Total attributable equity 88,111,689 92,485,394 Currency transliation differences 10,542,660 9,777,150 Equity attributable to equity holders of the parent 98,654,349 102,262,544 61 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 19 - REVENUE AND COST OF SALES 2009 2008 Domestic sales International sales Other sales 420,580,118 249,420,042 480,893 325,043,159 209,474,610 203,221 Gross sales 670,481,053 534,720,990 (184,295,471) (1,494,673) (151,378,700) (1,134,599) 484,690,909 382,207,691 (303,141,012) (252,986,750) 181,549,897 129,220,941 Less: discounts Less: returns Net sales Cost of sales (-) Gross profit NOTE 20 - EXPENSES BY NATURE Cost of sales 2009 Raw materials, supplies and semi-finished goods Personnel Depreciation and amortisation expenses Energy Maintenance Rent Insurance Transportation Other 62 2008 153,251,080 82,957,752 30,594,345 16,075,287 4,143,200 1,045,806 1,003,171 859,902 13,210,469 127,271,627 70,840,698 23,883,447 17,973,765 4,706,409 1,078,614 937,230 1,778,219 4,516,741 303,141,012 252,986,750 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 20 - EXPENSES BY NATURE (Continued) Operating expenses 2009 Personnel Transportation Advertising and promotion Consultancy Commissions Amortisation and depreciation expenses Employment termination benefits, net Rent Provision for doubtful receivables, net Travel After-sales service Sponsorship Energy Dealer training Communication Expenses due to business combination (Note 3) Termination benefit Other 2008 54,502,462 27,273,916 24,064,750 17,634,909 13,509,477 9,861,301 4,988,628 3,199,013 1,589,772 2,492,531 1,445,067 1,409,680 1,090,506 1,087,451 1,086,214 447,354 282,183 12,251,977 37,689,119 23,193,352 14,921,290 22,437,611 12,304,598 11,494,116 8,122,016 3,003,192 1,166,835 1,641,985 2,417,932 1,640,000 1,038,004 1,575,393 1,242,483 1,483,529 13,258,027 178,217,191 158,629,482 NOTE 21 - OTHER OPERATING INCOME/EXPENSES Other income: 2009 Gain on sales of scrap goods Rent income Insurance compensation Incentive fund income Gain on sale of property, plant and equipment Other Other expenses: 1,008,584 239,995 222,922 202,106 158,839 1,121,499 1,286,364 22,744 241,913 91,751 214,972 693,938 2,953,945 2,551,682 2009 Indemnities Penalties Donations Moving out expenses Taxes paid for stock count differences Impairment on financial assets Other 773,170 345,500 259,440 190,232 148,073 876,249 2,592,664 63 2008 2008 118,503 281,511 364,777 652,522 197,819 1,615,132 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 22 - FINANCIAL INCOME 2009 Foreign exchange gains Due date charges on term sales Interest income Forward foreign exchange contracts Commodity swap contracts 2008 36,039,973 3,200,401 1,699,217 1,437,194 - 25,831,092 9,155,681 710,619 338,739 42,376,785 36,036,131 NOTE 23 - FINANCIAL EXPENSE Foreign exchange losses Interest expense Due date difference on term purchases Forward foreign exchange contracts Other 2009 2008 36,171,445 19,258,576 1,269,883 790,950 1,439,565 67,485,012 14,254,609 4,386,325 3,416,389 303,031 58,930,419 89,845,366 2009 2008 NOTE 24 - TAX ASSETS AND LIABILITIES Taxes and funds payable Less: prepaid current income taxes Tax provision, net 6,545,235 (5,201,008) 800,336 (668,364) 1,344,227 131,972 Turkish tax legislation does not permit a parent company and its subsidiaries to file a consolidated tax return. Therefore, provisions for taxes, as reflected in these consolidated financial statements, have been calculated on a separate-entity basis. Turkey Turkey’s Corporate Income Tax Law was changed with Law No. 5520 which was published on 13 June 2006. Most of the rules of the new Corporate Income Tax Law are applicable from 1 January 2006. According to this, the corporate tax rate applicable for the year 2009 is 20% (2008: 20%). The corporate tax rate is applied to taxable profit, which is calculated by adding non-taxable expenses and deducting some exemptions offered by tax laws (exemptions for participation revenues, exemptions for investment incentives) from the accounting profit of the Company. No additional taxes are paid unless profit is distributed (except a 19.8% withholding tax paid on used investment incentives). 64 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 24 - TAX ASSETS AND LIABILITIES (Continued) Dividends paid to non-resident corporations which have a place of business in Turkey or resident corporations are not subject to withholding tax. Otherwise, dividends paid are subject to withholding tax at the rate of 15%. An increase in capital via issuing bonus shares is not considered a profit distribution and thus does not incur withholding tax. Corporations are required to pay advance corporation tax quarterly at the rate of 20% on their corporate income. Advance tax is payable by the 17th of the second month following each calendar quarter end. Advance tax paid by corporations is credited against the annual corporation tax liability. The balance of the advance tax paid may be refunded or used to set off against other liabilities to the government. In accordance with Tax Law No: 5024 “Law Related to Changes in Tax Procedure Law, Income Tax Law and Corporate Tax Law” that was published on the Official Gazette on 30 December 2003 to amend the tax base for non-monetary assets and liabilities, effective from 1 January 2004, income and corporate taxpayers will prepare their statutory financial statements by adjusting non-monetary assets and liabilities to changes in the general purchasing power of the Turkish Lira. In accordance with the aforementioned law provisions, in order to apply inflation adjustment, the cumulative inflation rate (SIS-WPI) over the previous 36 months and 12 months must exceed 100% and 10%, respectively. Since these conditions in question were not fulfilled after 1 January 2005, no inflation adjustments were performed. In Turkey, there is no procedure for a final and definitive agreement on tax assessments. Companies file their tax returns by the 25th of the fourth month following the close of the financial year to which they relate. Tax returns are open for 5 years from the beginning of the year that follows the date of filing, during which time the tax authorities have the right to audit tax returns and the related accounting records on which they are based, and may issue re-assessments based on their findings. Under the Turkish taxation system, tax losses can be carried forward to offset against future taxable income for up to 5 years. Tax losses cannot be carried back to offset profits from previous periods. Germany In Germany, the corporation tax rate is 29.83%. The applicable tax rate is the result of the corporate income tax rate of 15%, plus a solidarity surcharge of 0.83% and a trade tax rate of 14.00% . The details of taxation on income for the years ended 31 December 2009 and 2008 are as follows: 2009 Current period tax expense (-) Deferred income tax income/(expense) 65 2008 (6,545,235) 2,849,489 (800,336) (2,328,892) (3,695,746) (3,129,228) CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 24 - TAX ASSETS AND LIABILITIES (Continued) The reconciliation of tax expenses stated in the consolidated income statements as of 31 December 2009 and 2008 is as follows: 2009 Loss before tax in the consolidated financial statements Tax charge according to parent company’s tax rate of 20% Effect of current year loss Tax calculated based on the dividend paid Non-deductible expenses Effect of carry forward tax losses Exemptions Effect of property, plant and equipment and intangible assets Effect of tax rate difference Other Tax (expense)/income 2008 (12,859,647) (82,281,226) 2,571,929 16,456,245 (3,699,727) (1,239,040) (467,266) (899,248) 37,606 (13,464,891) (440,607) (6,883,209) 714,456 385,674 (25,423) 128,527 (3,695,746) (3,129,228) Deferred Income Taxes The Group recognises deferred income tax assets and liabilities based upon temporary differences arising between their financial statements as reported under CMB Financial Reporting Standards and their statutory tax financial statements. Tax rates used for deferred income tax assets and liabilities calculated on temporary differences that are expected to be realised or settled based on taxable income under the liability method are 20% in Turkey and 29.5% in Germany (2008: 20% and 29,5%). 66 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 24 - TAX ASSETS AND LIABILITIES (Continued) The composition of cumulative temporary differences and the related deferred income tax assets and liabilities in respect of items for which deferred income tax has been provided at 31 December 2009 and 2008 using the enacted tax rates are as follows: Cumulative temporary differences 2009 2008 Deferred income tax assets/(liabilities) 2009 2008 Deferred income tax asset Provision for employment termination benefits Provision for unused vacation pay liability Provision for impairment of property, plant and equipment Provision for doubtful receivables Provision for lawsuits Provision for impairment on inventory Scrap goods Unrealised credit finance income Administrative expenses Financial assets Forward foreign exchange contracts Personnel bonus accrual Other 11,936,436 4,101,874 8,260,247 4,408,205 3,342,260 2,711,034 1,756,144 1,557,484 469,447 590,468 428,193 251,910 270,618 3,830,304 2,391,361 3,274,468 2,223,866 193,937 851,123 517,124 251,910 1,437,194 1,196,116 290,278 2,514,571 820,375 1,652,049 881,641 668,452 542,207 351,229 311,497 125,401 118,094 72,963 50,382 54,123 766,061 478,272 654,894 444,773 38,787 170,225 152,551 50,382 287,439 239,223 85,632 5,629,294 5,901,929 (29,909,792) (72,002) (24,716) (33,373,779) (80,656) (53,769) (30,006,510) (33,508,204) (24,377,216) (27,606,275) Deferred income tax liabilities Property plant and equipment and intangible assets Unincurred credit finance expenses Other (107,211,314) (123,667,058) (360,008) (403,280) (120,804) (213,690) Deferred income tax (liabilities)/assets - net 67 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 24 - TAX ASSETS AND LIABILITIES (Continued) A deferred income tax asset is recognised only to the extent that it is probable that a tax benefit will be realised in the future. If it is probable that a tax benefit will be realised, a deferred income tax asset is recognised on unused tax losses, unused tax credits and other temporary differences. The Company did not recognise deferred income tax assets in respect of losses amounting to TL118,538,891 (2008: TL102,601,910) that can be carried forward against future taxable income: 2009 2009 2010 2012 2013 2014 Deferred Income Tax Assets: 4,651,626 34,383,662 63,233,936 16,269,667 332,686 4,651,626 34,383,662 63,233,936 - 118,538,891 102,601,910 2009 Deferred income tax assets to be realized in twelve months Deferred income tax assets to be realized after twelve months Defered Income Tax Liabilities: 2008 1,575,514 4,053,780 2,579,795 3,322,134 5,629,294 5,901,929 2009 Deferred income tax liabilities to be settled after twelve months Deferred income tax liabilities to be settled after twelve months 2008 2008 (96,718) (29,909,792) (134,425) (33,373,779) (30,006,510) (33,508,204) Movements in deferred income taxes can be analysed as follows: 2009 1 January Additions due to legal merge (Note 3) Addition due to business combinations (Note 3) Current year deferred income tax income/(expense)-net Currency translation differences 31 December 68 2008 (27,606,275) 524,012 95,831 2,849,489 (240,273) 2,683,108 (25,239,206) (2,328,892) (2,721,285) (24,377,216) (27,606,275) CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 25 - EARNINGS PER SHARE 2009 Net loss attributable to the equity holders of the parent Weighted average number of shares with Kr1 face value each Losses per 1,000 shares (Kr) (16,891,412) 21,603,637,444 (0.78) 2008 (85,420,821) 5,845,308,652 (14.61) NOTE 26 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES The due to and due from related party balances as of year-end, and transactions performed with related parties during the period are summarized below: a) Due from related parties: 2009 Due from shareholders: İntema İnşaat ve Tesisat Mlz.Yat.Paz.A.Ş. Due from group companies: EKOM Eczacıbaşı Dış Ticaret A.Ş. Vitra Bad GMBH Vitra Karo San. ve Tic.A.Ş. Vitra USA Inc Other Less: Provision for doubtful receivables Less: Unearned credit finance income 2008 49,126,483 37,881,481 49,126,483 37,881,481 44,294,653 1,215,860 153,946 88,741 38,602,942 1,903,686 82,184 79,976 407,846 45,753,200 41,076,634 (2,055,229) (590,454) (1,906,256) (851,123) 92,234,000 76,200,736 The movement of provisions for doubtful receivables is summarized below: 2009 1 January 1,906,256 Additions due to legal merge 1 January Collections and disposals 327,343 1,205,257 (1,383,627) 31 December 2,055,229 69 2008 707,295 1,770,746 (571,785) 1,906,256 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 26 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Continued) On average, credit terms for trade receivables are less than 3 months. The effective interest rates applied to receivables from related parties are 0.89% (2008: 2.83%), 0.44% (2008: 1.02%), 0.66% (2008: 2.80%) and 0.30% (2008: 0.15%) for EUR, USD, GBP and TL, respectively. b) Due to related parties: 2009 Due to shareholders: Eczacıbaşı Holding A.Ş. İntema İnşaat ve Tesisat Mlz.Yat.Paz.A.Ş. Due to group companies: ESAN Eczacıbaşı Endüstriyel Hammaddeler San. ve Tic.A.Ş. Vitra Sanitary Marketing U.K. Vitra Bath and Tiles Vitra USA Inc. Eczacıbaşı Sigorta Acenteliği A.Ş. Eczacıbaşı Koramic Yapı Kimyasalları San. ve Tic.A.Ş. Eczacıbaşı Bilgi İletim San. ve Tic.A.Ş. Eczacıbaşı Sağlık Hizmetleri A.Ş. Other c) 2008 2,190,551 389,323 6,534,346 - 2,579,874 6,534,346 1,213,070 291,257 132,332 56,727 34,193 30,889 8,398 395 39,144 936,972 303,253 896,794 79,976 483 17,624 51,096 5,288 95,318 1,806,405 2,386,804 4,386,279 8,921,150 Net sales to related parties: 2009 Eczacıbaşı Dış Ticaret A.Ş. İntema İnşaat ve Tesisat Mlz.Yat.Paz.A.Ş. 70 2008 173,211,997 143,502,126 175,470,093 135,904,026 316,714,123 311,374,119 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 26 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Continued) d) Product, service and property, plant and equipment purchases: 2009 Product EKOM Eczacıbaşı Dış Ticaret A.Ş. (*) Eczacıbaşı Holding A.Ş. (**) İntema İnşaat ve Tesisat Mlz. Yat. Paz. A.Ş. (***) ESAN Eczacıbaşı Endüstriyel Hammaddeler San. ve Tic. A.Ş. Vitra Bad GMBH Eczacıbaşı Spor KulübüVitra USA Inc. Vitra Bath and TilesVitra Sanitary Marketing U.K Eczacıbaşı İlaç Sinai ve Finansal Yat. San. ve Tic. A.Ş. Vitra Karo San.ve Tic. A.Ş. Kanyon Yönetim İşletim Pazarlama Ltd. Şti. Eczacıbaşı Havacılık A.Ş. Eczacıbaşı Bilişim San. ve Tic. A.Ş. İstanbul Modern-İKSV VILLEROY & BOCH Eczacıbaşı Sağlık Hizmetleri A.Ş. Eczacıbaşı Koramic Yapı Kimyasalları San.ve Tic.A.Ş. Girişim Paz.Tük.Ür.San.Tic.A.Ş. İpek Kağıt San. Ve Tic A.Ş. Eczacıbaşı İnşaat ve Tic.A.Ş. Service 29,913,317 19,410,917 6,484 20,899,333 Fixed assets 2,844,646 Financial expense (*) Total - 27,068,671 17,058,724 (**) - 2,352,193 14,852,035 (***)731,120 5,309,694 3,919,934 57,587 2,245,725 1,381,000 903,087 1,253,057 1,470,431 - - 3,977,521 2,245,725 1,381,000 903,087 1,253,057 1,470,431 - 972,147 483,858 - - 972,147 483,858 - 460,481 6,661 111,792 2,387 30,832 73,891 78,778 - - 460,481 6,661 190,570 2,387 30,832 73,891 64,863 10,277 - 14,607 1,296 - 79,470 10,277 2,800 1,296 2,800 3,929,218 83,769,058 44,283,481 825,801 34,730,558 (*) Comprises interest expense and foreign exchange losses on bank borrowings used through Eczacıbaşı Dış Ticaret A.Ş. and Eczacıbaşı Holding A.Ş.. (**) Services received from Eczacıbaşı Holding A.Ş. consist of legal consultancy, financial consultancy, auditing, budget planning, corporate identity and human resource services. These services are charged according to the time spent by the related departments of Eczacıbaşı Holding A.Ş.. Additionally, these services include the time spent for the acquisition of the subsidiary in 2008, legal services and services related with human resources. (***) Service received from Intema İnşaat ve Tesisat Mlz.Yat.Paz.A.Ş. mainly include sales commissions and shared expenses. 71 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 26 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Continued) 2008 Product Eczacıbaşı Dış Ticaret A.Ş. Eczacıbaşı Holding A.Ş. İntema İnşaat ve Tesisat Mlz.Yat.Paz.A.Ş. Eczacıbaşı Endüstriyel Hammaddeler San.ve Tic.A.Ş. Vitra Bad GMBH Vitra USA Vitra Bath and Tiles Vitra Sanitary Marketing U.K Eczacıbaşı İlaç Sanayi Vitra Karo San.ve Tic.A.Ş. Eczacıbaşı Bilgi İletim San. ve Tic.A.Ş. Eczacıbaşı Sağlık Hizmetleri A.Ş. Eczacıbaşı Koramic Yapı Kimyasalları San.ve Tic.A.Ş. Girişim Paz.Tük.Ür.San.Tic.A.Ş. Vitra Küvet San.ve Tic.A.Ş. İpek Kağıt San. Ve Tic A.Ş. Eczacıbaşı İnşaat ve Tic.A.Ş. Eczacıbaşı Beiersdorf Kozmetik Service 113,046 65,912,764 29,947,462 121,133 19,432,224 4,391,867 127,810,685 e) 3,138,622 - Total 62,661,096 21,208,866 (**)16,694 8,721,902 16,956,804 (***)3,919 2,350,368 4,151,171 111,135 2,511,978 1,742,855 1,204,586 1,181,306 874,735 349,429 40,515 35,731 6,517 - Financial expense (*) Fixed assets 34,916 12,953 11,824 5,852 1,078 49,423,185 17,863 223,791 - - 4,262,306 2,511,978 1,742,855 1,204,586 1,199,169 874,735 349,429 264,306 35,731 - - 34,916 12,953 11,824 6,517 5,852 1,078 262,267 73,733,366 Key Management Compensation: The Group has determined key management personnel as the chairman, members of the Board of Directors, general manager and assistant general managers. Key management compensation is summarized as below. 2009 Salaries and other short-term benefits Employment termination benefits Personnel bonuses Unused vacation pay liabilities 72 2008 8,318,483 1,767,214 1,489,018 902,332 7,053,175 668,587 2,341,582 1,104,733 12,477,047 11,168,077 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 27 - FINANCIAL RISK MANAGEMENT Financial risk management The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. Credit Risk Credit risk arises from deposits with banks, as well as credit exposures to customers, including outstanding receivables. Ownership of financial assets involves the risk that counter parties may be unable to meet the terms of their agreements. A significant portion of trade receivables is due from domestic and international related-party sales companies. Since the credit risk of receivables from domestic sales is born by the related party, there is no risk. Receivables from international sales are guaranteed by Eximbank insurance. The risk has been reduced for international receivables that are not covered by Eximbank insurance by collecting them in cash or by receiving a guarantee letter provided by banks. The aging of the Group’s overdue but not impaired trade receivables, including due from related parties which takes into account the overdue terms, is as follows: Trade Receivables 1-30 days overdue 1-3 months overdue 3-12 months overdue 1-5 years overdue More than 5 years overdue Collateralized or secured with guarantees * 2009 Other Receivables 6,516,774 3,454,230 2,701,434 - 73 - Trade Receivables 2008 Other Receivables 14,524,294 3,106,109 1,377,439 - - CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 27 - FINANCIAL RISK MANAGEMENT (Continued) 2009 Maximum net credit risk as of balance sheet date (A+B+C+D+E) (1) - The part of maximum risk under guarantee with collateral A. Net book value of financial assets that are not past due/impaired B. Net book value of financial assets that are renegotiated, if not that will be accepted as past due or impaired C. Net book value of past due but not impaired financial assets (6) - Collateralized or guaranteed part D Net book value of impaired financial assets (4) - Past due (gross carrying amount) Impairment (-) - The part of net value under guarantee with collateral - Not over due (gross carrying amount) - Impairment (-) - The part of net value under guarantee with collateral E. Off-balance sheet items with credit risk Trade receivables Related Other Party 14,924,793 92,234,000 1,339,584 - 10,783,593 83,702,762 Other receivables Related Other Party 2,661,357 - - - 2,661,357 - Bank Deposits Financial Instruments 24,979,896 24,979,896 - - - - - - - 4,141,200 1,339,584 8,531,238 - 3,494,138 (3,494,138) 2,055,229 (2,055,229) - - - - - - - - - - - - - - - - 74 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 27 - FINANCIAL RISK MANAGEMENT (Continued) 2008 Maximum net credit risk as of balance sheet date (A+B+C+D+E) (1) - The part of maximum risk under guarantee with collateral A. Net book value of financial assets that are not past due/impaired 12,193,250 B. Net book value of financial assets that are renegotiated, if not that will be accepted as past due or impaired C. Net book value of past due but not impaired financial assets (6) - Collateralized or guaranteed part D Net book value of impaired financial assets (4) - Past due (gross carrying amount) Impairment (-) - The part of net value under guarantee with collateral - Not over due (gross carrying amount) - Impairment (-) - The part of net value under guarantee with collateral E. Off-balance sheet items with credit risk Trade receivables Related Other Party 10,428,148 12,193,250 76,200,735 116,526 - 6,914,734 60,706,307 - - 3,513,414 116,526 1,716,995 (1,716,995) 15,494,428 1,906,256 (1,906,256) Other receivables Related Other Party Bank Deposits Financial Instruments 1,979,545 - 38,508,862 - - 1,979,545 - - - - - - - - - - - 38,508,862 - - - - - - - - - - - - 75 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 27 - FINANCIAL RISK MANAGEMENT (Continued) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions Group management develops weekly, monthly and 4-month period cash flow plans to determine the liquidity risk; carries out monthly analyses of operating cash adequacy, operating cash’s ability to pay interest, operating profit’s ability to pay interest, and level of operating cash generation; and takes the necessary precautions accordingly. As of 31 December 2009 and 2008, the undiscounted contractual cash flows of the financial liabilities of the Group are as follows: 2009 Carrying amount Contractual cash flow Less than 3 months 3-12 months 1-5 years Over 5 years Non-derivative financial liabilities Financial liabilities Trade payables and due to related parties Other payables Other short term liabilities 269,488,302 68,076,669 7,741,732 11,305,124 295,629,276 68,076,669 7,741,732 11,305,124 62,228,715 69,928,209 163,472,352 67,077,522 999,147 7,741,732 11,305,124 - 356,611,827 382,752,801 148,353,093 70,927,356 163,472,352 - Derivative financial liabilities Derivative cash inflows Derivative cash outlows - - - - - - Net cash outflow from forward contracts - - - - - - Carrying amount Contractual cash flow Less than 3 months 3-12 months 1-5 years Over 5 years 2008 Non-derivative financial liabilities Financial liabilities Trade payables and due to related parties Other payables Other short term liabilities 284,324,892 51,540,989 4,814,753 14,929,906 299,274,938 51,540,989 4,814,753 14,929,906 34,405,490 179,287,081 49,152,695 2,388,294 4,814,753 8,757,419 6,172,487 85,582,367 - - 355,610,540 370,560,586 97,130,357 187,847,862 85,582,367 - Derivative cash inflows Derivative cash outflows 12,193,250 12,844,800 12,193,250 12,844,800 2,923,550 3,211,200 9,269,700 9,633,600 - - Net cash outflow from forward contracts 25,038,050 25,038,050 6,134,750 18,903,300 - - Derivative financial liabilities 76 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 27 - FINANCIAL RISK MANAGEMENT (Continued) Funding risk The ability to fund existing and prospective debt requirements is managed by maintaining the availability of adequate committed funding lines from high quality lenders. Interest rate risk The Group is exposed to interest rate risk through the impact of rate changes on interest-bearing liabilities and assets. These exposures are managed by using natural hedges that arise from offsetting interest rate sensitive assets and liabilities. The Group utilizes its cash in time deposits and the purchase of company bonds. To keep these exposures at a minimum level, the Group tries to borrow at the most suitable rates. Average effective annual interest rates at 31 December 2009 and 2008 are as follows: USD Current Assets Cash and cash equivalents 2009 EUR GBP - 0.25 0.50 2008 EUR GBP TL USD TL 8.50 - 4.79 - 16.18 4.54 5.57 - - Short-Term liabilities Short-term bank borrowings Current portion of long-term bank borrowings 5.24 - 7.90 5.75 3.59 5.90 - 4.38 7.30 5.22 16.50 Long-Term liabilities Long-term bank borrowings 5.50 5.12 - - 4.29 6.77 - - Interest rate positions of the Group at 31 December 2009 and 2008 are as follows: 2009 Financial instruments with fixed interest rates Cash and cash equivalents Bank borrowings 8,395,562 269,488,302 There are no financial instruments with floating interest rates. 2008 27,056,116 284,324,892 - Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Turkish Lira. The Group constantly monitors the currency risk and net financial position through regular meetings and monthly reports. Foreign Currency Position The Group’s assets and liabilities denominated in foreign currencies at 31 December 2009 and 2008 are as follows: 77 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 27 - FINANCIAL RISK MANAGEMENT (Continued) 2009 TL equivalent Assets: Cash and cash equivalent Receivables from related parties Trade receivables Other current assets Other receivables Other non-current assets GBP Other TL equivalent 219,682 3,847,423 161,284 - 7,815,286 15,362,173 5,562,975 525,336 1,508,664 155,955 159,669 4,274,891 217,606 - 1,316,173 - 85,616,736 4,228,389 30,930,389 4,652,166 1,316,173 133,468,778 130,745,175 31,721,522 957,291 5,763,336 3,359,677 10,146,510 163,319 7,070,379 12,402,916 20,079,818 1,738,488 136,627 13,077 85,958 - 51,413,939 46,526,405 12,554,372 187,464 2,558,933 1,555,190 4,636,894 75,600 3,272,869 1,558,754 827,804 145,067 45,266 - 4,882 107,432 - 323,395,987 34,456,884 122,781,666 2,576,891 112,314 (237,779,251) (30,228,495) (91,851,277) 2,075,275 1,203,859 Off-balance sheet foreign currency derivative assets Off-balance sheet foreign currency derivative liabilities Net asset/(liability)position of off balance sheet financial instruments Net Foreign Currency Position AVRO 17,595,619 50,509,710 12,780,446 1,134,884 3,259,168 336,909 Liabilities: Short-term financial liabilities Long-term financial liabilities Trade payables Due to related parties Short-term debt provisions Other short-term payables Other short-term liabilities Long-term debt provisions Provision for employment termination benefits Net Foreign Currency Position (*) ABD Doları - - - - - - - - - - - - - - - 2,075,275 1,203,859 - - (237,779,251) Fair value of foreign currency hedged financial assets - Exports Imports 173,816,812 42,220,332 78 (30,228,495) 13,919,781 9,625,685 (91,851,277) 54,211,569 10,136,954- 8,110,578 2,089,118 16,406,735 553,842 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 27 - FINANCIAL RISK MANAGEMENT (Continued) 2008 TL equivalent Assets: Cash and cash equivalent Receivables from related parties Trade receivables Other current assets Other receivables Other non-current assets GBP Other TL equivalent 1,139,639 4,600,262 146,814 11,403 4,279 9,056,755 14,843,279 4,442,918 1,033,244 1,556,258 307,632 25,076 1,120 44,315 - 1,574,646 7,739 - 77,165,929 5,902,397 31,240,086 70,511 1,582,385 201,704,752 80,913,688 12,553,076 1,123,267 4,128,128 922,633 12,141,661 8,424,164 31,647,936 1,019,493 591,957 510,968 15,527 - 70,315,134 37,075,817 5,101,239 9,557 1,928,311 430,976 5,585,229 3,935,054 1,511,102 294,288 150,552 25,949 - 9,115 105,690 - 321,911,369 33,785,881 124,381,317 1,981,891 114,805 (244,745,440) (27,883,484) (93,141,231) (1,911,380) Off-balance sheet foreign currency derivative assets (**) Off-balance sheet foreign currency derivative liabilities (***) - Net asset/(liability)position of off balance sheet financial instruments Net Foreign Currency Position EUR 21,167,155 40,295,575 9,733,426 2,334,016 3,331,637 304,120 Liabilities: Short-term financial liabilities Long-term financial liabilities Trade payables Due to related parties Short term provisions Other short-term payables Other short-term liabilities Long term provisions Net Foreign Currency Position (*) USD - - - - 12,844,800 - 6,000,000 - - (12,844,800) - (6,000,000) - - (257,590,240) Fair value of foreign currency hedged financial assets 11,407,606 Exports Imports 176,307,394 46,213,136 79 1,467,580 (27,883,484) 29,339,722 13,215,070 (99,141,231) 11,407,606 59,607,387 13,270,209 (1,911,380) 5,226,764 55,549,082 1,467,580 13,728,197 986,327 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 27 - FINANCIAL RISK MANAGEMENT (Continued) The foreign currency position as of 31 December 2009 and 2008 in regard to changes in foreign currency rates is depicted in the table below. The Group is mainly exposed to EUR and USD currency risk. 2009 Profit/Loss Appreciation of Depreciation of foreign currency foreign currency Equity Appreciation of Depreciation of foreign currency foreign currency Change in USD against TL by 10% USD Net assets/liabilities Hedged USD (-) (4,551,504) - 4,551,504 - - - USD Net Effect (4,551,504) 4,551,504 - - EUR Net assets/liabilities Hedged EUR (-) (19,842,631) - 19,842,631 - 615,899 - (615,899) - EUR Net Effect (19,842,631) 19,842,631 615,899 (615,899) Change in EUR against TL by 10% 2008 Profit/Loss Appreciation of Depreciation of foreign currency foreign currency Equity Appreciation of Depreciation of foreign currency foreign currency Change in USD against TL by 10% USD Net assets/liabilities Hedged USD (-) (4,227,677) - 4,227,677 - - - USD Net Effect (4,227,677) 4,227,677 - - EUR Net assets/liabilities Hedged EUR (-) (19,751,491) (1,284,480) 19,751,491 1,284,480 10,878,301 - - EUR Net Effect (21,035,971) 21,035,971 10,878,301 - Change in EUR against TL by 10% 80 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 27 - FINANCIAL RISK MANAGEMENT (Continued) Capital risk management The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group performs a monthly financial risk analysis of capital risk management, the general monetary situation, short-term balance sheet liquidity and net financial liability levels. As of 31 December 2009 and 2008, net debt/(Equity+net debt+minority interest) rates are: Total liabilities Cash and cash equivalents Net deferred income tax liabilities Net debt Equity Minority interest Equity+net debt Net debt/Equity+net debt 2009 2008 412,640,930 (25,012,485) (24,377,216) 363,251,229 98,654,349 5,392,939 467,298,517 78% 412,082,181 (38,533,767) (27,606,275) 345,942,139 102,262,544 10,040,161 458,244,844 75% NOTE 28 - FINANCIAL INSTRUMENTS Fair value of financial instruments Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by a quoted market price, if one exists. Effective 1 January 2009, the Group adopted the amendment to IFRS 7 for financial instruments that are measured in the balance sheet at fair value, which requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: • • • Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2). Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). 81 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 (Amounts expressed in Turkish Lira (“TL”) unless otherwise indicated.) NOTE 28 - FINANCIAL INSTRUMENTS (Continued) For disclosure purposes, the borrowings carried at the amortised cost at the balance sheet are presented with their values in Note 6. The fair value of borrowings for disclosure purposes is estimated by NOTE discounting the future contractual cash flows at the current market interest rate (Libor) that is available to the Group for similar financial instruments that can be classified as level 2. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to the short-term nature of trade receivables and payables. NOTE 29 - EVENTS AFTER THE BALANCE SHEET DATE Starting on 1 January 2010, EYAP began to utilise the kitchen furniture production facilities that had previously been rented to Intema İnşaat ve Tesisat Malzemeleri Yatırım ve Pazarlama A.Ş. by Vitra Küvet, with which EYAP merged on 6 June 2009. The Group decided to take over the premise located at E-5 Karayolu Üzeri, Sifa Mahallesi, Aslı Sokak Tuzla-Istanbul and used by Intema İnşaat ve Tesisat Malzemeleri Yatırım ve Pazarlama A.Ş. in accordance with Article 6 of the Labour Law on the transfer of business premises. Domestic sales of kitchen furniture products will be carried out by Intema İnşaat ve Tesisat Malzemeleri Yatırım ve Pazarlama A.Ş. as the exclusive authorised distributor. ……………………….. 82 ECZACIBASI YAPI GERECLERI SANAYI VE TICARET A.S. AUDIT COMMITTEE REPORT FOR THE ACCOUNTING PERIOD 1 JANUARY –31 DECEMBER 2009 To: Eczacibasi Yapi Gerecleri Sanayi ve Ticaret A.S. General Assembly Title of Company Eczacibasi Yapi Gerecleri Sanayi ve Ticaret A.S. Registered Office Istanbul Capital TRY 112,830,900.- Field of Activity Name & term of office of Auditors, Shareholders, or Company personnel Production of ceramic sanitary ware and fixtures Tayfun Icten and Bulent Avci are in charge up to the Ordinary General Meeting to be held to review Company accounts for the year 2009. They are not shareholders or personnel of the Company. Number of Board meetings held and of Audit Committee meetings attended No attendance at Board meetings; five audits were conducted. Scope, dates and results of audit conducted on Company Accounts, books and documents All operations as of end-April, June, August, October and December 2009 were audited and determined to comply with all laws and regulations. Number and results of counts made in shareholding cash desk as per sub-paragraph 3 of paragraph 1 of Article 353 of the Turkish Commercial Code Counting was performed once every two months or six times a year. In all cases, the cash desk was found to be appropriate for counting. Dates and results of audits conducted as per sub-paragraph 4 of paragraph 1 of Article 353 of the Turkish Commercial Code Complaints and corruptions submitted and related actions Audits were conducted at the end of every month and inventories were found to be consistent with records. No complaints or cases of corruption. We have audited the accounts and transactions for the period 01 January 2009-31 December 2009 in accordance with the Turkish Commercial Code, the Company’s articles of association, other legislation and Generally Accepted Accounting Principles and Standards. We believe that the Balance Sheet prepared as of 31 December 2009 and attached hereto reflects the financial position of the Company on said date and that the Income Statement for the period 01 January 2009-31 December 2009 reflects the operating results for said period fairly and accurately. We kindly request that you approve the Balance Sheet and Income Statement and discharge the Board of Directors of their duties. Audit Committee Tayfun Icten Bulent Avci 83