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Vestel Elektronik (VESD)

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Friday 05 April, 2002

Vestel Elektronik

Final Results

Vestel Elektronik Sanayi Ve Ticaret
29 March 2002



                                                  VESTEL ELEKTRONIK SANAYI VE 
                                                   TICARET ANONIM SIRKETI AND 
                                                       ITS SUBSIDIARIES 
                                                      INFLATION ADJUSTED 
                                                         CONSOLIDATED 
                                                    FINANCIAL STATEMENTS AT 
                                                       31 DECEMBER 2001

To the Board of Directors of
Vestel Elektronik Sanayi ve
Ticaret Anonim Sirketi
 
1    We have audited the accompanying consolidated balance sheets of Vestel
     Elektronik Sanayi ve Ticaret Anonim Sirketi (a Turkish corporation) and
     its subsidiaries at 31 December 2001, 2000 and 1999 and the related
     consolidated income statements, shareholders' equity movements and cash
     flows for the years then ended. These financial statements are the
     responsibility of the Company's management. Our responsibility is to
     express an opinion on these financial statements based on our audit.
 
2    We conducted our audit in accordance with International Standards on
     Auditing. These standards require us to plan and perform the audit to
     obtain reasonable assurance about whether the financial statements are free
     of material misstatement. An audit includes examining, on a test basis,
     evidence supporting the amounts and disclosures in the financial
     statements. An audit also includes an assessment of the accounting
     principles used and significant estimates made by management, as well as
     evaluating the overall presentation of the financial statements. We believe
     that our audit provides a reasonable basis for our opinion.
 
3    In our opinion, the financial statements referred to above present fairly,
     in all material respects, the consolidated financial position of Vestel
     Elektronik Sanayi ve Ticaret Anonim Sirketi and its subsidiaries at
     31 December 2001, 2000 and 1999 and the consolidated results of their
     operations and cash flows for the years then ended, in accordance with
     International Accounting Standards.
 
              ERGIN Uluslararasi Denetim ve Yeminli Mali Musavirlik AS
                     Member Firm of Grant Thornton International 
 
 
Aykut Halit                                             Nazim Hikmet
Managing Partner                                        Engagement Partner


Istanbul
08 March 2002 


                       VESTEL ELEKTRONIK SANAYI VE TICARET AS 
        CONSOLIDATED BALANCE SHEETS AT 31 DECEMBER 2001, 2000 AND 1999
    (Currency: billions of Turkish Lira in equivalent purchasing power at
                                 31 December 2001)


                            Notes     31.12.2001     31.12.2000     31.12.1999

CURRENT ASSETS                           
 
Cash and Banks                            96,643        128,586          6,042
Marketable securities         4           80,857         76,327        104,220
Trade receivables             5          395,632        272,010        251,666
Due from related parties      6           41,209         48,785          9,292
Inventories                   7          330,665        293,796        267,130
Other current assets          8          128,014         95,911         24,640
 
Total current assets                   1,073,020        915,415        662,990 

NON CURRENT ASSETS
 
Long-Term trade
receivables and deposits      9           28,074         33,546         22,598
Investments                  10           21,409         19,409          6,309
Property, plant and
equipment, net               11          222,430        203,663        174,944
Intangible assets, net       12           65,477         49,926         39,516
Deferred tax asset           16           16,989         24,643         13,892

Total non current assets                 354,379        331,187        257,259 
 
TOTAL ASSETS                           1,427,399      1,246,602        920,249 

CURRENT LIABILITIES

Short-term bank borrowings   13          271,401        229,336        195,571
Trade payables               14          412,533        373,735        334,359
Due to related parties        6                4             15              -
Other payables and accrued
expenses                     15           38,040         52,459         56,403
Taxation on income           16           21,250          8,197          5,233
 
Total current liabilities                743,228        663,742        591,566
 
NON CURRENT LIABILITIES
 
Long-Term bank borrowings    13           76,975          1,938              -
Long-Term payables                         2,544         14,227          2,844 
Reserve for retirement pay   17            9,401         10,616          8,808 
Deferred tax liability       16           29,100         25,865         22,560
 
Total non current liabilities            118,020         52,646         34,212
 
Minority Interest                          1,904          1,897            813
 
COMMITMENTS AND 
CONTINGENCIES                25
 
SHAREHOLDERS' EQUITY
 
Share capital                18          325,123        325,123        114,721 
Capital surplus              19                -              -         41,805 
General reserve              20          203,067        137,132         72,106 
Net income for the year                   36,057         66,062         65,026 

Total shareholders' equity               564,247        528,317        293,658 

TOTAL LIABILITIES AND  
SHAREHOLDERS' EQUITY                   1,427,399      1,246,602        920,249 

         The accompanying notes are an integral part of these statements. 


                    CONSOLIDATED INCOME STATEMENTS
       FOR THE YEARS ENDED 31 DECEMBER 2001, 2000 AND 1999
 (Currency: billions of Turkish Lira in equivalent purchasing power at
                            31 December 2001) 

                            Notes           2001           2000           1999

NET SALES                   21.1       1,609,911      1,434,875      1,283,767

COST OF SALES                         (1,108,371)    (1,070,589)      (923,204)

Gross profit                21.3         501,540        364,286        360,563

SELLING EXPENSES                         (88,545)       (84,266)       (70,604)

GENERAL AND ADMINISTRATIVE
EXPENSES                                 (57,956)       (56,004)       (43,924)
 
WARRANTY EXPENSES                        (10,065)        (8,708)        (8,902)

NET OTHER INCOME            23            26,186         21,319         48,459

Income from operations                   371,160        236,627        285,592

FINANCIAL EXPENSES          22          (238,810)      (113,993)      (195,526)

Income before taxation                   132,350        122,634         90,066 

TAXATION CHARGE             16

Current                                  (27,067)       (28,375)       (11,619)

Deferred                                 (10,889)         7,446         23,764

Prior year (under)/
over-provision                                 -              -           (230)

Taxation on income                       (37,956)       (20,929)        11,915

Income before minority
interest                                  94,394        101,705        101,981

MINORITY INTEREST                             (6)          (618)          (596)

Income before monetary
gain/(loss)                               94,388        101,087        101,385

MONETARY GAIN/(LOSS)                     (58,331)       (35,025)       (36,359)

Net income for the year                   36,057         66,062         65,026

Weighted average number
('000s) of shares 
with face value of TL 1,000 each     159,100,000    158,896,738    158,642,176
Basic and fully diluted
earnings per share
(in full TL)                                 227            416            410
Dividends per share
(in full TL)                                   -              -              -
Earnings before interest,
tax, depreciation and 
amortisation (EBITDA)
(in billions of Turkish Lira)            415,020        273,501        310,041
                                                   
 
         The accompanying notes are an integral part of these statements. 


                STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
               FOR THE YEARS ENDED 31 DECEMBER 2001, 2000 AND 1999
      (Currency: billions of Turkish Lira in equivalent purchasing power at
                               31 December 2001)


                                                                                         Net income /        Total      
                                                                                         (loss) for       Shareholders'
                          Share Capital        Capital Surplus        General Reserve      the year           Equity  

Balances at
31 December 1998                114,721                 41,805                 50,471         53,349           260,346

Deferred tax effect of
restatements relating
to prior year                         -                      -                (31,714)             -           (31,714)
 
Distribution of income 
 - Transfer to reserves               -                      -                 53,349        (53,349)                -
 - Dividends paid                     -                      -                      -              -                 -
Net income/(loss) for
the year                              -                      -                      -         65,026            65,026

Balances at
31 December 1999                114,721                 41,805                 72,106         65,026           293,658

Share capital increase 
 - Cash proceeds                  1,156                      -                      -              -             1,156
 - Transfer from Capital
   Surplus                      209,246               (209,246)                     -              -                 -
 
Capital Surplus                       -                167,441                      -              -           167,441

Distribution of income 
 - Transfer to reserves               -                      -                 65,026        (65,026)                -
 - Dividends paid                     -                      -                      -              -                 -
Net income/(loss) for
the year                              -                      -                      -         66,062            66,062
 
Balances at
31 December 2000                325,123                      -                137,132         66,062           528,317
 
IAS 39 Effect of
prior year                            -                      -                   (127)             -             (127)
 
Distribution of income 
 - Transfer to reserves               -                      -                 66,062        (66,062)               -
 - Dividends paid                     -                      -                      -              -                -
Net income/(loss)
for the period                        -                      -                      -         36,057           36,057

Balances at
31 December 2001                325,123                      -                203,067         36,057          564,247
                     
 
          The accompanying notes are an integral part of these statements. 

 

    CASH FLOW STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2001, 2000 AND 1999
     (Currency - billions of Turkish Lira in equivalent purchasing power at
                                 31 December 2001) 

                                     2001              2000              1999 

CASH FLOWS FROM OPERATING ACTIVITIES
 
Net income                         36,057            66,062            65,026
Adjustments to reconcile net
income to net cash provided 
By operating activities: 
  Depreciation and amortisation    43,860            36,874            24,449
  Provision for retirement pay     (1,215)            1,808            (1,058)
  Deferred taxation, net           10,889            (7,446)          (23,764)
  IAS 39 Effect of prior year        (127)                -                 -
  Discounting of notes
  receivable and payable, net       7,255                 -              (528)
 
Changes in operating assets and liabilities 

Trade receivables                (123,622)          (20,344)           19,645
Receivables from related parties    5,163           (39,493)           (7,549)
Inventories                       (36,869)          (26,667)          (27,847)
Prepayments and other current
assets                            (32,103)          (71,272)           (3,236)
Other non-current assets            5,472           (10,948)          (20,144)
Trade payables                     33,956            39,376            72,361
Payables to related parties           (11)               15              (404)
Other payables and accrued
liabilities                       (14,419)           (3,945)           17,525
Other long term liabilities       (11,683)           11,386            (1,966)
Taxation on income                 13,053             2,964            (3,355)

  Net cash generated from         
  (used for) operating activities (64,344)          (21,630)          109,155

CASH FLOWS FROM FINANCING ACTIVITIES 
Increase/(decrease) in
short-term bank
borrowings                         42,065            33,764           (32,480)
Increase/(decrease) in
long-term debt and current 
portion of long-term debt          75,037             1,940            (5,736)
Increase in paid-in capital             -           168,597                 -
Increase/(decrease) in minority
interest                                7             1,084                 -
Dividends paid                          -                 -                 -

  Net cash (used for) provided
  from financing activities       117,109           205,385           (38,216) 

CASH FLOWS FROM INVESTING ACTIVITIES 
Purchases of property, plant
and equipment and intangible
assets                            (78,178)          (76,003)          (29,544)
Acquisition of new shares
in subsidiaries                         -                 -           (26,243)
Increase in investments            (2,000)          (13,100)           (1,289)
Disposal of/(investment in)
marketable securities              (4,530)           27,892           (13,316)
 
  Net cash used for investing
  activities                      (84,708)          (61,211)          (70,392)

NET INCREASE IN CASH AND CASH
EQUIVALENTS                       (31,943)          122,544               547

CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR                 128,586             6,042             5,495

CASH AND CASH EQUIVALENTS
AT END OF YEAR                     96,643           128,586             6,042
 
 
      The accompanying notes are an integral part of these statements. 



                    NOTES TO FINANCIAL STATEMENTS 
          FOR THE YEARS ENDED 31 DECEMBER 2001, 2000 AND 1999
   (Currency shown in billions of Turkish Lira unless otherwise indicated) 

1  Organisation and nature of activities
 
   Vestel Elektronik Sanayi ve Ticaret Anonim Sirketi (the Company) was founded
   in March 1983 under the name of Ferguson Elektronik Sanayi ve Ticaret AS         
   under the Turkish Commercial Code and is registered in Istanbul, Turkey. The
   name was changed to Star Elektronik Sanayi ve Ticaret AS during the same
   year. In April 1984 Polly Peck Group acquired the Company and changed its
   name to Vestel Elektronik Sanayi ve Ticaret Anonim Sirketi which is its
   current name. In 1990 18% of the Company's shares were issued to the public
   at the Istanbul Stock Exchange. The Company has been operating under Law 6224
   (Foreign Capital Incentive Law) since July 1985. In 1991 Polly Peck Group
   transferred all of its shares to one of its subsidiaries named Collar Holding
   BV based in the Netherlands and in the same year, following the collapse of
   the Polly Peck Group, the Company was placed in administration. In November
   1994 Ahmet Nazif Zorlu acquired the Company from the administrator of the
   Polly Peck Group by buying the entire share capital of Collar Holding BV
   which at the time held 82% of the Company's issued share capital.
 
   The Company is mainly engaged in the production of colour televisions and
   computer monitors and the trade of brown and white durable consumer goods.
   The Company's production facilities are located in Manisa. At the end of
   2001, 2000 and 1999 the Company's production capacity for colour televisions
   and monitors was 6,500,000, (6,000,000 and 5,000,000 respectively) units and
   1,000,000, (1,000,000 and 1,000,000 respectively) units per year
   respectively. 

   Vestel Group is made up of Vestel Elektronik Sanayi ve Ticaret Anonim Sirketi
   and its subsidiaries Vestel Dayanikh Tuketim Mallari Pazarlama Anonim Sirketi
   (Vestel Marketing), Vestel Bilisim Teknolojileri Ticareti Anonim Sirketi
   (Vestel Information), Vestel Komunikasyon Sanayi ve Ticareti Anonim
   Sirketi (Vestelkom), Vestel Dis Ticaret Anonim Sirketi (Vestel Foreign Trade)
   and Vestelnet Elektronik Iletisim ve Bilgilendirme Anonim Sirketi
   (Vestelnet). The Company has always exercised effective control over the
   management of each of these companies and at 31 December 1999 held nearly all
   of their shares.
 
The companies included in the group consolidation, and the direct and indirect
shareholding of Vestel Elektronik Sanayi ve Ticaret Anonim Sirketi in their
capital, are:
 
                                            2001                2000 and 1999 

Vestel Dayanikh Tuketim
Mallari Pazarlama AS (Marketing)
(Istanbul)                                97.22%                       97.22%
 
Vestel Bilisim Teknolojileri
Ticaret AS (Information) (Istanbul)       98.10%                       98.10% 

Vestel Komunikasyon Sanayi
ve Ticaret AS (Izmir)                     97.97%                       97.97%

Vestel Dis Ticaret AS (Foreign Trade)
(Manisa)                                  98.20%                       98.20% 

Vestelnet Elektronik Iletisim
ve Bilgilendirme AS (Istanbul)            99.67%                       99.67%
 
   The group was restructured and inter-group shareholdings changed on
   30 December 1999. However, the financial results of newly acquired
   subsidiaries or shareholdings have been included in the accompanying
   financial statements from the beginning of 1999 as, in essence, Vestel
   Elektronik has had control of the net assets and operations of the newly
   acquired subsidiaries from the beginning of 1999.
 
2  Basis of presentation of the financial statements
 
   The Company, which is quoted on the Istanbul Stock Exchange, maintains its
   books of account and prepares its statutory financial statements in
   accordance with the Turkish Commercial Code, accounting policies prescribed
   by the Turkish Capital Markets Board and tax legislation and since 1994 has
   adopted the Uniform Chart of Accounts issued by the Ministry of Finance
   (collectively 'Turkish Practices'). The accompanying financial statements
   (the 'IAS Financial Statements') are based on the statutory records, which
   are maintained under the historical cost convention, with adjustments and
   reclassifications and restatement for the changes in the general purchasing
   power of Turkish Lira, for the purpose of fair presentation in accordance
   with Statements of International Accounting Standards ('IAS') issued by the
   International Accounting Standards Committee.
 
   Restatement for changes in the general purchasing power of Turkish Lira at
   31 December 2001 is based on IAS 29, which requires financial statements
   prepared in the currency of a highly inflationary economy to be stated in
   terms of the measuring unit current at the balance sheet date. Corresponding
   figures for the previous period must be restated on the same basis. One
   measure of the applicability of IAS 29 is a cumulative three year inflation
   rate approaching or exceeding 100%. The restatement was calculated by means
   of conversion factors derived from the national wholesale price index
   published by the State Institute of Statistics. The relevant conversion
   factors for the current and prior years are as follows:
 
31 December               Index                    Conversion factor

1998                      1215.1                   4.075
1999                      1979.5                   2.501
2000                      2626.0                   1.886
2001                      4951.7                   1.000
 
   The method of restatement is as follows: 

-  The financial statements of prior years, including monetary assets and
   liabilities, which were previously reported in terms of the measuring unit
   current at the end of those years are restated in their entirety to the
   measuring unit current at 31 December 2001. 

-  Monetary assets and liabilities shown in the balance sheet at the year end do
   not need to be restated, as they are already expressed in terms of the
   monetary unit current at the balance sheet date. 

-  Non-monetary assets and liabilities and components of shareholders' equity
   are restated by applying the relevant conversion factors.
 
-  All items shown in the income statement are restated by applying the relevant
   conversion factors.

-  The effects of general inflation on the Company's net monetary position are
   included in the income statement as a net monetary gain or loss.
 
   Adoption of IAS 39
 
The Company adopted IAS 39, Financial Instruments: Recognition and Measurement,
on 1 January 2001 prospectively. The financial effects of adopting IAS 39 are
reported in the statement of changes in shareholders' equity as an adjustment to
the opening retained earnings at 1 January 2001. 

3     Principles of consolidation and summary of significant accounting policies
 
(i)   Principles of consolidation - The principles of consolidation followed in
      the preparation of the accompanying financial statements are as follows: 

      (a) The balance sheet and income statement of the subsidiaries are
      consolidated on a line by line basis, and the carrying value of the
      investment held by the Company is eliminated against the related
      shareholders' equity accounts. 

      (b) All significant intercompany transactions and balances between the
      Company and the subsidiaries have been eliminated. 

      (c) Goodwill arising on consolidation is written off over 20 years on a
      straight-line basis. 

      (d) Minority interest is calculated as part of the net results of
      operations and net assets of subsidiaries which are not owned by Vestel
      Elektronik Sanayi ve Ticaret AS (the parent). 

      (e) Certain companies in which the Company has a controlling interest or
      significant influence are not consolidated or equity accounted as they are
      immaterial individually and in aggregate to the results and financial
      position of the group.
 
(ii)  Summary of significant accounting policies:
 
      The significant accounting policies followed in the preparation of the
      accompanying financial statements are summarised below: 

      Related parties - For the purpose of the accompanying financial
      statements, the shareholders of the Company, its directors and the
      companies identified by the Company as being controlled by/affiliated with
      them are considered and referred to as related parties. A number of
      transactions are entered into with related parties in the normal course of
      business (see note 6).
 
      Marketable securities - Marketable securities include Turkish government
      bonds and treasury bills acquired under reverse repurchase agreements with
      predetermined sales prices at fixed future dates (repo transactions),
      inflation indexed government bonds (classified under other non-current
      assets) and Eurobonds issued by the Turkish government denominated in US$.
      For marketable securities traded in active markets, fair value is
      determined by reference to stock exchange quoted bid prices. For other
      marketable securities fair value is estimated by reference to the current
      market value of similar instruments or by reference to the discounted cash
      flows of the underlying net asset. 

      Allowance for unearned interest expense on notes receivable and unrealised
      interest income on notes payable (discounting to present value at year
      end) - Unearned interest is calculated on all the notes receivable and
      post dated cheques at the balance sheet date, at the rate of 70% (2000:
      70% and 1999: 70%) per annum, which is the statutory rate determined by
      the Central Bank of Turkey, to set an allowance for unearned interest
      expense on notes receivable and post dated cheques.

At 31 December 2001 the Company provided for unrealised interest income on notes
payable at the rate of 70% (2000: 70% and 1999: 70%).
 
Allowance for doubtful receivables - The allowance for doubtful receivables
represents specific provisions charged to expenses. The allowance is an
estimated amount that management believes will be adequate to absorb possible
future losses on existing receivables that may become uncollectable due to
current economic conditions and inherent risks in the receivables.
 
Inventory valuation - Inventories (including finished goods and imported raw
material inventories) are valued at the lower of weighted average cost, restated
at the equivalent purchasing power at 31 December 2001, and net realisable
value. Net realisable value is the estimated selling price in the ordinary
course of business, less the cost of completion and selling expenses. Cost
elements included in inventory are materials, labour and an apportionment of
factory overheads.
 
Investments - These consist of participations in the share capital of
subsidiaries, associated companies and other investments not included in the
consolidation. They are shown at cost, restated at the equivalent purchasing
power of Turkish lira at 31 December 2001, unless the market value is known, in
which case they are restated at market value. 

Leases - The Company acquired machinery, equipment and motor vehicles under
finance lease agreements. These finance leases are capitalised at the inception
of the lease at the lower of the fair value of the leased asset or, if lower,
the present value of the minimum lease payments. Each lease payment is allocated
between the liability and finance charges so as to achieve a constant rate on
the financial balance outstanding. The assets acquired under finance leases are
depreciated over the useful lives of the assets as there is reasonable
certainty, that the Company will obtain ownership at the end of the lease terms.
 
Property, plant and equipment and related depreciation and amortisation - 
Property, plant and equipment are carried at cost, restated in equivalent
purchasing power at 31 December 2001. Depreciation and amortisation are provided
on the restated amounts of property, plant and equipment on a straight-line
basis.
 
The depreciation and amortisation periods for property, plant and equipment,
which approximate the useful economic lives of these assets, are as follows:
 
                                                               Years 


 

 
Buildings                                                        50
Machinery, equipment, installations and moulds                 12.5
Furniture, fixtures and office equipment                       5-12.5
Motor vehicles                                                 5-12.5

Deferred income taxes - Deferred income tax is provided in full, using the
liability method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the financial statements
(note 16). Tax rates enacted or substantively enacted by the balance sheet date
are used to determine deferred income tax. 

In previous years the Company did not make any deferred tax liability provision
in respect of its property, plant and equipment and inventories restatements
pursuant to IAS 29 for the years ended 31 December 1999 and 2000 and accordingly
the auditors' opinion was qualified. However, on 1 January 2001 the Company
adopted a policy of creating a deferred tax liability on the effects of
restatement pursuant to IAS 29, Accordingly, the financial effects of adopting
such a policy resulted in the restatement of comparative information for prior
periods as if the fundamental error had been corrected in the period in which it
was made. The amount of the correction relating to periods prior to 1 January
1999 included in the financial statements is adjusted against the opening
balance of retained earnings at that date (note 16).
 
Reserve for retirement pay - 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, or who retires,
completes 25 years of service (20 years for women) or is called up for military
service or dies. The reserve for retirement pay is made for the maximum amount
payable to employees, based on their accumulated period of service at the
balance sheet date (note 17).
 
Foreign currency transactions and translation - Transactions in foreign
currencies during the periods have been translated at the exchange rates
prevailing at the dates of these transactions. Balance sheet items denominated
in foreign currencies have been translated at the exchange rates prevailing at
the balance sheet dates. Exchange gains or losses arising from settlement and
translation of foreign currency items have been included in the income or
expense accounts as appropriate.
 
Revenue recognition - Revenue is recognised on the accrual basis at the time
deliveries are made, at the invoiced values. Net sales reflect gross sales, net
of sales discounts and returns, all restated in equivalent purchasing power at
31 December 2001. All gains and losses, both realised and unrealised, go through
the statements of income. 

Warranty - The Company recognises the estimated liability to repair or replace
products still under warranty at the balance sheet date. The provision is
calculated based on past history of level of repairs and replacements. 

Repair and maintenance expenditure - Repair and maintenance expenditure is
charged to income as it is incurred.

Research and development costs - Research expenditure is recognised as an
expense as incurred. Costs incurred on development projects (relating to the
design and testing of new or improved products) are recognised as intangible
assets to the extent that the expenditure is expected to generate future
economic benefits. Development costs that have been capitalised are amortised
over five years.
 
Borrowing costs - Borrowing costs are recognised as an expense in the period in
which they are incurred.

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. The estimated fair values of financial
instruments have been determined by the Company using available market
information, management's judgement and appropriate valuation methodologies. The
following disclosure of the estimated fair value of financial instruments is
made with the requirements of IAS 32. To the extent relevant and reliable
information is available from the financial markets in Turkey, the fair value of
the financial instruments of the Company is based on such market data. The fair
values of the remaining financial instruments of the Company can only be
estimated. The estimates presented herein are not necessarily indicative of the
amounts the Company could realise in a current market exchange. The following
methods and assumptions were used to estimate the fair value of the Company's
financial instruments:
 
Financial Assets 
Monetary assets for which fair value approximates carrying value: 
-   Balances denominated in foreign currencies are translated at year-end
    exchange rates. 
-   The fair value of certain financial assets carried at cost, including cash
    and amounts due from banks, are considered to approximate their respective
    carrying values. 

Financial Liabilities 
Monetary liabilities for which fair value approximates carrying value; 
-   The fair value of short-term bank loans and other monetary liabilities are
    considered to approximate their respective carrying values due to their
    short-term nature. 
-   The fair values of long-term bank borrowings, which are denominated in
    foreign currencies and translated at year-end exchange rates, are considered
    to approximate their carrying values.
 
Financial risk factors - The Company's activities expose it to a variety of
financial risks including the effects of: foreign exchange rates and interest
rates. 

Foreign exchange risk - The Company operates internationally and matches its
foreign currency commitments primarily from its foreign currency trade
receivables. 

Interest rate risk - The Company's operating income and operating cash flows are
substantially independent from changes in market interest rates. The Company
borrows short term at variable rates. At the year end long term borrowings are
at fixed interest rates.
 
Credit risk - The Company's credit risk is primarily attributable to its trade
receivables which are insured by Turkish Eximbank and export credit agencies.
The amounts presented in the balance sheet are net of allowances for doubtful
receivables, estimated by the Company's management based on prior experience and
the current economic environment.
 
Liquidity risk - The Company raises funds by liquidating its short term
financial instruments, eg by collecting receivables and disposing of marketable
securities. The Company's proceeds from these instruments generally approximate
their fair values.
 
Securities under repurchase agreements - The carrying amount is a reasonable
estimate of fair value.
 
Use of estimates - The preparation of consolidated financial statements in
conformity with IAS requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates. These estimates are reviewed periodically
and, as adjustments become necessary, they are reported in earnings in the
periods in which they become known.
 
Commitments and contingencies - Transactions that may give rise to contingencies
and commitments are those where the outcome and the performance of which will be
ultimately confirmed only on the occurrence or non-occurrence of certain future
events, unless the expected performance is remote. Accordingly, contingent
losses are recognised in the financial statements if a reasonable estimate of
the amount of the resulting loss can be made. Contingent gains are reflected
only if it is probable that the gain will be realised.
 
Cash flow statement - Cash and cash equivalents include cash and deposits with
banks.
 
Earnings per share - Earnings per share ('EPS') disclosed in the income
statements are determined by dividing net income by the weighted average number
of shares that have been outstanding during the related year or period and
taking into account bonus issues and right issues. There is no difference
between basic and diluted earnings per share for any class of shares for any of
the years. 

EBITDA - EBITDA is defined as earnings before interest expense, income tax
expense (benefit), depreciation and amortisation. This information should be
read with the statements of cash flows contained in the accompanying financial
statements.

4    Marketable securities
 
     At 31 December 2001, 2000 and 1999, marketable securities comprised:
 
                                  31.12.2001      31.12.2000      31.12.1999 

     Treasury bills                   47,036          36,947          20,190   
     Eurobonds                        14,703          15,089          81,166   
     Repurchase transactions          19,118          24,291           2,864
    
                                      80,857          76,327         104,220  
 
     At 31 December 2001, 2000 and 1999 the cost of marketable securities
     together with accrued interest were equal to their market value. Marketable
     securities were held on a short term basis. 

     At 31 December 2001, 2000 and 1999 Turkish Lira marketable securities bear
     annual interest at the rates of 70% and 119% (2000: 85% and 100%, 1999: 90%
     and 115) for TL denominated securities and 12.375% (2000 and 1999: 9.875%
     and 12.375%) for foreign currency denominated securities.
 
     At 31 December 2001 nil (2000: nil 1999: TL 20,189 billion) of total
     marketable securities were blocked as collateral against short-term bank
     borrowings used.
 
5    Trade receivables
 
     At 31 December 2001, 2000 and 1999, receivables comprised: 

                                  31.12.2001      31.12.2000      31.12.1999

Trade receivables                    321,799         148,176         182,214
Notes and cheques receivable          76,060         119,467          72,799
Allowance for doubtful receivables    (1,580)           (439)           (726)
Allowance for unearned interest
income                                (4,157)         (6,570)        (10,733)
Others                                 3,510          11,376           8,112
 
                                     395,632         272,010         251,666 

Trade receivables include TL 139,379 billion, TL 95,853 billion and TL 112,673
billion owed by related parties at 31 December 2001, 2000 and 1999 respectively:
 
                                             31.12.2001  31.12.2000  31.12.1999 

Vestel Beyaz Esya                                 2,540      18,802      19,590 
Deksar                                                -           -         124 
Zorlu Linen Dok ve Emp Konf AS                       26          55          79 
Zorlu Dis Ticaret                                     1           -           9 
Zorlu Enerji                                         14          25          32 
Zorlu Tekstil                                        12           6          62 
Zorlu Brode                                           -           -          25 
Zorlu O&M Enerji Tesisleri                            2           -           - 
Korteks                                               -         128          47 
Denizbank                                             -          41          51 
Zorlu Air                                             -           2           2 
Vestel Danismanlik                                    -         377       1,065 
Vestel France                                    16,737       7,984      13,482 
Vestel Holland                                   66,863      17,437      31,074 
Collar Holding                                        2           -           -
Veseg GmbH                                       26,516      31,077      21,268 
Debis Bilisim Teknolojileri                           6
Deniz Leasing                                         -         988       6,113 
Deniz Yatirim                                         1           -           - 
Vestel Iberia                                    23,562      17,565      19,614      
Vescolor                                              2           -          36 
Zorlu Ev Tekstil Urunleri                             -           4           - 
Vinpa Pazarlama                                     842       1,337           -   
Vestel Iletisim ve Bil Hiz. A.S. (Vestel          2,252          21           - 
Customer Services Company)                          
Other group companies                                 1           4           - 
                                                      
 
                                                139,379      95,853     112,673 

6  Balances with related parties 

At 31 December 2001, 2000 and 1999, balances with subsidiaries and affiliated
companies were:

                                             31.12.2001  31.12.2000  31.12.1999  
Due from related parties 
Vestel USA                                       12,561      23,578       9,041
Nazif Zorlu                                           -           -         251
Deksar                                           12,962      10,045           -
Zorlu Holding AS                                      -       2,095           -
Veseg GmbH                                          389           -           -
Cabot Technologies UK                             1,648           -           -
Collar Holding                                      123           -           -
Vestel Iletisim ve Bil Hiz. A.S. 
(Vestel Customer Services Company)                    -         215           -
Vestel Danismanlik                                  281           -           -
Vestel Beyaz Esya 
(Vestel White Goods Company)                     13,245      12,852           -
                                              
                                                 41,209      48,785       9,292                                        
 
Vestel USA and Cabot Technologies UK are research and development companies.
Receivables from Vestel USA and Cabot Technologies UK will in future be
capitalised as investments. 

Due to related parties and shareholders 
Vescolor Tup                                          -          15           -
Due to shareholders                                   4           -           -
                                                      4          15           -


7   Inventories 

At 31 December 2001, 2000 and 1999, inventories comprised: 

                                             31.12.2001  31.12.2000  31.12.1999  

Raw materials                                   115,732     100,101     112,439
Work-in-process                                  10,203       7,590       4,673
Finished goods                                   92,511      87,658      83,883
Merchandise                                      11,773      10,871       6,741
Spares and supplies                               4,618         952       2,012
Goods-in-transit                                 95,828      86,624      57,382 

                                                330,665     293,796     267,130 


8   Other current assets 

At 31 December 2001, 2000 and 1999, other current assets comprised; 

                                             31.12.2001  31.12.2000  31.12.1999  

Prepaid lease expenses relating to Vestelnet 
VeezyGo Campaign                                 38,719      45,897      11,259
Prepaid Expenses                                  4,569       4,731         996
Income Accruals                                  78,174      33,338         398
VAT Receivable                                    2,978       7,505       3,488
Work Advances                                     2,891       3,221         264
Due from Personnel                                  228         453         170
Personnel Advances                                   14         109         104
Count & Delivery Shortages                            -         149           2
Other Current Assets                                441         508       7,959
                                                128,014      95,911      24,640

9   Long term trade receivables and deposits 

At 31 December 2001, 2000 and 1999, long term trade receivables and deposits
comprised: 

                                             31.12.2001  31.12.2000  31.12.1999

Prepaid lease expenses relating to Vestelnet 
VeezyGo Campaign                                 22,415      31,368      21,163
Various prepaid expenses                          5,628       2,053       1,048
VAT deductible in future years                        -           -         385
Deposits and guarantees given                        31         125           2
                                                 28,074      33,546      22,598
 

Vestelnet (a consolidated subsidiary) first introduced the VeezyGo campaign in
June 1999. Subsequently Vestelnet introduced similar campaigns in 2000. For an
upfront fee of US$99 and 36 monthly payment instalments of US$30, a VeezyGo
subscriber receives a free PC, Veezy Card (a mastercard) and three years' free
unlimited internet usage. In respect of these campaigns, Vestelnet leases
VeezyGo PCs and monitors from various leasing companies and delivers the VeezyGo
PCs to its subscribers. 

Within this framework at 31 December 2001 the Company had capitalised TL 38,719
billion (2000: TL 45,897 billion - 1999: TL 11,259 billion) of lease contracts
in other current assets (which will be expensed in the income statement over the
next 12 months) and TL 22,415 billion (2000: TL 31,368 billion - 1999: TL 21,163
billion) in long term receivables and deposits (which will be expensed in the
income statement after 12 months) as set out above. 

10.  Investments 

The Company's investments at 31 December 2001, 2000 and 1999 were as follows:

                                          Percentage   31.12.2001     Percentage   31.12.2000   Percentage    31.12.1999
Vescolor Tup ve Komponent Sanayi 
  veTicaret AS (Turkey)                    100.0%        3,234          99.0%         3,234           99.9%       3,171
Deksar Multimedya Telekom AS (Turkey)       99.9%        9,689          95.9%         9,377           89.6%       1,252
Vestpro Electronics SA (Romania)            52.0%          169          52.0%           169           52.0%         169
Zorlu Enerji Elektrik Uretimi
  Otoproduktor Grubu AS (Turkey)     Less than 1%        1,845    Less than 1%          196    Less than 1%         162
Vestel Beyaz Esya Sanayi ve
  Ticaret AS (Turkey)                       10.0%        3,500          10.0%         3,500           10.0%         515
Teralogic Inc USA                            1.5%          783           1.5%           783            2.5%         777
Tursoft A.S. (Turkey)                        7.1%           21           7.1%            21            7.1%          21
Vestel France                               99.9%          117          99.9%           117           99.9%         109
Veseg Video Handelsgesellschaft GmbH        51.0%           96          51.0%            96           51.0%          92
Vestel Danismanlik (Turkey)                  0.0%            -          99.5%            10           99.5%          23
Vestel Iberia LTD. (Spain)                  95.0%           18          95.0%            18           95.0%          18
Vestel Musteri Iletisim AS. (Turkey)        99.9%        1,885          99.9%         1,885            0.0%           -
Zorlu End. Enerji A.S. (Turkey)              1.0%            1           1.0%             1            0.0%           -
Sanalnet Internet Pazarlama ve 
 Ticaret A.S. (Turkey)                      80.0%            5          20.0%             2            0.0%           -
Noktakom Internet Reklamcilik ve 
 Gelistirme A.S. (Turkey)                   20.0%            6           0.0%             -            0.0%           -
Vestel Italy S.R.L.                         51.0%           39           0.0%             -            0.0%           -
Vinpa Pazarlama Ticaret A.S. (Turkey)      100.0%            1           0.0%             -            0.0%           -

                                                        21,409                       19,409                       6,309


- Investments are shown net of called up share capital unpaid. At 31 December
2001 the Company had no commitments to invest (2000: the Company had no
commitments to invest, 1999: the Company had commitments to invest TL 745.7
billion and TL 660 billion by way of a share capital increase in Deksar
Multimedya Telekom AS and Vestel Beyaz Esya Sanayi ve Ticaret AS respectively). 

- Deksar Multimedya Telekom AS (subsidiary) was established in December 1998 as
an Internet service provider via satellite.

- Vestel Beyaz Esya Sanayi ve Ticaret AS (investment) was established in
November 1997 for the manufacture of white durable goods. 

- Teralogic Inc USA (investment) was established in May 1996 for the purpose of
providing components for digital televisions. 

- Both Vestpro Electronics SA (subsidiary) and Vescolor Tup ve Komponent Sanayi
ve Ticaret Anonim Sirketi (subsidiary) have been inactive in 2001, 2000 and
1999. 

- The Company's balances under related parties with Vestel USA and Cabot
Technologies are currently shown under 'balances with related parties' but will
in future be capitalised as an investment. 

- Vestel Musteri Iletisim ve Bilgi Merkezi Paz. Ve Tic. AS. (subsidiary) was
established in 2000 for customer services. 

- Sanalnet Internet (subsidiary) was established in 2000 as a producer of web
page content. 

- Noktakom (associated company) was established in 2000 as a monitor of web site
advertising. 

- Zorlu Enerji Elektrik Uretimi Otoproduktor Grubu AS (investment) shares are
quoted at the Istanbul Stock Exchange and are shown at market value by reference
to the average of the closing bid prices of the last five days preceding 31
December 2001, in line with changes required by IAS 39. 

No consolidation or equity basis accounting has been applied to the Company's
investment in subsidiaries and associated companies as explained in note 3. 

Except Zorlu Enerji Elektrik Uretimi Otoproduktor Grubu A.S., the shares of the
Company's subsidiaries and affiliates are not quoted on the Istanbul Stock
Exchange or any other recognised market. 

11  Property, plant and equipment 

At 31 December 2001, 2000 and 1999 property, plant and equipment comprised:

                                                                                                                      
                                            Machinery                  Furniture                    Work            
                             Land and       and            Motor        and        Construction   advances             
                             Buildings      equipment      Vehicles    fixtures    in progress      given       Total   
COST      
Balance at 31 December 1999  40,984         245,858        2,395       22,190       3,207          2,738       317,372  
  Additions/(disposals)      (1,387)         43,241          234        3,232       9,554         (2,738)       52,136  
Balance at 31 December 2000  39,597         289,099        2,629       25,422      12,761              -       369,508  
  Additions/(disposals)       2,893          45,207       (1,688)       6,115      (9,993)         1,726        44,260  

Balance at 31 December 2001  42,490         334,306          941       31,537       2,768          1,726       413,768  
                                                                                                                  


ACCUMULATED DEPRECIATION                                                                                               

Balance at 31 December 1999   2,502         129,219          937        9,770           -              -       142,428  
  Additions/(disposals)         947          20,047          221        2,202           -              -        23,417  
Balance at 31 December 2000   3,449         149,266        1,158       11,972           -              -       165,845  
  Additions/(disposals)         818          22,961         (787)       2,501           -              -        25,493  

Balance at 31 December 2001   4,267         172,227          371       14,473           -              -       191,338  


NET BOOK VALUE                                                                                                 
                                                                                                                      
Balance at 31 December 1999                                                                                    174,944  
                                                                               
Balance at 31 December 2000                                                                                    203,663  

Balance at 31 December 2001                                                                                    222,430  
                                                                                                  
                                                                                                               
At 31 December 2001 the construction-in-progress balance represented investment
made by the Company during 2001, 2000 and 1999 to increase its production
capacity. 

The net book value of fixed assets held under finance leases (which mainly
comprise machinery and equipment) amounted to TL 4,753 billion at 31 December
2001 (2000: TL 4,874 billion, 1999: TL 2,566 billion). 

Property, plant and equipment have been mortgaged to the extent of TL 45,000
billion (2000: nil and 1999: TL 50,030 billion) as collateral against bank loans
and bank guarantees on letters of credit. 

12 Intangible assets 

At 31 December 2001, 2000 and 1999 intangible assets comprised 
                                                                                           
                                             Development       Other                    
                               Goodwill         cost         Intangible 
                                                              assets             Total
COST

Balance at 31 December 1999      19,396         9,919          20,819           50,134   
  Additions/(disposals)             231         6,697          16,941           23,869   
Balance at 31 December 2000      19,627        16,616          37,760           74,003   
  Additions/(disposals)               -        23,254          10,664           33,918   

Balance at 31 December 2001      19,627        39,870          48,424          107,921


ACCUMULATED DEPRECIATION   

Balance at 31 December 1999         971         3,473           6,174           10,618   
  Additions/(disposals)             981         3,012           9,466           13,459   
Balance at 31 December 2000       1,952         6,485          15,640           24,077   
  Additions/( disposals)            982         7,523           9,862           18,367   

Balance at 31 December 2001       2,934        14,008          25,502           42,444   
                                                                         


NET BOOK VALUE 

Balance at 31 December 1999                                                     39,516

Balance at 31 December 2000                                                     49,926

Balance at 31 December 2001                                                     65,477
 

Goodwill arose on the acquisition of Vestel Dayanikli Tuketim Mallari Pazarlama
(Marketing), Vestel Bilisim (Information), Vestel Komunikasyon (Vestelkom) and
Vestel Dis Ticaret (Vestel Foreign Trade Company) in 1999. The Company paid TL
19,782 billion in cash for the acquisition of 66.95% in Vestel Marketing, 62.15%
in Vestel Information, 54.0% in Vestelkom and 53.42% in Vestel Foreign Trade
Company. 

Other intangible assets mainly comprise leasehold improvements and computer
software licences. 

Other intangible assets and development costs are amortised over five years.
Goodwill is amortised over 20 years. 

Development costs are in respect of the following major projects: Integrated
Digital TV(DTV), Hybrid TV, Digital TV, TV-DVD, Large Digital TV and Large Flat
Screen TV. 

Research expenditure expensed amounted to TL 414 billion for the year 2001
(2000: TL 826 billion) (1999: TL 514 billion). 

Vestel USA issued invoices to Vestel amounting to US$10,993,000 in respect of
development expenditure for the year 2001. Development expenditure for the years
2001, 2000 and 1999 were capitalised as noted above. 

Amortisation of goodwill and other intangible assets are allocated to items in
the income statement as follows: 


                                                                2001       2000
 
Cost of sales                                                  6,355      3,951 
General and administrative expenses                           12,012      9,508

                                                              18,367     13,459


13 Bank borrowings 

At 31 December 2001, 2000 and 1999, the breakdown of the Company's bank 
borrowings was: 

                                                                                                              
                              31.12.2001                       31.12.2000                      31.12.1999         
                      Balance           Balance         Balance         Balance          Balance          Balance     
                  foreign currency     TL billion   foreign currency   TL billion    foreign currency    TL billion  

Foreign currency
 borrowings
  -US Dollars         125,014,676        179,968       99,592,864        126,156       94,958,892          128,293     
  -German Marks        15,843,263         10,272      102,964,286         61,404       56,477,562           39,159      
  -Euros              112,056,428        142,101       28,508,102         33,251       10,926,000           14,816      
  -French Francs                -              -                -              -           45,931                9      
           
                                         332,341                         220,811                           182,277     

Turkish Lira
 borrowings                               16,035                          10,463                -           13,294      

Total bank
 borrowings                              348,376                         231,274                           195,571     


Long term portion
 -US Dollars             (723,083)        (1,041)      (1,519,920)        (1,938)               -                -      
 -Euros               (59,879,093)       (75,934)               -              -                -                -      
    
Total short term
 bank borrowings                         271,401                         229,336                           195,571     
 

The effective interest rates of foreign currency loans and Turkish Lira loans
vary between 12% and 20% (2000: 10% and 18%) (1999: 4.865% and 22%), and between
48% and 110% (2000: 60% and 70%) (1999: 55% and 110%) respectively. 

Letters of guarantee and notes amounting to US$ 10,635,103, EURO 1,249,500 and
TL 6,508 billion have been given as collateral for Turkish Eximbank and other
credits (2000: letters of guarantee amounting to US$ 4,060,500,  DM 12,450,000,
FRF 37,158,675, EURO 8,119,645 and TL 2,894 and 1999: letters of guarantee
amounting to DM 18,950,000). At 31 December 2001 a short-term loan of EURO
28,750,000 was secured by Vestel Holland. 
 
14 Trade payables 

At 31 December 2001, 2000 and 1999, trade payables comprised: 

                                                31.12.2001 31.12.2000 31.12.1999 

Trade payables                                    99,017     75,752      29,395
Letters of credit                                270,503    237,435     262,942 
Lease payables
 -Principal amount                                29,567     55,382      42,450
 -Interest(-)                                     (5,228)   (11,333)    (13,187) 
Notes payable                                     21,580     24,247      17,294
Allowance for unearned interest income            (2,906)    (7,748)     (4,535) 

                                                 412,533    373,735     334,359 

Notes payable represent promissory notes which are payable within 1 year, are 
unsecured and bear no interest. 


15 Other payables and accrued expenses 

At 31 December 2001, 2000 and 1999, other payables and accrued expenses 
comprised: 

                                                31.12.2001 31.12.2000 31.12.1999 

Income tax and social security payables            6,890      10,348     5,938 
Advances received                                  3,192       8,995    32,360
Warranty expense provision                        13,047      19,452    14,255
Accrued expenses                                  13,901      11,714     2,412
Other payables                                     1,010       1,950     1,438

                                                  38,040      52,459    56,403


16  Taxation on income 

The group is subject to Turkish corporation and income withholding taxes on its
taxable income. The effective corporation tax rate is 33% (including a 10%
surcharge over the corporation tax rate) applicable to the fiscal periods
starting 1 January 2000.  

Withholding taxes are payable on the portion of the distributed profits, at the
effective rate of 5.5% for publicly quoted and 16.5% for unquoted entities. No
corporate withholding tax is payable in respect of profits added to share
capital. Accordingly for an entity that does not distribute profit, the
effective tax rate is computed as 33%. 

Dividend income is exempt from Corporation Tax. Income earned from the sale of
fixed assets and participation shares within the context of Corporation Tax Law,
Transitory Article No.28, although exempt from corporation tax, are subject to a
corporation withholding tax at the rate of 11.5%, provided that such income is
added to share capital. 

During 2000, under Law 4369 advance Corporation tax became payable, computed on
the quarterly taxable profits at the rate of 25%. This tax may be offset against
the corporation tax payable later on. With changes made under Law 4444
(effective from 1 January 2000), the advance taxes had to be paid on a six
monthly basis at the rate of 20% applicable for the period from 1 January to 30
June 2001. In accordance with Ministry Decree 2001/329 (dated 25 April 2001),
advance tax has become payable on a quarterly basis from 1 July to 31 December
2001. With effect from 1 January 2001, the advance tax rate has been increased
to 25%. 

Tax losses that are reported in the corporation tax return may be carried
forward and deducted from the corporation tax base for a maximum of five
consecutive years. 

A percentage of up to 100% of the value of tangible fixed assets acquired under
on Investment Incentive Certificate from the Government may be deducted from the
taxable profits. Such deductions are known as Investment allowances. Investment
Allowances are exempt from Corporation Tax but subject to Withholding Tax of 18%
plus surcharge of 10 % thereon (effectively taxed at 19.8%) both for public and
non public companies. Investment allowances of one year may be carried forward
to future years indefinitely and the balance carried forward may be adjusted for
inflation. 

Taxes on income attributable to income from continuing operations differed from
the amounts computed by applying the aggregate income tax rate of 33% (2000: 33%
and 1999: 33%) to pre-tax income from continuing operations as a result of the
following: 

                                                31.12.2001 31.12.2000 31.12.1999 

Computed tax expense at statutory rate             43,676    40,469     29,722

Increase / (decrease) in income taxes resulting
 from: 

Effect of permanent differences arising from:          
Export commission and premium                          -     (4,131)    (5,382)       
Investment incentives                             (4,555)    (4,303)    (6,796)
Effect of restatement per IAS 29                 (11,057)    (4,371)    (7,669)
Profit on sale of fixed assets                         -          -     (1,156)
Other                                               (997)       711      2,900

                                                  27,067     28,375     11,619

Under the advance corporation tax payment regulations, advance payments during
the year are deducted from the final tax liability computed on the current
year's results. Accordingly, the tax charge shown in the income statement does
not equal the final tax liability appearing on the balance sheet. 

Accordingly, the Company's corporation and income tax liability is: 

                                                    2001       2000        1999 
Corporation and income tax charge on current     
 period income                                     27,067    28,375      11,619

Tax under-provided in 1998 income statement             -         -       4,774
Prepaid corporation tax                            (5,817)  (20,178)    (11,160)

Taxes payable                                      21,250     8,197       5,233
                                                                      

The Company recognises deferred tax assets and liabilities based upon temporary
differences between its financial statements as reported for IAS purposes and
its statutory tax financial statements. These differences usually result in the
recognition of revenue and expenses in different reporting periods for IAS and
tax purposes. 

The Company adopted a policy to create a deferred tax liability on restatements
pursuant to IAS 29 and, accordingly, the financial statements have been revised
by the following amounts (note 3(ii)(i)): 
                                                                                             
                                                     2001                2000              1999            Prior Year 
 
Deferred tax (liability )/asset                     (28,452)            (22,237)         (22,156)          (31,714)
Deferred tax (charge)/benefit                        (6,215)                (81)           9,558           (31,714)

The composition of cumulative temporary differences and the related deferred tax
assets/liabilities in respect of items for which deferred tax has been provided
at 31 December using the expected future tax rates were as follows: 

                                               31.12.2001                  31.12.2000               31.12.1999

                                         Cumulative                Cumulative                Cumulative
                                          temporary     Deferred   temporary    Deferred     temporary    Deferred
                                          difference      Tax      difference     Tax       difference      Tax

Deferred tax asset 

Warranty expense provision                  2,737          903       8,708        2,874       14,274       4,710
Retirement pay provision                      787          260         194           64        7,867       2,597
Unearned interest expense on 
 notes receivable                           4,157        1,372       3,258        1,075        4,667       1,541
Capitalised interest on 
 inventory written off                      2,897          956      33,891       11,184       13,616       4,493
Capitalised interest on 
 intangible assets written off              5,000        1,650           -            -            -           -
Net effect of adjustments 
 related to leased assets                  17,660        5,828      17,046        5,625            -           -
Doubtful receivable provision               1,445          477       1,401          462            -           -
Interest income on marketable 
 securities                                   593          196           -            -            -           -
Expense accruals                            2,713          895      10,150        3,349            -           -
Others                                     13,490        4,452          25           10        1,669         551

                                           51,479       16,989      74,673       24,643       42,093      13,892
                                                                           

Deferred tax liability 

Restatement differences on: 
- Inventory                                38,209       12,609      29,348       9,685        34,941      11,531  
- Prepaid expenses                            960          317           -           -             -           -       
- Investments                              11,764        1,294       8,435         928         4,326         476     
- Property plant and 
 equipment and intangibles                129,381       14,232     105,675      11,624        92,261      10,149 
Income accruals                             1,609          531      10,722       3,537         1,065         353     
Unearned interest income on 
 notes payable and cheques 
 payable                                       41           13         143          48           151          51      
Others                                        312          104         126          43             -           -       

                                                                                           
                                          182,276       29,100     154,449      25,865       132,744      22,560  
                              
  
For the years ended 31 December 2001, 2000 and 1999 taxes on income comprised: 

                                              31.12.2001  31.12.2000  31.12.1999 

Current taxes                                   (27,067)    (28,375)    (11,619) 
Net deferred tax asset/(liability)              (12,111)     (1,222)     (8,668) 
Cancellation of prior year deferred tax           1,222       8,668      32,432 
Adjustments in respect of prior years                 -           -        (230)

                                                (37,956)    (20,929)     11,915


The Turkish Tax Procedural Law does not include a procedure for formally
agreeing tax assessments. Tax returns must be filed within four months of the
year-end and may be subject to investigation, together with their underlying
accounting records, by the tax authorities at any stage during the following
five years. 

17 Reserve for retirement pay  

The Company's reserve for retirement pay is calculated as explained in note 3.
Payments are calculated on the basis of 30 days' pay, limited to a maximum of TL
978.0 (2000: TL 587.7 million 1999: TL 345.2 million) million per person per
year of employment, at the rate of pay applicable at the date of retirement or
termination. 

With effect from 1 January 2002 the ceiling for retirement pay has been
increased to TL 1,076.4 million. 

The liability is not funded, as there is no funding requirement. 

IAS 19 (Employee Benefits) requires actuarial valuation methods to be adopted to
calculate the company's obligations under defined benefit plans. The Company has
not adopted actuarial assumptions because of the impracticality in the
hyperinflationary environment and the unpredictability of future government-
specified increases in the limit of the rate of pay. 

The difference between the application of the above method and the actuarial
basis required under IAS 19 is considered immaterial both to shareholders'
equity and net income. 

The Company does not provide any other employee benefit than the reserve for
retirement pay described above. 

Movements of the reserve for retirement pay during the years are as follows: 

1 January 1999                    9,866
Charge of the period              3,576
Disposal                              -
Monetary Gain                    (4,634)

31 December 1999                  8,808


 
Charge of the period              5,945 
Disposal                              -
Monetary Gain                    (4,137) 

31 December 2000                 10,616 

Charge of the period              3,771 
Disposal                              -
Monetary Gain                    (4,986) 

31 December 2001                  9,401 

The number of personnel at 31 December 2001 was 4,052 (2000: 4,302) 
(1999; 4,783). 

Wages and salaries paid for the year ended 31 December 2001 amounted to TL
46,517 billion (2000: 54,335 billion) (1999: 46,254 billion).

18 Share capital 

The authorised share capital of the Company comprised 220,000,0000 shares of par
value TL 1,000 each at 31 December 2001. The issued and paid up share capital of
the Company comprised 159,100,000,000 shares of par value TL 1,000 each at 31
December 2001, 2000 and 4,000,000,000 shares of par value TL 1,000 each in 1999.


Based on the register held at the last annual general meeting dated 27 April
2001 the shareholders of the Company and their percentage shareholdings at 31
December 2000 and 1999 were as below. During 2001 Credit Agricole sold
2,841,000,000 shares in the sock market. Accordingly the shareholders of the
Company and their percentage shareholdings at 31 December 2001 were: 


                                  31.12.2001            31.12.2000              31.12.1999 

                                       Shareholding           Shareholding           Shareholding
                               Amount    Percentage   Amount    Percentage   Amount    Percentage

Collar Holding BV              82,082      51.59%      82,082      51.59%     2,345      58.63%
Credit Agricole                 8,344       5.25%      11,185       7.03%       320       8.00%
Other shareholders             68,674      43.16%      65,833      41.38%     1,335      33.37%

                              159,100     100.00%     159,100     100.00%     4,000     100.00%


Inflation adjustment to
share capital                 166,023                 166,023               110,721

                              325,123                 325,123               114,721


The ultimate parent of the Company is Collar Holding BV which is located at Park 
Laan 1 3016 BA Rotterdam, Netherlands. 



19 Capital surplus 

Capital surplus represents the net proceeds from the sale of the Company's
shares at market value. This surplus is recorded in shareholders' equity and is
not available for distribution. However, it can be used in share capital
increases as it has been done in year 2000. 

20 General reserve 

General reserves comprise legal reserves and retained earnings. 

At 31 December 2001 the legal reserves amounted to TL 3,045 billion (historic
cost per statutory records). Legal reserves are appropriated based on statutory
profits and dividend distribution and are not available for distribution unless
they exceed 50% of share capital, but they may be used to offset losses in the
event that the general reserve is exhausted. 

The retained earnings are available for distribution. However, if this reserve
is distributed as dividends, a further legal reserve is required to be provided
equal to 10% of dividends declared, reduced by an amount equal to 5% of share
capital. 

21.1 Net sales 

The composition of sales volume and amount by principal product groups for the 
year ended 31 December 2001, 2000 and 1999 can be summarised as follows: 


                                     2001                          2000                        1999
                           Sales             Sales         Sales        Sales          Sales         Sales
                           amount            volume        amount       volume         amount        volume

Television               1,121,224         4,615,776     1,085,763     5,317,455       921,623     3,879,385
 -Domestic                  71,758           196,994       114,025       401,929       175,636       438,346
 -Export                 1,049,466         4,418,782       971,738     4,915,526       745,987     3,441,039
Monitor                     31,979           169,500        61,605       350,343        69,456       421,370
 -Domestic                  15,929            87,976        33,053       185,986        31,281       186,724 
 -Export                    16,050            81,524        28,552       164,357        38,175       234,646
DVD/DVB                     69,168           399,118             -             -             -             - 
 -Domestic                     613             1,718             -             -             -             -
 -Export                    68,555           397,400             -             -             -             -
Other                      387,540                         287,507                     292,688            
  -Domestic                252,954                 -       210,261                     257,558
  -Export                  134,586                 -        77,246                      35,130

   Total                 1,609,911                       1,434,875                   1,283,767



21.2 The breakdown of television exports by country for the periods ended 
     31 December 2001, 2000 and 1999 is as follows: 


                                    2001                     2000                      1999

                             Sales        Sales      Sales         Sales        Sales       Sales 
                            amount       volume      amount        volume       amount      volume 

Germany                    292,906     1,148,000     225,004     1,164,899     213,332     947,027 
United Kingdom             142,727       527,603     202,358       902,740     107,197     519,143 
France                     136,431       544,836     162,895       861,924      87,352     376,977 
Denmark                      8,606        35,350       8,979        43,385      10,058      43,816 
Portugal                    11,229        51,700      10,969        69,033      20,342     110,361 
Netherlands                 10,705        47,723       5,350        32,457      12,032      59,017 
Spain                      103,582       452,925      87,066       441,991      77,334     353,617 
Italy                       55,622       266,894      48,323       288,179      31,626     167,894 
Others                     287,658     1,343,751     220,794     1,110,918     186,714     863,187 

                         1,049,466     4,418,782     971,738     4,915,526     745,987   3,441,039 


21.3 The summary of contribution to gross profit and gross margin for the 
periods ended 31 December 2001, 2000 and 1999 is as follows: 
 
                         2001                  2000               1999
                                %                     %                  % 
Domestic 
  Televisions           46,679    65           49,353   43       102,818   59 
  Monitors               2,797    18            6,300   19         9,240   30 
  DVD/DVB                  216    35                -    -             -    - 
  Others               124,450    49          100,382   48       112,090   44 

Domestic total         174,142    51          156,035   44       224,148   48  

                          
Export                                                             
  Televisions          238,648    23          161,896   17       119,655   16  
  Monitors               1,695    11            3,206   11         5,508   14  
  DVD/DVB               22,452    33                -    -             -    -   
  Others                64,603    48           43,149   56        11,252   32  

Export total           327,398    26          208,251   19       136,415   17  

Total                  501,540    31          364,286   25       360,563   28  

Vestelnet, an internet service provider, is principally involved in the
provision of internet services, e-commerce facilities and web sites. At 31
December 2001 Vestelnet had approximately 100,000 (2000: 79,500 - 1999: 68,000)
signed contracts. 
 
21.4 The summary of segment assets and liabilities as of 31 December 2001, 2000 
and 1999 are summarised as follows: 

                                                    2001        2000       1999
 
Trade receivables                                395,632      272,010   251,666
Televisions                                      336,287      198,567   188,750
Monitors                                           3,956       19,041    12,583
DVD/DVB                                           15,826            -         -
Others                                            39,563       54,402    50,333

Trade payables                                   412,533      373,735   334,359
Televisions                                      342,402      284,039   257,456
Monitors                                           4,125       18,687    13,374
DVD/DVB                                           45,379            -         -
Others                                            20,627       71,009    63,529

Inventories                                      330,665      293,796   267,130
Televisions                                      247,999      220,347   203,019
Monitors                                           9,920       17,628    16,028
DVD/DVB                                           46,293            -         -
Others                                            26,453       55,821    48,083

Property, Plant and 
Equipment, net                                   222,430      203,663   174,944
Televisions / Monitors                           198,759      182,862   156,592
Others                                            23,671       20,801    18,352

Property, Plant and 
Equipment depreciation 
charge                                            25,493       23,417    17,258
Televisions / Monitors                            23,297       21,550    15,805
Others                                             2,196        1,867     1,453

Property, plant and equipment and inventories are located in Turkey. 

At 31 December 2001 69% of trade receivables were from European countries (2000
:53%), 28% from Turkish domestic market (2000 :45%) and the remaining 3% from
the rest of the world (2000: 2%). 

At 31 December 2001 54% of trade payables were to European countries (2000 :
56%) and 22% to Turkish suppliers (2000 : 18%) and the remaining 24% to the rest
of the world (2000: 26%). 

22 Financial (expenses)/income 

At 31 December 2001, 2000 and 1999 financial expenses/income comprised: 

                                                    2001        2000       1999

Foreign exchange loss on                        
a) foreign currency loans                       (220,966)    (73,006)   (90,437)
b) imports                                      (143,034)    (31,830)   (69,016)
Foreign exchange gain on foreign currency 
trade receivables and bank deposits              160,384      93,877     38,380
Interest expense on loans                        (53,436)    (96,696)   (68,036)
Other interest and commission charges            (19,304)    (12,798)   (28,383) 
Interest on finance leases and factoring         (11,190)    (14,491)    (5,785)
Interest income on marketable securities          50,296      13,812     39,846
Fair value gain on listed investment listed in 
stock exchange                                       921           -          -
Discounting of post dated notes receivable and 
payable to present value at year end              (2,481)      7,139    (12,095)  

                                                (238,810)   (113,993)  (195,526) 
 
23 Other income/(expense), net 

The analysis of other income/(expense) was as 
follows: 

                                                    2001        2000       1999
 
Scrap and other sales                             12,014      13,203     27,231
Export commission and freight related income       8,926       5,772      7,329
Profit on sale of fixed assets                       424         930      4,480 
Miscellaneous                                      4,822       1,414      9,419
 
                                                  26,186      21,319     48,459 
                                                                          
                                                
24  Supplementary cash flow information 

                                                    2001        2000       1999

Corporation and income tax paid                   28,375      11,619      9,926
Interest and commission paid                      75,057     110,587    101,600 
 
                                                 103,432     122,206    111,526 
25  Commitments and contingencies 

(a) At 31 December 2001 the Company had contingent liabilities of TL 53,868 
    billion (2000: TL 66,529 billion, 1999: TL 66,262) in respect of letters of 
    guarantee obtained from local banks and submitted to various customs and  
    state authorities for import and Turkish Eximbank credits. 

(b) Due to the export and investment incentive certificates obtained, the 
    Company has committed to realise exports amounting to US$ 132,871,211 at the
    date of our report.

(c) Under the terms of the Customs Union Agreement with the European Union, with
    effect from 1 January 1998 television tubes (a major component of television
    sets) became subject to Customs Tax of 14.2% when sourced from countries 
    outside the European Union or certain specified underdeveloped countries. 

(d) Property, plant and equipment have been mortgaged to the extent of TL 45,000 
    billion (31 December 2000: nil) as collateral against bank loans and bank 
    guarantees on letters of credit. 

(e) In December 1999 Collar Holding BV sold 320 million shares of Vestel 
    Elektronik to Credit Agricole at a price of Euro 0.229537. In 2000 a share 
    split of 35:1 occurred which increased the number of shares held by Credit 
    Agricole to 11,200 million and adjusted the share price at Euro 0,0065582. 
    In respect of this sale Collar Holding BV has given guarantees to Credit 
    Agricole that if the share price of Vestel Elektronik falls below the 
    purchase price the Collar Holding BV will compensate Credit Agricole. Vestel
    Elektronik has provided a secondary guarantee to Credit Agricole in support 
    of this arrangement. In 2001 Credit Agricole sold some Vestel Elektronik 
    shares and Collar Holding BV provided cash and non cash collateral of Euro 
    25 million to Credit Agricole. At 31 December 2001 the Company's total
    contingent liability under this transaction amounted to Euro 13.6 million. 

26  Monetary loss of Vestel Elektronik for the years ending 31 December 2001 and
    2000 

    In a period of inflation, an enterprise holding an excess of monetary assets
    over monetary liabilities loses purchasing power and an enterprise with an 
    excess of monetary liabilities over monetary assets gains purchasing power
    to the extent that the assets and liabilities are not linked to a fixed 
    price level. This gain or loss is derived by applying the change in a 
    general price index to the weighted average for the period of the difference 
    between monetary assets and monetary liabilities. 

                                                     31.12.2001      31.12.2000 

Opening Working Capital (Working 1)                     (42,123)       (195,706)

Cash movements during the year 
Fixed assets expenditure                                (78,178)        (76,003)
Investments                                              (2,000)        (13,100)
Long-term receivables and deposits                        5,472         (10,948)
Deferred tax asset                                        7,654         (10,751)
Increase in long term debt                               66,596          17,710
IAS 39 effect of prior year                                (127)              -
Increase in paid-in capital                                   -         168,597

Sales                                                 1,609,911       1,434,875
Purchases (Working 3)                                (1,120,799)     (1,075,619)
General administration (net off depreciation and 
reserve for employee termination benefits)              (44,233)        (42,592)
Selling expenses (net off depreciation)                 (84,064)        (80,632)
Warranty expenses                                       (10,065)         (8,708)
Financing expenses                                     (238,810)       (113,993)
Other income                                             26,186          21,319
Taxation charge                                         (37,956)        (20,929)
Minority Interest                                            (6)           (618)
 
Net Cash Inflow                                          99,581         188,608

Closing Working Capital per above                        57,458          (7,098)

Closing Working Capital (working 2)                        (873)        (42,123)

Monetary Loss                                           (58,331)        (35,025)


Working 1: Opening Working Capital                   31.12.2001      31.12.2000  

Cash and deposits with banks                            128,586           6,042 
Marketable securities                                    76,327         104,220
Trade receivables                                       272,010         251,666
Other current assets                                    144,696          33,932

                                                        621,619         395,860 

Short-term bank borrowings                             (229,336)       (195,571)
Trade payables                                         (373,735)       (334,359)
Other payables and accrued liabilities                  (52,474)        (56,403)
Taxation on income                                       (8,197)         (5,233)

                                                       (663,742)       (591,566)

Working capital (deficit)                               (42,123)       (195,706)
 
Working 2: Closing Working Capital

Cash and deposits with banks                             96,643         128,586
Marketable securities                                    80,857          76,327
Trade receivables                                       395,632         272,010
Other current assets                                    169,223         144,696

                                                        742,355         621,619 

Short-term bank borrowings                             (271,401)       (229,336)
Trade payables                                         (412,533)       (373,735)
Other payables and accrued liabilities                  (38,044)        (52,474)
Taxation on income                                      (21,250)         (8,197)

                                                       (743,228)       (663,742)

Working capital (deficit)                                  (873)        (42,123)

Working 3: Purchases 

Closing inventories                                     330,665         293,796
Cost of sales (net off depreciation)                  1,083,930       1,048,953
Opening inventories                                    (293,796)       (267,130)
 
                                                      1,120,799       1,075,619
                                                                        
  

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