2002 Annual Report - Turkish Airlines

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70 • 2002 TURKISH AIRLINES annual reportTURKISH AIRLINES INC.NOTES TO THE FINANCIAL STATEMENTS(all figures are restated to TL money values at December 31, 2002 pursuant to IAS 29)1- THE COMPANY'S OPERATIONSTürk Hava Yollar› A.O. (“the Company” or “THY”) was incorporated in Turkey in 1933. The principal activity of the Company is domestic and internationalair transportation of passengers and cargo.As of December 31, 2002, the shareholders and their respective shareholdings in the Company were as follows:Turkish Republic Privatization Administration 98.17%Others 1.83%100.00%2- BASIS OF PRESENTATION OF FINANCIAL STATEMENTSThe accompanying financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS” or “IAS”) andinterpretations issued by the Standing Interpretations Committee (SIC).Inflation AccountingThe Company's statutory records are maintained under the historical cost convention, as modified by the annual revaluation of property, plant andequipment. The accompanying IAS financial statements include restatement to reflect changes in the purchasing power of the Turkish Lira as requiredby IAS 29 ("Financial Reporting in Hyperinflationary Economies").IAS 29 requires that financial statements prepared in the currency of a hyperinflationary economy be stated in terms of the measuring unit current atthe balance sheet date and the corresponding figures for previous periods be restated in the same terms. One characteristic that leads to theclassification of an economy as hyperinflationary, necessitating the application of IAS 29 restatement, is a cumulative three-year inflation rateapproaching or exceeding 100%. Such cumulative rate in Turkey is 227% for the three years ended December 31, 2002 based on the wholesale priceindex announced by the Turkish State Institute of Statistics. The restatement has been calculated by means of conversion factors based on the Turkishcountrywide wholesale prices index ("WPI") published by the State Institute of Statistics.The index and corresponding conversion factors for year-ends are as follows (1994 average=100):IndexConversion Factor31 December 2000 2,626.0 2.467131 December 2001 4,951.7 1.308331 December 2002 6,478.8 1.0000The main guidelines for the restatement are as follows:• All amounts not already expressed in terms of the measuring unit current at the balance sheet date are restated by applying a general wholesale priceindex (the WPI). Corresponding figures for previous periods are similarly restated.• Monetary assets and liabilities are not restated because they are already expressed in terms of the monetary unit current at the balance sheet date.Monetary items are money held and items to be received or paid in money.• Non-monetary assets and liabilities and the components of shareholders' equity are restated by applying, (to the initial acquisition cost and anyaccumulated depreciation for fixed assets), the relevant conversion factors reflecting the increase in the WPI from the date of acquisition or initialrecording to the balance sheet date. Revaluations made on any other basis in the statutory records are eliminated.• All items in the statements of income are restated by applying the relevant conversion factors.• The effect of general inflation on the Company's net monetary position is included in the statements of income as monetary gain or loss.
2002 • 71TURKISH AIRLINES INC.NOTES TO THE FINANCIAL STATEMENTS / continued(all figures are restated to TL money values at December 31, 2002 pursuant to IAS 29)Inflation and Foreign Exchange RatesThe majority of the Company’s operating activities, notably expenses, are transacted and realized in US Dollars. Had the Company selected to reportthe financial statements in US dollars in accordance with IAS 21, the financial statements could have been materially different due to the devaluationof the Turkish Lira "TL" against the US dollar being different than the official inflation rate. The comparative rates of currency devaluation against theUS dollar and of WPI inflation are set out below:Years 2002 2001Currency devaluationUSD 13.5% 114.3%WPI inflation 30.8% 88.6%At December 31, 2002 the exchange rate announced by the Turkish Central Bank (which is the market rate) was TL 1,634,501 = US$ 1.3- SEGMENTAL REPORTING3.1. Business SegmentsThe Company operates predominantly in one industry segment, its primary business being the air transportation of passengers and cargo within, to orfrom Turkey. The activities of the Company's equity investment are also related to the airline business.3.2. Geographical SegmentsThe analysis of turnover is based on the destinations that THY serves. All passenger fare and cargo revenue within Turkey is attributed to the revenuefrom domestic services. Turnover from both scheduled and non-scheduled international flight revenues are attributed to the geographical area.4- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe significant accounting policies followed in the preparation of the accompanying financial statements are as follows:4.1. Revenue Recognition and Commission ExpensesPassenger fares and cargo revenues are recorded as operating revenue when the transportation is furnished. Tickets sold but not yet used are recordedas advance ticket sales.The Company develops estimations using historical statistics and data to estimate unredeemed tickets. Total unredeemed tickets of TL 29,837 Billion(approximately) were recognized as operating revenue in 2002.Commissions to agencies relating to the passenger revenue are recognized as expense, based on estimations, when the transportation is provided.Commission on tickets sold in advance is recorded as prepaid expenses in the current assets.4.2. Marketable SecuritiesMarketable securities are equity shares that are traded in foreign stock exchanges. The Company valued those shares with the weighted average marketprice at the last five-business day before balance sheet date.4.3. Inventory ValuationInventories are valued at the lower of cost or net realizable value using the moving weighted average method.4.4. InvestmentsInvestments with ownership between 20% and 50% and which are not controlled are accounted for using the equity method.Investments with ownership less than 20% which are traded at organized stock exchanges are carried at market and remaining investments areaccounted for at cost restated according to IAS 29.
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contentsHighlights of the Year 2002
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2002 Annual Report - Turkish Airlines

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