economic and financial - duro · pdf filenet turnover (note 19b) ... net financial loss ......

INDEX

| Duro Felguera, S.A. and subsidiariesauditor’s report

| Consolidated groupBalance sheetProfit and loss accountActivity and structure of the groupStatements of source and application of fundsDirector’s report

| Duro Felguera, S.A. auditor’s report

| Duro Felguera, S.A.Balance sheetProfit and loss accountActivitiesStatements of source and application of fundsDirector’s report

03

050608104649

51

535456588891

ECONOMIC AND FINANCIALINFORMATION

DF_FINANCIERA_Inglés 18/8/03 20:21 Página 1

3

AUDITOR’SREPORT


4

AUDITOR’SREPORT


5

CONSOLIDATEDANNUAL ACCOUNTSAND DIRECTOR’S REPORTRELATIVE TO 2002


6

DURO FELGUERA, S.A. AND SUBSIDIARIESConsolidated Balance Sheets at 31 December 2002 and 2001(Thousand euros)

ASSETS

Fixed assets

Formation expenses (Note 4)Intangible fixed assets (Note 5)Tangible fixed assets (Note 6)Investments (Note 7)

Goodwill on consolidation

Deferred expenses

Current assets

Inventories (Note 8)Debtors (Note 9)Current asset investments (Note 10)Cash at bank and in handPrepayments and accrued income

TOTAL ASSETS

2002

63,195

35110,27741,66210,905

630

408

310,906

17,900257,402

25,7459,658

201

375,139

2001

70,722

4531,502

53,10215,665

88

1

217,646

46,176122,138

36,43712,838

57

288,457


7

| CONSOLIDATED ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2002

LIABILITIES

Capital and reserves (Note 11)

Share capitalShare premium accountRevaluation reserveOther parent company reservesReserves in consolidated companiesDifferences on exchange Negative difference on first consolidationProfit for the year attributed to parent company

Minority shareholders (Note 12)

Negative difference on consolidation

Deferred income (Note 13)

Provision for liabilities and charges (Note 14)

Creditors: amounts falling due after more than one year (Note 15)

Bank loans (Note 15b)Uncalled amounts on shares heldOther creditors

Creditors: amounts falling due in less than one year (Note 16)

Issue of convertible debenturesBank loans and overdrafts (Note 15b)Short term payables to Group companiesTrade creditors (Note 16a)Other creditors (Note 16b)Provisions for liabilities and charges and other trade provisions (Note 17)Accruals and deferred income

TOTAL LIABILITIES

2002

67,204

44,6323,913

95812,045(4,140)(1,226)

5,3295,693

4,878

1

7,198

12,172

48,638

48,6091712

235,048

-54,100

17149,658

25,5075,747

19

375,139

2001

66,716

44,6323,913

95814,436(7,673)

125,3295,109

3,989

1

6,891

6,863

12,006

11,9562030

191,991

63327,483

17141,751

17,6394,421

47

288,457


8

DURO FELGUERA, S.A. AND SUBSIDIARIESConsolidated Profit and Loss Accounts for the years ended 31 December 2002 and 2001(Thousand euros)

EXPENSES

Reduction in inventories of finished goods and work in progressRaw materials and consumables (Note 19c)Staff costs (Note 19d)Fixed asset depreciationChanges in trade provisions (Note 19f)Other operating charges

Operating profit

Financial expense and expenses and losses onfinancial investments (Note 20)Interest applied to the pension provision (Note 20)Losses on current asset investmentsChange in provisions for investmentsLosses on exchange (note 20)

Share in losses of companies consolidated using equity methodAmortisation of goodwill on consolidation

Profit from ordinary activities

Net extraordinary profit (Note 21)

Consolidated profit before taxes

Corporate income tax (Note 18)Other taxes

Profit for the year

Profit attributable to minority shareholders

Profit for the year attributed to the Parent Company

2002

30,918257,819106,704

4,9863,962

44,268

17,865

3,2925021

86,946

-72

12,261

-

8,588

1,776492

6,320

627

5,693

2001

-234,943105,689

3,970659

35,254

5,706

2,350100

411

1,597

1727

4,364

3,829

8,193

2,334-

5,859

750

5,109


9


INCOME

Net turnover (Note 19b)Increase in inventories of finished goods and work inprogressOwn work capitalised Other operating income (Note 19g)

Income and profit from financial investmentsand other interest (Note 20)Gains on exchange (Note 20)

Net financial loss (Note 20)

Share in profits of companies consolidated using equity method

Net extraordinary loss (Note 21)

2002

463,996

-1,642

884

7383,911

5,668

136

3,673

2001

356,476

22,6424,0573,046

1,1771,564

1,321

23

-


10

1 | ACTIVITY AND STRUCTURE OF THE GROUP

Duro Felguera, S.A. (the parent company) was set up as a Spanish public limited company ("sociedad anó-nima") for an indefinite period on 22 April 1900, although the Company’s name was Sociedad MetalúrgicaDuro-Felguera, S.A. until 25 June 1991. Subsequently it changed its name to Grupo Duro Felguera, S.A.until 26 April 2001, at which time it adopted its current name.

According to the Company’s objects, it may operate in the metal, boiler making, smelting and capital goodsindustries, engaging in construction, manufacturing and fitting work under turnkey contracts, as well asmarketing, distribution, construction and installation services involving energy obtained from solid andliquid fuels. The Company’s objects also cover the promotion, formation, extension, development andmodernisation of industrial, commercial and service companies in Spain and abroad, provided such com-panies are engaged in any of the activities listed above. It may also acquire and hold fixed or variable inco-me securities issued by all kinds of entities.

In 1991 Duro Felguera, S.A. completed the process whereby certain divisions which engaged in activitiesrelating to engineering projects, fitting and maintenance of industrial equipment and machinery weretransformed into companies with their own separate legal personality. In order to set up these investeecompanies, Duro Felguera, S.A. had to contribute the human, material and financial resources required tocarry on their respective activities. Duro Felguera, S.A. therefore transferred the personnel working ineach activity and contributed the capital required in the form of contributions in cash and in kind, mainlybuildings, machinery and production equipment. It also grouped together the different investee companieswhich operate in the capital equipment sector into an industrial sub-group led by a wholly owned com-pany, Duro Felguera Plantas Industriales, S.A.

In the final quarter of 2000, the Group carried out further restructuring, grouping together the companiesengaged in workshop activities under the subsidiary Duro Felguera Equipos y Montajes, S.A. The engine-ering companies were grouped together under Duro Felguera Plantas Industriales, S.A. The restructuringprocess was completed through the decision whereby large orders are to be executed by Duro Felguera,S.A., in addition to this company’s role as Parent and holding company of the Duro Felguera Group.



11

COMPANY

CONSOLIDATED USING FULL CONSOLIDATION METHODDuro Felguera Plantas Industriales, S.A.Felguera Melt., S.A.Acervo, S.A.Inmobiliaria de Empresas de Langreo, S.A.Forjas y Estampaciones Asturianas, S.A.Felguera Grúas y Almacenaje, S.A.Felguera Montajes y Mantenimiento, S.A.Montajes de Maquinaria de Precisión, S.A.Felguera Revestimientos, S.A.Técnicas de Entibación, S.A.Felguera Parques y Minas, S.A.Felguera Calderería Pesada, S.A.Felguera Calderería Pesada Servicios, S.A.Felguera Construcciones Mecánicas, S.A.Felguera I.H.I., S.A.Duro Felguera Equipos y Montajes, S.A.Duro Felguera México, S.A. de C.V.Turbogeneradores de México, S.A. de C.V.Duro Metalurgia de México, S.A. de C.V.Duro Felguera Power, S.A. de C.V.Duro Felguera do Brasil, Ltda.Equipamientos Construcciones y Montajes, S.A. de C.V.Operaciones y Mantenimiento, S.A.Felguera Tecnologías de la Información, S.A.Proyectos e Ingeniería Picor, S.A. de C.V.Ingeniería Técnica, S.A. de C.V.

CONSOLIDATED USING PROPORTIONAL CONSOLIDATION METHODUTE Auxini – Duro FelgueraUTE Duro Felguera Plantas Industriales-KalfrisaUTE Duro Felguera Plantas Industriales-AceraliaUTE Ingemas-S.M. Duro FelgueraUTE Sinter Nº 5UTE SotoUTE Felguera Parques y Minas – Técnicas ReunidasUTE HanferUTE Imenosa-FelgueraUTE TerquimsaUTE Abbey Etna -S.M. Duro Felguera

UTE Felguera Fluidos – S.M. Duro Felguera

UTE D.F. Plantas Industriales-F. FluidosUTE CD Punta Grande

UTE CD Ceuta

UTE CT San RoqueUTE CT BesósUTE CT CastejónUTE Servicios y Maquinaria D.F. - Ecolaire

CONSOLIDATED USING EQUITY METHODSociedad de Servicios Energéticos Iberoamericanos, S.A.Zoreda Internacional, S.A.Kepler-Mompresa, S.A. de C.V.Secicar, S.A.Ingeniería de Proyectos Medioambientales, S.A.

Iberoamericana de Montajes, S.A.

ACTIVITY

Parent company of capital goods and engineering subsidiariesSmeltingFinanceReal estateMaterials for tunnels and minesEngineering of lifting equipmentIndustrial assembly projectsTurbine fitting and maintenanceRefractory liningsManufacture of shoring materialsEngineering of mining equipmentPressurised containers and heavy boiler makingAssembly and design of metallurgical equipment and pressurised containersManufacture of mechanical equipmentFuel and gas storage equipmentFreezing tunnels and conveyor beltsIndustrial project construction and assemblyTurbine fitting and maintenanceTrading and industrial activities relating to capital goodsFitting and maintenance of boilers and turbo generators for energy industryMarketing of capital goods and industrial componentsIndustrial project construction and assemblyLaunch, operation and maintenance of thermal plantsDevelopment of management softwareEngineeringEngineering

Metallurgical equipmentSupply, installation and start-up of a waste incineration furnaceTinplate lineSupply of hydrochloric acid regeneration plantTransfer, dismantling and fitting of sintering plantIndustrial treatmentsConstruction and commissioning of pilot plantFitting-out naval facilitiesCrane assembly and supplyConstruction of ammonia tankDesign, supply and fitting of pipeline with advanced rapid change systemat Rothrist plantWater and effluent treatment system for combined cycle power stationin CastejónAboño water plantsEngineering, civil engineering, supply, assembly and launchof combined cycle plants)Engineering, civil engineering, supply, assembly and launchof combined cycle plants)Civil engineering project for combined cycle power stationCivil engineering project for combined cycle power stationCivil engineering project for combined cycle power stationReplacement of gas filtration systems

Assembly and maintenance of electricity generation plants Environmental projectsAssembly of turbines and civil engineeringMarketing of fuelsConstruction and operation of hydrochloric acid regeneration plants,promotion and sale of regenerated hydrochloric acid and iron oxideForeign engineering, construction and fitting projects

%

100%100%100%100%100%100%100%100%100%100%100%100%100%100%

60%100%100%100%100%100%100%100%

70%60%51%51%

50%50%25%50%20%50%50%50%50%

55.12%48.58%

50%

50%50%

50%

50%50%50%50%

25%40%50%

17.68%50%

25%

REGISTEREDOFFICE

La FelgueraLa FelgueraOviedoLa FelgueraLlaneraLa FelgueraLangreoGijónLangreoLlaneraLa FelgueraGijónGijónLangreoMadridLa FelgueraMéxicoMéxicoMéxicoMéxicoBrasilMéxicoGijónOviedoMéxicoMéxico

GijónLa FelgueraGijónLa FelgueraAvilésOviedoOviedoGijónLa FelgueraLa FelgueraLa Felguera

Gijón

GijónMadrid

Madrid

MadridMadridGijónLa Felguera

ColombiaGijónMéxicoGranadaLa Felguera

Panamá

Set out below is a list of the subsidiaries, associated companies and multi-group companies, togetherwith related information:

INTEREST


SUB

TOTA

L

12

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.A.

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stru

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form

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ico,

S.A

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. (1)

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de

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ico,

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44,6

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733,

606

2,46

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290

21,

803

174 60

3,93

690

23,

846

301

5,50

72,

103

18,0

00 90 120

2,65

7 5 65 6 6 11 511 -

16,9

17

1,74

63,

243

5,86

217

8 49 (20)

1,06

6(2

,203

)19

966

4(1

28)

1,34

314

51,

905

7,17

46,

623

187 13 963 12 (6

7) (6)

24 (47)

117 -

5,05

8

886

745

130 13 7

(44)

(1,0

69)

2,98

9 22 576

137

(25)

(149

)12

1,63

8(5

68)

(27) 70 544 7 99-

18 (33)

132 -

- - - - - - - - - - - - - - - - - - - 5 - - -26

-56

9 -

600

-

(3,7

86)

2,96

0(2

24)

(869

)(1

77)

(420

)(8

71)

(207

)54

(2,3

73)

(1,5

47)

(410

)(2

83)

(951

)3,

299

(405

)(1

0) 92,

072 25 (7

6) 10 47 (4) - -

(4,1

37)

- - - - - - - - - - - - - - - - - - -(1

,187

)(1

3) 8(1

5)(2

7) 8 - -

(1,2

26)

-

33- -

29 48- -

441 -

3,69

119

3 1 - -89

3 - - - - - - - - - -

5,32

9

1,42

8

(492

)74

513

4 24 7(4

3)(1

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)2,

989

(13)

569 82 117

(149

)(1

69)

975

(95)

(27) 49 499 7 99 8 18 (5

8)(2

7) -

5,55

7

Com

pany

Shar

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(3)

Pro

fit/

loss

for

year

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on

cons

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atio

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Exch

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rst c

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pare

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INFO

RM

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N O

N C

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PAN

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CO

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LID

ATED

Thou

sand

eur

os


CO

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LID

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NG

PR

OP

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TIO

NA

L C

ON

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DAT

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MET

HO

DU

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gem

as S

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(2) (

4)U

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inte

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º5 (2

) (4)

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Fel

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as-T

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) (4)

U

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r (2

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UTE

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Felg

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(2) (

4)U

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(2) (

4)U

TE A

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(2) (

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(2) (

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TE D

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P.I

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alfr

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(2) (

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III –

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(2)

UTE

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n R

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(2)

UTE

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)U

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jón

(2) (

4)

SUB

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Y M

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icio

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Iber

oam

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anos

, S.A

. (4)

Iber

oam

eric

ana

de M

onta

jes,

S.A

. (4)

Zore

da In

tern

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nal,

S.A

. (4)

Kep

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pres

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.A. d

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4)In

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. (4)

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SUB

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13

1 | A

udite

d by

diff

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t aud

itors

to th

ose

of th

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idat

ed D

uro

Felg

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Gro

up.

2 | T

he d

ata

rela

ting

to th

ese

join

t ven

ture

s ha

ve b

een

reco

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in p

ropo

rtio

n to

the

inte

rest

in th

e co

mpa

ny in

whi

ch D

uro

Felg

uera

, S.A

. has

a d

irec

t or

indi

rect

inte

rest

.3

| The

se fi

gure

s ar

e sh

own

afte

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rim

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aid

out d

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g th

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ar.

4 | N

ot a

udite

d du

e to

bei

ng in

sign

ifica

nt.

5 | C

onso

lidat

ed d

ata

incl

uded

in d

irec

t in

tere

st.

6 6 15 6 6 6 2 - - -60 12 1 1 6 6 6

N/A

N/A 150 4

120

3,00

5

- - -14

- - - - - - - - - - - - -

N/A

N/A

(97) 11 152

(209

)

-14 (9

)40 14

-24

1 (2) 2 1 1

458

(1,2

96)

(1,8

64)

(2,2

00)

(15,

608) -

N/A

N/A - -

129

(29)

- - - - - - - - - - - - - - - - - - - - - - -30 30 63

0

- - - - - - - - - - - - - - - - - -

(2)

(2)

(8) 6 4 -

(2)

(4,1

39)

- - - - - - - - - - - - - - - - - - - - - - - - -

(1,2

26)

- - - - - - - - - - - - - - - - - - - - - - - - -

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3

Com

pany

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for

year

Goo

dwill

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cons

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atio

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ves

inco

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on fi

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onso

lidat

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fit/

(Los

s)at

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CO

NSO

LID

ATED

INFO

RM

ATIO

N O

N C

OM

PAN

IES


14

2 | BASIS OF PRESENTATION

a | True and fair view

The consolidated accounts have been prepared on the basis of the accounting records of DuroFelguera, S.A. and the consolidated companies and include such timing and value adjustmentsand reclassifications as are necessary to bring the figures into line with Parent Company figures.These annual accounts are presented in accordance with current Spanish Company Law, theSpanish General Accounting Plan and Royal Decree 1815/1991 containing the rules for drawingup consolidated annual accounts, so as to provide a true and fair view of the consolidated Group'snet worth and financial situation and the results of its operations.

b | Consolidation principles

The consolidated annual accounts have been prepared by applying the full consolidation methodto subsidiaries and the proportional consolidation method to multi-group companies. Shares inassociated companies have been valued using the equity method.

All the annual accounts of the Group companies used in the consolidation process relate to theyear ended 31 December 2002.

Third-party holdings in the capital and reserves and results of the consolidated subsidiaries arerecorded under Minority shareholders in the accompanying consolidated balance sheets andProfit attributed to minority shareholders in the consolidated profit and loss accounts, respecti-vely.

The results of the operations of companies acquired or sold have been included since or until thedate of acquisition or sale, as appropriate.

Changes in the net worth of the consolidated companies since the date of acquisition which can-not be attributed to changes in the percentage holdings are recorded in Capital and reserves asReserves in consolidated companies.

Set out below are the main changes regarding companies included in the scope of consolidationduring 2002:

--

UTE Babcock W.- S.M. Duro FelgueraUTE Babcock W.- S.M. Duro Felguera IIConsortium Duro Felguera, S.A.D.UTE Servicios y Maquinaria-Ecolaire

-

Ingeniería Técnica, S.A. de C.V.Proyectos e Ingeniería Pycor, S.A. de C.V.

-

-

Companies consolidated usingfull consolidation method:

Companies consolidated usingproportional consolidation method:

Companies consolidated usingequity method:

ADDITIONS DISPOSALS


15


c | Accounting principles

The accompanying consolidated annual accounts have been prepared in accordance with theaccounting principles and valuation rules generally accepted in Spain described in note 3. Nomandatory accounting principle having a significant effect on the annual accounts has been omit-ted.

d | Groupings of items

For clarity, the consolidated balance sheet and profit and loss accounts are presented in a sum-marised form. Where appropriate, an analysis is provided in the relevant note to the accounts.

3 | ACCOUNTING POLICIES

a | Goodwill on consolidation

The positive difference between the book value of the Parent Company’s direct or indirect interestin the subsidiaries and the value of the proportional part of the subsidiary’s net worth attributa-ble to the Parent Company, adjusted for any latent capital gains existing on the date of first con-solidation, is recorded in the consolidation process as Goodwill on consolidation.

Goodwill on consolidation is written off over the estimated average payback period for the inves-tments concerned, which is between 5 and 10 years according to the company.

b | Negative consolidation differences

The item Negative difference on consolidation in the consolidated balance sheets records the dif-ference between the book value of the Parent Company’s direct or indirect holding in the capitalof the subsidiaries and the value of the subsidiaries’ equity attributable to that holding, adjustedwhere necessary to account for any latent capital losses that exist on the date of first consolida-tion.

This difference is only taken to the consolidated profit and loss account when it relates to a rea-lised capital gain.

The negative differences which arose on 1 January 1991, the first year in which the Group pre-sented consolidated accounts, are included in Capital and reserves on the consolidated balancesheet.

c | Balances and transactions between companies included in the consolidation

All significant balances and transactions between fully and proportionally consolidated compa-nies have been eliminated in the consolidation process, in accordance with the consolidationmethod used.

d | Uniformity

To facilitate a uniform presentation of the items making up the accompanying consolidatedannual accounts, the Parent Company’s accounting principles and standards have been appliedto all companies included in the consolidation.


16

e | Currency translation method

The balance sheets and profit and loss accounts of foreign companies which have been consoli-dated using the proportional and full consolidation method have been translated into euros usingthe following method: balances for assets, rights and obligations, at the year-end exchange rate;capital and reserves, at the historical exchange rate; and the profit and loss account, at the ave-rage exchange rate for the year.

The difference resulting from the use of this translation method is recorded in the headingDifferences on exchange on the consolidated balance sheets.

f | Formation expenses

Start-up expenses, consisting of formation and capital increase expenses are capitalised at cost.

These expenses relate basically to lawyers, notary and registration fees, etc., which are amorti-sed on a straight-line basis over five years.

g | Intangible fixed assets

Intangible assets are stated at their purchase or production cost. They are amortised using thestraight line method.

Expenses relating to successful research and development projects are capitalised where thereare sufficient reasons to expect that the assets developed will be technically sound and profita-ble. Capitalised amounts are amortised on a straight line basis over five years. If the circumstan-ces which permitted the capitalisation of the expenditure change, the unamortised portion isexpensed in the year of change.

Software is amortised on a straight-line basis over an estimated useful life of four years. Softwaremaintenance expenses are taken to profit and loss when incurred.

Assets being acquired under finance leases are recorded under intangible fixed assets when theterms of the lease imply that the assets should be capitalised. They are depreciated over theiruseful lives at the same rates as those set for similar tangible fixed assets. Financial expense ischarged to profit and loss over the term of the lease using a financial method.

h | Tangible fixed assets

Tangible fixed assets are stated at acquisition or production cost plus legally approved revalua-tions, including the restatement carried out in accordance with Royal Decree-Law 7/1996 (7 June1996).

Any capital gains or net gains in value resulting from such restatements are written off over thetax periods remaining until the end of the assets’ estimated useful lives.

Maintenance and repair expenses are charged to profit and loss in the year in which they occur.Replacements or renewals of tangible fixed assets are recorded under assets and the replaced orrenewed assets are written off the accounts.

Costs relating to extensions, modernisation or improvements which increase productivity, capa-city or efficiency, or extend the useful lives of the assets are capitalised as an increase in the costof the assets concerned.


17


Own work capitalised by the consolidated companies is stated at the accumulated cost calcula-ted by adding together external and internal costs, determined based on consumption of ware-house materials and manufacturing expenses, applying inventory valuation rules.

Tangible fixed assets are depreciated on a straight-line basis over their estimated useful lives. Setout below are the useful lives applied by the Company:

i | Investments

The Group uses the following accounting principles when recording investments:

1 · Fixed-income securities:

Fixed-income securities are stated at the lower of cost, including related expenses, and repay-ment value. If the repayment value exceeds market value, which is the lower of the averagemarket price for the final quarter and the year-end price, the repayment value is maintained,since the securities will be held to maturity.

2 · Variable-income securities:

Except for holdings in companies consolidated using the equity method, investments in allother variable-income securities are stated at the lower of cost or market value. Market valueis the lower of the average listed price for the final quarter and the year-end price, in the caseof listed securities, or the proportional book value of the holding as per the latest availablebalance sheet in the case of unlisted securities.

Any negative differences between cost and market value at the year end are recorded underInvestments, Provisions.

j | Inventories

Raw and auxiliary materials and consumable and replacement materials are stated at the lowerof average acquisition price and market price.

Finished goods, semi-finished goods and work-in-progress are stated at the average productioncost, which includes the cost of raw materials and other materials consumed, labour and directand indirect manufacturing expenses. The cost of these inventories is written down to their netrealisable value if lower than production cost.

Obsolete and defective items are adjusted, based on estimates, to bring them into line with theirpotential realisable value.

BuildingsPlant and machineryFixtures, fittings, tools and equipmentOther fixed assets

Years

7 to 574 to 333 to 333 to 20


18

k | Trade debtors and trade bills receivable

Accounts receivable are stated at their nominal value on the balance sheet. Value adjustmentshave, however, been made and bad debts provisions recorded, where necessary, based on an ite-mised analysis of trade debtor balances.

l | Current asset investments

Current asset investments are stated at the lower of acquisition cost and market/repaymentvalue. Market/repayment value is determined using the same method as is applied to invest-ments.

m | Deferred income

Capital grants are recorded in the accounts when officially awarded, under Deferred income. Theyare taken to income at the same rate as the depreciation charged on the assets financed.

Other deferred income relates to capital gains on sales of certain buildings in respect of whichsale options are held by the purchaser, lease agreements have been concluded by the ParentCompany and guarantees have been furnished to the purchaser.

The amount recorded under this heading equals total lease expenses until the date the purchaseoption expires. This amount is released to profit and loss at the same rate as the costs derivingfrom the lease of these assets.

n | Provisions for pensions and similar obligations

The Company has contracted commitments with certain retired and active personnel, employeesof the discontinued coal activity, for the monthly supply of a certain amount of coal.

The amount of yearly appropriations is determined based on actuarial studies conducted by anindependent actuary and on GRMF-95 mortality tables (adjusted during the working life of theemployee to take into account the possibility of disability in accordance with the Ministerial Orderof 24 January 1977), technical interest rates of 4% per annum and annual inflation of 3%.

o | Other provisions for liabilities and charges

These provisions relate mainly to guarantees furnished to third parties, assessments issued byinspectors and other items. When calculating these provisions each year, the Group companiesestimate potential future payments, charging the estimated amounts to profit and loss for theyear.

p | Creditors

Long and short-term creditors are recorded at repayment value.

q | Classification of amounts payable

In the consolidated balance sheet debts are classified in accordance with the General AccountingPlan, based on when they fall due with regard to the year end. Debts which fall due within twelvemonths are regarded as short term, while debts falling due after twelve months are regarded aslong term.

r | Transactions and balances denominated in foreign currency

Transactions denominated in foreign currency are stated at their equivalent value in euros, usingthe exchange rates applicable on the transaction date.


19


Gains or losses on exchange arising when balances are settled are taken to the profit and lossaccount when they occur.

Every year-end balances receivable and payable denominated in foreign currency are stated ineuros at the year-end exchange rates or, where applicable, at the hedged exchange rates.Unrealised net losses on exchange are determined for balances due on similar dates in curren-cies showing similar market behaviour and are expensed. Any unrealised net gains determinedin the same way are deferred until they are realised.

s | Recognition of profits under long-term contracts

In general, the Group accounts for long-term construction contracts in the amount of the speci-fic manufacturing costs incurred in relation to each project or contract. The profit generated isrecognised based on the percentage of completion, provided there are reasonable and reliableestimates of contract budgets, revenues, costs and progress made and there are no unusual orextraordinary risks relating to the project. Loss-making contracts are expensed in full as soon asthe relevant amounts are known.

The Group records these negative differences in order to avoid the distortion of profits obtainedunder these contract as a result of losses on exchanges (which are offset on completion of thecontract by gains on exchange on amounts invoiced).

t | Income and expense

Income and expense are recorded on an accruals basis, i.e. in the period in which the income orexpense deriving from the goods or services in question is earned or incurred rather than theperiod in which the cash is actually received or disbursed.

For reasons of prudence, however, the Group only records profits realised at the year end, whileforeseeable risks and potential losses arising in the year or in prior years are recorded as soonas they are known.

u | Severance indemnities

Under current employment regulations, Duro Felguera, S.A. and the consolidated companiesmust pay indemnities to workers and employees whose contracts are terminated in certain cir-cumstances. The Directors of the Parent Company and the consolidated companies do not envi-sage any dismissals and have not recorded any provisions for this item in the consolidated annualaccounts.

v | Corporate income tax

Corporate income tax expense for the year is calculated based on the reported profit before taxas adjusted to account for any permanent differences between reported profits and taxable inco-me and the effect of any tax credits and deductions, excluding any withholdings and interim pay-ments.

Tax credits for double taxation or to encourage investment in certain activities are treated as areduction in corporate income tax expense for the year in which they are applied.


23680

-8,930

9,246

(114)(661)

-8

(767)

1228,479

20

Duro Felguera, S.A. and the Spanish subsidiaries in which it has direct or indirect interests ofmore than 90% are subject to corporate income tax under the rules governing groups of compa-nies. According to these rules, the assessment base is determined based on the consolidatedresults of Duro Felguera, S.A. and the Spanish subsidiaries.

4 | FORMATION EXPENSES

Movements in Formation expenses during 2002 are as follows:

Formation expensesStart-up costsCapital increase expenses

Opening balance

12

450

453

Additions

--

57

57

Closing balance

-1

350

351

Amortisation

(1)(1)

(157)

(159)

Thousand euros

5 | INTANGIBLE FIXED ASSETS

Movements in Intangible assets during 2002 are set out below:

Research anddevelopment expenses

Computersoftware Other Total

COSTOpening balanceAdditionsTranslation differences Transfers

Closing balance

AMORTISATIONOpening balanceCharge for the yearTranslation differences Transfers

Closing balance

NET BOOK VALUEOpening balanceClosing balance

2,585495

--

3,080

(1,587)(367)

--

(1,954)

9981,126

2,373462(3)

-

2,832

(1,991)(170)

1-

(2,160)

382672

5,1941,037

(3)8,930

15,158

(3,692)(1,198)

18

(4,881)

1,50210,277

Thousand euros


11,106764(24)400(63)

54

12,237

(5,070)(875)

18(165)

5(7)

(6,094)

6,0366,143

21


6 | TANGIBLE FIXED ASSETS

Movements in Tangible fixed assets during 2002 are set out below:

Thousand euros

Land andbuildings

Plant andmachinery

Other fixedassets Total

COSTOpening balanceAdditionsDisposalsAdditions, companiesTranslation differences Transfers

Closing balance

DEPRECIATIONOpening balanceCharge for the yearDisposalsAdditions, companiesTranslation differences Transfers

Closing balance


28,726307

(3,961)--

(3)

25,069

(4,744)(459)

91---

(5,112)

23,98219,957

21,3052,038(625)

--

585

23,303

(9,508)(1,659)

383--

(2)

(10,786)

11,79712,517

8,9881,618

(30)--

(9,566)

1,010

------

-

8,9881,010

75,7135,287

(5,005)400

(172)(8,930)

67,293

(22,611)(3,629)

753(165)

30(9)

(25,631)

53,10241,662

5,588560

(365)-

(109)-

5,674

(3,289)(636)

261-

25-

(3,639)

2,2992,035

a | Assets being acquired under finance leases

Intangible fixed assets includes, under Leased assets, those assets which are being acquiredthrough finance leases. Details of the relevant lease contracts are as follows:

Fixtures,fittings, tools

and equipment

Payments on accountand fixed assets incourse of construc.

Thousand euros

Oil-storage tanks 48 months 8,951

Cost

115 4,522 - 4,568

Purchase optionvalueTerm 2002

Instalments paid in year2001 and

prior years

Instalmentsoutstanding at

31.12.2002


22

Increase

Land and buildingsPlant and machineryFixtures, fittings, tools and equipmentPayments on account and fixed assetsin course of construc.Other fixed assets

2,025406376

276

2,885

Accumulateddepreciation

(274)(277)(201)

-(75)

(827)

Disposals

(750)(57)(44)

(2)-

(853)

Neteffect

1,00172

131

-1

1,205

a | Restatements

The Parent Company and subsidiaries have restated tangible fixed assets as permitted undervarious legal provisions, including Royal Decree-Law 7/1996 (7 June 1996).

The accounts restated in accordance with Royal Decree-Law 7/1996 and the effect of the restate-ment as at 31 December 2002 are set out below:

Thousand euros

The effect of this restatement on the annual depreciation charge and therefore on the result forthe year was an increase of approximately ¤ 81.

b | Tangible fixed assets located abroad

As at 31 December 2002 the consolidated Group held tangible fixed assets located abroad with anet value of K¤ 918.

c | Fully-depreciated assets

As at 31 December 2002 fully depreciated tangible fixed assets with an original or restated costof approximately K¤ 10,386 are still in use.

d | Additions and disposals of fixed assets

The main transfers from tangible to intangible fixed assets in the amount of K¤ 8,951 relate to anon-profit-generating lease-back operation contracted to finance, on land owned by BP Oil, S.A.,tanks with varying capacities constructed by the subsidiary Felguera IHI, S.A. to be used by Cores,S.A. for storing crude oil. These tanks will be used by the subsidiary Felguera IHI, S.A. for a nine-year period as from the date they are brought into use at the start of 2002.

e | Insurance

The consolidated Group has taken out several insurance policies to cover risks affecting its tan-gible fixed assets. As at 31 December 2002, the Directors consider insurance coverage to be ade-quate.


COSTShareholdings in companies consolidatedusing the equity method (Note 7a)Long-term securities portfolio (Note 7b)Other loans (Note 7c)Long-term deposits and guarantees (Note 7d)Public institutions, long-term (Note 18)

PROVISIONSLong-term securities portfolio (Note 7b)Other loans (Note 7c)

23


--

(50)(60)

-

(110)

-3

3

7 | INVESTMENTS

Set out below is an analysis of movements in Investments during 2002:

Thousand euros

Openingbalance

Additions and approps.

Closingbalance

92164

4,2135,4885,005

15,691

(5)(21)

(26)15,665

136406342

16-

900

--

-

--

(3,968)(769)(834)

(5,571)

-18

18

Zoreda Internacional, S.A.Kepler-Mompresa, S.A. de C.V.Sociedad de Servicios EnergéticosIberoamericanos, S.A.Ingeniería de Proyectos Medioambientales, S.A.Secicar, S.A.

--

-136

-

136

228

464

823

921

--

---

-

228

4200823

1,057

1,057470537

4,6754,171

10,910

(5)-

(5)10,905

Disposals

Openingbalance Disposals

Thousand euros

CompanyClosingbalance

Share in resultsfor the year

Transfers toshort-term

a | Shareholdings in companies consolidated using the equity method

Set out below is an analysis of this heading showing movements during the year:

The main transactions carried out in 2002 with these companies related to income totalling K¤

200 which is auxiliary to operations and financial income totalling K¤ 6 (Note 21).


24

b | Long-term securities portfolio

Thousand euros

Unlisted sharesLess provisions

467-

467

470(5)

465

Par value Book value

Thousand euros

20032004200520062007Subsequent years

Less amounts falling due within one yearTotal creditors falling due after more than one year

21979506053

295

(219)537

Maturity date

c | Other loans

Set out below is an analysis of the annual maturity dates of the balances included in Other loans:

Balances included under this heading basically relate to loans granted to personnel in theamount of K¤ 296.

d | Long-term deposits and guarantees

The balance under this heading relates basically to a fixed-term deposit of K¤ 2,498 securingcompliance with obligations assumed by the Parent Company under the private agreement to sellfixed assets dated 28 December 1998, including sale option and lease-back arrangements (Note13 a).The balance also includes the amount withheld by a bank from the amounts drawn down on thecredit line obtained by the customer Ferrominera del Orinoco for an iron ore extraction processmodernisation project, for a total amount of approximately K¤ 2,655, of which K¤ 861 falls due in2003 and is recorded under current asset investments (Note 10b). This amount has been withheldas security for the financing granted to the customer by the bank. This deposit bears variableinterest at the Mibor rate less 0.5% and will be recovered as the customer repays the loan, from2001 to 2004.


25


8 | INVENTORIES

Set out below is an analysis of this heading on the accompanying consolidated balance sheet:

Thousand euros

Raw materials and consumablesWork in progress and semi-finished goodsFinished goodsGoods purchased for resaleAdvance payments to suppliers

Provisions

7,7738,741

21611

1,30918,050

(150)17,900

5,75539,804

46314

22946,265

(89)46,176

2002 2001


26

Duro Felguera, S.A.

Felguera Parques y Minas, S.A.

Felguera Grúas y Almacenaje, S.A.

Duro Felguera Plantas Industriales S.A.

Felguera Montajes y Mantenimiento, S.A.

Felguera Melt, S.A.

Felguera Construcciones Mecánicas, S.A.

Felguera Calderería Pesada, S.A.

Felguera IHI, S.A.

Combined cycle power station in Son Reus II for Gas y Electricidad,S.A. (Spain)Combined cycle power station in Barranco de Tirajana (CanaryIslands) for Unelco (Spain)Combined cycle power station at Besós for Alstom Power (Spain)Engineering, mineral concentration plant for Ferrominera delOrinoco – VenezuelaExtension of chlorized derivatives plant for Petroquímica Pajaritos,S.A. de C.V. – México

Crane carrier for Taiyuan Heavy (China)Belt systems for Hidrocantábrico Generación.Manufacture of cranes for Aceralia Corporación Siderúgica, S.A.Loading machine and spare parts for HOLCIM SpainLoading machine Port of Long Beach (United States)

16 cranes for SMS (Germany)

Back-up system for Mitsubishi Heavy IndustriesContinuous bloom casting for Resitza in RumaniaTren Temper work for Aceralia Corporación Siderúgica, S.A.Gasometer for Sollac AtlantiqueAutomatic warehouse for Nireo Corporación General, S.A.

Leaching plant for General Electric EspañaFluid networks, tinplate line 3 for Aceralia - SpainTrack strengtheners, stripped line for Aceralia.Fuel-pipe work and mechanical assemblies for UNELCO (Spain)

Cast iron parts for wind-driven generators for Gamesa Eólica, S.A.Cast iron parts for wind-driven generators for Neg Eólica, S.A.Track material for ERGOSETrack material and crossings for RENFETrack material for Vías y Construcciones, S.A.

2 ball valves and 2 turbine distributors for Alstom Power – Spain500 Nacelles and Tabourets for Jeumont Industrie48 Rotor and Stator for Cantarey Reinosa, S.A. (Spain)150 modules for Air Liquide

Reactor and regenerator for VenezuelaHeavy Industries, C.A. - VenezuelaReactor and regenerator for Foster Wheeler Iberia, S.A. - Spain

Storage plant for Secicar (Granada)2 TC tanks for Repsol (Puertollano)2 TC tanks for Repsol (Puertollano)

-

-

-215

85

-125234454

1,106

-

339---

117

22756

--

175129567324169

183314318

5

-

29

1,498--

3,652

14,938

5,245206

1,999

117125137370

1,140

343

1,449665318

1,098303

-256

1,190384

-----

44--

730

296

230

9261,749

544

The main amounts, prior to adjustments and consolidation write-offs being applied, relating tolong-term contracts valued by Group companies as explained in note 3j), as well as advance pay-ments received from customers under those contracts, are as follows:

Thousand euros

Company InventoriesAdvances from

customers Description of project

a | Insurance

The companies of the consolidated Group have taken out several insurance contracts to coverrisks relating to inventories. As at 31.12.02, the Directors consider insurance coverage to be ade-quate.


27


Thousand euros

Trade debtorsAssociated companiesSundry debtorsLoans to employeesTaxes refundable (Note 18)

Less provisions

237,676127

7,958295

13,706259,762

(2,360)

257,402

102,196259

4,320372

17,678124,825

(2,687)

122,138

2002 2001

Thousand euros

Trade debtorsCustomers, work completed pending interim billingCustomers, trade bills receivableDoubtful debtors

187,11139,121

9,1492,295

237,676

Equivalent value in thousands of euros

U.S. dollarsJordanian dinarsPounds sterlingVenezuelan bolivarSwiss francMexican peso

36,6302

801171558467

38,629

9 | DEBTORS

The balance recorded under Sundry debtors includes K¤ 5,710 generated from the sale of land toParque Nalón, S.L. At the year end the Company had not received definitive planning permissionrequired in order to execute the public deed. Given that these permits were granted on 7 February2003, the deed will be signed after the preparation of these notes to the Accounts.

Set out below is an analysis of trade debtors at the 2002 year-end:

Set out below is a breakdown of amounts falling due within one year denominated in foreigncurrency:

Currency


28

10 | CURRENT ASSET INVESTMENTS

Set out below is an analysis of Current asset investments recorded on the consolidated balancesheet as at 31 December 2002:

Thousand euros

Loans to associated companiesShort-term securities portfolio (Note 10a)Other loans (Note 7c)Deposits and guarantees furnished (Note 10b)

Less provisions

8,70012,510

2194,389

25,818(73)

25,745

6630,938

6054,870

36,479(42)

36,437

2002 2001

COSTSinking fund in eurosFixed-income securitiesEuro notesEuro depositsFixed-term deposits:

In eurosIn dollarsIn Mexican pesos

Interest accrued

Total fixed income

Listed shares

Provisions

Net book value

2.87%3.51%3.28%

2.69%1.26%

6.5%

4812,127

-200

3961,0827,981

109

12,376

134

12,510(55)

12,455

Interest rates Thousand euros

a | Short-term securities portfolio

A breakdown of this heading as at 31 December 2002 is set out below:

b | Deposits and guarantees

This items includes the amount of K¤ 1,731 in frozen deposits. These deposits relate to bankfinancing obtained for major long-term projects. The relevant amounts become available as pay-ments are made to suppliers in connection with these projects. In each case, interim billingissued must be approved by an arbitration entity.

This heading also includes K¤ 2,482 in guarantee deposits for construction work which will bereleased upon Full Delivery of the work being carried out by Duro Felguera Plantas Industriales,S.A. in Jordan.


29

Thou

sand

eur

os

Ope

ning

bal

ance

App

licat

ion

of 2

001

resu

lt:

- to

div

iden

ds-

to r

eser

ves

- to

ret

aine

d ea

rnin

gs

Gen

eral

Mee

ting

atte

ndan

ce a

llow

ance

Oth

er m

ovem

ents

Pro

fit fo

r th

e ye

ar

Clo

sing

bal

ance

44,6

32

- - - - - -

44,6

32

3,91

3 - - - - - -

3,91

3

3,18

5 -15

7 - - - -

3,34

2

958 - - - - - -

958

10,8

52

-(2

,280

) - - - -

8,57

2

318 -

(21) -

(247

) - -

50

81

- - - - - -

81

(9,2

85) -

3,53

3 - - - -

(5,7

52)

1,61

2 - - - - - -

1,61

2

12

- - - -

(1,2

38) -

(1,2

26)

5,32

9 - - - - - -

5,32

9

5,10

9

(3,7

20)

(1,3

89) - - -

5,69

3

5,69

3

66,7

16

(3,7

20) - -

(247

)

(1,2

38)

5,69

3

67,2

04

Shar

eca

pita

l

Shar

eP

rem

ium

acco

unt

Lega

lre

serv

eR

eval

uati

onre

serv

esVo

lunt

ary

rese

rves

Ret

aine

dea

rnin

gs

Oth

er p

aren

tco

mpa

nyre

serv

es

Res

erve

s in

cons

olid

ated

com

pani

es

Rev

alua

tion

rese

rves

in c

onso

lidat

edco

mpa

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Exch

ange

diff

eren

ces

Neg

ativ

edi

ffer

ence

on fi

rst

cons

olid

atio

n

Pro

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ndlo

ssat

trib

utab

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pare

ntco

mpa

nyTo

tal

11 |

CAP

ITA

L A

ND

RES

ERVE

S

Mov

emen

ts in

Cap

ital a

nd r

eser

ves

are

set

out b

elow

:


30

a | Share capital

As at 31 December 2002 the Company's share capital consisted of 14,877,421 fully subscribed andpaid registered shares represented by account entries, each with a par value of three euros. Allthe shares are listed on the Madrid, Barcelona and Bilbao stock exchanges and carry the samevoting and dividend rights.

As at 31 December 2002, according to data submitted to the Spanish Securities and ExchangeCommission (CNMV), the following companies hold an interest of 3% or more in the Company:

Percentage shareholding

Morgan Stanley InternationalCartera de Inversiones MelcaCaja de Ahorros de AsturiasTSK Electrónica y Electricidad, S.A.IMASA Ingeniería, Montajes y Construcciones, S.A.Group management holding tied shares

5%5%5%

15.87%9.53%5.66%

Shareholder

Adjustment, Royal Decree-Law 12/1973Restatement Budget Act 1979Restatement Budget Act 1983

7538,989

17,573

27,315

Share capital was increased in previous years by applying the following reserves:

Thousand euros

b | Revaluation reserve

Following the three-year period during which the tax authorities may inspect the balance in therevaluation reserve, this reserve may be used, free of tax, to offset prior, current or future lossesor to increase capital. As from 1 January 2007 the balance may be taken to freely distributablereserves provided that the monetary capital gain has been realised. The part of the capital gainrelating to depreciation that has been recorded in the accounts and capital gains on restatedassets which have been transferred or written off are deemed to have been realised. In the eventthat the balance in this account is used in any way other than as provided under Royal Decree-Law 7/1996, the balance will become taxable.

c | Share premium account

The balance in the Share premium account is the result of share capital increases carried out inJuly 1998 and in January and July 1999.

The current Spanish Companies Act expressly provides that the balance in the share premiumaccount may be used to increase capital and establishes no restriction whatsoever on the use ofthis balance.

d | Legal reserve

Appropriations to the legal reserve are made in compliance with Article 214 of the SpanishCompanies Act which stipulates that 10% of the profits for each year must be transferred to thisreserve until it represents at least 20% of share capital.


31


Available for distribution

Profit for the yearRetained earnings

Distribution

Legal reserveVoluntary reservesRetained earningsDividends

5,05851

5,109

506586298

3,719

5,109

Thousand euros

The legal reserve is not available for distribution. Should it be used to offset losses in the eventof no other reserves being available, it must be replenished out of future profits.

e | Restrictions on the payment of dividends

The reserves designated in other sections of this note as being freely available for distribution, aswell as the profit for the year are, however, subject to the restriction on distribution describedbelow:

- The payment of dividends may not cause the balance in reserves to fall below total unamortisedbalances for start-up and R&D expenses. Consequently, the balance of approximatelyK¤ 1,451 in freely distributable reserves may not be distributed.

12 | MINORITY SHAREHOLDERS

Movements in the heading Minority shareholders during 2002 are as follows:

Thousand euros

Minority shareholders 3,989 627 (136) 398 4,878

Openingbalance

Share inresults Disposals

Scope ofconsolidation

Closingbalance

f | Profit for the year

Set out below is the proposal for the distribution of the Parent Company’s profits for 2002 to besubmitted for the approval of the Annual General Meeting:


32

The closing balances are analysed below:

Thousand euros

Felguera IHI., S.A.Operaciones y Mantenimiento, S.A. Felguera Tecnologías de la Información, S.A.Proyectos e Ingeniería Picor, S.A. de C.V.

8413636

251

1,164

2,8614

74148

3,087

65021

(18)(26)

627

4,3526192

373

4,878

Share capital Reserves Profit/loss Total

13 | DEFERRED INCOME

Movements in Deferred income are as follows:

Thousand euros

Opening balanceAdditionsReleased to incomeReleased to income from prior yearsDisposals, returned goods

Closing balance

39863

(176)--

285

4,0141,603(505)(263)

(71)

4,778

2,479-

(344)--

2,135

6,8911,666

(1,025)(263)

(71)

7,198

Capital grantsGains onexchange

Otherdeferredincome Total

a | Other deferred income

Other deferred income relates to income from the sale of certain buildings owned by theCompany, including sale option and leasing arrangements with the purchaser, under privateagreements dated 28 December 1998 and executed in a public deed on 19 February 1999. Set outbelow are the most significant details of these operations:

- Lease of the buildings for a term of 10 years as from 1 January 1999, stating the amount of thelease instalments for each year (approximately K¤ 348 for 1999 and annual increases of 1%). Inthe event of early termination, the purchaser may demand payment of all outstanding leaseinstalments. Duro Felguera, S.A. may also sublet to third parties subject to prior authorisationby the purchaser. During 1999 part of the properties were sublet.

- Sale of sale options held by the purchaser for each building. These options may be exercisedduring 2007 at the selling prices of the buildings (approximately K¤ 6,749). The buyer may alsoassign the options to third parties in the event that the buildings are sold, under the sameterms.

Duro Felguera, S.A. has arranged a fixed-term deposit of K¤ 2,498 (note 7d) which is pledged tothe purchaser/lessor as security for compliance with all the obligations entered into by theCompany under the above agreements. Duro Felguera, S.A. may use a pre-established part ofthis deposit in the event that the buyer transfers ownership of any of the buildings to third par-ties.


These sale transactions generated net capital gains totalling approximately K¤ 4,072, which theCompany has deferred for accounting purposes until the gains are deemed to be realised.

During 2000 the subsidiary Felguera Revestimientos, S.A. repurchased certain buildings at aprice K¤ 12 higher than the price obtained by Duro Felguera, S.A. on the transaction describedabove. The same buildings have subsequently been sold at a profit of K¤ 66.

The selling price obtained by the subsidiary Felguera Revestimientos, S.A. represents 133.4% ofthe sale option price fixed in favour of the purchaser, an option which may be exercised by thepurchaser during 2007.

This situation reflects the sharp rise in real estate prices. The Directors of the Company considerthat the initial purchaser will not exercise the option to sell the buildings in view of the capitalgains that would be forfeited.

Based on the above, in 2000 the Company’s Directors decided to record the cost of renting pro-perty as income as from the signing of the initial purchase agreement until the end of 2000, inorder to continue recording the cost of annual rent in subsequent years, which in 2002 resultedin K¤ 340 being recorded in the profit and loss account.The remaining amount recorded underDeferred income relates to the portion of the capital gain equal to the total pending rent amountup until the purchase option expires.

33


Ministry of IndustryMinistry of Science and TechnologyMinistry of Science and TechnologyMinistry of FinanceMinistry of FinanceEuropean Commission – DirectorateGeneral for Research

536890

530800

62

1,603

Investment in new fixed assetsR&D expensesR&D expensesR&D expensesInvestment in fixed assets

R&D expenses (Ecopress Project)

24/07/200219/06/200211/12/200116/11/199806/08/2002

2000

PurposeGrantorThousand

euros Award date

b | Capital grants

Set out below is an analysis of Capital grants received in the year:

Certain grants are subject to conditions relating to specific levels of equity which must be main-tained by the recipient company and the creation and maintenance of jobs.


34

14 | PROVISIONS FOR LIABILITIES AND CHARGES

The balances recorded under this heading as at 31 December 2002 and movements during theyear as per the consolidated balance sheet are as follows:

Thousand euros

Opening balanceAppropriations charged to profit and lossAppropriations charged to extraordinary resultsPaymentsReversals credited to profit and lossAdditions, companiesTransfers

Closing balance

3,195376

22(304)(393)

25(1,561)

1,360

3,66835

7,162-

(53)--

10,812

6,863411

7,184(304)(446)

25(1,561)

12,172

Other provisionsProvision for

pensions Total

Provision for tax assessments (I.G.T.E.)Provision for liabilities and chargesOther items

29410,125

393

10,812

Thousand euros

Opening balanceAppropriations charged to profit and loss

Financial expense (Note 20)Staff costs (Note 19d)

Appropriations charged to extraordinary resultsPaymentsReversals credited to profit and lossAdditions, companiesTransfers

Closing balance

2,065

19204

22(150)(213)

25(1,544)

428

1,130

31122

-(154)(180)

-(17)

932

3,195

50326

22(304)(393)

25(1,561)

1,360

Retired personnelActive personnel Total

a | Provision for pensions

b | Other provisions

As at 31 December 2002 these provisions relate to the best estimate made by the Group compa-nies of the final cost of the following items:

At 31 December 2002 the balance recorded under the heading Provision for liabilities and char-ges includes a charge for 2002 in the amount of ¤ 6.9 million for disputes involving the Parentcompany in relation to construction work.

Thousand euros


35


Thousand euros

Banks:With personal guarantees:

In eurosIn US dollars

Official bodiesDiscounted billsInterest

Euribor + 0.5%Libor + 0.5%

-4.00%

45,060-

3,407142

-

48,609

41,2757,495

7434,442

145

54,100

Long-termInterest rate Short-term

LimitUndrawnamount

Thousand euros

Credit linesDiscount facilities

89,8256,634

96,459

183,65511,218

194,873

743905518317323

1,3444,150

(743)

3,407

Thousand euros

Bank loans

Discounted billsand similar

items

Uncalledamounts onshares held Total


Less amounts falling duewithin one year

Creditors falling dueafter more than one year

48,91524,27419,935

634217

-93,975

(48,915)

45,060

4,442142

----

4,584

(4,442)

142

-84---

12

-

12

54,10025,34620,457

951540

1,344102,738

(54,100)

48,638

-17

----

17

-

17

Officialbodies

Othercreditors

15 | CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR

a | Analysis by maturity dates

The maturity dates of non-trade creditors are as follows:

b | Bank loans

Set out below are the credit limits for credit lines and discount facilities, including amounts avai-lable as at 31 December 2002:


36

2002 2001Thousand euros

Creditors for purchases or services receivedAdvances received for orders

31,415110,336

141,751

106,50843,150

149,658


Taxes payable (Note 18)Accrued wages and salariesOther creditors

11,1566,181

302

17,639

16,8115,7172,979

25,507

16 | CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

a | Trade creditors


17 | PROVISIONS FOR LIABILITIES AND CHARGES AND OTHER TRADE PROVISIONS

Movements under this heading during 2002 are as follows:

A list of the main advances received for orders is set out in Note 8.

b | Other creditors


The item Other creditors includes guarantees enforced by Jopetrol in the amount of ¤ 2.4 million.Although the Company considers the enforcement of these guarantees to be inadmissible andhas appealed to the courts, and despite the satisfactory negotiations in progress with the custo-mer, given the current war, which could delay a legal or amicable settlement, the Company hasopted to record the above-mentioned amount in its accounts.

Thousand euros

Opening balanceCharge for the yearReversalsPayments/applicationsTransfers

Closing balance

3,0606,936

(2,857)(2,712)

-

4,427

1,36113

(48)(17)

11

1,320

4,4216,949

(2,905)(2,729)

11

5,747

Other provisionsTrade

provisions Total


37


Thousand euros

Guarantees and penalties relating to projects and other similar itemsOther items

4,2921,455

5,747

Thousand euros

Debtor balances (Note 9):Deferred tax assetsForeign deferred tax assetsCurrent year corporate income tax refundableVAT refundableInput VAT pending accrualSocial security refundableForeign withholdingsTax credits for international double taxationGrants and subsidies receivable from public bodiesOther items

Less long-term deferred tax assets (Note 7)

Creditor balances (Note 16b):VAT payableOutput VAT pending accrualWithholdings on personal income taxCorporate income taxDeferred tax liabilitiesSocial security contributionsOther items

5,00434

1669,840

45646

140630

1,49566

17,877(4,171)

13,706

5,7843,376

1,378749473

1,7043,347

16,811

As at 31 December 2002, the balance in Trade provisions and Other provisions relates to the bestestimate made by the Group companies of the final cost of these items:

18 | CORPORATE INCOME TAX AND TAX SITUATION

Set out below is an analysis of tax and social security balances as at 31 December 2002:

Duro Felguera, S.A. and the Spanish subsidiaries in which it has direct or indirect interests ofmore than 90% are subject to corporate income tax under the rules governing groups of compa-nies. According to these rules, the assessment base is determined based on the consolidatedresults of Duro Felguera, S.A. and the Spanish subsidiaries.

Under the special tax scheme applicable to groups of companies, the entire consolidated groupmust be treated as a single taxpayer.


38

Each of the consolidated companies must, however, calculate the tax expense that would havebeen recorded had a separate tax return been filed. Corporate income tax payable or receivable(tax credit) must be recorded depending on whether the company contributes a profit or a loss.

Corporate income tax expense is calculated based on the reported profit calculated in accordan-ce with accounting principles generally accepted in Spain, which is not necessarily equal to thefigure for taxable income calculated for corporate income tax purposes.

Set out below is the reconciliation of the reported consolidated profit for 2002 and taxable inco-me:

Thousand euros

Consolidated reported profit for yearCorporate income taxOther taxes

Reported profit before corporate income tax

Permanent differences:From individual companiesFrom consolidation adjustments

Timing differences:From individual companies arising in prior yearsIntegration of income deriving from reinvestment(Transitional provision 3 of Law 24/2001)Other increasesDecreases, pension commitmentsOther decreases

Offset of tax-loss carryforwards

Taxable income

Taxable income attributed to consolidated group

Taxable income attributed to non-consolidated Group companies

6,3201,776

492

8,588

(1,803)768

1,33769

(2,216)(1,398)

5,345

(410)

4,935

2,308

2,627


Thousand euros

39


Set out below is an analysis of corporate income tax expense as per the consolidated profit andloss account:

Thousand euros

Current year tax relating to companies not consolidated for tax purposesCurrent year tax relating to companies consolidated for tax purposesReversal of deferred tax asset from timing differencesReversal of deferred tax liability from timing differencesTax credits for double taxation pending applicationTax credits for intercompany double taxationForeign taxes and other itemsOther

919808

1,265(492)(120)(637)

49233

2,268

Set out below is an analysis of permanent differences derived from the recognition of income andexpense for accounting and tax purposes:

Thousand euros

Net pensionsProvision for liabilities and chargesTransfer from deferred incomeBad debtsOther net items

(1,201)735

(344)(805)(188)

(1,803)

Set out below is an analysis of the timing differences derived from the recognition of income andexpense for accounting and tax purposes and the resulting accumulated tax effect as at 31December 2002:

Timing differences Tax effect

Deferred tax assetsPensions and similar obligations

Deferred tax liabilitiesCapital gains on transactions involving tangible fixed assets and other items

5,004

55

14,298

158

Deferred tax assets mainly relate to the restatement of the tax effect of the amounts to be deduc-ted over the next six years. This restatement has been carried out based on the single premiumfor the group life insurance contract taken out to cover pension commitments with retired emplo-yees 31 December 2002 (note 14 a), in accordance with Transitional Provision Sixteen of Law30/95 (8 November 1995) introduced under Law 43/1995 (27 December 1995).


In accordance with current legislation, tax losses from one year may be offset for tax purposesagainst profits recorded over the following fifteen years. However, the final amount that may beoffset could be changed as a result of a tax inspection. The accompanying balance sheet as at 31December 2002 does not record the possible tax effect of offsetting tax-loss carryforwards, forreasons of prudence. Set out below is an analysis of tax-loss carryforwards pending offset as at31 December 2002:

Thousand euros

40

Year

19931994199519992001

3.0013.00

4.300.504.20

25.00

Available until Thousand euros

200420052007200820092010201120122013201420152016

147221422

13121

24883271

91602924

2,306

At 31 December 2002 tax credits pending application for double taxation and investments are asfollows:

All the Company’s and subsidiaries’ returns for the main taxes to which they are subject and theyears which have not become statute-barred are open to inspection by the tax authorities. Taxesmay not be deemed to be finally paid until the four-year prescription period has elapsed. TheDirectors of the parent company do not expect any additional significant contingencies that couldaffect the accompanying consolidated annual accounts to arise in the event of an inspection.


41


Equivalent valuein thousands of euros

19 | INCOME AND EXPENSE

a | Transactions denominated in foreign currency

Transactions effected in foreign currencies are set out below:


Net purchases and external expenses

Sales

41,823

114,152

b | Analysis of net turnover:

Net turnover from the consolidated Group’s ordinary activities is analysed below by geographicalarea:

Market %

Domestic marketExports

6733

100

Product line %

Heavy boilermakingMining equipmentEngineering servicesMetallurgical equipmentConstruction of energy plantsFittingSmelting

63

176

4717

4

100

Currency

U.S. dollarsJordanian dinarsPounds sterlingEurosSwiss francsMexican pesos

95,6397,6052,316

40,0222,4416,151

154,174

Set out below is an analysis of net turnover by product line:

Set out below is a breakdown of the Group's export turnover:


42

c | Supplies

d | Staff costs

e | Average number of employees by category

f | Changes in trade provisions


Materials consumed:Net purchasesDifference between opening and closing inventories

Other external expenses

72,985(276)

72,709162,234

234,943

140,400(2,009)

138,391119,428

257,819


Changes in inventory provisionChange in provision for bad debtsBad debts written offLosses on enforcement of guarantees (Note 16 b)Trade provisions

601,934

10-

(1,345)

659

60(259)

822,4691,610

3,962


Wages, salaries and similar remunerationAppropriations to pensions (Note 14a)Staff welfare expenses

83,395670

21,624

105,689

85,368326

21,010

106,704

Category Average number

University graduatesSkilled techniciansOther techniciansAdministrative staffUnskilled workersSemi-skilled personnel

340238246116

2,27264

3,276


43


g | Other operating income


Sundry incomeOperating grantsExcess provision for liabilities and charges

1,090499

1,457

3,046

239173472

884


Income:Income and profits from investments and other interest

- Income from shareholdings- Income from loans and other negotiable securities- Other interest and similar income- Profit on current asset investments

Gains on exchange

Less expenses:Financial expense and expenses and losses on investments:

- Financial and similar expenses- Losses on current asset investments- Changes in provisions for investments

Interest applied to the pension provision (Note 14 a)Losses on exchange

Net financial expense

2690453

32

1,177

1,564

2,741

(2,350)(4)

(11)

(2,365)

(100)(1,597)

(4,062)

(1,321)

1410318

9

738

3,911

4,649

( 3,292)(21)

(8)

( 3,321)

(50)( 6,946)

( 10,317)

(5,668)

20 | FINANCIAL INCOME AND EXPENSE

Net financial income/expense is composed as follows:


44


340

5,463488779119

7,189

(15)(3,037)

(308)

(3,360)

3,829

344

1,354505

1,372282

3,857

(6)(7,479)

(45)

(7,530)

(3,673)

Turnover and otheroperating income

379

Transactions BalancesSupplies and otheroperating charges

11,055

Attendanceallowances

46

Creditors,short-term

2,080

21 | EXTRAORDINARY ITEMS

Extraordinary items are analysed as follows:

22 | OTHER INFORMATION

a | Parent Company Directors’ remuneration

Salaries, expense allowances and other remuneration accruing in favour of the Parent Company’sBoard of Directors during 2002 amount to K¤ 1,016.

The breakdown of balances and transactions with companies that pertain to the ParentCompany’s Board of Directors is set out below:

Extraordinary profit:Gain on sale of fixed assets taken to profit and loss (Note 13a)Profit on disposal of tangible and intangible fixed assetsand controlling shareholdingsCapital grants released to income for the yearExtraordinary incomeIncome relating to prior years

Less extraordinary losses:Losses on tangible and intangible fixed assetsand controlling shareholdingsExtraordinary expensesPrior-year expenses and losses

Net extraordinary income

At 31 December 2002 the item Extraordinary expenses includes the appropriation of K¤ 6,952 tothe provision for disputes in which Duro Felguera, S.A. is involved in relation to certain construc-tion work (Note 14b).

Thousand euros


45


23 | GUARANTEES AND OTHER CONTINGENCIES

As at 31 December 2002 the Group has furnished the following guarantees:

24 | POST-BALANCE SHEET EVENTS

In 2001 the subsidiary Duro Felguera Plantas Industriales, S.A. became aware that legal actionhad been brought against it in relation to a completed construction project for which the subsi-diary, based on estimates made by its lawyers and Directors, did not set up any provision. On 28February 2003, Madrid’s Court of First Instance ruled against the Group subsidiary Servicios yMaquinaria Duro Felguera, S.A. (currently named Duro Felguera Plantas Industriales, S.A.) in theamount of ¤ 536,165. The subsidiary has appealed this ruling and, on the basis of its lawyers’ opti-mistic forecasts, the Directors have decided not to make a provision for this item.

b | Environmental information

The Company has adopted the necessary measures to protect and improve the environment andto minimise the environmental impact, if applicable, in compliance with current environmentallegislation.

c | Auditors’ fees

PricewaterhouseCoopers Auditores, S.L. has received ¤ 188,800 for audit services rendered to theGroup, plus expenses.

Thousand euros

Bids submitted to tenderGuarantees under sales agreements in the process of enforcementGuarantee facilities and multi-user credit linesOther items

3,435176,122128,738

11,220

319,515


46

25 | STATEMENTS OF SOURCE AND APPLICATION OF FUNDS

Set out below are the Statements of Source and Application of Funds for 2002 and 2001:

2002APPLICATION OF FUNDS 2001Thousand euros

Formation and loan arrangement expenses

Purchases of fixed assets:Intangible fixed assetsTangible fixed assetsAdditions due to inclusion in scope of consolidationInvestments:

- Companies consolidated using equity method- Other investments

Goodwill

Dividends and attendance allowances

Deferred expenses

Other movements in capital and reserves (differences on exchange)Repayment or reclassification to short term liabilitiesof liabilities due after one year

Provisions for pensions and similar obligations

Change in negative difference on first consolidation

Change in unrealised gains on exchange

Transfers to short-term of convertible debentures

Total application of funds

Surplus of sources over application of funds (Increase in working capital)

5

13,844584

9,150-

64,104

38

5,454

-

-

748

2,643

109

267

633

23,741

57

7,4591,0375,287

235

136764

614

3,967

407

1,238

-

1,865

-

-

-

15,607

50,203


47


2002SOURCE OF FUNDS 2001Thousand euros

Funds generated from operations

Debts falling due after one year

Capital grants received

Differences on exchange

Goodwill

Proceeds from disposal of fixed assets:Tangible fixed assetsIntangible fixed assetsDifferences on conversion of Financial investments

Provisions for liabilities and charges:Additions due to inclusion in scope of consolidation

Early redemption or reclassification to short-term of:InvestmentsLong-term debtors

Net change in minority interests

Other movements in capital and reserves

Total sources of funds

Surplus of applications over sources of funds (Reduction in working capital)

5,080

1,566

1,945

-

28

6,7766,057

--

719

--

3,6171,5802,037

234

20

19,266

4,475

15,261

-

1,532

63

-

5,8555,600

-145110

2525

42,1855,553

36,632

889

-

65,810


48

a | Change in working capital

b | Calculation of funds generated from operations

Thousand euros

InventoriesDebtorsCreditorsCurrent asset investmentsCash at bank and in handAccruals, prepayments and deferred income

Total

Change in working capital

-135,264

---

144

135,408

50,203

(28,276)-

(43,057)(10,692)

(3,180)-

(85,205)

22,764--

19,1635,210

-

47,137

-(18,832)(32,605)

--

(175)

(51,612)

(4,475)

Increases Decreases Increases Decreases2002 2001


5,109

3,970770

2,6151527

2

7,399

(5,463)(340)(488)

--

(1,135)(2)

(7,428)

5,080

5,693

4,986398

7,1976

72-

12,659

(1,354)(344)(768)(176)

(53)(393)

(3)

( 3,091)

15,261

Profit for the year

Increases:

Fixed asset depreciationAppropriations to provision for pensions and similar obligationsAppropriations to other provisionsLosses from tangible and intangible fixed assetsAmortisation of goodwillCancellation of deferred expenses

Total increases

Decreases:

Profit on disposal of tangible and intangible fixed assetsDeferred income taken to profit and loss for the yearCapital grants released to income for the yearGains on exchangeReversal of provision for liabilities and chargesReversal of provision for pensions and similar obligationsReversal of provisions for investments

Total decreases

Total funds generated from operations


49


| DURO FELGUERA, S.A. AND SUBSIDIARIES

Directors’ Report for 2002

The Duro Felguera Group’s activities have continued to significantly increase in 2002, the Group’sprofit from ordinary activities rising from ¤ 4.3 million in 2001 to ¤ 12.2 million in the current year.

During the year, construction work was almost completed on the San Roque and Besós combi-ned cycle plants for ENDESA and Gas Natural, the Castejón combined cycle plant forHidroeléctrica del Cantábrico and the Son Reus combined cycle plant for ENDESA GENERACIÓN.

In August, Duro Felguera was awarded a contract for the turnkey construction of two new combi-ned cycle plants in Barranco de Tirajana, Canary Islands, and Son Reus II, Majorca. The award ofthose contracts, in which the industry’s main multinationals will participate as subcontractors, isa significant step for the Company not only in quantitative terms but as an indication of clearappreciation by the main players in the worldwide energy plant construction market of the DuroFelguera Group’s technical and financial capabilities.

The Group has also continued to grow in the Mexican market, acquiring the majority shareholdingin PYCORSA, a leading Mexican engineering company, in 2002.

The construction project relating to a plant for chlorized products for PETROQUÍMICA PAJARITOS,PEMEX is in an advanced stage of development. In February 2003, PEMEX awarded DuroFelguera, S.A. a new contract for heat recovery facilities at the above company. The Company hasalso made other bids from which it expects equally significant results.

With respect to workshops, Felguera Melt and TEDESA have obtained excellent results andFelguera Construcciones Mecánicas has continued to recover to reach breakeven.

Storage activities continued to grow as a result of the implementation of strategic fuel reserveplans and profits were similar to figures recorded in the previous year. The contract with ENAGASfor a 150,000 m3 liquefied gas tank in Barcelona is worthy of note.

In the first months of 2003, Duro Felguera entered into an agreement with MITSUBISHI HEAVYINDUSTRIES for the creation of a joint venture company to manufacture and supply tunnel-boringmachines in European and Latin American markets. The construction of two tunnel-boringmachines has already commenced for the Abdalajís tunnels, on the AVE Córdoba-Málaga line, forwhich MITSUBISHI was contracted prior to this agreement.

During the year, the Duro Felguera Group has incurred R&D expenses amounting to K¤ 1,088, ofwhich K¤ 495 has been capitalised as R&D.

Duro Felguera Group does not hold any of its own shares.


50


51

AUDITOR’SREPORT


AUDITOR’SREPORT

52


53

ANNUAL ACCOUNTSAND DIRECTOR’S REPORTRELATIVE TO 2002


54

DURO FELGUERA, S.A.Balance Sheets as at 31 December 2002 and 2001(Thousand euros)

ASSETS

Fixed assets

Formation expenses (Note 4)Intangible fixed assets (Note 5)Tangible fixed assets (Note 6)Investments (Note 7)

Current assets

Inventories (Note 8)Debtors (Note 9)Current asset investments (Note 10)Cash at bank and in hand

TOTAL ASSETS

2002

83,108

44142

5,14977,773

200,351

2,719146,946

48,7861,900

283,459

2001

89,410

9959

9,15280,100

102,505

13,83129,29155,483

3,900

191,915


55

| ANNUAL ACCOUNTS AND DIRECTOR’S REPORT RELATIVE TO 2002

LIABILITIES

Capital and reserves (note 11)

Share capitalShare premium accountRevaluation reserveOther reservesRetained earningsProfit for the year

Deferred income (note 12)

Provision for liabilities and charges (note 13)

Creditors: amounts falling due after more than one year (note 14)

Bank loansAmounts owed to Group companiesOther creditors

Creditors: amounts falling due within one year

Bank loans and overdrafts (Note 14)Issue of convertible debenturesAmounts owed to Group and associated companies (Note 7)Trade creditors (Note 15 a)Other creditors (Note 15 b)Provisions for liabilities and chargesand other trade provisions (Note 16)Accruals and deferred income

TOTAL LIABILITIES

2002

66,607

44,6323,913

95811,995

515,058

2,135

8,446

47,925

37,92510,000

-

158,346

22,483-

39,41786,189

7,136

3,121-

283,459

2001

65,515

44,6323,913

95814,118

3181,576

2,558

2,086

12,063

3612,000

27

109,693

192633

31,68072,627

4,012

53217

191,915


56

DURO FELGUERA, S.A.Profit and Loss Accounts for the years ended 31 December 2002 and 2001(Thousand euros)

EXPENSES

Reduction in inventories of finished goods and work in progressRaw materials and consumables (Note 18 b)Staff costs (Note 18 c)Fixed asset depreciationChanges in trade provisionsOther operating charges:

- External services- Taxes

Operating profit

Net financial income (Note 19)

Profit from ordinary activities

Profit before taxes

Corporate income taxOther taxes

Profit for the year

2002

13,347197,375

10,885316

2,586

23,412308

8,737

1,120

9,857

5,576

278240

5,058

2001

-138,500

11,500280(5)

11,178135

5,563

1,465

7,028

4,199

2,623-

1,576


57


INCOME

Net turnover:- Sales- Services rendered- Increase in inventories of finished goods and work in progress

Other operating income:- Sundry income- Capital grants- Surplus provisions for liabilities and charges- Other

Net extraordinary loss (Note 20)

2002

252,9773,393

-

275-

321-

4,281

2001

149,2104,085

13,776

-152738

2,829


58

1 | ACTIVITIES

Duro Felguera, S.A. (the Company) was set up as a Spanish public limited company ("sociedadanónima") for an indefinite period on 22 April 1900, although the Company’s name was SociedadMetalúrgica Duro-Felguera, S.A. until 25 June 1991, subsequently it changed its name to GrupoDuro Felguera, S.A. until 26 April 2001, at which time it adopted its current name.

According to the Company’s objects, it may operate in the metal, boiler making, smelting andcapital goods industries, engaging in construction, manufacturing and fitting work under turnkeycontracts, as well as marketing, distribution, construction and installation services involvingenergy obtained from solid and liquid fuels. The Company’s objects also cover the promotion,formation, extension, development and modernisation of industrial, commercial and servicecompanies in Spain and abroad, provided such companies are engaged in any of the activities lis-ted above. It may also acquire and hold fixed or variable income securities issued by all kinds ofentities.

In 1991 Duro Felguera, S.A. completed the process whereby certain divisions which engaged inactivities relating to engineering projects, fitting and maintenance of industrial equipment andmachinery were transformed into companies with their own separate legal personality. In orderto set up these investee companies, Duro Felguera, S.A. had to contribute the human, materialand financial resources required to carry on their respective activities. Duro Felguera, S.A. there-fore transferred the personnel working in each activity and contributed the capital required in theform of contributions in cash and in kind, mainly buildings, machinery and production equipment.It also grouped together the different investee companies which operate in the capital equipmentsector into an industrial sub-group led by a wholly owned company, Duro Felguera PlantasIndustriales, S.A.

In the final quarter of 2000, the Group has carried out further restructuring, grouping togetherthe companies engaged in workshop activities under the subsidiary Duro Felguera Equipos yMontajes, S.A.. The engineering companies have been grouped together under Duro FelgueraPlantas Industriales, S.A. The restructuring process has been completed through the decisionwhereby large orders are to be executed by Duro Felguera, S.A., in addition to this company’s roleas Parent and holding company of the Duro Felguera Group.

2 | BASIS OF PRESENTATION

a | True and fair view

The annual accounts have been prepared on the basis of the Company's accounting records,which have been kept in euros since 1 January 2001, and are presented in accordance with theSpanish General Accounting Plan as adapted to the construction industry so as to give a true andfair view of the Company's net worth and financial situation and the results of its operations.

These accounts have been drawn up by the Directors of the Company and are to be submitted forthe approval of the Annual General Meeting. The Directors consider that the accounts will beapproved without any changes.

b | Accounting principles

The accompanying annual accounts have been prepared in accordance with accounting principlesand standards generally accepted in Spain, as described in note 3. No mandatory accountingprinciple having a significant effect on the annual accounts has been omitted.


59


c | Groupings of items

For clarity, the balance sheet and the profit and loss account are presented in summarised form.Where appropriate, an analysis is provided in the relevant note to the accounts.

d | Consolidated accounts

The Company is the parent of a group of companies meeting the requirements of Royal Decree1815/1991 (20 December) and must therefore file consolidated annual accounts.

For clarity, the Directors have opted to present separate consolidated accounts.

3 | ACCOUNTING POLICIES

a | Formation expenses

Formation expenses consist of capital increase expenses and are capitalised at cost.

These expenses relate basically to lawyers, notarisation and registration fees, etc., which areamortised on a straight-line basis over five years.

b | Intangible fixed assets

All intangible fixed assets relate to computer applications, which are stated at acquisition or pro-duction cost and amortised on a straight-line basis over an estimated useful life of four years.Software maintenance expenses are taken to profit and loss when incurred.

c | Tangible fixed assets

Tangible fixed assets are stated at acquisition or production cost plus legally approved revalua-tions, including the restatement carried out in accordance with Royal Decree-Law 7/1996 (7 June1996).

Any capital gains or net gains in value resulting from such restatements are written off over thetax periods remaining until the end of the assets’ estimated useful lives.

Maintenance and repair expenses are charged to profit and loss in the year they occur.Replacements or renewals of tangible fixed assets are recorded under assets and the replaced orrenewed assets are written off the accounts.

Costs relating to extensions, modernisation or improvements which increase productivity, capa-city or efficiency, or extend the useful lives of the assets are capitalised as an increase in the costof the assets concerned.


60

Tangible fixed assets are depreciated on a straight-line basis over their estimated useful lives. Setout below are the years of useful life applied by the Company:

Years

BuildingsPlant and machineryFixtures, fittings, tools and equipmentOther fixed assets

17 to 506 to 178 to 204 to 20

d | Investments

The Company accounts for investments in accordance with the following principles:

i | Fixed income securities:

Fixed income securities are stated at the lower of cost, including related expenses, and repay-ment value.

ii | Variable income securities:

Investments in securities (irrespective of the percentage interest) are stated at the lower ofcost, adjusted and updated in accordance with Law 9/1983, where appropriate, and marketvalue. Market value is the lower of the average listed price for the final quarter and the year-end price, in the case of listed securities, or the proportional book value of the holding as perthe latest available balance sheet in the case of unlisted securities.

Any negative differences between cost and the year-end market price are recorded in theaccount "Investments - Provisions".

Dividends received are taken to income on approval of payment by the respective Boards ofDirectors or General Meetings.

The Company has a majority holding in certain companies and holds interests of 15% or morein others. The accompanying accounts relate solely to the Company since, in accordance withcurrent Spanish Company Law, the Directors present separate consolidated accounts for 2002(Note 7).

e | Inventories

Raw and auxiliary materials and consumable and replacement materials are stated at the lowerof average acquisition price and market price.

Finished goods, semi-finished goods and work-in-progress are stated at the average productioncost, which includes the cost of raw materials and other materials consumed, labour and directand indirect manufacturing expenses. The cost of these inventories is written down to their netrealisable value if lower than production cost.

Obsolete and defective items are adjusted, based on estimates, to bring them into line with theirpotential realisable value.


61


f | Trade debtors and trade bills receivable

Accounts receivable are stated at their nominal value on the balance sheet. Value adjustmentshave, however, been made and bad debts provisions recorded, where necessary, based on an ite-mised analysis of trade debtor balances.

g | Current asset investments

Current asset investments are stated at the lower of acquisition cost and market/repaymentvalue. Market/repayment value is determined using the same method as is applied to invest-ments.

h | Deferred income

Deferred income relates mostly (Note 12) to capital gains on sales of certain buildings in respectof which sale options are held by the purchaser, lease agreements have been concluded by theCompany and guarantees have been furnished to the purchaser.

The amount recorded under this heading equals total lease expenses until the date the purchaseoption expires. This amount is released to profit and loss at the same rate as the costs derivingfrom the lease of these assets.

i | Provisions for pensions and similar obligations

The Company has contracted commitments with certain retired and active personnel, employeesof the discontinued coal activity, for the monthly supply of a certain amount of coal.

The amount of yearly appropriations is determined based on actuarial studies conducted by anindependent actuary and on GRMF-95 mortality tables (adjusted during the working life of theemployee to take into account the possibility of disability in accordance with the Ministerial Orderof 24 January 1977), technical interest rates of 4% per annum and annual inflation of 3%.

j | Other provisions for liabilities and charges

These provisions relate mainly to guarantees furnished to third parties and other items. Eachyear the Company estimates the amounts of payments that could arise in the future and makesprovision accordingly, charged to profit and loss for the year.

k | Creditors

Long and short-term creditors are recorded at repayment value.

l | Classification of amounts payable

Debts are classified on the balance sheet as laid down in the Spanish General Accounting Plan,based on when they fall due. Amounts falling due within twelve months are regarded as shortterm and debts which fall due after more than one year are classed as long term.

m | Transactions denominated in foreign currency

Transactions denominated in foreign currency are stated at their equivalent value in euros, usingthe exchange rates applicable on the transaction date.

Gains or losses on exchange arising when balances are settled are taken to the profit and lossaccount when they occur.

Every year end balances receivable and payable denominated in foreign currency are stated ineuros at the year-end exchange rates or, where applicable, at the hedged exchange rates.


62

Unrealised net losses on exchange are determined for balances due on similar dates in curren-cies showing similar market behaviour and are expensed. Any unrealised net gains determinedin the same way are deferred until they are realised.

n | Recognition of profits under long-term contracts

The Company records long-term construction contracts in the amount of specific manufacturingexpenses incurred during each project or contract. The profit generated is recognised based onprogress made, provided there are reasonable and reliable estimates of contract budgets, reve-nues, costs and progress made and there are no unusual or extraordinary risks relating to theproject. In the case of loss-making contracts, the relevant amounts are taken to profit and loss assoon as they are known.

o | Income and expense

Income and expense are recorded on an accruals basis, based on the actual flow of assets andservices, irrespective of when the relevant amounts are collected or disbursed.

For reasons of prudence, however, the Company only accounts for income realised at the yearend, while any contingent liabilities and losses are recorded as soon as they are known.

p | Severance indemnities

Under current employment law, the Company must pay indemnities to workers and staff whoseemployment is terminated under certain conditions. The Directors of the Company envisage nodismissals in the future and have not therefore set up any provision for this item in the annualaccounts.

q | Corporate income tax

Corporate income tax expense for the year is calculated based on the reported profit before taxas adjusted to account for any permanent differences between reported profits and taxable inco-me and the effect of any tax credits and deductions, not including withholdings and interim pay-ments.

Tax credits for investments in new fixed assets and, whenever appropriate, for job creation, aretreated as a reduction in corporate income tax expense for the year in which they are applied.

The Company pays corporate income tax under the rules governing groups of companies, toge-ther with the companies of the Duro Felguera Group. Under this tax system, the tax assessmentbase is calculated based on the Group’s consolidated results.

r | Accounting for joint ventures

Certain work is performed through the grouping of two or more companies into a joint venture.As at 31 December 2002 the Company participated in several joint ventures (Note 22 a), the balan-ces for which at that date are recorded in the Company’s accounts in proportion to the interestheld in the joint venture and in accordance with accounting principles generally accepted in Spain.

The same policy is followed to record the result of work executed by the joint ventures with othercompanies, as explained in section n) above.

s | Integration of branches

The inclusion of the branch the Company owns in Mexico, Duro Felguera S.A, Sucursal México,into its annual accounts for 2002 has been completed in accordance with current legislation,including all the branch’s balances and transactions (note 22 b).


63


Thousand euros

Capital increase expenses 99 - (55) 44

Opening balance Additions Amortisation Closing balance

4 | FORMATION EXPENSES

Movements in Formation expenses during 2002 are as follows:

5 | INTANGIBLE FIXED ASSETS

Movements in Intangible assets during 2002 are set out below:

Thousand euros

822 119 941

Openingbalance

Cost AmortisationNet book

value

AdditionsClosingbalance

(763) (63) (799) 59 142

Openingbalance

Charge forthe years

Closingbalance

Openingbalance

Closingbalance

Computer software


64

82574

-32

931

(521)(36)

-

(557)

304374

Land andbuildings

Plant andmachinery

Other fixedassets Total

COSTOpening balanceAdditionsDisposalsTransfers

Closing balance

DEPRECIATIONOpening balanceCharge for the yearDisposals

Closing balance


8,859-

(3,960)-

4,899

(720)(54)

91

(683)

8,1394,216

707-

(612)-

95

(442)(25)372

(95)

265-

1715

-(32)

-

---

-

17-

11,177347

(4,598)-

6,926

(2,025)(225)

473

(1,777)

9,1525,149

769258(26)

-

1,001

(342)(110)

10

(442)

427559

Fixtures, fittings,tools and equipment

Prepayments onaccount and assets

in course of construction

6 | TANGIBLE FIXED ASSETS

Movements in Tangible fixed assets during 2002 are set out below:

Thousand euros

Thousand euros

a | Restatements

The Company has restated tangible fixed assets as permitted under various legal provisions,including Royal Decree-Law 7/1996 (7 June 1996).

The accounts restated in accordance with Royal Decree-Law 7/1996 and the effect of the restate-ment as at 31 December 2002 are set out below:

Increase

Land and buildingsPlant and machineryFixtures, fittings, tools and equipmentOther fixed assets

9026

709

987

Accumulateddepreciation

(74)(6)

(50)(9)

(139)

Disposals

(613)-

(17)-

(630)

Neteffect

215-3-

218

The effect of this restatement on the annual depreciation charge and therefore on the result for2002 was an increase of approximately K¤ 4.2.


65


b | Tangible fixed assets located abroad

As at 31 December the Company held tangible fixed assets located abroad with a net valueof K¤ 95.

c | Fully-depreciated assets

As at 31 December 2002 fully depreciated tangible fixed assets with an original or restated costof approximately ¤ 1 million are still in use.

d | Insurance

The Company has taken out a number of insurance policies to cover risks relating to tangiblefixed assets. As at 31 December 2002, the Directors of the Company consider insurance covera-ge to be adequate.

7 | INVESTMENTS AND GROUP AND ASSOCIATED COMPANIES

Set out below is an analysis of the movements relating to the Company's investmentsduring 2002:

COSTShareholdings in Group companies (Note 7 a)Loans to Group companies (Note 7 a)Shareholdings in associated companies (Note 7 a)Long-term securities portfolio (Note 7 b)Other debtors (Note 7 c)Long-term deposits and guarantees (Note 7 d)Public institutions, long-term (Note 17)

PROVISIONSShareholdings in Group companies (Note 7 a)Bad debts – loans to group companiesShareholdings in associated companies (Note 7 a)Long-term securities portfolio (Note 7 b)Other debtors (Note 7 c)

-(2,229)

--

(45)--

(2,274)

-----

-

(2,274)

BalanceOpening

Additions andappropriations

Closingbalance

68,5989,008

4864

2,9392,5674,653

87,877

(7,704)(16)(31)

(5)(21)

(7,777)

80,100

2,40073

-406140

1-

3,020

(567)(49)

(1)--

(617)

2,403

-------

-

1,017---3

1,020

1,020

----

(2,713)(5)

(776)

(3,494)

----

18

18

(3,476)

70,9986,852

48470321

2,5633,877

85,129

(7,254)(65)(32)

(5)-

(7,356)

77,773

Disposals ReversalsTransfers toshort-term

Thousand euros


a | G

roup

and

ass

ocia

ted

com

pani

es

Set o

ut b

elow

is a

list

of G

roup

and

ass

ocia

ted

com

pani

es, i

nclu

ding

rel

evan

t dat

a, a

s at

31

Dec

embe

r 20

02:

66

Dir

ect

shar

ehol

ding

s (3

)

Gro

up c

ompa

nies

:

Dur

o Fe

lgue

ra P

lant

as In

dust

rial

es, S

.A.

Ace

rvo,

S.A

.

Inm

obili

aria

de

Empr

esas

de

Lang

reo,

S.A

.

Mon

taje

s de

Maq

uina

ria

de P

reci

sión

, S.A

.

Felg

uera

I.H

.I., S

.A.

Dur

o Fe

lgue

ra E

quip

os y

Mon

taje

s, S

.A.

Dur

o Fe

lgue

ra d

o B

rasi

l, Lt

da.

Dur

o Fe

lgue

ra M

éxic

o, S

.A. d

e C

.V.

Ass

ocia

ted

com

pani

es:

Zore

da In

tern

acio

nal,

S.A

.

Indi

rect

sha

reho

ldin

gs (3

)

Forj

as y

Est

ampa

cion

es A

stur

iana

s, S

.A.

Felg

uera

Grú

as y

Alm

acen

aje,

S.A

.

Felg

uera

Mon

taje

s y

Man

teni

mie

nto,

S.A

.

Felg

uera

Mel

t, S.

A.

Felg

uera

Rev

estim

ient

os, S

.A.

Técn

icas

de

Entib

ació

n, S

.A.

Felg

uera

Par

ques

y M

inas

, S.A

.

Felg

uera

Cal

dere

ría

Pes

ada,

S.A

.

Felg

uera

Con

stru

ccio

nes

Mec

ánic

as, S

.A.

Turb

ogen

erad

ores

de

Méx

ico,

S.A

.de

C.V

.

Felg

uera

Tec

nolo

gías

de

la In

form

ació

n, S

.A.

Felg

uera

Cal

dere

ría

Pes

ada

Ser

vici

os, S

.A.

Seci

car,

S.A

.

Cap

ital g

oods

(La

Felg

uera

)

Fina

nce

(Ovi

edo)

Rea

l est

ate

(La

Felg

uera

)

Turb

ine

fittin

g an

d m

aint

enan

ce (G

ijón)

Fuel

and

gas

sto

rage

equ

ipm

ent

(Mad

rid)

Free

zing

tunn

els

and

conv

eyor

bel

ts (L

a Fe

lgue

ra)

Indu

stri

al p

roje

ct c

onst

ruct

ion

and

asse

mbl

y (S

ao P

aulo

)

Indu

stri

al p

roje

ct c

onst

ruct

ion

and

asse

mbl

y (M

éxic

o D

.F.)

Gro

up to

tal

Envi

ronm

ent (

Gijó

n)

Tota

l ass

ocia

ted

com

pani

es

Mat

eria

ls fo

r tu

nnel

s an

d m

ines

(Lla

nera

)

Engi

neer

ing

of li

ftin

g eq

uipm

ent (

La F

elgu

era)

Indu

stri

al a

ssem

bly

(Lan

greo

)

Smel

ting

(La

Felg

uera

)

Ref

ract

ory

linin

gs (L

angr

eo)

Man

ufac

ture

of s

hori

ng m

ater

ials

(Lla

nera

)

Engi

neer

ing

of li

ftin

g eq

uipm

ent (

La F

elgu

era)

Pre

ssur

ised

con

tain

ers

and

heav

y bo

ilerm

akin

g (G

ijón)

Man

ufac

ture

of m

echa

nica

l equ

ipm

ent

(Lan

greo

)

Turb

ine

fittin

g an

d m

aint

enan

ce (M

exic

o)

Dev

elop

men

t of m

anag

emen

t sof

twar

e (O

vied

o)

Ass

embl

y an

d de

sign

of m

etal

lurg

ical

equ

ipm

ent (

Gijó

n)

Sale

of f

uel (

Gra

nada

)

100%

100%

100%

100% 60

%10

0% 95%

99.9

6% 32%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100% 60

%10

0%17

.68%

26,6

738,

516

220

859

4,92

726

,967 10

2,82

6

70,9

98 48 48

- - - - - - - - - - - - -

(4,2

68)

(64) - - -

(2,9

12)

(10) -

(7,2

54)

(32)

(32) - - - - - - - - - - - - -

22,4

058,

452

220

859

4,92

724

,055

-2,

826

63,7

44 16 16

- - - - - - - - - - - - -

19,7

732,

460

120

174

2,10

318

,000 11

2,65

7

150

102

902

1,80

33,

606 60

3,93

690

23,

846

5,50

7 5 90 301

3,00

5

1,74

65,

862

178

(2,2

03)

7,17

46,

623

(47)

963

(97) 49 (20)

1,06

63,

243

199

664

(128

)1,

343

1,90

5 12 187

145

(209

)

886

130 13

2,98

91,

638

(568

)(3

3)54

4 - 7(4

4)(1

,069

)74

5 22 576

137

(25) 12 7

(27)

(149

)(2

9)

Act

ivit

y an

d ad

dres

s%

Shar

ehol

ding

Cos

t

Pro

visi

onfo

r de

clin

e in

valu

e

Info

rmat

ion

on c

ompa

nies

as a

t 31.

12.0

2B

ook

valu

e

Net

Shar

eca

pita

l

22,4

058,

452

311

960

6,54

924

,055 (66)

4,16

2 53

- - - - - - - - - - - - -

Res

erve

s(1

)P

rofi

t/ (L

oss)

Boo

kva

lue

Thou

sand

eur

os


67

Act

ivit

y an

d ad

dres

s%

Shar

ehol

ding

Cos

t

Pro

visi

onfo

r de

clin

e in

valu

e

Info

rmat

ion

on c

ompa

nies

as a

t 31.

12.0

2B

ook

valu

e

Net

Shar

eca

pita

lR

eser

ves

(1)

Pro

fit/

(Los

s)B

ook

valu

e

Thou

sand

eur

os

Dur

o M

etal

urgi

a de

Méx

ico,

S.A

. de

C.V

.

Inge

nier

ía d

e P

roye

ctos

Med

ioam

bien

tale

s, S

.A.

Pro

yect

os e

Inge

nier

ía P

ycor

, S.A

. de

C.V

.

Inge

nier

ía T

écni

ca, S

.A. d

e C

.V. (

2)

Equi

pam

ient

os C

onst

rucc

ione

s y

Mon

taje

s, S

.A. d

e C

.V.

Dur

o Fe

lgue

ra P

ower

, S.A

. de

C.V

.

Ope

raci

ón y

Man

teni

mie

nto,

S.A

.

Soci

edad

de

Serv

icio

s En

ergé

ticos

Iber

oam

eric

anos

, S.A

.

Iber

oam

eric

ana

de M

onta

jes,

S.A

.

Com

mer

cial

and

indu

stri

al p

roje

cts

rela

ting

to c

apita

l goo

ds

indu

stry

(Mex

ico)

Con

stru

ctio

n an

d op

erat

ion

of h

ydro

chlo

ric

acid

reg

ener

atio

n

plan

ts. M

arke

ting

and

sale

of r

egen

erat

ed h

ydro

chlo

ric

acid

and

iron

oxi

de (L

a Fe

lgue

ra)

Engi

neer

ing

(Mex

ico)

Engi

neer

ing

(Mex

ico)

Indu

stri

al p

roje

ct c

onst

ruct

ion

and

asse

mbl

y (M

exic

o)

Fitt

ing

and

mai

nten

ance

of b

oile

rs a

nd tu

rbo

gene

rato

rs fo

r

ener

gy in

dust

ry (M

exic

o)

Laun

ch, o

pera

tion

and

mai

nten

ance

of t

herm

al p

lant

s (G

ijon)

Ass

embl

y an

d m

aint

enan

ce o

f ele

ctri

city

gen

erat

ion

plan

ts

(Col

ombi

a)

Fore

ign

engi

neer

ing,

con

stru

ctio

n an

d fit

ting

proj

ects

(Pan

ama)

100% 50

%51

%51

%

100%

100% 70

%

25%

25%

- - - - - - - - -

- - - - - - - - -

- - - - - - - - -

65 120

511 - 6 6

120

N/A

N/A

(67)

152

117 -

24 (6)

13

N/A

N/A

99 129

132 -

18

-70

N/A

N/A

- - - - - - - - -

1 | T

hese

figu

res

are

show

n af

ter

dedu

ctin

g in

teri

m d

ivid

ends

pai

d ou

t dur

ing

the

year

.2

| Con

solid

ated

dat

a in

clud

ed in

dir

ect i

nter

est.

3 | T

he C

ompa

ny h

olds

dir

ect a

nd in

dire

ct s

hare

hold

ings

in te

mpo

rary

con

sort

ium

s, w

hich

are

incl

uded

in th

e co

mpa

nies

acc

ount

s, in

acc

orda

nce

with

the

perc

enta

ge in

tere

st h

eld.


68

Gro

up c

ompa

nies

a) D

irec

t int

eres

t:Fe

lgue

ra I.

H.I.

, S.A

.

Ace

rvo,

S.A

.

Inm

obili

aria

de

Empr

esas

de

Lang

reo,

S.A

.

Dur

o Fe

lgue

ra E

quip

os y

Mon

taje

s, S

.A.

Dur

o Fe

lgue

ra P

lant

as In

dust

rial

es, S

.A.

Mon

taje

s de

Maq

uina

ria

de P

reci

sión

, S.A

.

Dur

o Fe

lgue

ra M

éxic

o, S

.A. d

e C

.V.

Dur

o Fe

lgue

ra d

o B

rasi

l, Lt

da.

b) In

dire

ct in

tere

st:

Dur

o M

etal

urgi

a de

Méx

ico,

S.A

. de

C.V

.

Pro

yect

os e

Inge

nier

ía P

icor

, S.A

. de

C.V

.

Turb

ogen

erad

ores

de

Méx

ico,

S.A

. de

C.V

.

Felg

uera

Grú

as y

Alm

acen

aje,

S.A

.

Felg

uera

Mon

taje

s y

Man

teni

mie

nto,

S.A

.

Felg

uera

Rev

estim

ient

os, S

.A.

Técn

icas

de

Entib

ació

n, S

.A.

Forj

as y

Est

ampa

cion

es A

stur

iana

s, S

.A.

Felg

uera

Con

stru

ccio

nes

Mec

ánic

as, S

.A.

Felg

uera

Par

ques

y M

inas

, S.A

.

Felg

uera

Cal

dere

ría

Pes

ada,

S.A

.

Felg

uera

Mel

t., S

.A.

Felg

uera

Cal

dere

ría

Pes

ada

Serv

icio

s, S

.A.

Equi

pam

ient

os C

onst

rucc

ione

s y

Mon

taje

s S.

A. d

e C

.V.

Ope

raci

ones

y M

ante

nim

ient

o, S

.A.

Felg

uera

Tec

nolo

gías

de

la In

form

ació

n, S

.A.

Ass

ocia

ted

com

pani

es:

Zore

da In

tern

acio

nal,

S.A

.

479 36 10 90

1,13

01,

452

202 -

18- - 6

344 65 168 -

253

368

439

180 51-

31 4 -

5,32

6

182 - - -

11,4

196,

209

13,9

85-

7,04

42,

077 - -

7,67

32,

046 - -

7,44

366

3 56- - -

2,05

5 30

-

60,8

82

- - -70 62 1

284 - - - - -

556 30- -

459

147 52 66- - - - -

1,72

7

226

4 26 18 346 42 12- - - -

52- -

19- - - - - 6 - - - -

787

- - - - - -2,

721 80

- - - - - - - -2,

867 - -

1,18

4 - - - - -

6,85

2

151 70 12

3,53

112

84,

398

6,56

9 - 8 - - -7,

593 8

334 - -

2,56

53,

456

1,22

4 - 3 - 2 -

30,0

52

66 10 3 61 704 36 73-

19- - 1

170 18 50-

141 24 103 14 14- - 3 -

1,51

0

Turn

over

and

oth

erop

erat

ing

inco

me

Supp

lies

and

othe

r op

erat

ing

expe

nses

Fina

ncia

lin

com

e

Bal

ance

sTr

ansa

ctio

ns

Fina

ncia

lex

pens

e Lo

ans,

long

-ter

m

- - - -10

,000

- - - - - - - - - - - - - - - - - - - -

10,0

00

Loan

s,sh

ort-

term

C

redi

tors

,lo

ng-t

erm

Deb

tors

,sh

ort-

term

C

redi

tors

,sh

ort-

term

143

7,84

377

8 443,

894 72

7,41

6 -

6,71

033

0 -2,

515

5,05

435

642

9 -1,

727

289 15-

997 -

788 -

17

39,4

17

Div

iden

dsre

ceiv

ed 205 - - - -

3,00

2 - - - - - - - - - - - - - - - - - - -

3,20

7

Thou

sand

eur

os

Set o

ut b

elow

are

det

ails

of t

rans

actio

ns e

ffec

ted

in 2

002

with

Gro

up a

nd a

ssoc

iate

d co

mpa

nies

(dir

ect a

nd in

dire

ct in

tere

sts)

and

bal

ance

s as

at 3

1 D

ecem

ber

2002

:


69


The above tables relate mainly to current account balances and trade accounts receivable fromand payable to Duro Felguera, S.A. and Group companies, as well as loans granted to certainGroup companies bearing interest at market rates. The interest on these current accounts andloans accrues at a rate of approximately 4.5% per annum, in the case of debtor balances, and3.4% per annum in the case of creditor balances. Interest for 2002 has been paid.

b | Long-term securities portfolio

Unlisted shares

Less provisions

467

467(5)

462

470

470(5)

465

Par value Book valueThousand euros

Thousand euros

In 2002 the Company purchased an 8% interest in Olig, S.A. for K¤ 406.

c | Other loans

Set out below is an analysis of the annual maturity dates of the balances included in Other loans:


Less amounts falling due within one year

Creditors falling due after more than one year

217583427

202538

(217)

321

Maturity date

Balances included under Amounts falling due after more than one year basically relate to loansgranted to personnel in the amount of K¤ 297.

d | Long term deposits and guarantees

The balance under this heading relates basically to a fixed-term deposit of K¤ 2,498 (arranged inFebruary 1999) securing compliance with obligations assumed by the Company under the priva-te agreement to sell fixed assets dated 28 December 1998, including sale option and lease-backarrangements (Note 12).


70

8 | INVENTORIES

Set out below is an analysis of this caption on the accompanying balance sheet:

9 | DEBTORS

Set out below is an analysis of this caption on the accompanying balance sheet:

Work in progress and semi-finished goodsAdvance payments to suppliers

4292,290

2,719

13,77655

13,831


Thousand euros

The Company records advance payments to Group company suppliers in the amount of K¤ 1,171.

a | Breakdown of inventories

The main amounts included in Work in progress and semi-finished goods relating to long-termcontracts valued as explained in note 3 e), as well as advance payments received from customersunder those contracts, as follows:

Thousand euros

ContractvalueDescription

UTE CastejónEngineering, concentration plant (Venezuela)Extension of chlorized derivatives plant (Mexico)Combined cycle plant in Son Reus II (Palma de Mallorca)Combined cycle plant in San Adrián del Besós (Barcelona)Combined cycle plant in Barranco de Tirajana (Canary Islands)

11,8401,626

74,865139,522130,148155,231

Inventories

128216

85---

Advancepayments from

customers

-206

1,9993,6515,245

14,938

%completion

100%81%53%25%99%25%

b | Insurance

The Company has taken out a number of insurance policies to cover risks relating to constructionwork. As at 31 December 2002, the Directors consider insurance coverage to be adequate.

Trade debtorsSales pending certificationGroup companies (Note 7 a)Sundry debtorsLoans to employeesTaxes refundable (Note 17)

Less provisions

119,79115,756

1,5105,443

44,640

147,144(198)

146,946

14,202-

1,6802,920

510,68629,493

(202)

29,291

2002 2001


10 | CURRENT ASSET INVESTMENTS

Set out below is an analysis of Current asset investments as at 31 December 2002:

71


Thousand euros

Loans to Group companies (Note 7 a)Loans to non-Group companiesShort-term securities portfolioOther debtors (Note 7 c)Deposits and guarantees furnished

Less provisions

30,0528,7009,738

21796

48,803(17)

48,786

25,691-

29,168605

1955,483

-

55,483

2002 2001

The balance recorded under Sundry debtors includes K¤ 3,925 generated from the sale of land toParque Nalón, S.L. At the year end the Company had not received definitive planning permissionrequired in order to execute the public deed. Given that these permits were granted on 7 February2003, the deed will be signed after the preparation of these notes to the Accounts.

The heading Loans to non-Group companies includes the portion of loans to temporary consor-tiums relating to other shareholders.

a | Short-term securities portfolio

Set out below is an analysis of this caption as at 31 December 2002:

Government bondsFixed-term depositsUncollected interest accrued

2.9%6.5%

1,7657,882

91

9,738

Interest rates Thousand euros

Total fixed-term deposits are recorded in Mexican pesos.

b | Other receivables

As at 31 December 2002 the most significant balances under this heading include accounts recei-vable in the short term relating to the sale of buildings to Gestinor, S.A. and Sistemas Avanzadosde Control, S.A. for approximately K¤ 120 and K¤ 54, respectively.


Opening balance

Distribution of2001 results:

- to dividends- to reserves- to retained earnings

Attendance allowances toGeneral Meetings

Result for the year

Closing balance

72

11 | CAPITAL AND RESERVES

Movements in Capital and reserves are set out below:

Thousand euros

Thousand euros

44,632

---

--

44,632

3,913

---

--

3,913

958

---

--

958

Sharecapital

Share premiumaccount

Revaluationreserves

14,118

-(2,123)

-

--

11,995

318

--

(20)

(247)-

51

1,576

(3,719)2,123

20

-5,058

5,058

65,515

(3,719)--

(247)5,058

66,607

Reserves(Note 11 d)

Retainedearnings

Profit/(loss)for the year Total

a | Share capital

As at 31 December 2002 the Company's share capital consisted of 14,877,421 fully subscribed andpaid registered shares represented by account entries, each with a par value of three euros. Allthe shares are listed on the Madrid, Barcelona and Bilbao stock exchanges and carry the samevoting and dividend rights.

As at 31 December 2002, according to data submitted to the Spanish Securities and ExchangeCommission (CNMV), the following parties hold an interest of 3% or more in the Company:

% Shareholding

Morgan Stanley InternationalCartera de Inversiones Melca, S.L.Caja de Ahorros de AsturiasTSK Electrónica y Electricidad, S.A.IMASA Ingeniería, Montajes y Construcciones, S.A.Company executives with syndicated shares

5%5%5%

15.87%9.53%5.66%

Shareholder

Adjustment, Royal Decree-Law 12/1973Restatement Budget Act 1979Restatement Budget Act 1983

7538,989

17,573

27,315

Share capital was increased in previous years by applying the following reserves:


73


b | Revaluation reserve

Following the three-year period during which the tax authorities may inspect the balance in therevaluation reserve, this reserve may be used, free of tax, to offset prior, current or future lossesor to increase capital. As from 1 January 2007 the balance may be taken to freely distributablereserves provided that the monetary capital gain has been realised. The part of the capital gainrelating to depreciation that has been recorded in the accounts and capital gains on restatedassets which have been transferred or written off are deemed to have been realised. In the eventthat the balance in this account is used in any way other than as provided under Royal Decree-Law 7/1996, the balance will become taxable.

c | Share premium account

The balance in the Share premium account is the result of share capital increases carried out inJuly 1998 and in January and July 1999.

The current Spanish Companies Act expressly provides that the balance in the share premiumaccount may be used to increase capital and establishes no restriction whatsoever on the use ofthis balance.

d | Reserves

Movements in the Reserve accounts are as follows:

Thousand euros

Legalreserve

Opening balanceApplication of 2001 profit

Closing balance

3,185158

3,343

Voluntaryreserves

10,852(2,281)

8,571

Conversionof share capital

to euros

75-

75

Other

6-

6

Total

14,118(2,123)

11,995

Legal reserve

Appropriations to the legal reserve are made in compliance with Article 214 of the SpanishCompanies Act which stipulates that 10% of the profits for each year must be transferred to thisreserve until it represents at least 20% of share capital.

The legal reserve is not available for distribution. Should it be used to offset losses in the eventof no other reserves being available, it must be replenished out of future profits.

e | Restrictions on the payment of dividends

The reserves designated in other sections of this note as being freely available for distribution, aswell as the profit for the year are, however, subject to the restriction on distribution describedbelow:

- Dividends may not be distributed if by so doing the balance in reserves is reduced to an amountlower than the aggregate unamortised formation expenses. Consequently, the balance in suchreserves (approximately K¤ 44) is not available for distribution.


74

f | Result for the year

Set out below is the proposal for the distribution of 2002 profits that will be submitted to theAnnual General Meeting:

Thousand euros

Available for distributionProfit for the yearRetained earnings

DistributionLegal reserveVoluntary reserveRetained earningsDividends

5,05851

5,109

506586298

3,719

5,109

12 | DEFERRED INCOME

Set out below are movements in Deferred income:

Thousand euros

Opening balanceTaken to profit and loss

Closing balance

Deferredincome

2,479(344)

2,135

Gainson exchange

79(79)

-

Total

2,558(423)

2,135

Deferred income relates to income from the sale of certain buildings owned by the Company,including sale option and leasing arrangements with the purchaser, under private agreementsdated 28 December 1998 and executed in a public deed on 19 February 1999. Set out below arethe most significant details of these operations:

- Lease of the buildings for a term of 10 years as from 1 January 1999, stating the amount of thelease instalments for each year (approximately K¤ 348 for 1999 and annual increases of 1%). Inthe event of early termination, the purchaser may demand payment of all outstanding leaseinstalments. Duro Felguera, S.A. may also sublet to third parties subject to prior authorisationby the purchaser. During 1999 part of the properties were sublet.

- Sale options held by the purchaser for each building. These options may be exercised during2007 at the selling prices of the buildings (approximately K¤ 6,749). The buyer may also assignthe options to third parties in the event that the buildings are sold, under the same terms.

- Duro Felguera, S.A. has arranged a fixed-term deposit of K¤ 2,498 (note 7d) which is pledged tothe purchaser/lessor as security for compliance with all the obligations entered into by theCompany under the above agreements. Duro Felguera, S.A. may use a pre-established part of


Opening balanceAppropriations charged to profit and lossApplications credited to profit and lossPaymentsTransfers, externalisation

Closing balance

75


Thousand euros

Provision or pensions

1,695252

(321)(304)(297)

1,025

Otherprovisions

3917,030

---

7,421

Total

2,0867,282(321)(304)(297)

8,446

this deposit in the event that the buyer transfers ownership of any of the buildings to third par-ties.

These sale transactions generated net capital gains totalling approximately K¤ 4,072 which theCompany has deferred for accounting purposes until the gains are deemed to be realised.

During 2000 the subsidiary Felguera Revestimientos, S.A. repurchased certain buildings at aprice K¤ 12 higher than the price obtained by Duro Felguera, S.A. on the transaction describedabove. The same buildings have subsequently been sold at a profit of K¤ 66.

The selling price obtained by the subsidiary Felguera Revestimientos, S.A. represents 133.4% ofthe sale option price fixed in favour of the purchaser, an option which may be exercised by thepurchaser during 2007.

This situation reflects the sharp rise in real estate prices. The Directors of the Company considerthat the initial purchaser will not exercise the option to sell the buildings in view of the capitalgains that would be forfeited.

Based on the above, in 2000 the Company’s Directors decided to record the cost of renting pro-perty as income as from the signing of the initial purchase agreement until the end of 2000, inorder to continue recording the cost of annual rent in subsequent years, which in 2002 resultedin K¤ 344 being recorded in the profit and loss account.The remaining amount recorded underDeferred income relates to the portion of the capital gain equal to the total pending rent amountup until the purchase option expires.

13 | PROVISIONS FOR LONG-TERM LIABILITIES AND CHARGES

Set out below are the balances in these provisions as at 31 December 2002 and movementsduring 2002:


76

Opening balanceAppropriations charged to profit and loss:

Financial expense (Note 19)Staff costs (Note 18 c)

Applications credited to profit and lossPaymentsTransfers, externalisation

Closing balance

Thousand euros

Currentpersonnel

659

1982

(146)(150)(297)

167

Retiredpersonnel

1,036

31120

(175)(154)

-

858

Total

1,695

50202

(321)(304)(297)

1,025

a | Provision for pensions

b | Other provisions

In 2002 the Company has set up a provision in the amount of K¤ 6,952 for disputes relating to cer-tain construction work.

The remaining balance recorded under this heading relates mainly to the provision made for thesale of a subsidiary, for the creation of a sinking fund to cover balances of assets used under aconcession. This provision has been charged to extraordinary items on a straight-line basis inaccordance with an independent expert analysis.

14 | CREDITORS FALLING DUE AFTER MORE THAN ONE YEAR

a | Analysis by maturity dates

The maturity dates of non-trade creditors are as follows:

Thousand euros

200320042005

Less amounts falling due within one year

Creditors falling dueafter more than one year

Bankloans

22,48319,52518,40060,408

(22,483)

37,925

Amounts owed to Groupand associated companies

39,41710,000

-49,417

(39,417)

10,000

Other non-tradecreditors

7,136--

7,136(7,136)

-

Total

69,03629,52518,400

116,961(69,036)

47,925

b | Analysis by currency

Of the total figure for non-trade creditors falling due within one year, the Company records bankloans and overdrafts amounting to K¤ 13,415 in US dollars.


Long-term

b | Other non-trade creditors

77


Thousand euros

Banks:Secured by real property

In USDIn eurosIn eurosIn eurosIn eurosIn eurosIn eurosIn eurosIn USD

Interest

Interest rateUtilised

Libor + 0.5%Euribor + 0.9%Euribor + 0.9%

Euribor + 1%Euribor + 0.5%Euribor + 0.5%Euribor + 0.5%Euribor + 0.5%

Libor + 0.5%

Limit

10,500 USD36,00036,000

1,3586,0103,000

12,02012,020

12,000 USD

18,84518,401

679-----

-

37,925

Short-term

7,296--

679129

3,0002,1173,0906,120

52

22,483

c | Bank loans

Set out below is an analysis of bank loans and overdrafts as at 31 December 2002:

15 | CREDITORS FALLING DUE WITHIN ONE YEAR

a | Trade creditors


Creditors for purchases or services receivedAdvance payments from customers

61,75110,876

72,627

60,15026,039

86,189


Taxes and Social Security contributions (Note 17)Accrued wages and salariesOther creditors

2,6531,239

120

4,012

5,8121,161

163

7,136

2002 2001


78

16 | PROVISIONS FOR LIABILITIES AND CHARGES AND OTHER TRADE PROVISIONS

Movements under this heading during 2002 are as follows:

Thousand euros

Opening balanceCharge for the yearReversals

Closing balance

Provision forguarantees

-2,040

-

2,040

Otherprovisions

532552(3)

1,081

Total

5322,592

(3)

3,121

The balance recorded under the heading Provision for guarantees mainly relates to provisions setup to in order to meet contractual terms and conditions for the completion of construction workduring 2002.

17 | CORPORATE INCOME TAX AND TAX SITUATION

Set out below is an analysis of tax and social security balances as at 31 December 2002:

Thousand euros

Debtor balances (Note 9):Deferred tax assetsValue-added tax:

Spanish VAT refundableForeign VAT refundableInput VAT pending accrual

International double taxation tax creditsCurrent year corporate income tax refundableOther

Less long-term deferred tax assets (Note 7)

Creditor balances (Note 15 b):Value-added tax:

VAT payableVAT payable to other tax authoritiesOutput VAT pending accrual

Output general Canary Island indirect tax pending accrualWithholdings on personal income taxDeferred tax liabilities - corporate income taxForeign deferred corporate income taxSocial security contributionsProvision for corporate income taxLocal and regional taxesOther items

4,653

2,563586410120165

208,517

(3,877)

4,640

207407

3,0871,351

16255

120139279

23

5,812


The Company pays corporate income tax on the consolidated profits of the Duro Felguera Group.The assessment bases for all the other taxes and levies are calculated separately.

Under the tax consolidation scheme, the group of companies which forms the tax assessmentbase must be treated as a single taxpayer for all purposes.

However, each company which forms part of the consolidated group must calculate the tax liabi-lity that would have been recorded had a separate return been filed and must record the amountof corporate income tax payable or receivable (tax credit), depending on whether the companycontributes a profit or a loss to the Group.

Corporate income tax expense is calculated based on the reported profit calculated in accordan-ce with accounting principles generally accepted in Spain, which is not necessarily equal to thefigure for taxable income calculated for corporate income tax purposes.

Set out below is the reconciliation between the book profit for the year and taxable income:

79


Reported profitCorporate income taxOther taxes

Reported profit before corporate income tax

Permanent differencesTiming differences:

Arising in prior years:Increases:Amortisation of intercompany capital gainsIntegration of income deriving from reinvestment(Transitional provision 3 of Law 24/2001)Decreases

Prior-year tax losses

Taxable income

5,058278240

5,576

(2,576)

11967

(2,467)1,511

(46)

1,465

Thousand euros

Current year tax base contributed to consolidated tax baseForeign taxesReversal of deferred tax liability from timing differencesReversal of deferred tax asset from timing differencesTax credits for international double taxation pending application

Prior-year tax credits for double taxation

513240

(342)863

(120)1,154(636)

518

Thousand euros

Set out below is an analysis of corporate income tax expense recorded in the profit and lossaccount:


Thousand euros

80

Set out below is an analysis of permanent differences derived from the recognition of income andexpense for accounting and tax purposes:

Set out below is an analysis of the timing differences derived from the recognition of income andexpense for accounting and tax purposes and the resulting accumulated tax effect as at 31December 2002:

Inter-company dividendsNet pensionsProvisions for liabilities and chargesMonetary adjustment for sale of propertyTransfer from deferred incomeChange in long-term financial investmentsOther net items

(3,002)(1,073)

2,590(369)(344)(404)

26

(2,576)

Thousand euros

1993199419951999

3518,3582,229

254

11,192

Thousand euros

Timing differences Tax effect

Deferred tax assetsPensions and similar obligations

Deferred tax liabilitiesCapital gains on transactions involving tangible fixed assets

4,654

55

13,297

158

Deferred tax assets relate to the restatement of the tax effect of the amounts to be deducted overthe next six years. This restatement has been made based on the single premium paid under thegroup life insurance contract covering pension commitments relating to retired employees exter-nalised as at 31 December 1999, in accordance with Transitional Provision Sixteen of Law 30/95(8 November 1995), which was declared to be in force under Law 43/1995 (27 December 1995).

In accordance with Law 24/2001 (27 December), tax losses from one year may be offset for taxpurposes against profits recorded over the following fifteen years. However, the final amount thatmay be offset could be changed as a result of a tax inspection. The accompanying balance sheetas at 31 December 2002 does not record the possible tax effect of offsetting tax-loss carryfor-wards, for reasons of prudence.

Set out below is an analysis of unused tax-loss carryforwards as at 31 December 2002:

Year


b | Analysis of net turnover

Net turnover from the Company’s ordinary activities is analysed below by geographical area:

81


20042005200720082009201020112012

122221

138

773

500284

1,228

Thousand eurosAvailable until

Net purchases

Other external expenses

Sales

6,994

28,043

41,704


Domestic marketForeign market

8416

100

Market %

At 31 December 2002 tax credits pending application for double taxation and investments are asfollows:

All the Company’s tax returns for the main taxes to which it is subject are open to inspection bythe tax authorities for the years which are not statute-barred. Taxes may not be deemed to befinally paid until the four-year prescription period has elapsed. The Directors do not envisage anyfurther significant liabilities in the event of a tax inspection and have therefore recorded no pro-visions in the accompanying annual accounts.

18 | INCOME AND EXPENSE

a | Transactions denominated in foreign currency

Transactions effected in foreign currencies are set out below:


82

Set out below is an analysis of net turnover by activity:

Industrial plants lineEnergy lineOther

1682

2

100

Activity %

Details of the Company’s export figure is set out below:Equivalent value

in thousands of euros

US dollars 41,704

Currency

c | Supplies

d | Staff costs

e | Average number of employees by category


Materials consumed:Net purchasesOther external expenses

34,203104,297

138,500

98,80398,572

197,375


Wages, salaries and similar remunerationContributions and provisions for pensions (Note 13 a)Staff welfare expenses

9,401591

1,508

11,500

9,133202

1,550

10,885

Average number

University graduatesSkilled techniciansOther techniciansAdministrative staff

74224823

167


Income:Income from shareholdings:

Group companies (Note 7 a)Income from other negotiable securities and long-term loans to:

Group companies (Note 7 a)From non-Group companies

Other interest and similar income:Group companies (Note 7 a)Other interest

Gains on exchange

Less expenses:Financial and similar expenses:

Amounts owed to Group companies (Note 7 a)Amounts owed to third parties and similar expenses

Changes in provisions for investmentsInterest applied to the pension provision (Note 13 a)Losses on exchange

Net financial income

1,571

280612

9327532

3,502

(1,495)(401)

(14)(101)

(26)

(2,037)

1,465

3,207

272356

1,45557

1,329

6,676

(787)(1,625)

(45)(50)

(3,049)

(5,556)

1,120

83



19 | FINANCIAL INCOME AND EXPENSE

Net financial income/expense is composed as follows:


Extraordinary profit:Reclassification to gain on sale of fixed assets (Note 12)Changes in provisions for tangible andintangible fixed assets and controlling shareholdingsProfit on disposal of tangible andintangible fixed assets and controlling shareholdingsExtraordinary incomeIncome relating to prior years

Less extraordinary losses:Loss on fixed assetsChanges in provisions for tangible andintangible fixed assets and controlling shareholdingsExtraordinary expenses

Net extraordinary expense

340

-

3,949311

16

4,616

(9)

(7,344)(92)

(7,445)

(2,829)

344

449

990995

-

2,778

(2)

-(7,057)

(7,059)

(4,281)

84


20 | EXTRAORDINARY ITEMS

Extraordinary items are analysed as follows:

At 31 December 2002 the item Extraordinary expenses includes the appropriation of K¤ 6,952 to theprovision for disputes in which the Company is involved in relation to certain construction work (Note13 b).


85


21 | OTHER INFORMATION

a | Directors’ remuneration

Salaries, expense allowances and other remuneration accruing in favour of the Board of Directorsduring 2002 amount to K¤ 1,016.

The breakdown of balances and transactions with companies that pertain to the Company’s Boardof Directors is set out below:

Turnover and otheroperating income

379

Transactions BalancesSupplies and otheroperating charges

11,055

Attendance allowances

46

Short-termcreditors

2,080

b | Environmental information

The Company has adopted the necessary measures to the protect and improve the environmentand to minimise the environmental impact, if applicable, in compliance with current environmen-tal legislation.

c | Auditors’ fees

Fees received by auditors total ¤ 68,376.


86

22 | JOINT VENTURES AND BRANCH OFFICE

a | Joint ventures

The Company participates in several joint ventures with other companies. The percentage inte-rest in their operating funds and accounts receivable and payable, as well as transactions withthe joint ventures (UTES), are offset when balances are proportionally recorded in the joint ven-ture’s balance sheet and profit and loss account items, while excess amounts (or shortfalls)recorded with respect to the other partners in the joint venture remain in the account.

A breakdown of these joint ventures as at 31 December 2002, the interest held and other relevantinformation is set out below:

UTE C.C.San Roque

UTE C.C. Besós

UTE C.C. Castejón

UTE C.C. Ceuta

UTE C.C.Lanzarote

50%

50%

50%

50%

50%

CompanyRegistered

officeActivity

Civil engineering for combinedcycle plantsCivil engineering for combinedcycle plantsCivil engineering for combinedcycle plantsAssembly of combinedcycle plantsAssembly of combinedcycle plants

Madrid

Madrid

Gijón

Madrid

Madrid

6

6

6

1.2

1.2

-

-

-

-

-

(12,199)

(15,608)

-

(1,296)

(1,866)

Percentageshareholding

Sharecapital Reserves

Result forthe year

Thousand euros

b | Branch office

As indicated in Note 3 s), the Company has a branch in Mexico named Duro Felguera S.A,Sucursal México, which was incorporated on 15 January 2002. The objects of this company coversthe assembly, maintenance and operation of metalomechanic equipment and facilities.

This branch’s most significant transactions incorporated into Duro Felguera, S.A.’s accounts in2002 are set out below:

Net turnoverSuppliesExternal servicesFinancial expenseProfit for 2002 to be included

40,39035,037

3,513973785

Thousand euros


87


Felguera Grúas y Almacenaje, S.A.Felguera Montajes y Mantenimiento, S.A.Montajes de Maquinaria de Precisión, S.A.Felguera Revestimientos, S.A.Técnicas de Entibación, S.A.Felguera Construcciones Mecánicas, S.A.Duro Felguera Plantas Industriales, S.A.Felguera Parques y Minas, S.A.Felguera Calderería Pesada, S.A.Felguera Melt, S.A.Duro Felguera Equipos y Montajes, S.A.Duro Felguera México, S.A. de C.V.Felguera Calderería Pesada Servicios, S.A.Turbogeneradores de México, S.A. de C.V.Duro Felguera Power, S.A. de C.V.

17,90836,27213,712

1,352601

9,4389,613

8657,3146,715

39711,736

9028,356

13,449

138,630

Thousand euros

Guarantee facilities and multi-user credit linesGuarantees under sales agreements in the process of executionOther items

211,382111,554

1,643

324,579

Thousand euros

23 | GUARANTEES AND OTHER CONTINGENCIES

As at 31 December 2002 the Company had furnished the following guarantees, directly or indi-rectly, relating basically to guarantees for sale agreements and guarantee deposits for loans andbank guarantees:

The Company also records the following commitments as at 31 December 2002:


Purchases of fixed assets

Intangible fixed assetsTangible fixed assetsInvestments

Dividends and attendance allowances

Repayment or reclassification to current liabilities of liabilities due after one year

Transfer to short-term of convertible debenturesAmounts owed to Group companiesRepayment of other debts

Provisions for pensions and similar obligations

Total application of funds

Surplus of sources over application of funds (Increase in working capital)

9,183

53544

8,586

5,454

4,133

6333,025

475

2,307

21,077

3,486

119347

3,020

3,966

2,027

-2,000

27

601

10,080

49,193

88

24 | STATEMENTS OF SOURCE AND APPLICATION OF FUNDS

Set out below are the Statements of Source and Application of Funds for 2002 and 2001:

2002APPLICATION OF FUNDS 2001Thousand euros


89


Funds generated from operations

Debts falling due after one year

Proceeds from disposal of fixed assets

Tangible fixed assetsInvestments

Early redemption or reclassificationof fixed asset investments

Other investmentsPublic institutions, long-term

Cancellation of long-term trade receivables

Deferred income

Total sources of funds

Surplus of applications over sources of funds (Reduction in working capital)

5,704

36

4,899

4,196703

1,196

420776

433

79

12,347

8,730

10,521

37,889

7,387

5,1132,274

3,476

2,700776

-

-

59,273

2002SOURCE OF FUNDS 2001Thousand euros


90

a | Change in working capital

b | Calculation of funds generated from operations

Thousand euros

InventoriesDebtorsCreditorsCurrent asset investmentsCash at bank and in handAccruals, prepayments and deferred income

Total

Change in working capital

-117,655

----

117,655

49,193

(11,112)-

(48,653)(6,697)(2,000)

-

(68,462)

13,83123,698

-20,254

3,536-

61,319

--

(70,035)--

(14)

(70,049)

8,730

Increases Decreases Increases Decreases2002 2001


1,576

280-

69278

7,5379

8,596

(3,949)(340)

--

(179)

(4,468)

5,704

5,058

3166,952

25278

6172

8,217

(990)(344)

(79)(321)

(1,020)

(2,754)

10,521

Profit for the year

Increases:

Fixed asset depreciationAppropriations to provision for liabilities and chargesAppropriations to provision for pensions and similar obligationsAppropriations to other provisionsAllocation to the provision for investmentsLosses from tangible and intangible fixed assets

Total increases

Decreases:

Profit on disposal of tangible and intangible fixed assetsDeferred income taken to profit and loss for the yearGains on exchangeReversal of provision for pensions and similar obligationsNet reversal of provision for investments

Total decreases

Total funds generated from operations


91


| DURO FELGUERA, S.A.

Directors’ Report for 2002

In 2000, Duro Felguera, S.A. ceased to operate solely as a holding company and began to directlybid for and execute the largest international contracts for the Group. As a result, the majority ofactivities relating to the energy plant construction market and petrochemical projects are carriedout by the parent company.

The Company’s turnover increased from ¤ 1.6 million in 2001 to ¤ 5.1 million in 2002.

During the year, construction work was almost completed on the San Roque and Besós combi-ned cycle plants for ENDESA and Gas Natural, the Castejón combined cycle plant forHidroeléctrica del Cantábrico and the Son Reus combined cycle plant for ENDESA GENERACIÓN.

In August, Duro Felguera was awarded a contract for the turnkey construction of two new combi-ned cycle plants in Barranco de Tirajana, Canary Islands, and Son Reus II, Majorca. The award ofthose contracts, in which the industry’s main multinationals will participate as subcontractors, isa significant step for the Company not only in quantitative terms but as an indication of clearappreciation by the main players in the worldwide energy plant construction market of the DuroFelguera Group’s technical and financial capabilities.

The Company has also continued to grow in the Mexican market. In 2002, Duro Felguera purcha-sed a majority shareholding in PYCORSA, a leading Mexican engineering company, through itsMexican subsidiary.

The construction project relating to a plant for chlorized products for PETROQUÍMICA PAJARITOS,PEMEX is in an advanced stage of development. In February 2003, PEMEX awarded DuroFelguera, S.A. a new contract for heat recovery facilities at the above company. The Company hasalso made other bids from which it expects equally significant results.

In the first months of 2003, Duro Felguera entered into an agreement with MITSUBISHI HEAVYINDUSTRIES for the creation of a joint venture company to manufacture and supply tunnel-boringmachines in European and Latin American markets. The construction of two tunnel-boringmachines has already commenced for the Abdalajís tunnels, on the AVE Córdoba-Málaga line, forwhich MITSUBISHI was contracted prior to this agreement.

During the year no research and development expenses were incurred.

Duro Felguera does not hold any of its own shares.


92

| Dep. Legal AS-


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