annual report 2004 - Severočeské doly a.s.

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58 —— 59 Held-to-maturity investments are included in non-current assets unless they mature within 12 months of the balance sheet date. Available-for-sale investments are classified as current assets if management intends to realize them within 12 months of the balance sheet date. All purchases and sales of investments are recognized on the settlement date. Investments are initially measured at cost, which is the fair value of the consideration given for them, including transaction costs. Gains or losses on measurement to fair value of available-for-sale investments are recognized as a separate component of Shareholders Equity, until the investment is sold or otherwise disposed of, or until it is determined to be impaired, at which time the cumulative gain or loss previously recognized in equity is included in net profit or loss for the period. Held-to-maturity investments are carried at amortized cost using the effective interest rate method. Receivables, Payables and Accrual Receivables are stated at the fair value of the consideration given and are carried at amortized cost, after provision for any uncollectible amounts. At December 31, 2004 and 2003 the provision for uncollectible receivables amounted to CZK 94 and 136 million, respectively. Payables are recorded at invoiced values and accruals are reported at expected settlement values. Cash and Cash Equivalents Cash includes cash on hand and cash with banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less and that are subject to an insignificant risk of change in value. Materials and Supplies Materials and supplies are principally composed of plant maintenance materials and spare parts. These items are valued at cost after provision for obsolete items. These materials are recorded in inventory when purchased and then expensed or capitalized to plant, as appropriate, when used. Accumulated provisions for obsolete items of CZK 56 million and CZK 54 million were created against materials and supplies as of December 31, 2004 and 2003, respectively. Intangible Assets Intangible assets consist mainly of software and are valued at their acquisition cost and related expenses. Intangible assets are recognized if it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise; and the cost of the asset can be measured reliably. After initial recognition, intangible assets are measured at cost less accumulated amortization and any accumulated impairment losses. Intangible assets are amortized on a straight-line basis over the best estimate of their useful lives of 4 years. The amortization period and the amortization method are reviewed annually at each financial year-end. Income Taxes The provision for corporate tax is calculated in accordance with Czech tax regulations and is based on the income or loss reported under Czech accounting regulations, adjusted for appropriate permanent and temporary differences from Czech taxable income. In the Czech Republic, income taxes are calculated on an individual company basis as the tax laws do not permit consolidated tax returns. Current income taxes are provided at a rate of 28% and 31%, respectively for the years ended December 31, 2004 and 2003 after adjustments for certain items which are not deductible for taxation purposes. Certain items of income and expense are recognized in different periods for tax and financial accounting purposes. Deferred taxes are calculated using the balance sheet liability method. Deferred income taxes are provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled based on tax rates enacted or substantially enacted at the balance sheet date. Based on the Income Tax Act valid in the Czech Republic at 2004 year-end, the income tax rates will be 26% and 24% in the years 2005 and 2006 and on, respectively (see Note 12). Deferred tax assets and liabilities are recognized regardless of when the timing difference is likely to reverse. Deferred tax assets and liabilities are not discounted and are classified as non-current assets (liabilities) in the Consolidated Balance Sheets. Deferred tax assets are recognized when it is probable that sufficient taxable profits will be available against which the deferred tax assets can be utilized. A deferred tax liability is recognized for all taxable temporary differences. Current tax and deferred tax are charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly to equity. Provisions A provision is recognized when, and only when, the company has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation,
and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. The Company has recognized provisions for its obligations to decommission and reclaim its mines at the end of their operating lives. The provisions recognized represent the best estimate of the expenditures required to settle the present obligation at the current balance sheet date. Such cost estimates, expressed at current price levels, are discounted using a long-term real rate of interest of 2.5% per annum to take into account the timing of payments. The initial discounted cost amounts are capitalized as part of property, plant and equipment and are depreciated over the lives of the mines. Each year, the provisions are increased to reflect the accretion of discount and to accrue an estimate for the effects of inflation, with the charges being recognized as a component of interest expense. The estimate for the effect of inflation is approximately 3.5%, which is based on the current risk free rate of interest of approximately 6% and the 2.5% real rate of interest. Changes in a decommissioning liability that result from a change in the current best estimate of cash flows required to settle the obligation or a change in the discount rate are added to (or deducted from) the amount recognized as the related asset. However, to the extent that such a treatment would result in a negative asset, the effect of the change should be recognized in the income for the current period. The decommissioning and reclamation process is expected to continue for an approximate fifteen-year period subsequent to the end of operation of the mines, which is currently estimated in 2035. While the Company has made its best estimate in establishing its provisions, because of potential changes in technology as well as safety and environmental requirements, plus the actual time scale to complete decommissioning and reclamation activities, the ultimate provision requirements could either increase or decrease significantly from the Company’s current estimates. Foreign Currency Transactions Asset acquisitions or production costs which were denominated in foreign currencies were translated to Czech crowns at the exchange rates prevailing at the date of each acquisition or at the date on which the related items were included in assets. Foreign currency on hand, bank accounts, receivables and payables denominated in foreign currencies are translated to Czech crowns at the exchange rates existing at the transaction date and are adjusted at year-end to the exchange rates at that date as published by the Czech National Bank. Exchange rate differences arising on settlement of transactions or on reporting foreign currency transactions at rates different from those at which they were originally recorded are included in the Statement of Income as they occur. Impairment of Assets Financial instruments Financial instruments are reviewed for impairment at each balance sheet date. For financial assets carried at amortized cost, whenever it is probable that the company will not collect all amounts due according to the contractual terms of receivables or held-to-maturity investments, an impairment or bad debt loss is recognized in the Consolidated Statement of Income. Reversal of impairment losses previously recognized is recorded when the decrease in impairment loss can be objectively related to an event occurring after the write-down. Such reversal is recorded in income. However, the increased carrying amount is only recognized to the extent it does not exceed what amortized cost would have been had the impairment not been recognized. For available-for-sale financial assets, the cumulative gain or loss previously recognized in equity is included in net profit or loss for the period when there is objective evidence that the asset is impaired. The recoverable amount of a debt instrument remeasured to fair value is the present value of expected future cash flows discounted at the current market interest rates for a similar financial asset. A reversal of an impairment loss is recorded when the decrease in the impairment loss can be objectively related to an event occurring after the write down. Such reversal is recorded in income. Other assets IAS 36, Impairment of assets, applies to all assets other than inventories, deferred tax assets and financial instruments. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognized in income. The recoverable amount is the higher of an asset’s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction less the costs of disposal while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if this is not possible, for the cash-generating unit to which the asset belongs. Reversal of impairment losses recognized in prior years is recorded when there is an indication that the impairment losses recognized for the asset no longer exist or have decreased. The reversal is recorded in income. However, the increased carrying amount of an asset due to a reversal of an impairment loss is recognized to the extent it does not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for that asset in prior years.
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SEVEROČESKÉ DOLY a.s. — annual
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Severočeské doly a.s. is the larg
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RAM The operating part of a heavy t
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CONCERTINA The protective concertin
Page 9 and 10: Most Important Events of 2004 Janua
Page 12 and 13: 10 —— 11 Interview with the Cha
Page 14 and 15: 12 —— 13 Directors and Officers
Page 16 and 17: 14 —— 15 Jaroslav Volšický (*
Page 18 and 19: 16 —— 17 Executive Management T
Page 20 and 21: 18 —— 19 Company Profile Severo
Page 22 and 23: 20 —— 21 Report of the Board of
Page 24 and 25: 22 —— 23 Sales and Marketing Sa
Page 26 and 27: 24 —— 25 Product structure (%)
Page 28 and 29: 26 —— 27 Developments in coal e
Page 30 and 31: 28 —— 29 Developments in invest
Page 32 and 33: 30 —— 31 How Investments are Fi
Page 34 and 35: 32 —— 33 Employee education str
Page 36 and 37: 34 —— 35 municipalities and oth
Page 38 and 39: 36 —— 37 tion plants based on t
Page 40 and 41: 38 —— 39 on the innovation of t
Page 42 and 43: 40 —— 41 Financial Performance
Page 44 and 45: 42 —— 43 sumption of materials
Page 46 and 47: 44 —— 45 Shares and Shareholder
Page 48 and 49: 46 —— 47 Right to a Dividend 1.
Page 50 and 51: 48 —— 49 Strategy and Outlook f
Page 52 and 53: 50 —— 51 Outlook for 2005 Terri
Page 54 and 55: 52 —— 53 Report of Independent
Page 56 and 57: 54 —— 55 Consolidated Statement
Page 58 and 59: 56 —— 57 Notes to Consolidated
Page 62 and 63: 60 —— 61 Segments The Group has
Page 64 and 65: 62 —— 63 6. Investments in Asso
Page 66 and 67: 64 —— 65 Deferred Taxes, Net At
Page 68 and 69: 66 —— 67 The effect on retained
Page 70 and 71: 68 —— 69 Cash and In-kind Incom
Page 72 and 73: 70 —— 71 Organizational Chart G
Page 74 and 75: 72 —— 73 Shareholder Financial
Page 76 and 77: 74 —— 75 Persons Responsible fo
Page 78: Consulting and production: © B.I.G
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