ARCO VARA AS - NASDAQ OMX Baltic

counterparty to be able to use the resale option is unlikely. The contractual shares have thus been
recorded under equity. Due to confidentiality of the terms and conditions of the contract, no detailed
information is provided on the above transaction in these consolidated financial statements.
33 Contingent liabilities
in thousands of kroons
Income tax on dividends
The Group’s retained earnings as of 31.12.2005 amounted to 100 811 thousand kroons (2004: 262 120
thousand kroons). The maximum possible tax liability related to the payment of the Group’s retained
earnings as dividends amounts to 23 187 thousand kroons (2004: 62 909 thousand kroons). Thus, the
Group can pay dividends in the total amount of 77 624 thousand kroons (2004: 199 211 thousand
kroons).
The maximum possible tax liability has been calculated based on the assumption that the net dividends
and the related income tax together do not exceed the retained earnings as of 31.12.2005.
Legal claims
Claim filed against the joint venture AS Tallinna Olümpiapurjespordikeskus (hereinafter AS TOP)
Regati Valduste OÜ (the other shareholder of AS TOP) and Urmas Uustal, member of the Supervisory
Board of AS TOP, filed an action against the joint venture AS TOP, demanding nullification of the
resolution of the Supervisory Board of AS TOP on the sale of a 21374/175937 legal share of the
company’s real estate; as well as an application for prohibition of the transaction and an application
for securing the action. Harju County Court (the former Tallinn City Court) satisfied the application
for securing the claim, and made a notation concerning prohibition of disposal of the share of the real
estate owned by AS TOP in the land register.
The joint venture contested the decision of the Tallinn City Court in the Tallinn Circuit Court, which
satisfied the appeal. The notation concerning prohibition was thus cancelled.
The court case is still pending at the time of preparation of these financial statements. According to the
Group's management, the claim is unfounded ― no breach of procedure for passing resolutions has
occurred in the joint venture AS TOP. In the current financial statements, the contested transaction has
been recorded as disposal of investment property. In 2005, no provision was established for liabilities
may arise from the court case. If the transaction was cancelled, the Group's investment property and
liabilities would increase in the amount of the proportional share (50%) of the fair value of the sold
real estate (i.e. 141 250 thousand kroons).
34 Financial instruments and financial risk management
in thousands of kroons
Risk management in Arco Vara Group is based on the notion that corporate success depends on
continual risk monitoring, accurate risk evaluation and skilful risk hedging. In order to hedge risks, the
Group has developed several policies and implemented various activities so as to ascertain the risks,
and disperse the risks over time, fields of activity, and geographical areas. The main purpose of risk
management is to prevent any damage that could endanger sustainability of the Arco Vara Group's
equity or operations. The Group's risk management structure has been brought out below:
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