Download PDF - Severstal

OAO Severstal and subsidiariesOAO Severstal and subsidiariesNotes to the consolidated financial statementsfor the years ended December 31, 2008, 2007 and 2006(Amounts expressed in thousands of US dollars, except as stated otherwise)Fair value sensitivity analysis for fixed rate instrumentsThe Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss.Therefore a change in interest rates would not affect profit or loss.Cash flow sensitivity analysis for variable rate instrumentsA change of 100 basis points in interest rates would have increased/(decreased) profit and equity by the amountsshown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. Theanalysis is performed on the same basis for 2007 and 2006.Net profit100 bp increase 100 bp decreaseDecember 31, 2008Financial assets 3,149 (3,149)Financial liabilities (37,360) 37,360Cash flow sensitivity (net) (34,211) 34,211December 31, 2007Financial assets 2,912 (2,912)Financial liabilities (13,636) 13,636Cash flow sensitivity (net) (10,724) 10,724December 31, 2006Financial assets 2,745 (2,745)Financial liabilities (10,601) 10,601Cash flow sensitivity (net) (7,856) 7,856Notes to the consolidated financial statementsfor the years ended December 31, 2008, 2007 and 2006(Amounts expressed in thousands of US dollars, except as stated otherwise)outflow of financial sources to settle such claims, if any. Management believes that it has made adequate provisionsfor other possible tax claims.b. Long term purchase and sales contractsIn the normal course of business group companies enter into long term purchase contracts for raw materials, andlong term sales contracts. These contracts allow for periodic adjustments in prices dependent on prevailing marketconditions.c. Capital commitmentsAt the balance sheet date the Group had contractual capital commitments of US$ 1,275.3 million (December 31,2007: US$ 472.7 million; December 31, 2006: US$ 491.1 million).d. InsuranceThe Group has insured its property and equipment to compensate for expenses arising from accidents. In addition,the Group has insurance for business interruption on a basis of reimbursement of certain fixed costs. The Group hasalso insured third party liability in respect of property or environmental damage. However, the Group does not havefull insurance coverage.e. Guarantees33. Commitments and contingenciesa. For litigation, tax and other liabilitiesAt the balance sheet date the Group had US$ 42.3 million (December 31, 2007: US$ 143.2 million; December 31,2006: US$ 22.2 million) of guarantees issued.34. Subsequent eventsThe taxation system and regulatory environment of the Russian Federation are relatively new and characterized bynumerous taxes and frequently changing legislation, which is often unclear, contradictory and subject to varyinginterpretations between the differing regulatory authorities and jurisdictions, who are empowered to imposesignificant fines, penalties and interest charges. Events during the recent years suggest that the regulatoryauthorities within the Russian Federation are adopting a more assertive stance regarding the interpretation andenforcement of legislation. This situation creates substantial tax and regulatory risks. Management believes that ithas complied in all material respects with all relevant legislation.In February 2009, the Group has repaid its US$ 325 million Eurobonds – 2009. Repayment was financed by theCompany’s own sources.In February, the Group announced the temporary stoppage of operations of the steel galvanizing line at its SeverstalWarren facility. Both the galvanizing line and the mill, which has been offline since October, will remain inoperativewhile the company balances production volume to match current demand.At the balance sheet date, the Russian tax authorities had made claims for taxes, fines and penalties in the amountof approximately US$ 4 million (December 31, 2007: US$ 32 million, (December 31, 2006: US$ 60 million), mostlyrelated to mineral extraction tax and water usage tax by certain of the Group’s entities in the Mining segment.Management does not agree with the tax authorities’ claims and believes that the Group has complied with existinglegislation in all material respects. Management is unable to assess the ultimate outcome of the claims and the180181