Annual Report 2005

During the year, the Group entered into the following transactions with related parties that did not represent consolidated entities in these consolidated financial statements: Related party transactions have been conducted on normal commercial terms. Transactions with the parent company and associates represent mainly the purchase of scrap. Transactions with joint ventures mainly represent transportation services. Transactions with other related parties represent mainly the purchase of scrap, sale of products of the Group, and finance lease contracts. COMMITMENTS AND CONTINGENCIES 28.1. Taxation The Group has significant transactions with a number of its subsidiaries, joint ventures, associates, shareholders and other related parties. The tax environment under which the Group operates in the Slovak Republic is dependent on the prevailing tax legislation and practice, which are relatively undeveloped and with little existing precedent. As the Tax Authorities are reluctant to provide official interpretations with respect to the tax legislation, there is an inherent risk that the taxation authorities may require, for example, transfer pricing or other adjustments of the corporate income tax base. Corporate income tax in Slovakia is levied on each individual legal entity and, as a consequence, there is no concept of Group taxation or relief. The Tax Authorities in the Slovak Republic have broad powers of interpretation of tax laws and regulations during their audits of taxpayers. This results in uncertainties with regard to the final outcome of audits performed by the Tax Authorities. 28.2. Litigation and potential losses At present, the Group is involved in a number of legal cases and other disputes that arise as a result of ordinary business activities. It is not expected that they should have a significant negative impact, individually or jointly, on the accompanying consolidated financial statements. The consolidated financial statements include a provision for certain legal cases and other disputes in the amount of SKK 15 406 thousand, which was determined on the basis of available information and estimated possible outcome of the legal cases or other disputes (see Note 20). The final amount of potential losses, if any, arising from the legal cases for which the Company created a provision is uncertain and the Company’s management expects that it should not significantly change the past estimates. As regards the legal cases and other disputes in the amount of SKK 19 698 thousand for which the Company did not create a provision, the Company’s management based on the opinion of their legal counsel believes that their ultimate outcome is uncertain. As such, the consolidated financial statements do not include a provision for potential losses that could result from these disputes. 28.3. Emission rights During 2005, the European Union-wide greenhouse gas emission rights trading scheme came into effect together with the Act on Emission Rights Trading passed by the Slovak Parliament in order to implement the related EU Directive in Slovakia. Under this legislation, ŽP is required to deliver emission rights to the Slovak Environmental Office to offset actual greenhouse gas emissions. A similar obligation applies to the subsidiary ŽÏAS, a.s., in the Czech Republic. ŽP has opted to record emission rights received at a nominal amount and does not record any liability for actual emissions on the basis that ŽP has received adequate emission rights to cover its actual emissions. ŽP has an obligation to deliver emission rights for actual emissions. This obligation will be satisfied by delivering emission rights by 30 April 2006 for the 2005 compliance period. ŽP has received emission rights in February 2006 for the 2006 compliance period. 28. Parent company Associates Joint ventures Other related parties Associates Joint ventures Other related parties Consolidated financial statements Annual Report 2005 Železiarne Podbrezová NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2005 (in thousand SKK) 70 99 441 12 963 120 110 824 223 348 Receivables as at 31 December 2005 114 258 144 827 14 895 1 016 524 1 290 504 Sales of goods and services in 2005 1 099 38 649 60 893 118 733 219 374 Payables as at 31 December 2005 14 058 665 951 85 649 102 384 868 042 Purchases of goods and services in 2005 - 7 150 896 150 903 Receivables as at 31 December 2004 - 11 687 935 599 947 286 Sales of goods and services in 2004 - 4 737 165 694 170 431 Payables as at 31 December 2004 - 80 733 372 635 453 368 Purchases of goods and services in 2004