Annual Report 2005

GENERAL INFORMATION Železiarne Podbrezová a.s. (“the Company” or “ŽP”) is a joint stock company with its seat at Kolkáreò 35, 976 81 Podbrezová, Slovak Republic. The Company produces steel pipes for industrial purposes, which are mainly sold to customers in Europe. The consolidated financial statements of the Company for the year ended 31 December 2005 comprise the Company and its subsidiaries (together referred to as “the Group”) and the Group’s interest in associates and jointly controlled entities. The Group is active in the production and sale of steel pipes, machine-industry production, and leisure (see Note 5). ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS In the current year, the Group has adopted all of the new and revised standards and interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and have been endorsed by the EU and effective for accounting periods beginning on 1 January 2005. The adoption of these new and revised standards and interpretations has resulted in changes to the Group’s accounting policies in the following areas that have affected the amounts reported for the current or prior years: • goodwill (IFRS 3 „Business Combinations”), • excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost of acquisition (previously known as negative goodwill) (IFRS 3 “Business Combinations”). The impact of these changes in the accounting policies is discussed below. IFRS 3 Goodwill IFRS 3 “Business Combinations” has been adopted for business combinations for which the agreement date is on or after 31 March 2004. The option of limited retrospective application of the standard has not been accepted, thus avoiding the need to restate past business combinations. During the 2004 accounting period the Group acquired one subsidiary and in the following accounting period of 2005 it also acquired one subsidiary (see Note 6). After initial recognition, IFRS 3 requires goodwill acquired in a business combination to be carried at cost less any accumulated impairment losses. Under IAS 36 – “Impairment of Assets” (as revised in 2004), impairment reviews are required annually, or more frequently if there are indications that goodwill might be impaired. Previously, under IAS 22 (later replaced by IFRS 3), the Group carried goodwill in its balance sheet at cost less accumulated amortization and accumulated impairment losses. Amortization was charged over the estimated useful life of the goodwill. In accordance with the transitional rules of IFRS 3, the Group has applied the revised policy for goodwill prospectively from the first annual period beginning on or after 31 March 2004, i.e. 1 January 2005, to goodwill acquired in business combinations for which the agreement date was before 31 March 2004. Therefore, from 1 January 2005, the Group has discontinued amortising such goodwill and has tested the goodwill for impairment in accordance with IAS 36. In 2004, the carrying amount of amortization or impairment losses accumulated before that date of SKK 43 561 thousand has been eliminated, with a corresponding decrease in goodwill. Because the Group applied the revised accounting policy prospectively, the change had no impact on amounts reported for 2003 or prior periods. In 2004 and 2005, with reference to acquisitions dated after 31 March 2004, the Group reported impairment losses in the amount of SKK 13 315 thousand and SKK 3 006 thousand, respectively. Excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost of acquisition (previously known as negative goodwill). IFRS 3 requires that, after reassessment, any excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of the business combination must be recognized directly in the statement of profit and loss. IFRS 3 prohibits the recognition of negative value in the balance sheet. In accordance with transitional rules of IFRS 3, the Group has applied the revised accounting policy prospectively from 1 January 2004. Therefore, the change had no impact on amounts reported for 2003 or prior periods. Previously, under IAS 22 the Group released negative goodwill to income over a number of accounting periods, based on an analysis of circumstances from which the balance of negative goodwill resulted. Negative goodwill was reported as a deduction from assets in the balance sheet. As at 1 January 2004, under IFRS 3 the negative goodwill in the amount of SKK 978 047 thousand was posted to retained earnings (see Statement of Changes in Equity). 1. 2. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2005 (in thousand SKK) Consolidated financial statements Annual Report 2005 Železiarne Podbrezová 49