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Notes to the Financial Statements
11. SHAREHOLDER’ EQUITY
As of December 31, 2001, the share capital of Severočeské doly consisted of 7,513,960 registered shares and 1,483,570 bearer shares with a nominal value of
CZK 1,000 each.
In 2000 the National Property Fund contributed land with a total value of CZK 177 million. The contribution was used to increase share capital by the amount of
CZK 164 million and the remaining CZK 13 million was added to the reserve fund in 2000. The Court registered 129,344 shares on January 3, 2001 representing
the contribution by the National Property Fund.
Reserve Fund
In accordance with Czech regulations, joint stock companies are required to establish a reserve fund for contingencies against possible future losses and other events. Contributions must be a minimum of 20% of after-tax profit in the first year in which profits are made and 5% of profit each year thereafter, until the fund reaches at least 20% of capital. As of December 31, 2001 and 2000, the balance was CZK 1,347 million and CZK 1,306 million, respectively, and is reflected as a component of retained earnings.
12. INCOME TAXES
Income Tax Legislation
Corporate income tax is calculated in accordance with Czech tax regulations at the rate of 31%. The corporate income tax rate for 2002 will be 31%.
The Czech Republic currently has a number of laws related to various taxes imposed by governmental authorities. Applicable taxes include value-added tax, corporate
tax, and payroll (social) taxes, together with others. In addition, laws related to these taxes have not been in force for significant periods, in contrast to more developed
market economies. Accordingly, few precedents with regard to issues have been established. Often, differing opinions regarding legal interpretations exist both among
and within government ministries and organizations; thus, creating uncertainties and areas of conflict. Tax declarations, together with other legal compliance areas
(as examples, customs and currency control matters) are subject to review and investigation by a number of authorities, who are enabled by law to impose extremely
severe fines, penalties and interest charges. These facts create tax risks in the Czech Republic substantially more significant than typically found in countries with more
developed tax systems. Management believes that it has adequately provided for tax liabilities in the accompanying financial statements;however, the risk remains
those relevant authorities could take differing positions with regard to interpretive issues and the effect could be significant.
Income Tax Provision
The components of the income tax provisions for the years ended December 31, 2001 and 2000
are as follows (in CZK million):
| 2001 | 2000 | |
| Current | 347 | 172 |
| Deferred | 14 | 160 |
| Total | 361 | 332 |
Reconciliation of expected income tax expense to the actual tax expense is as follows
(in CZK million):
| 2001 | 2000 | |
| Income before income taxes | 1,291 | 1,256 |
| Statutory income tax rate | 31 % | 31 % |
| Expected’ income tax expense | 400 | 389 |
| Add (deduct) the effect of: | ||
| Czech /IAS accounting differences | 25 | 24 |
| Tax exempt income | (21) | (16) |
| Investment tax relief | (6) | (49) |
| Income already taxed | (90) | (101) |
| withholding income tax on security income | 61 | 76 |
| Tax credits | (15) | (24) |
| Additional tax assessments | 5 | 23 |
| Other non deductible items, net | 2 | 10 |
| Income taxes | 361 | 332 |
| Effective tax rate | 28 % | 26 % |
Deferred Taxes, Net
At December 31, 2001 and 2000 deferred tax assets (liabilities) were comprised of the following
(in CZK million):
| 2001 | 2000 | |
| Deferred tax assets: | ||
| Accumulated provision for decommissioning, reclamation and mining damages |
1,590 | 1,407 |
| Allowance for uncollectable receivables | 14 | 22 |
| Allowance for obsolete inventory | 19 | 20 |
| Allowance for financial investments | 42 | 44 |
| Allowance for impairment of fixed assets | 5 | 5 |
| Total deferred tax assets | 1,670 | 1,498 |
| Deferred tax liabilities: | ||
| Depreciation of fixed assets | (292) | (175) |
| Repairs and maintenance accrual | (194) | (127) |
| Capitalized costs of provisions | (721) | (742) |
| Unrealized exchange gains | (14) | - |
| Investments at fair value | (26) | - |
| Total deferred tax liabilities | (1,247) | (1,044) |
| Total deferred tax assets, net | 423 | 454 |
Deferred tax assets are recorded at an amount which management believes will ultimately be realized. Realization of deferred tax assets is dependent upon sufficient future taxable income during the periods that temporary differences are expected to be available to reduce taxable income.
13. PERSONNEL EXPENSES AND AVERAGE NUMBER OF EMPLOYEES
The composition of personal expenses and average number of employees (in CZK million):
| 2001 | 2000 | |
| Wages and salaries | 1,097 | 1,074 |
| Social and other personnel expenses | 453 | 448 |
| Total personnel expenses | 1,550 | 1,522 |
| Number of employees | 5,510 | 5,800 |
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