Notes to the Financial Statements

14. EARNINGS PER SHARE

Earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding. The weighted average number of common shares outstanding used to compute income per share for the years 2001 and 2000 was 8,989,626 and 8,787,533 respectively.

 

15. FINANCIAL INSTRUMENTS

 

The Company, in the normal course of business, uses various types of financial instruments, including items such as cash, cash equivalents, short-term securities, trade receivables, and long-term debt, which expose the Company to market or credit risk. Management believes that the estimated fair values of these financial instruments approximate their carrying amounts.

The Company pursuits a conservative risk management and investment policy which entails diversifying financial instruments with reputable financial institutions. There is a written internal policy “Investment strategy and financial assets management” that governs the allowed types of financial instruments and the rules of risk management (credit risk, interest rate risk, foreign exchange risk, liquidity risk).

The Company investments contain a portfolio of liquid financial instruments with high quality ratings and with suitable time horizons. The financial instruments used by the Company for investments include government bonds, treasury bills, commercial and bank debentures, eurobonds, term deposits and mutual fund units.

The investments in subsidiaries and associates are made for strategic reasons and are based on the decision of the management of the Company.

The Company monitors the basic market indicators for management of interest rate risk. The Company uses standard derivative instruments (forwards, swaps, options) to manage the interest rate risk and foreign exchange risk.

 

16. COMMITMENTS AND CONTINGENCIES

 

By 2004 the Company expects to purchase two pieces of heavy mining machinery having a total value of CZK 1,542 million.

 

17. RELATED PARTY TRANSACTIONS

 

The balance sheet includes the following amounts resulting from transactions with related parties (in CZK million):

 

  2001 2000
Trade receivables
ČEZ, a.s. 515 593
Other 8 20
Total trade receivables 523 613
Trade payables
SHD – KOMES, a.s. 57 56
SD – Autodoprava, a.s. 20 28
ČEZ, a.s. 11 10
Other 19 22
Total trade payables 107 116

 

Sales and purchases with related parties amounted to the following (in CZK million):

 

  2001 2000
Sales
ČEZ, a.s. 5, 416 5, 388
Teplárna Ústí nad Labem, a.s. 328 272
SD – Autodoprava, a.s. 40 48
Other 12 19
Total trade receivables 5,796 5,727
Purchases
SHD – KOMES, a.s. 499 470
SD – Autodoprava, a.s. 231 265
SEVEROČESKÉ DOLY – VTP, a.s. 70 101
ČEZ, a.s. 50 38
Other 53 49
Total trade receivables 903 923

 

 

The Company mostly sells lignite and provides services to related parties. Purchases from related parties comprise purchases of transport and other services in particular.

 

18. SUBSEQUENT EVENT

As of January 1, 2002 the Company contributed fixed assets of 324 million to subsidiaries SD – Autodoprava a.s., SD – 1.strojírenská, a.s. and SD – Kolejová doprava, a.s.

 

19. RECONCILIATION OF RETAINED EARNINGS AND NET INCOME

The accompanying financial statements are presented on the basis of International Financial Reporting Standards issued by the International Accounting Standards Board. Certain accounting principles generally accepted in the Czech Republic (CAS) do not conform to International Financial Reporting Standards used in preparing the accompanying financial statements. A description of the significant adjustments required to conform the Company’s statutory balances to financial statements prepared in accordance with International Financial Reporting Standards is set forth in the following tables.

 

The effect on retained earnings of differences in IFRS and CAS is as follows (in CZK million):

 

  2001 2000
Retained earnings per statutory accounts at end of year 6,853 5,747
Adjustments required by IFRS:
Deferred tax asset not booked under CAS - 242
Reclassification of items from retained earnings, net (94) (84)
Repairs and maintenance accrual, net of deferred tax 918 619
Provision for decommissioning, reclamation and mining damages,
net of deferred tax		 (3,102) (3,132)
Capitalized costs of provisions,
net of deferred tax		 1,169 1,653
Unrealized exchange gains booked on balance sheet under CAS,
net of deferred tax		 30 -
Restatement of financial investments at fair value,
net of deferred tax		 59 -
IFRS retained earnings at end of year 5,833 5,045

 


The effect on net income of differences in IFRS and CAS is as follows (in CZK million):

 

  2001 2000
Net income per statutory accounts 1,113 827
Adjustment required by IFRS:
Deferred tax asset not booked under CAS - (30)
Reclassification of items from retained earnings, net (80) (77)
Repairs and maintenance accrual,
net of deferred tax		 299 249
Provision for decommissioning, reclamation and mining damages,
net of deferred tax		 (406) 2
Depreciation of capitalized costs of provisions,
net of deferred tax		 (47) (47)
Unrealized exchange gains booked on balance sheet under CAS,
net of deferred tax		 30 -
Changes in fair value of available-for-sale investments,
net of deferred tax		 21 -
IFRS net income 930 924