Annual Report 2006 - ZSSK Cargo

2006 ANNUAL REPORTŽelezničná spoločnosťCargo Slovakia, a. s.

Table of contentsIntroductory Address by the Chairman of the Board of Directors 4Introductory Address by the Chairman of the Supervisory Board 5Freight Transport 6Selected Economic Indicators 8Strategic Objectives 9Research and Development in 2006 10Assets Transfer in 2006 11Acquisition of Long-term Tangible and Intangible Assets 12Equity investments in ZSSK CARGO 13Human Resources 14Auditor’s Report 16Balance Sheet as at 31 December 2006 18Profi t and Loss Statement as at 31 December 2006 222006 Financial Statement 24Actual Organization Structure 54

Introductory address by the chairmanof the board of directorsThe year 2006 has been a year of several significant changes in Železničná spoločnosť Cargo Slovakia, a.s. The Government,which has originated from the elections, made a decision to suspend sale of company’s shares and stoppedthe privatization. In September the shareholder elected a new management to the top bodies of the company. It hasbeen assigned a target to build a competitive and customer-oriented ZSSK CARGO. One of the first steps was to analyzeconditions of the company. We have identified risky spots and launched processes, which should not only name theproblems but also solve them.We have visited most of our operations scattered across the entire Slovakia. It has provided us with a new pictureof regular operation of the company and discovered several other problematic areas. Redundant assets unusable forcurrent or future needs of our company are burdening us. We have to maintain them and they generate high fixed expenses.In some cases it will be challenging to settle them because they are located in distant places, usually with adifficult access.The ecological burden represents another group of issues. Diesel management, pumped storage stations, undergroundtanks have not been dealt with for years. In the upcoming period we will have to consider these remarkableburdens seriously.One of the analysis outputs is rationalization and restructuring of the processes applied in the company. We assumethat it will be necessary to implement over 20 projects. Their common outcome will be administration and operation rationalization,cost cutting and work efficiency increase. One of the projects will result in creating of customer centre. Afterit is introduced a user comfort of our customers should be greatly simplified and accelerated. Transport optimization isan important project. It is necessary to update planning system in operation, change wagon circulation managementprocesses, remove historic planning system and set a quality management system. In the project for optimized procurementof goods and service we would like to reduce the level of stock, have a complete control over the costs, reduceinvoice administration, increase transparency and reduce a time required for administration. There is a lot of work toimplement the projects and reach the company’s visions. I believe we can only achieve this if each single employee isinvolved personally.ZSSK CARGO is the fourth largest employer in Slovakia, which implies a great responsibility for keeping employmentand social consensus. We are cooperating with nine trade unions actively to find an ideal solution for staff’s requirementsin a common dialog, which is in accordance with the company’s plans.The year 2007 is challenging for all of us. We will be introducing a new information system for operation, we are planningto change organization structure, review compensation system and optimize a number of workplaces and processesin the company. Having understood the required changes, their application and individual contribution of each employee,I believe we will be able to achieve our common target: profitable and healthy company providing comprehensive servicesin the freight transport.Mgr. Matej AugustínChief Executive Officer & Chairman of the Board of DirectorsŽelezničná spoločnosť Cargo Slovakia, a.s.4

Selected economic indicators(in SKK mil.) 2006 2005 Difference %Total assets 21,364 21,971 (606) -2.8%Equity 10,762 12,416 (1,654) -13.3%Long-term tangible assets 16,260 17,926 (1,666) -9.3%Stock 657 587 70 11.9%Trading receivables 2,514 2,294 220 9.6%Financial accounts 230 195 35 18.1%Reserves 2,190 962 1,228 127.7%Trading payables 1,846 2,860 (1,014) -35.5%Bank loans and subsidies 4,674 3,079 1,594 51.8%Revenues from sale of own products and services 16,694 16,148 546 3.4%Production consumption 11,817 11,889 (72) -0.6%Added value 4,981 4,312 669 15.5%Personnel expenses 3,860 3,880 (20) -0.5%Depreciation 1,417 832 585 70.2%Business results of business activity (1,937) (619) (1,318) 213.1%Business results of financial activity (59) (97) 38 -39.4%Business results of the current accounting period (1,998) (713)* (1,285) 180.2%* The business results of the year 2005 do not include extra depreciation suggested by the auditor at the volume of SKK261 mil. The real modified business results of the year 2005 represent the loss of SKK 974 mil.8

Strategic objectivesRail transport and trade activities, orientation to basic transport and shipping services in freight transport represent themain mission of ZSSK CARGO. In addition to the supplementary services directly related to the freight and combinedtransport the company also provides a second basic main product – rental of rolling stock, its maintenance and repair.The original intention according to the approved privatization concept was to privatize ZSSK CARGO under condition ofeconomic benefit for the country and under condition of transparency and rule compliance. With respect to the Government’sdecision the privatization process has been stopped. ZSSK CARGO is 100% state-owned joint stock company. Itsrights of the shareholder are executed by the Ministry of Transport, Post and Telecommunication.Basic performance parameters until year 2010Performance parameters 2007 2008 2009 2010Transport volume (thou. of tons) 48,505 48,990 49,220 49,330Investments (in SKK bln.) 1.5 1.5 1.5 1.5Employees 10,780 10,280 9,780 9,280• In the period of 2007-2010 a growth of Slovak economy and neighbouring economies is anticipated, the growth offreight transport is expected as well• The ambition of ZSSK CARGO is to transport ~49,000 thou. tons of goods a year• Despite of the international and domestic rail freight transport liberalization the company would like to keep ~20%share in the Slovak freight transport market in the following years• The rail freight transport has a potential of growth especially in transit, export and import• ZSSK CARGO assumes a gradual downsizing of its employeesRisk of further development at ZSSK CARGOAlong with the negative trends accompanying the rail transport for several years, such as high railway infrastructurefee, incomparable conditions with road transport and challenging European legislation (more strict than for the roadtransport) the Government should take such system steps, which would reconcile the road and rail freight transportconditions.If the system tools of the Government are not applied in the area of railway infrastructure fee (to be comparable with theneighbouring countries) it will be difficult to become competitive to semi-truck transport. From this point of view the mostrisky mode is the domestic transport.9

Research and development in 2006ZSSK CARGO has no individual units allocated directly to research and development. ZSSK CARGO research and developmentunder its specific conditions is viewed as processing (internally or outsourced) of studies for prospect trafficand engineering documentation (OTED) and tasks for science and technology development (STD) to be used mainly forstrategic planning and decision-making support and corporate investment development support (new machinery, technologies,devices and innovative processes).In 2006 the OTEP studies and STD tasks focused on the following:• Verification of performance features of plastic brake blocks ”LL” in the rail freight transport to comply with noise emissionlimits of interoperable wagons required by the European legislation;• Promotion of the Eastern Slovak Transshipment Yard through a document “Options of goods transshipment and repumpingand wagon bogie change at the border of Ukraine and Slovakia”;• Processing of a feasibility study for reconstruction of the Eastern Slovak Transshipment Yard‘s re-pumping units atČierna Nad Tisou (capital expenses);• Security management system of ZSSK CARGO – a requirement of this SMS implementation results from Railway ActNo. 109/2005 Coll. Implementation of the system arises from Directive No. 2004/49/EC on safety of the Community’srailways.10

Assets transfer in 2006Sale of Immovable AssetsSubject Selling price (in SKK) Approved by SB resolutionLand estate and construction (Levice real estate register) 1,391,597 58/2005 on 8-9 December 2005Land estate and construction(Červený Kameň real estate register)1,050,000 13/2006 on 5 April 2006Land estate and construction(Liptov. Lužná - Korytnica real estate register)1,370,000 26/2006 on 8 June 2006Construction (Košice juh real estate register) 4,210,000 28/2006 on 8 June 2006Land estate (Košice juh real estate register) 3,570,000 28/2006 on 8 June 2006Total 11,591,597Bonuses and Profit-sharing to Statutory and Supervisory Bodies at ZSSK CARGO (in gross SKK thou.)2006 2005Bonuses to members of the Board of Directors 1,394 1,164Bonuses to members of the Supervisory Board 1,230 1,440Profit sharing 0 011

Equity investments of ZSSK CARGO(Accounting Balance as at 31 December 2006)CompanyNumber ofshares (pieces)Share (%) Value of equity investmentsEU-RAIL SLOVAKIA, a.s. Košice 60 30 1Intercontainer - Interfrigo s. c. Brussels, Belgium 385 0.03 263,112Bureau Central de Clearing s. c. r. l. Brussels, Belgium 4 2.96 102,845Settlement of 2006 accounting lossŽelezničná spoločnosť Cargo Slovakia, a.s. reported a net loss of SKK 1,998,032 thou. in the accounting periodof 2006.By decision of the only shareholder nr. 57/RA-2007 on 12 October 2007, the General Assembly adopted a resolution onsettlement of business results in 2006 according to § 7 of the Accounting Principles, it means that the reported loss inamount of SKK 1,998,032 thou. is booked as unliquidated loss from previous years.13

Human resourcesAs at 31 December 2005 the company recorded 11,856 employees. The employment turnover and optimization resultedin the level of 11,375 employees as at 31 December 2006. In 2006 the total number of the company employees wasreduced by 481 employees.Employment DevelopmentStatus as at 31 December 2006 2005 Difference %Managing units 153 153 0 0.0%Trade division 348 341 7 2.1%Operation division 7,129 7,662 -533 -7.0%Services division 986 992 -6 -0.6%Rolling stock services division 2,872 2,961 -89 -3.0%Total weighted average number of employees 11,488 12,109 -621 -5.1%Number of employees as at 31 December 11,375 11,856 -481 -4.1%Average monthly salary 19,388 18,305 1,083 5.9%Development of human resources consisted of the following activities:• ZSSK CARGO Training and testing rules have been developed;• Training for managers focusing on their overall professional growth based on requirements identified by employer wereexecuted;• Improvement of employees´ expertise through language courses;• Projects from the European Social Funds for employee training support have been created;• Improvement of staff qualification was supported – part-time studies in the required majors.14

Balance Sheet as at 31 December 2006(in SKK thousand)DenotationASSETSLineNo.Current accounting periodDirectlypreceedingaccountingperiodGross Correction Net Neta b c 1 2 3 4Total assets 001 25,081,393 3,717,052 21,364,341 21,970,504A. Receivables for subscriptions 002 0B. Non-current assets 003 19,986,227 3,450,854 16,535,373 17 985,282B. I. Non-current intangible assets 004 300,338 25,453 274,885 58,775B. I. 1. Start-up costs 0052.Capitalised research anddevelopment cost006 9,561 8,349 1,212 7,4663. Software 007 106,114 17,104 89,010 41,3904. Valuable rights 008 05. Goodwill 009 06. Other non-current intangible assets 010 07.Non-current intangible assets underconstruction011 184,663 0 184,663 9,9198.Advance payments for non-currentintangible assets012B. II. Non-current tangible assets 013 19,685,523 3,425,401 16,260,122 17,926,106B. II. 1. Land 014 905,045 129,516 775,529 908,1852. Buildings 015 3,010,801 639,352 2,371,449 2,877,9493. Plant and equipment 016 15,681,142 2,634,919 13,046,223 13,997,0494. Perennial crops 0175. Livestock and draught animals 0186. Other non-current tangible assets 019 604 0 604 23 8557.Non-current tangible assets underconstruction020 86,169 19,852 66,317 87,4578.Advance payments for non-currenttangible assets021 1,762 1,762 0 31,6119. Adjustments for assets acquired 022B. III. Non-current financial assets 023 366 0 366 401B. III.1.Investments in controlled entities 0242. Investments in associates 0253. Other non-current investments 026 366 0 366 4014. Loans within consolidation group 0275. Other non-current financial assets 0286.Loans with maturity not exceedingone year0297.Non-current financial assets underconstruction0308.Advance payments for non-currentfinancial assets031C. Current assets 032 4,995,615 266,198 4,729,417 3,852,11918

(in SKK thousand)DenotationASSETSLineNo.Current accounting periodDirectlypreceedingaccountingperiodGross Correction Net Neta b c 1 2 3 4C. I. Inventories 033 753,204 95,997 657,207 587,439C. I. 1. Materials 034 753,192 95,997 657,195 587,3822.Work-in-progress and semi-finishedgoods0353.Construction contracts with estimatedterm of completion exceeding one 036year4. Finished goods 0375. Livestock 038 12 0 12 126. Goods for resale 0397. Advance payments 040 45C. II. Long-term receivables 041 466,485 0 466,485 0C. II. 1. Trade receivables 0422.Receivables from controlled andcontrolling entities0433.Other receivables within consolidatedgroup0444.Receivables from partners andconsortium members0455. Other receivables 046 466,485 466,4856. Deferred tax assets 047C. III. Short-term receivables 048 3,545,714 170,201 3,375,513 3,069,742C. III. 1. Trade receivables 049 2,684,316 170,201 2,514,115 2,294,0322.Receivables from controlled andcontrolling entities0503.Other receivables within consolidatedgroup0514.Receivables from partners andconsortium members0525. Social security receivables 0536. Tax assets 054 110,401 0 110,401 111,3787. Other receivables 055 750,997 0 750,997 664,332C. IV. Financial accounts 056 230,212 0 230,212 194,938C. IV. 1. Cash 057 2,420 0 2,420 3,8272. Bank accounts 058 220,368 0 220,368 186,0283. Term deposits exceeding one year 0594. Short-term financial assets 060 7,424 0 7,424 5,0835.Short-term financial assets underconstruction061D. Prepayments 062 99,551 0 99,551 133,103D. 1. Deferred expenses 063 98,271 0 98,271 132,2022. Accrued revenues 064 1,280 0 1,280 901Control number, total 888 100,226,021 14,868,208 85,357,813 87,748,91319

Balance Sheet as at 31 December 2006DenotationLIABILITIESLineNo.Currentaccounting period(in SKK thousand)Directlypreceedingaccounting periodNetNeta b c 5 6Shareholders' equity and liabilities 065 21,364,341 21,970,504A. Shareholders' equity 066 10,762,373 12,416,068A. I. Registered capital 067 12,100,000 12,100,000A. I. 1. Issued capital 068 12,100,000 12,100,0002. Own shares and interests 0693. Change in issued capital 070A. II. Capital funds 071 1,634,129 1,029,102A. II. 1. Share premium 0722. Other capital funds 073 (227,101) (227,101)3.Legal reserve fund (non-distributable fund) from capitalcontributions074 1,150,000 1,150,0004. Asset and liabilities revaluation reserve 075 711,230 106,2035. Investments revaluation reserve 0766. Revaluation reserve for mergers and demergers (+/- 416) 077A. III. Funds created from profit 078 0 0A. III. 1. Legal reserve fund 0792. Non-distributable fund 0803. Statutory and other funds 081A. IV. Profit or loss from previous years 082 (973,724) 0A. IV. 1. Retained profit from previous years 0832. Accumulated losses from previous years 084 (973,724)A. V. Profit or loss from current period 085 (1,998,032) (713,034)B. Liabilities 086 10,548,781 9,454,771B. I. Reserves 087 2,189,889 961,869B. I. 1. Legal reserves 0882. Other long-term reserves 089 1,717,329 437,4763. Short-term reserves 090 472,560 524,393B. II. Long-term liabilities 091 1,016,872 1,448,499B. II. 1. Long-term trade payables 0922. Uninvoiced supplies 0933. Long-term liabilities to controlled and controlling entities 0944. Other long-term liabilities within consolidated group 0955. Long-term advance payments received 0966. Long-term notes payable 09720

DenotationLIABILITIESLineNo.Currentaccounting period(in SKK thousand)Directlypreceedingaccounting periodNetNeta b c 5 67. Bonds issued 0988. Social fund payables 099 9,825 14,7679. Sundry long-term payables 100 1,007,047 1,433,73210. Deferred tax liabilities 101B. III. Short-term liabilities 102 2,668,307 3,965,031B. III. 1. Short-term trade payables 103 1,845,505 2,859,9522. Uninvoiced supplies 104 34,910 127,7553. Short-term liabilities to controlled and controlling entities 1054. Other short-term liabilities within consolidated group 1065. Payables to partners and consortium members 1076. Payables to employees 108 216,635 204,2397. Social security payables 109 118,867 118,0278. Tax liabilities and subsidies 110 28,022 24,2139. Sundry short-term payables 111 424,368 630,845B. IV. Bank loans and assistance 112 4,673 713 3,079,372B. IV. 1. Long-term bank loans 113 1,228,907 1,393,2902. Short-term bank loans 114 3,444,806 1,686,0823. Short-term financial assistance 115C. Acrruals 116 53,187 99,665C. 1. Accrued expenses 117 16,252 60,4672. Deferred income 118 36,935 39,198Control number, total 999 87,402,209 88,495,38521

Profit and Loss Statement as at 31 December 2006DenotationTextLineNo.current accountingperiodBalancedirectly preceedingaccounting perioda b c 1 2I. Sale of goods purchased for resale 01A. Costs of goods sold 02+ Gross profit 03II. Production revenues 04 16,798,528 16,200,571II.1. Revenues from own products and services 05 16,693,752 16,147,9582. Change in stock of finished goods and work in progress 063. Own work capitalised 07 104,776 52,613B. Production costs 08 11,817,275 11,888,793B.1. Material and energy consumption and other unstorable supplies 09 3,004,852 2,818,594B.2. Services 10 8,812,423 9,070,199+ Gross profit 11 4,981,253 4,311,778C. Personnel expenses 12 3,859,976 3,879,988C.1. Wages and salaries 13 2,672,845 2,659,879C.2. Remuneration of board members 14 2,624 2,604C.3. Social insurance 15 981,737 975,162C.4. Social security 16 202,770 242,343D. Taxes and charges 17 23,902 14 648E. Depreciation of non-current intangible and tangible assets 18 1,417,205 832,451III. Revenues from sales of non-current assets and material 19 866,324 563,805F. Net book value of non-current assets and material sold 20 702,020 469,437IV.Use and release of reserves in operating revenues andrecording complex deferred expenses(in SKK thousand)21 487,622 486,318G.Creation of reserves for economic activities and settlement ofcomplex deferred expenses22 1,714,264 513,511V. Use and release of provisions in operating revenues 23 201,109 359H. Creation of provisions in operating expenses 24 792,837 263,403VI. Sundry operating revenues 25 2,220,941 284,878I. Sundry operating expenses 26 2,184,102 292,424VII. Transfer of operating revenues 27J. Transfer of operating expenses 28*Profit or loss from operating activities, lines 11-12-17-18+19-20+21-22+23-24+25-26+(-27)-(-28)29 (1,937,057) (618,724)VIII. Income from sale of investments 30 48,454K. Investments sold 31 48,454IX. Income from non-current financial assets 3222

DenotationTextLineNo.current accountingperiodBalancedirectly preceedingaccounting perioda b c 1 2IX.1. Income from investments in controlled entities and associates 332. Income from other non-current investments 343. Income from other non-current financial assets 35X. Income from current financial assets 36L. Expenses for current financial assets 37XI.Income from revaluation of securities and income fromtransactions with derivatives(in SKK thousand)38 278,530 292,638M.Expenses for revaluation of securities and expenses fortransactions with derivatives39 76,589 98,359XII. Interest income 40 3,715 2,370N. Interest expense 41 397,496 356,655XIII. Foreign exchange gains 42 427,421 201,797O. Foreign exchange losses 43 266,080 173,687XIV. Other finance income 44 781 65,019P. Other finance expenses 45 29,082 30,198XV. Use and release of reserves in finance income 46Q. Creation of reserves for financial activities 47XVI. Use and release of provisions in finance income 48R. Creation of provisions in finance expenses 49XVII. Transfer of finance income 50S. Transfer of finance expenses 51*Profit or loss from financial activities, lines 30 -31+32+36-37+38-39+40-41+42-43+44-45+46-47+48-49+(-50)-(-51)52 (58,800 ) (97,075)T. Income taxes on ordinary income 53 2,175T.1. - current 54 2,1752. - deferred 55** Profit or loss from ordinary income 56 (1,998,032) (715,799)XVIII. Extraordinary income 57 8,438U. Extraordinary expenses 58 5,673V. Income taxes on extraordinary income 59V.1. - current 602. - deferred 61* Profit or loss from extraordinary income 62 2,765Z. Transfer of share on profit or loss to partners 63*** Profit or loss for accounting period 64 (1,998,032) (713,034)Control number, total 99 76,035,260 71,161,59123

2006 Financial Statement1. Description of the companyŽelezničná spoločnosť Cargo Slovakia, a.s. (“ZSSK CARGO” or “the Company”), a joint stock company registered in theSlovak Republic, was founded on 1 January 2005 as one of the two successor companies to Železničná spoločnosť, a.s..ZSSK CARGO was incorporated with the Commercial Register of the District Court Bratislava I, Section Sa, Insert No.3496/B at the date of establishment.The Slovak State is the sole shareholder of the Company through the Ministry of Transport, Post and Telecommunicationof the Slovak Republic (“MTPT”) with the registered office on Námestie slobody 6, 811 06 Bratislava. The Company doesnot belong to any group for consolidation purposes.The Company’s predecessor Železničná spoločnosť, a.s., was founded on 1 January 2002 based on the Act No.259/2001 Coll. on Železničná spoločnosť through the demerger of Železnice Slovenskej Republiky (“ŽSR”) and assumedresponsibility for the provision of freight and passenger transport and traffic services within Slovakia, while ŽSRretained responsible for the operation of the railway track. Železničná spoločnosť, a.s. was dissolved without liquidationeffective 1 January 2005.Its main activities are as follows:1. Provision of rail transportation – freight transport on national and regional railways2. Provision of rail transportation – freight transport on siding (according to individual licences)3. Verification of technical eligibility of rolling stock according to § 50 article 2 of Act No. 164/1996 Coll. on railways asamended before they are put into operation on railways and other networks and performance of regular technicalinspections of rolling stock in operation4. Performing installations, repair, maintenance, construction and reconstruction of railway vehicles5. Performing installations, repair, maintenance, construction and reconstruction, operation and testing of special technicalelectric equipment6. Performing repair, maintenance, construction and reconstruction, operation and testing of lifting devices7. Handling of goods and loading and unloading of wagons and containersMembers of statutory bodies as of 31 December 2006:Board of DirectorsSupervisory BoardChairman: Mgr. Matej Augustín Chairman: JUDr. Zdeněk SchramlVice chairman: Ing. Anton Jaborek Vice chairman: Ing. Peter KubalaMember: Dipl. Ing. Ján Simčo Member: Ing. Igor KrškoMember: Ing. Jaroslav Bajužik Member: Dr. Ing. Peter SchlosserMember: Ing. Jozef Pavúk Member: Mgr. Jozef SchmidtMember:Mgr. Imrich Sloboda2. Basis of preparation of fi nancial statementsThe accompanying financial statements have been prepared in accordance with the Act No. 431/2002 Coll. on Accountingas amended (“the Act“) on a going concern basis and are presented as ordinary financial statements.Financial year of the Company ends on 31 December and standard period for the preparation of the statutory financialstatements in accordance with the Act is the calendar year.These financial statements have been prepared on a historical cost basis, except for certain derivative financial instrumentsthat have been measured at fair value. Negative balances are presented in brackets.The financial statements are presented in Slovak crowns and all values are rounded to the nearest thousand (SKK thousand)except when otherwise indicated.24

3. Signifi cant accounting judgements, estimates,policies and principlesManagement judgmentsThe preparation of the financial statements requires the management to make certain estimates and assumptionswhich impact the carrying values of the Company’s assets and liabilities and the disclosure of contingent items at thebalance sheet date and the reported revenues and expenses for the period then ended.Estimates are used for, but not limited to: useful lives and residual values of property, plant and equipment and intangibleassets, allowances for inventories and doubtful debts, provisions for employee benefits and legal claims. Future eventsand their effects cannot be perceived with certainty. Accordingly, the accounting estimates made require the exerciseof judgement and those used in the preparation of the financial statements will change as new events occur, as moreexperience is acquired, as additional information is obtained and as the Company’s operating environment changes.Actual results may differ from those estimates.a) Property, plant and equipment and intangible assetsProperty, plant and equipment and intangible assets are valued at acquisition cost, including purchase price, transportationcost, customs duty and other purchase related costs, non-deductible Value Added Tax according to Act No.222/2004 Z. z. on Value added tax as amended.Property, plant and equipment and intangible assets produced by the Company itself are valued at production cost,including direct material cost, personnel cost, indirect production cost and overheads.Technical improvements are capitalized. Repairs and maintenance are expensed to the income statement.DepreciationProperty, plant and equipment and intangible assets are depreciated according to a depreciation plan (internal directivefor the classification and depreciation of property, plant and equipment and intangible assets) over the estimated usefullife of the respective asset. Estimated useful life, depreciation method and depreciation rate are set for individual groupsof property, plant and equipment and intangible assets as follows:Estimated useful life Annual depreciation rate Depreciation methodIntangible assetsStart up costs 3 years 33 % straight-lineDevelopment costs 3 years 33 % straight-lineSoftware 3 – 10 years 33 – 10 % straight-lineProperty, plant and equipmentBuildings 3 – 50 years 2 % – 33 % straight-lineMachines, tools and equipment 2 – 20 years 5 % – 50 % straight-lineVehicles 5 – 20 years 5 % – 20 % straight-lineFittings and fixture 6 – 25 years 4 % – 17 % straight-lineThe Company assesses the value in use of property, plant and equipment and intangible assets based on the physicalinventory counts performed. For property, plant and equipment categorised as unusable, the Company writes off or createsan allowance in an amount representing the difference between its deemed value in use and its net book value. Forproperty, plant and equipment categorised as unused but with potential future use, the Company creates an allowancein an amount representing the difference between its deemed value in use and its net book value.25

2006 Financial Statementb) InventoryPurchased inventory are valued at acquisition cost, i.e. purchase price of inventory and the expenses related to the acquisitionof inventory (transportation costs, insurance costs, customs duty, discount, commission). Diesel oil for tractionpurposes is valued at acquisition cost including excise tax according to the act on excise tax from mineral oils.Inventories produced in the Company’s own production are valued at own cost, i.e. direct cost incurred and indirect costaccording to the Company’s Direction on pricing.A provision is made in the event of a temporary diminution in the value of inventory.c) ReceivablesReceivables are stated at their nominal value. Assigned receivables are valued at acquisition cost. The carrying value ofdoubtful receivables is reduced to their realisable value by allowances for doubtful debts. Other receivables also includethe amounts identified during the valuation of financial derivatives at fair value.d) Short-term financial assetsShort-term financial assets comprise mainly stamps and vouchers, cash in hand and in bank with maturity up to 1 yearand are stated at their nominal value.e) Deferred expenses and accrued revenuesDeferred expenses and accrued revenues are stated at their nominal value and are recognized on an accrual basis.f) Interest-bearing loans and borrowingsAll loans and borrowings are initially recognized at their nominal value. The portion of a long-term loan which is due within1 year from the balance sheet date is recognised as a short-term loan.g) PayablesLong-term and short-term payables are stated at their nominal value. Other payables also include the amounts identifiedduring the valuation of financial derivatives at fair value.h) ProvisionsProvisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event,it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and areliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisionsare discounted using a current pre-tax rate that reflects, where appropriate, the risk specific to the liability.Contingent liabilities (if any) are not recognized in the balance sheet because of significant uncertainties with regard totheir amount or timing.i) Accrued expenses and deferred revenuesAccrued expenses and deferred revenues are stated at their nominal value and are recognized on an accrual basis.j) EquityEquity consists of registered capital, capital funds, profit/loss from revaluation, legal reserve fund and profit/loss for thecurrent period.The Company’s registered capital is stated in the amount recorded in the Commercial Register with the District CourtBratislava I. Other capital funds consist of monetary and non-monetary contributions, gifts etc.At the Company’s incorporation, a legal reserve fund was created at 10 % of the Company’s registered capital. Slovaklegislation requires that the legal reserve fund be increased by amounts at least equal to 10 % of annual net profit specifiedin the ordinary individual financial statements, up to a total amount equal to 20 % of the Company’s registeredcapital.k) Foreign currency transactionsForeign currency transactions are translated into Slovak crowns using the foreign exchange rate of the National Bank ofSlovakia ruling at the transaction date. Monetary assets and liabilities denominated in foreign currency are translatedusing the foreign exchange rate ruling at the balance sheet date. The foreign exchange gains and losses are recognizedin the income statement. Purchases and sales of foreign currency are translated into Slovak crowns using the foreignexchange rate prevailing when these amounts were purchased or sold.26

l) RevenuesRevenues are recognized to the extent that it is probable that the economic benefits will flow to the Company and therevenues can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized:Rendering of servicesRevenues from transportation and related services, from repair and maintenance and other such services are recognizedin the accounting period in which the services are provided. They are also stated net of discounts and deductions(rebates, bonuses, credit notes, etc.).Rental incomeIncome from property rentals is recognized on a straight-line basis over the lease terms on ongoing leases.m) DerivativesThe Company uses derivative financial instruments such as swaps, forwards and options to hedge its risks related toforeign currency fluctuations (especially EUR/SKK and USD/SKK) and interest rates fluctuations.Initially, on the date on which a derivative contract is entered into, derivatives are booked on relevant off-balance sheetaccounts in acquisition cost. At year end open positions are re-measured to fair value (mark to market) and they arecarried as assets when the fair value is positive and as liabilities when the fair value is negative.n) LeasesThe Company accounts for finance lease for contracts signed up to 31 December 2003 in the way that the lease paymentsare expensed and the residual value of the leased asset is capitalised when the lease contract expires and thepurchase option is exercised. Lease payments paid in advance are accrued.The Company does not have any finance lease contracts signed after 1 January 2004.The assets acquired under the operating lease are expensed over the lease term.o) TaxesCurrent taxCurrent tax assets and liabilities for the current and prior period are measured in nominal value.Deferred taxDeferred income tax is provided using the liability method on temporary differences at the balance sheet date betweenthe tax basis of assets and liabilities and their carrying amounts for financial reporting purposes.Deferred tax liabilities are recognized for all taxable temporary differences.Deferred tax assets are recognized for all deductible temporary differences and unused tax losses to the extent that it isprobable that taxable profit will be available against which the deductible temporary differences, carry-forward of unusedtax credits and unused tax losses can be utilised.The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extentthat it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to beutilised. Unrecognized deferred tax assets are reassessed at each balance sheet date and are recognized to the extentthat it has become probable that future taxable profit will allow the deferred tax asset to be recovered.Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when theasset is realised or the liability is settled, based on the tax rates (and tax laws) that have been enacted at the balancesheet date.p) Government subsidiesIn the process of settlement of assets and liabilities according to the Appendix 10A of the demerger process the Companyreceived resources originally provided to ŽSR for acquisition of property, plant and equipment and intangible assetsin the form of subsidy from State budget of Slovak Republic. This subsidy is related to purchase of wagons series Sgnssto support the intermodal transport. These assets were the part of non-monetary contribution at the foundation of Železničnáspoločnosť, a.s. (legal predecessor of Železničná spoločnosť Cargo Slovakia, a.s.). They are accounted for asdeferred revenues and they are released to income statement on a straight-line basis over the estimated useful life ofthe respective asset.There were no subsidies for acquisition of assets provided during the year 2006.27

2006 Financial Statement4. Non-current assetsa) Non-current intangible assetsAcquisition cost(in SKK thousand) 31.12.2005 Additions Disposals Transfers 31. 12. 2006Development cost 11,144 - (1,583) - 9,561Software 52,244 29,177 (10,469) 35,162 106,114Non-current intangible assets underconstruction9,919 210,688 (782) (35,162) 184,663Total 73,307 239,865 (12,834) - 300,338Accumulated depreciation(in SKK thousand) 31.12.2005 Additions Disposals Transfers 31.12.2006Development cost 3,678 4,216 (1,584) - 6,310Software 10,854 11,565 (5,315) - 17,104Total 14,532 15,781 (6,898) - 23,414Allowances(in SKK thousand) 31.12.2005 Additions Disposals Transfers 31.12.2006Development cost - 2,039 - - 2,039Software - - - - -Total - 2,039 - - 2,039Net book value(in SKK thousand) 31.12.2006 31.12.2005Development cost 1,212 7,466Software 89,010 41,390Non-current intangible assets under construction 184,663 9,919Total 274,885 58,775b) Property, plant and equipmentAcquisition cost(in SKK thousand) 31.12.2005 Additions Disposals Transfers 31.12. 2006Land 908,185 127 (3,267) - 905,045Buildings 2,945,038 - (9,501) 75,264 3,010,801Machinery and equipment 572,125 18,934 (6,447) 85,847 670,459Vehicles 14,565,389 486 (140,403) 558,923 14,984,395Furniture and fittings 26,326 - (230) 192 26,288Works of art and collections 604 - - - 604Non-current tangible assets underconstruction119,631 648,723 (73,791) (608,394) 86,169Advances for non-current tangible 39,185 74,570 (161) (111,832) 1,762Total 19,176,483 742,840 (233,800) - 19,685,52328

Accumulated depreciation(in SKK thousand) 31.12.2005 Additions Disposals Transfers 31.12. 2006Land - - - - -Buildings 67,089 246,856 (270) - 313,675Machinery and equipment 57,292 79,406 (1,526) - 135,172Vehicles 1,057,732 1,334,787 (9,985) - 2,382,534Furniture and fittings 3,075 3,890 (39) - 6,926Works of art and collections - - - - -Non-current tangible assets underconstruction- - - - -Advances for non-current tangibleassets under construction- - - - -Total 1,185,188 1,664,939 (11,820) - 2,838,307Allowances(in SKK thousand) 31.12.2005 Additions Disposals Transfers 31.12. 2006Land - 129,516 - - 129,516Buildings 2,949 325,677 (2,949) - 325,677Machinery and equipment 845 5,845 (845) - 5,845Vehicles 21,265 104,316 (21,265) - 104,316Furniture and fittings 383 126 (383) - 126Works of art and collections - - - - -Non-current tangible assets underconstruction32,174 8,067 (20,389) - 19,852Advances for non-current tangibleassets under construction7,252 1,762 (7,252) - 1,762Total 64,868 575,309 (53,083) - 587,094Net book value(in SKK thousand) 31.12.2006 31.12. 2005Land 775,529 908,185Buildings 2,371,449 2,877,949Machinery and equipment 529,442 514,833Vehicles 12,497,545 13,482,216Furniture and fittings 19,236 23,251Works of art and collections 604 604Non-current tangible assets under construction 66,317 87,457Advances for non-current tangible assets under construction - 31,611Total 16,260,122 17,926,106Based on the strategic decision of the management the Company performed count of freight vehicles and audit of assetsunder the project of Handling with unneeded assets, in terms of their usability (damaged, unneeded) or their future usage.The Company assessed assets impaired, non-functioning, unusable, non-repairable respectively, the costs neededto made assets again usable, as assets unusable or unneeded for the Company. The assets originally designated forreparations, that are not used in these activities, were specified as unused and unneeded. Based on this the Companywrite-off amount of SKK 256,581 thousand in relation to permanent decrease of value of non-current assets and createdimpairment provision of SKK 565,481 thousand in respect of temporary decrease of value of non-current assets.29

2006 Financial StatementCertain parcels of land and constructions in the ownership of the Company amounted to SKK 4,379 thousand as of 31December 2006 and 2005 are marked by seals on land register what means that there is currently a proceeding heldregarding the constitution, change or termination of right to the respective plots.Certain land in the ownership of the Company as of 31 December 2006 and 2005 in total value of SKK 87,246 thousandand SKK 76,292 thousand, respectively, are registered as culturally protected lands, immovable cultural sights orprotected zones.According to the Agreement on liability security by transfer of rights signed on 19 November 2001 between Optifin, s.r.o.and ŽSR, ZSSK CARGO as successor company provides a guarantee in form of wagons up to the unpaid part defined inthe agreement in amount of SKK 2,380 thousand per wagon as of 31 December 2006 and 2005.Property insuranceThe Company’s non-current tangible assets are not insured, except for vehicles. Total amount of obligatory andaccident insurance as of 31 December 2006 and 2005 represents SKK 4,278 thousand and SKK 3,999 thousand,respectively.c) Non-current financial assetsMovements of non-current financial assets(in SKK thousand) 31.12.2005 Additions Disposals AllowanceRevaluationagainst equity31. 12. 2006Shares withsubstantial influence401 - - - (35) 366Total 401 - - - (35) 366The Company did not create any allowances to non-current financial assets at 31 December 2006.Subsidiaries or associates as at 31 December 2006 are as follows:Company nameEU-RAIL Slovakia, a.s. KošiceSeatŠancová 112, 831 04 BratislavaShare in % 30 %Accounting value of shares –5. InventorySurplus supplies, obsolete and slow moving inventory is written down to its estimated net realizable value through allowances.The Company created allowances to surplus supplies, obsolete and slow moving inventory identified during thestock count in total amount of SKK 95,997 thousand and SKK 36,933 thousand as of 31 December 2006 and 2005,respectively. There is no inventory pledged.30

6. Long-term receivables(in SKK thousand) Brutto 31.12.2006 Netto 31.12.2006 Brutto 31.12.2005 Netto 31.12.2005Total 466,485 466,485 - -Other receivables include also the receivable due from state in amount of SKK 466,485 thousand representing part ofreceivables for services performed in public interest related to previous periods. In the debt reduction process of railwayscompanies in 2004, the whole amount of receivables for services of public interest was a subject of mutual offset againstthe payables towards the Ministry of Finance of the Slovak Republic (arising from transition of bank loans with stateguarantee to national debt of Slovak Republic), however, due to change in the value of loans denominated in foreigncurrencies not whole amount of the receivables was set off (the difference arisen represents exactly the amount of SKK466,485 thousand). Currently there are no facts existing that would impair the recoverability of this receivables, however,it is not expected to be collected within one year.The Company reclassified this receivables to long-term in 2006.7. Short-term receivables(in SKK thousand) Brutto 31.12.2006 Netto 31.12.2006 Brutto 31.12.2005 Netto 31.12.2005Total 3,545,714 3,375,513 3,230,987 3,069,742As of 31 December 2006 and 2005 overdue receivables represented SKK 560,163 thousand and SKK 640,708 thousand,respectively, and receivables within due amounted to SKK 2,985,551 thousand and SKK 2,590,279 thousand,respectively.Creation and release of provision for doubtful debts:(in SKK thousand) 31.12.2005 Creation of provision Release of provision 31.12.2006Receivables 161,245 120,051 111,095 170,201Total 161,245 120,051 111,095 170,201Provision for doubtful debts was created in 2006 using the combination of following criterias:- statistically according the receivables aging- individually assessed credit risk for certain selected debtors (e.g. foreign railway companies)Other receivables represent the receivables from financial derivatives stated in fair value as at 31 December 2006 and31 December 2005 amounted to SKK 750,287 thousand and SKK 170,761 thousand, respectively (note 16).For receivables due from related parties refer to note 23.31

2006 Financial Statement8. Financial assets(in SKK thousand) 31.12.2006 31.12.2005Cash on hand 664 320Stamps and vouchers 1,756 3,507Bank accounts 168,294 97,551Emission quotas 7,424 5,083Cash in transit 52,074 88,477- thereof term deposits 51,971 87,990Total 230,212 194,938Cash in transit represents mainly term deposits in Tatra banka, a.s. and Citibank (Slovakia) a.s. transferred from currentaccounts to term deposit accounts on 29 December 2006.As of 31 December 2006 and 31 December 2005 cash in amount of SKK 50,000 thousand and SKK 30,000 thousandwas pledged in favour of custom office.Overdrafts as of 31 December 2006 (in SKK thousand)Bank Maturity date Overdraft limit Drawn amountVÚB 05.12.2008 400,000 -Tatra banka, a.s. 30.04.2007 400,000 43,145HVB Bank Slovakia a.s. 30.09.2007 300,000 120,298UniBanka, a.s. 31.03.2007 330,000 138,050Citibank (Slovakia) a.s. 27.07.2007 400,000 -Slovenská sporiteľňa, a.s. 31.07.2007 400,000 9,194Dexia banka Slovensko a.s. 07.02.2007 200,000 233,778Calyon S.A., branch of foreign bank 31.08.2007 100,000 -Total 2,430,000 544,465Overdrafts as of 31 December 2005 (in SKK thousand)Bank Maturity date Overdraft limitDrawn amount as of31.12.2005VÚB 5.12.2008 400,000 -Tatra banka, a.s. 30.4.2006 400,000 -HVB Bank Slovakia a.s. 30.6.2006 300,000 -UniBanka, a.s. 31.3.2007 330,000 73,075Citibank (Slovakia) a.s. 28.7.2006 400,000 -Sl. sporiteľňa, a.s. 31.5.2006 400,000 84,429Dexia banka Slovensko a.s. 10.2.2006 200,000 161,990Total 2,430,000 319,49432

For the purposes of the cash flow statement, cash and cash equivalents comprise the following:(in SKK thousand) 31.12.2006 31.12.2005Cash in bank and on hand 230,212 194,938Overdrafts (544,465) (319,494)Total 314,253 (124,556)9. Prepayments and accrualsSignificant items of deferred expenses and accrued revenues(in SKK thousand) 31.12.2006 31.12.2005Deferred expenses 98,271 132,202Accrued revenues 1,280 901Total 99,551 133,103Deferred expenses consist of:(in SKK thousand) 31.12.2006 31.12.2005Leasing 86,627 94,515Insurance 10,411 35,316Rentals of excavators 774 774Telephone fees 235 258Other 224 1,339Total 98,271 132,20233

2006 Financial Statement10. Shareholder’s equity(in SKK thousand)RegisteredcapitalLegalreserve fundOther capitalfundsRevaluationreserveRetainedearningsLoss forcurrentperiodTransfer fromlegal predecessor11,500,000 1,150,000 895,988 - - - 13,545,988Additionalcontribution600,000 - 6,445 - - - 606,445Other - - (1,129,534) 106,203 - (1,023,331)Profit/loss forcurrent period- - - - - (713,034) (713,034)31 December200512,100,000 1,150,000 (227,101) 106,203 - (713,034) 12,416,068Changes in equity - - - 605,027 (260,690) - 344,337Loss for currentperiod- - - - - (1,998,032) (1,998,032)31 December200612,100,000 1,150,000 (227,101) 711,230 (973,724) (1,998,032) 10,762,373TotalRegistered capital of the Company comprises 121 registered ordinary shares, each with a face value of SKK 100,000thousand.As of 31 December 2006 and 2005 the Company did not have any own shares.Retained earning consists of:The General Shareholders’ Meeting held on 21 June 2006 approved loss settlement for the year 2005 by transfer toretained earning as reported at 31 December 2005 and adjustment of accounting depreciation for the year 2005 recordedin 2006 in amount of SKK 260,690 thousand.Loss for the year ended 31 December 2005 after adjustment of accounting depreciation would be loss of SKK 973,724thousand (note 25).11. ProvisionsThe movements in accounts of provisions during 2006 are as follows:(in SKK thousand) 31.12.2005Creation ofprovisionRelease ofprovision31. 12. 2006Short-term 524,393 417,916 469,749 472,560Long-term 437,476 1,302,391 22,538 1,717,329Total 961,869 1,720,307 492,287 2,189,88934

(in SKK thousand) 31.12.2005Creation ofprovisionRelease ofprovision31. 12. 2006Short-term provisions:Not invoiced non-investment deliveries 352,836 301,628 352,836 301,628Employees benefits 54,335 41,627 - 95,962Personnel expenses related toundistributed salaries and unpaid23,366 24,535 23,366 24,535bonusesEnvironmental costs - 13,000 - 13,000Personnel expenses related to unspentvacation and social insurance7,464 11,503 7,464 11,503Emission quotas 4,628 6,044 4,628 6,044Other 81,764 32,579 81,455 19,888Total 524,393 417,916 469,749 472,560Long-term provisions:Environmental costs 103,040 1,137,704 22,500 1,218,244Employees benefits 321,106 18,004 - 339,110Legal claims 13,330 146,683 - 160,013Valuation of provisions as of 31.12.2006 - - 38 (38)Total 437,476 1,302,391 22,538 1,717,329Environmental costsIn advance of European Union accession, the Company’s predecessor Železničná spoločnosť, a.s. performed a detailedenvironmental review during years 2003 and 2004 in order to identify potential breaches of environmental regulationsat various locations of the Company. The reviews identified number of breaches mainly relating to contaminated land,water and air.Based on the new Analysis of technical status of water, oil and fuel management in ZSSK CARGO prepared by EnvironCentrum, s.r.o. in April 2007, in relation to impacts on environment, legislation, decisions of respective bodies of stateauthorities and according to the concept of technical-operating solution of individual projects of water, oil and fuel management,professional estimation was performed on amount of finance resources needed that represent the necessaryexpenses. Total amount of provision booked in respect of environmental cost represents SKK 1,231,245 thousand, ofwhich short-term portion is in amount of SKK 13,000 thousand.In addition, the Company estimates that capital expenditure of SKK 451,450 thousand will be required to ensure thatthe Company complies with environmental legislation in the future, as disclosed in note 19.Employees benefitsThe Company operates unfunded long-term defined benefit programmes comprising lump-sum post-employment, jubileeand disability benefits. The cost of providing these employee benefits is assessed separately for each programmeusing the projected unit credit method, by which the costs incurred in providing such benefits are charged to the incomestatement so as to spread the cost over the service lives of the Company’s employees. The benefit obligation is measuredas the present value of the estimated future cash outflows.According to the plan on employee optimization containing planned annual reduction in number of employees, reflectedin detail plan (specifying locations and positions of employees involved) the Company plans to terminate the employmentwith 600 employees in year 2007 (in accordance with approved business plan). Agreement has been reached with theunion representatives regarding the 2007 terminations. No provision was created for years 2008-2009 as the recognitioncriteria were not met (personnel needs and consequently optimization of number of employees for relevant professionsaccording to the expected development of operational output for years 2008-2009 are not defined yet).35

2006 Financial StatementLegal claimsProvisions for legal claims relate to several legal claims, most of them were initially filed against the Company’s predecessor,ŽS. The most significant part represents the claims with the Antimonopoly Office (“AMO”) that has issued judgmentsagainst the Company in total amount of SKK 112,000 thousand for alleged abuse of dominant market position. TheCompany has appealed against the decision of AMO. However, the provision was created in full amount of SKK 112,000thousand for the penalties imposed by the AMO believing that this amount represents the most likely outcome.12. Long-term payablesLong-term payables as of 31 December 2006(in SKK thousand) From 1 to 5 years Over 5 years TotalOther long-term payables 961,952 45,095 1,007,047Social fund liabilities 9,825 9,825Total 971,777 45,095 1,016,872Long-term payables as of 31 December 2005(in SKK thousand) From 1 to 5 years Over 5 years TotalOther long-term payables 1,137,100 296,632 1,433,732Social fund liabilities 14,767 - 14,767Total 1,151,867 296,632 1,448,499Other long-term payables as of 31 December 2006 and 31 December 2005 comprise of payables from received financialassistances with maturity longer than 1 year in amount of SKK 1,007,047 thousand and SKK 1,411,070 thousand,respectively. Thereof the payables due to EXPRESS SLOVAKIA „MEDZINÁRODNÁ PREPRAVA, A.S.“ amounts to SKK885,033 thousand and SKK 1,036,521 thousand as of 31 December 2006 and 2005, respectively. The credit fromEXPRESS SLOVAKIA „MEDZINÁRODNÁ PREPRAVA, A.S.“ is pledged by wagons, each of them of value SKK 2,380 thousandstated in the credit contract and by embedded derivative related to fluctuation of exchange rate EUR/SKK. Fairvalue of embedded derivative as of 31 December 2006 and 31 December 2005 was SKK 3,137 thousand and 22,662thousand, respectively, (note 16).The interest rate on received financial assistances did not exceed 12.75% in 2006.The Company did not have any overdue long-term payables as of 31 December 2006 and 31 December 2005.Social fundCreation and usage of social fund during the accounting period2006 2005(in SKK thousand) Social fund Central SF Social fund Central SFAs of 1 January 3,647 11,121 2,485 14,663Creation 20,932 4,651 23,907 5,231Usage 22,277 8,249 22,745 8,774As of 31 December 2,302 7,523 3,647 11,12036

13. Short-term payablesAs of 31 December 2006 and 31 December 2005 overdue short-term trade payables amounted to SKK 277,066 thousandand 1,412,965 thousand, respectively.Other short-term payables represent short-term portions of financial assistances in amount of SKK 404,023 thousandand SKK 538,973 thousand as of 31 December 2006 and 31 December 2005, respectively, and payables from revaluationof open derivatives to fair value of SKK 42,119 thousand and SKK 109,721 thousand as of 31 December 2006and 31 December 2005, respectively, (note 16).For related party payables refer to note 23.14. Bank loans(in SKK thousand)MaturityBalance as of31.12.2006Balance as of31.12.2005Long-term bank loansCalyon (EUR) 31.12.2008 133,696 219,541Dexia Banka Slovensko a.s. (EUR) 31.05.2010 447,720 630,169Slovenska sporiteľňa, a.s. (EUR) 31.05.2010 447,720 630,169Všeobecná úverová banka, a.s. (EUR) 05.12.2008 276,584 400,000ČSOB, a.s. (EUR) 30.09.2012 674,519 -Total 1,980,239 1,879,879Short-term portion of bank loans 751,332 486,588Long-term portion of bank loans 1,228,907 1,393,291(in SKK thousand)MaturityBalance as of31.12.2006Balance as of31.12.2005Short-term bank loansCitibank (Slovakia) a.s. (EUR) 27.07.2007 273,127 300,000Tatra banka, a.s. 30.04.2007 750,000 300,000UniBanka, a.s. 31.03.2007 130,000 230,000UniBanka, a.s. 31.03.2007 460,000 -Slovenska sporiteľňa, a.s. (EUR) 31.07.2007 89,890 -Calyon S.A., pobočka zahr. banky (EUR) 31.08.2007 445,992 -HVB Bank Slovakia a.s. 30.09.2007 - 50,000Short-term bank loans 2,149,009 880,000Short-term portion of bank loans 751,332 486,588Overdrafts 544,465 319,494Total 3,444,806 1,686,082Short-term bank loans are secured by promissory notes with the value of SKK 2,459,695 thousand and SKK 1,037,503thousand as of 31 December 2006 and 31 December 2005, respectively (nominal value of SKK 2,893,800 thousandand SKK 1,788,800 thousand as of 31 December 2006 and 31 December 2005, respectively).Under the terms of certain loan agreements the Company is required to meet some financial and non-financial covenants.Specifically, the Company is required to maintain the interest coverage ratio above the level of 1.2 and gearing below 75%.Both ratios were met as of 31 December 2006.37

2006 Financial StatementIn 2006 the interest rate on received loans and overdrafts did not exceed 5.63%.In 2006 ČSOB, a.s. provided the Company with investment loan in total amount of EUR 26.4 million. As of 31 December2006 the Company has drawn amount of EUR 19,510 thousand.Overview of maturity of bank loans:Balance as of 31.12.2006(in SKK thousand)Bank loansShort-term loans andoverdrafts2007 751,332 2,693,4732008 474,748 -2009 407,901 -2010 279,980 -2011 and later 66,277 -Total 1,980,239 2,693,473Balance as of 31.12.2005(in SKK thousand)Bank loansShort-term loans andoverdrafts2006 486,588 1,199,4932007 486,589 -2008 486,589 -2009 280,075 -2010 and later 140,038 -Total 1,879,879 1,199,49315. AccrualsAccrued expenses and deferred income represents:(in SKK thousand) 31.12.2006 31.12. 2005Accrued expenses 16,252 60,467Deferred income 36,935 39,198Total 53,187 99,665Deferred income represents mainly subsidy for non-current assets (freight wagons) in amount of SKK 35,520 thousandand SKK 38,651 thousand as of 31 December 2006 and 31 December 2005, respectively. Accrued expenses comprisemainly accrued loan interest of SKK 16,072 thousand and SKK 60,407 thousand as of 31 December 2006 and 31December 2005, respectively.38

16. DerivativesThe Company revalue open derivatives positions to fair value as of 31 December 2006 and respective receivables orpayables are reported in other receivables (note 7) or other payables (note 13).The following table summarises open derivatives as of 31 December 2006 and 31 December 2005:(in SKK thousand)Fair valueas at 31.12.2006 as at 31.12.2005Receivables Payables Receivables PayablesFX Forwards 52,734 - 68,765 -FX Options 695,126 19,666 124,658 87,059FX Swaps 985 7,484 - -MM Swaps 1,442 11,832 - -Embedded derivative – options - 3,137 - 22,662Total 750,287 42,119 193,423 109,72117. Income tax(in SKK thousand) 31.12.2006 31.12.2005Loss before taxation (1,998,032) (720,096)Items increasing tax base - total 2,423,436 1,057,434Items decreasing tax base - total 336,542 1,388,612Tax base (273,070) (1,051,274)Income tax 0 0Current income tax 0 0Deferred income tax 0 0According to the Act on Income tax the Company is entitled to carry forward taxable losses incurred in years 2003 - 2005for offset against future taxable profits. Taxable losses in from years 2003 – 2005, which were not utilised in year 2006and will be carried forward amount to SKK 3,885,404 thousand as at 31 December 2006.39

2006 Financial StatementThe Company quantified deferred tax as follows (in SKK thousand):Deferred tax itemsDeferred taxassetAs of 31.12.2006 As of 31.12.2005Deferred taxliabilityDeferred taxassetDeferred taxliabilityDifference in accounting and tax netbook value of non-current assets- 81,775 - 47,029Revaluation of derivatives to fair value 8,003 142,554 25,153 36,750Provisions – employee benefits 82,663 - 72,516 -Provisions – environmental costs 233,936 - - -Provisions – legal claims 9,122 - - -Provision for penalties for overduepayables4,761 - 12,546 -Allowance for doubtful debts 32,338 - 30,562 -Allowance for non-current assets 111,548 - 12,325 -Allowance for inventory 18,239 - 7,051 -Other - 608 210 8,732Tax loss for 2003 277,269 - 279,408 -Tax loss for 2004 249,209 - 250,646 -Tax loss for 2005 211,748 - 211,748 -Tax loss for 2006 51,883 - - -Total 1,290,719 224,937 902,165 92,511Valuation allowance (1,065,782) - (809,654) -Deferred tax - -18. Off-balance sheet itemsFinance leaseThe assets leased by the Company under finance lease before 1 January 2004 as of 31 December 2006are as follows (in SKK thousand):DescriptionMaturityTotal amount oflease paymentsover the expectedlease termFinance leasepaymentsmade as of31.12.2006Future paymentsdue within 1 yearas at 31.12.2006Future paymentsdue over 1 yearas at 31.12.2006TATRA LEASING, s.r.o.Freight wagons 3/2009 568,178 425,314 78,448 64,416Total 568,178 425,314 78,448 64,41640

Tax assets leased by the Company under finance lease before 1 January 2004 as of 31 December 2005 were as follows(in SKK thousand):DescriptionMaturityTotal amount oflease paymentsover the expectedlease termFinance leasepaymentsmade as of31.12.2006Future paymentsdue within 1 yearas at 31.12.2006Future paymentsdue over 1 yearas at 31.12.2006TATRA LEASING, s.r.o.Freight wagons 3/2009 568,178 346,866 75,452 145,860CF Danube Leasing, s.r.o.Information technology 3/2006 54,650 50,753 3,897 -Total 622,828 397,619 79,349 145,860Operating leaseThe assets leased by the Company under operating lease as of 31 December 2006 used for keeping records of freightwagons (in SKK thousand):DescriptionMaturityTotal amount oflease paymentsover the expectedlease termOperating leasepaymentsmade as of31.12.2006Future paymentsdue within 1 yearas at 31.12.2006Future paymentsdue over 1 yearas at 31.12.2006Operating leaseSoftware andhardware12/2009 316,822 59,404 79,206 178,213Software andhardware01/2010 6,586 1,235 1,646 3,705Total 323,408 60,639 80,852 181,917Assets used without legal titleThe Company has in use a group of intangible non-current assets (appendix 10B of demerger project) according theAct no. 259/2001 Coll. on Železničná spoločnosť Cargo Slovakia, a.s. as successor of Železničná Spoločnosť, a.s. thathad the right of use in form of pledge. This group of assets was not yet eligible for settlement in form of non-monetarycontribution, ŽSR takes certain measures to its gradual settlement according to §6 of the above mentioned act.19. Contingencies and commitmentsThe Company had following contingencies as of 31 December 2006:A former supplier of the Company’s legal predecessors, ŽSR and ŽS, has commenced an action against the Company inrespect of unpaid advance invoices and related penalty interest. Similar actions are being taken by several other parties, towhom the original receivables have been ceased. Management of the Company believes that these actions are unfoundedas the supplier failed to meet the contractual terms and, supported by their legal advisors, believes that the likelihoodof succeeding of these actions is remote. The total amount of contingent liabilities of the Company related to these legalcases is approximately SKK 261,409 thousand.In addition of provision required to address specific breaches of environmental legislation (operating expenses) the Companyrecognises also planned capital expenditures to comply with environmental legislation in amount of SKK 451,450thousand.The Company has contracted capital expenditure of SKK 886,077 thousand.41

2006 Financial Statement20. RevenuesTransport and related revenues(in SKK thousand) 2006 2005Inland transport 2,450,656 2,541,339Transport of goods 1,632,140 1,769,691Wagon deposition 582,956 550,470Wagon rentals 183,707 172,199Haulage fees 51,853 48,979International transport 10,715,642 10,155,516Import 4,638,169 4,473,849Export 4,310,567 4,196,017Transit 1,766,906 1,485,650Other transport related revenues 1,553,706 1,561,878Wagon rentals 1,289,444 1,228,562Border services 196,269 209,177Other 67,993 124,139Total 14,720,004 14,258,733Included in transport and related revenues are amounts invoiced to EXPRESS SLOVAKIA “MEDZINÁRODNÁ PREPRAVA,A.S.” in amount of SKK 2,631,312 thousand and from U.S.Steel Košice, s.r.o. in amount of SKK 2,571,853 thousand.Other revenues(in SKK thousand) 2006 2005Repair and maintenance 1,502,054 1,552,189Performance of tractive vehicles 252,833 -Cleaning - 117,107Property rentals 83,156 69,782Other 135,705 150,147Total 1,973,748 1,889,225CapitalizationSummary of capitalization is stated in the following table:(in SKK thousand) 2006 2005Capitalization of material, goods and services 104,776 46,870Capitalization of low value non-current assets - 5,743Total 104,776 52,613The items recorded within capitalization of material represent the capitalized cost of regeneration of spare parts.42

Other significant operating revenues(in SKK thousand) 2006 2005Release of provision for written-off and ceded receivables 1,927,636 168,747Release of provisions and allowances 688,730 486,318Revenues from sale of material 667,796 424,643Revenues from sale of property, plant and equipment 198,528 139,162Contractual and other fines and penalties 27,421 27,360Other 265,884 89,130Total 3,775,995 1,335,360Revenues from written-off and ceased receivables represent mainly ceased receivables to Factoring SLSP, a.s..Release of provisions contains mainly release of provisions created in previous period, representing border services ofSKK 190,115 thousand, wagon rental fees of SKK 146,947 thousand, penalty for late payment of invoices for usage ofrailway track of SKK 49,033 thousand and energy consumption of SKK 17,146 thousand. Release of allowances relatesto release of allowances for doubtful debts, slow moving and obsolete inventory, assets under construction and unusedproperty, plant and equipment.Revenues from sale of material represent mainly sale of diesel oil to Železničná spoločnosť Slovensko, a.s. in amount ofSKK 437,970 thousand (SKK 351,277 thousand in year 2005), sale of ore, metal waste and unneeded inventory.Revenues from sale of property, plant and equipment include mainly the sale of surplus tractive vehicles and freightwagons.Other operating revenues represent mainly revenues from resale (“vyzisk”) of spare parts amounting to SKK 112,253thousand (SKK 26,031 thousand in year 2005) and received payments for repairable damages of wagons of SKK59,084 thousand (SKK 36,253 thousand in year 2005).43

2006 Financial Statement21. CostsSignificant items of production consumption costs(in SKK thousand) 2006 2005ŽSR network fees 4,979,719 5,122,331Materials (501) 1,116,203 897,461Wagon rentals (RIV) 1,096,945 875,461Traction electricity (502) 1,005,939 1,135,974Repair and maintenance 947,769 1,276,903Traction diesel oil (501) 631,670 551,495Wagon rentals 521,189 437,117Other energy consumption (502) 233,936 233,664Advisory and external IT services 231,360 260,854Border services 219,836 -Rentals - other 149,616 99,007Telecommunication fees 96,241 90,399Wagons lighterage 77,929 68,069Lease costs 69,375 200,499Security services 67,699 66,003Travelling and entertainment (512, 513) 59,771 56,409Trainings 38,267 28,867Medical care 24,070 26,572Cleaning 14,580 218,548Other 235,162 243,160Total 11,817,276 11,888,793Repair and maintenance represents the cost of repair and maintenance of own and rented assets in amount of SKK591,444 thousand (SKK 692,880 thousand in year 2005) and repair and maintenance of debtors’ assets made in formof subcontracts amounting to SKK 356,325 thousand (SKK 584,023 thousand in year 2005).Wagons rentals (RIV) and border services include also cost related to previous period in amount of SKK 147,006 thousand(SKK 200,454 thousand in year 2005) for which an accrual was created.44

Other significant items of operating costs(in SKK thousand) 2006 2005Cost of ceased and written-off receivables 1,964,463 198,140Creation of provisions 1,720,307 513,511Depreciation of non-current tangible and intangible assets 1,417,205 832,451Creation of allowances 792,837 263,403Material sold 566,390 418,747Residual value of sold non-current tangible and intangible assets 135,631 50,690Contractual and other fines and penalties for late payments 130,121 33,879Damages 42,985 46,339Taxes and fees 26,077 14,648Other 40,488 14,066Total 6,836,504 2,385,874Cost of ceased and written-off receivables relates mainly to ceased receivables to Factoring SLSP, a.s. in amount of SKK1,927,589 thousand.Creation of provisions relates especially to environmental costs, employee benefits according to collective agreementand legal claims.The Company accounted on account of legal provisions for accrual for border services of SKK 135,905 thousand, as themutual confirmation of outstanding balances with foreign railways was not performed until the date of these financialstatements issue. In the same way the Company accounted for wagon rentals (RIV) in amount of SKK 105,000 thousandand other wagons rentals of SKK 17,880 thousand.Creation of allowances represents mainly allowance for not used non-current tangible assets, doubtful debts and slowmoving and obsolete inventory in amount of SKK 577,349 thousand, SKK 119,491 thousand and SKK 95,997 thousand,respectively.Contractual and other fines and penalties for late payments relates mainly to penalty interest to ŽDC of SKK 73,734thousand, to energy supply of SKK 27,807 thousand and to IT services of SKK 9,576 thousand.Personnel costs(in SKK thousand)StaffBoard of Directorsmembers2006 2005StaffBoard of DirectorsmembersWages and salaries 2,672,845 2,624 2,659,879 2,604Social security cost andhealth insurance981,737 - 975,162 -Social cost 202,770 - 242,343 -Total 3,857,352 2,624 3,877,384 2,604An average number of employees as of 31 December 2006 and 31 December 2005 was 11,489 and 12,104, respectively,thereof members of management represent 5 employees and average salary for the year 2006 and 2005 amountedto SKK 19,388 and SKK 18,305, respectively.45

2006 Financial Statement22. Financial revenues and costs(in SKK thousand) 2006 2005Financial revenuesRevenues from sale of financial assets - 48,454Interest income 3,715 2,370Foreign exchange gains 427,421 201,797Revenues from derivatives 278,530 292,638Other 781 65,019Total 710,447 610,278(in SKK thousand) 2006 2005Financial costsCosts of sold financial assets - 48,454Interest expenses 397,496 356,656Foreign exchange losses 266,080 173,687Cost from derivatives 76,589 98,359Other 29,082 30,197Total 769,247 707,353Foreign exchange losses and gains(in SKK thousand) 2006 2005Gains 427,421 201,797Thereof from recalculation as of 31 December 40,862 34,070Losses 266,080 173,687Thereof from recalculation as of 31 December 60,885 34,41146

23. Related party disclosureRelated parties of the Company have been identified as all companies under common ownership (meaning underthe control of the State) and the Board of Directors. Following table shows the total amount of transactions realizedwith related parties during year 2006 (in SKK thousand):Related partySales to relatedpartiesPurchases fromrelated partiesReceivables fromrelated partiesPayables torelated partiesŽeleznice Slovenskej Republiky (ŽSR) 104,561 6,606,649 51,997 527,394Železničná Spoločnosť Slovensko, a.s.(ZSSK)2,201,379 47,793 417,019 9,174Slovenský plynárenský priemysel (SPP,a.s.)230 97,394 274 9,438Other related parties 151 16,406 8 2,428Following table shows the total amount of transactions realized with related parties during the year 2005(in SKK thousand):Related partySalesto relatedpartiesPurchasesfrom relatedpartiesReceivablesfrom relatedpartiesPayablesto relatedpartiesŽeleznice Slovenskej Republiky (ŽSR) 79,350 6,681,938 68,141 1,437,420Železničná Spoločnosť Slovensko, a.s.(ZSSK)2,187,203 7,858 252,056 942Slovenský plynárenský priemysel (SPP,a.s.)- 77,826 - 21,293Other related parties - 41,040 - 11,282The Company’s major contractual relationships with ŽSR and ZSSK are for fixed one year periods and are subject to anannual renewal process. Purchases from ŽSR represent mainly network fees and purchase of traction unidirectional andalternating electricity. Sales to ŽSR include realized transport services. Sales to ZSSK represent mainly repairs, reconstructionsand renovations of passenger wagons and tractive vehicles and sales of diesel oil.Purchases from SPP, a.s. represent gas supplies.Transactions with other related parties include mainly transactions with waterworks companies.Bonuses paid to members of Board of Directors and Supervisory Board for their activities amounted to SKK 2,625 thousandand SKK 2,604 thousand as of 31 December 2006.47

2006 Financial Statement24. Subsequent eventsThere were no such events after 31 December 2006 that would have material effect on a fair presentation of the mattersdisclosed in these financial statements.25. Income statement with adjustement of year 2005Denotation TextBalancev tis. SkLine CurrentAdjusted directlyDirectly precedingNo. accountingprecedingaccounting periodperiodaccounting perioda b c 1 2 3I. Revenues from merchandise (604) 1A. Cost of merchandise sold (504) 2+ Trade margin l. 01-02 3II. Production revenue l. 05 +l. 06+l. 07 4 16,798,528 16,200,571 16,200,571II. 1.Revenues from own products and services(601, 602)5 16,693,752 16,147,958 16,147,9582.Change in own production inventory (+/- acc.group 61)63. Capitalization (acc. group 62) 7 104,776 52,613 52,613B. Production consumption l. 09+10 8 11,817,275 11,888,793 11,888,793B. 1.Material and energy consumption and otherunstorable supplies (501, 502, 503)9 3,004,852 2,818,594 2,818,594B. 2. Services (acc. group 51) 10 8,812,423 9,070,199 9,070,199+ Gross profit l. 03 +l. 04 –l. 08 11 4,981,253 4,311,778 4,311,778C. Personnel expenses (lines 13 to 16) 12 3,859,976 3,879,988 3,879,988C. 1. Wages and salaries (521, 522) 13 2,672,845 2,659,879 2,659,879C. 2. Remuneration of board members (523) 14 2,624 2,604 2,604C. 3. Social security expenses (524, 525, 526) 15 981,737 975,162 975,162C. 4. Social cost (527, 528) 16 202,770 242,343 242,343D. Taxes and fees (acc. group 53) 17 23,902 14,648 14,648E.III.F.IV.Depreciation expense of intangible andtangible non-current assets (551)Revenues from sale of non-current assets andmaterial (641, 642)Net book value of sold non-current assets andmaterial (541, 542)Accounting for provisions and accruedproduction revenues (652, 654, 655)18 1,417,205 832,451 1,093,14119 866,324 563,805 563,80520 702,020 469,437 469,43721 487,622 486,318 486,31848

Denotation Text LineNo.G.V.H.VI.CurrentaccountingperiodDirectly precedingaccounting periodBalanceAdjusted directlyprecedingaccounting perioda b c 1 2 3Additions to provisions and deferred productionexpenses (552, 554, 555)Accounting for allowances to productionrevenues (657, 658, 659)Creation of allowances in operating costs (557,558, 559)Sundry operating revenues(644, 645, 646, 648)22 1,714,264 513,511 513,51123 201,109 359 35924 792,837 263,403 263,40325 2,220,941 284,878 284,878I.Sundry operating expenses(543 to 546, 548, 549)26 2,184,102 292,424 292,424VII. Transfer of operating revenues (-) (697) 27J. Transfer of operating expenses (-) (597) 28*Operating profit or loss l. 11-12-17-18+19-20+21-22+23-24+25-26+(-27)-(-28)29 (1,937,057) (618,724) (879,414)VIII.Revenues from sale of shares and ownershipinterests (661)30 48,454 48,454K. Shares and ownership interests sold (561) 31 48,454 48,454IX.IX. 1.2.3.Revenues from financial investments l. 33+l. 34 +l. 35Revenues from shares and ownership interestsin controlled entities and associates (665A)Revenues from other investment shares andownership interests (665A)Revenues from other financial investments(665A)X.Revenues from short-term financial assets(666)36L. Cost of short-term financial assets (566) 37XI.Revenues from revaluation of shares andrevenues from derivative options (664, 667)32333435(in SKK thousand)38 278,530 292,638 292,638M.Cost of revaluation of shares and cost ofderivative options (564, 567)39 76,589 98,359 98,359XII. Interest income (662) 40 3,715 2,370 2,370N. Interest expense (562) 41 397,496 356,655 356,655XIII. Foreign exchange gains (663) 42 427,421 201,797 201,797O. Foreign exchange losses (563) 43 266,080 173,687 173,687XIV. Other financial income (668) 44 781 65,019 65,019P. Other financial expense (568, 569) 45 29,082 30,198 30,19849

2006 Financial StatementDenotation Text LineNo.XV.Q.XVI.CurrentaccountingperiodDirectly precedingaccounting periodBalanceAdjusted directlyprecedingaccounting perioda b c 1 2 3Release and use of provisions from financialoperations (674)Creation of provisions for financial operations(574)Accounting for allowances to financialrevenues (679)R.Creation of allowances for financial operations(579)49XVII. Transfer of financial revenues (-) (698) 50S. Transfer of financial expenses (-) (598) 51*Profit or loss from financial activities l.30-31+32+36-37+38-39+40-41+42-43+44-45+46-47+48-49+(-50)-(-51)T. Income tax on ordinary income l. 54 +l. 55 53 2,175T.1. - current (591, 595) 54 2,1752. - deferred (+/- 592) 55**Profit or loss from ordinary income l. 29 +l.52 –l. 5346474852 (58,800) (97,075) (97,075)56 (1,998,032) (715,799) (976,489)XVIII. Extraordinary income (acc. group 68) 57 8,438 8,438U. Extraordinary expense (acc. group 58) 58 5,673 5,673V.Income tax on extraordinary income l. 60+l. 61V.1. - current (593) 602. - deferred (+/- 594) 61*Z.***Profit or loss from extraordinary income l.57-l. 58 –l. 59Transfer of share on profit or loss to partners(+/- 596)Profit or loss for the accounting period (+/-)l.56 +l.62 -l.635962 2,765 2,76563(in SKK thousand)64 (1,998,032) (713,034) (973,724)The accompanying income statement contains in column C2 (directly preceding accounting period) in line 18, depreciation,incorrect item in amount of SKK 832,451 thousand due to unrecorded depreciation resulted from shorteningthe useful life of rolling stock. This amount was presented in the financial statements for the year ended 31 December2005 on which the independent auditor’s report for the shareholder of Železničná spoločnosť Cargo Slovakia, a.s.was issued.Column C3 contains the information on costs and revenues for the year 2005, if the Company had recorded additionaldepreciation in amount of SKK 260,690 thousand to line 18, depreciation. Additional depreciation have arisen dueto the shortened economic useful life of railway vehicles. This caused the change in column C3 towards column C2in lines 18, 29, 62 and 70.If the Company adjusted the depreciation according to the auditor’s report, the result for the year ended 31 December2005 would change from loss SKK (713,034) thousand to loss SKK (973,724) thousand. The data presented incolumn C3 are correct and presentable data for the year ended 31 December 2005.50

26. Cash fl ow statementCash flow statement as at 31 December 2006 was prepared under the indirect method.(in SKK thousand)Denotation Text Accounting perioda b c current previousZ/S Profit or loss from ordinary income before income taxes (1,995,857) (715,799)A.1. Non-cash transactions influencing the operating profit or loss 3,553,295 1,077,836A.1.1. Depreciation of non-current intangible and tangible assets 1,417,205 820,822A.1.2.Net book value of disposed non-current intangible and tangible assets(except sale disposals)11,629A.1.3. Depreciation of adjustments to assets acquiredA.1.4. Change in long-term reserves 1,228,020 (30,634)A.1.5. Change in provisions to assets 592,287 262,827A.1.6. Change in prepayments and accruals (12,926) 1,891A.1.7. Dividends and other shares on profit recorded in revenuesA.1.8. Interest expense 397,496 455,015A.1.9. Interest revenues (3,715) (295,007)A.1.10.A.1.11.Foreign exchange gains from cash and cash equivalents at the balancesheet dateForeign exchange losses from cash and cash equivalents at the balancesheet dateA.1.12.Net result on disposal of non-current assets, except assets considered ascash equivalents(62,897) (88,472)A.1.13. Other non-cash items (2,175) (214,190)A.1.14.Costs from usage of assets which are the scope of agreement of futurepurchase153 955A.2. Change in working capital balance (1,803,682) (40,163)A.2.1. Change in accounts receivable balance from operating activities (507,496) (98,632)A.2.2. Change in accounts payables balance from operating activities (1 167,354) 56,515A.2.3. Change in inventories balance (128,832) 1,954A.2.4.Change in short-term financial assets balance except assets which are partof cash equivalentsA.3. Interest received except that included in investment activities 3,715 2,369A.4. Interest paid, except those included in financial activities (397,496) (352,861)A.5.Dividends and other shares of profit received, except those included ininvestment activitiesA.6.Dividends and shares of profit paid, except those included in financialactivitiesA.7. Income tax paid, except those included in investment or financial activitiesA.8. Extraordinary proceeds relating to operating activitiesA.9. Extraordinary payments relating to operating activitiesA. Net cash flow from operating activities 1,355,832 687,181B.1. Acquisition of non-current intangible assets (239,900) (53,549)51

2006 Financial StatementDenotation Text Accounting perioda b c current previousB.2. Acquisition of non-current tangible assets (647,984) (1,091,135)B.3. Acquisition of investments in other accounting entitiesB.4. Proceeds from the sale of non-current intangible assetsB.5. Proceeds from the sale of non-current tangible assets 198,528 133,516B.6. Proceeds from the sale of investments in other accounting entities 48,458B.7.Long-term loans and borrowings provided to other accounting entitieswithin the groupB.8.Proceeds from repayments of long-term loans and borrowings provided toother accounting entity within the groupB.9. Repayment of long-term loans and borrowings to third partiesB.10.Proceeds from repayments of long-term loans and borrowings provided tothird partiesB.11.Proceeds from leasing of a group of movable and immovable assets usedand depreciated by the lesseeB.12. Interest received, except that included in operating activitiesB.13.Proceeds from dividends and other shares of profit, except those includedin investment activitiesB.14. Payments relating to derivatives, except those intended for sale or tradingB.15. Receipts relating to derivatives, except those intended for sale or tradingB.16. Income tax paid if it can be included in investment activitiesB.17. Extraordinary proceeds relating to investment activitiesB.18. Extraordinary payments relating to investment activitiesB.19. Other proceeds relating to investment activitiesB.20. Other payments relating to investment activitiesB. Net cash flow from investing activities (689,356) (962,710)C.1. Cash flow relating to equity 225,116C.1.1. Proceeds from the subscription of sharesC.1.2. Proceeds from other contributions to equity by partners or physical persons 225,116C.1.3. Monetary gifts receivedC.1.4. Proceeds from the compensation of loss by partnersC.1.5 Acquisition or repurchase of own sharesC.1.6. Decrease of funds created by the accounting entityC.1.7. Payment of shares on equity by partners and physical personsC.1.8. Other payments relating to the decrease of equityC.2.Cash flow arising from long-term and short-term liabilities from financialactivitiesC.2.1. Proceeds from long-term securities issued(in SKK thousand)937,742 488,32052

Denotation Text Accounting perioda b c current previousC.2.2. Repayment of liabilities arising from long-term securitiesC.2.3.Proceeds from loans from banks, except loans provided for main businessactivities(10,418,979) 1,020,000C.2.4. Repayment of loans, except loans provided for main business activities 11,788,348 (618,627)C.2.5. Proceeds from borrowings received 620,213C.2.6. Repayment of borrowings (431,627) (392,231)C.2.7.C.2.8.C.2.9.Repayment of liabilities from using assets that are the subject of a leasedassets purchase contractRepayment of liabilities from leasing of a group of assets used anddepreciated by the lesseeProceeds from other long-term and short-term liabilities arising fromfinancial activitiesC.2.10.Repayment of other long-term and short-term liabilities arising fromfinancial activitiesC.3. Interest paid, except those when included in operating activitiesC.4.C.5.Dividends and shares of profit paid, except those included in operatingactivitiesPayments relating to derivatives, except when intended for sale of tradingor investment activities(in SKK thousand)(141,035)(76,589) (98,359)C.6.Proceeds relating to derivatives, except when intended for sale of trading orinvestment activities278,530 251,696C.7. Income tax paid if it can be included in financial activitiesC.8. Extraordinary proceeds to financial activitiesC.9. Extraordinary payments relating to financial activitiesC. Net cash flow from financing activities 1,139,683 866,773D. Net increase or decrease of cash and cash equivalents (189,698) (124,555)E. Cash and cash equivalents at the beginning of the accounting period (124,555)F. Cash and cash equivalents at the end of the accounting period (314,253) (124,555)G.Foreign exchange differences from cash and cash equivalents at thebalance sheet dateH. Balance of cash and cash equivalents at the end of the accounting period (314,253) (124,555)53

Actual Organization StructureGeneral AssemblySupervisory BoardBoard of DirectorsInternal AuditCEO and Chairman of the Boardof DirectorsHead of CEO officeLegal servicesDepartmentInspection andcrises managementDepartmentStrategy DepartmentFinancial planning andanalyses DepartmentHuman resourcesmanagementDepartmentFinancial managementDepartmentCrises managementUnitControlling UnitHR services SectionCash-flowmanagementUnitProject managemetoffice andbusinessanalyses UnitSecurity and healthprotection UnitRail clearingcentre SectionInput and internationaltransportation pricecalculation UnitInternationaltransportationclaiming UnitTrade DivisionMarketing SectionTrade development andproduct portfolio UnitSales SectionCustomer servicesSectionTrade support UnitGuidelinesand tariff rates UnitIntermodaltransportationSectionOperation DivisionRailway transportsecurity UnitSection of technical andtechnologicalpreparationof operationsStrategy and technicalinvestments developmentoperations UnitOperations planningUnitOperations efficiencyanalyses UnitOperations andtransportationSectionTransportationdispatching UnitTransportation UnitTransport executionSectionServices DivisionAccounting taxes andreporting SectionTaxes methodology,accounting and reportingUnitFacility managementSectionEfficiency facility UnitFacility management andinvestments UnitLogistics SectionManagement of logisticnetwork UnitAcquisitionof services UnitAcquisitionof commodities UnitFleet of vehicles UnitRolling stockservicesDivisionMaintenance andrepairstrade SectionMarketing onmaintenancenand repairsof rolling stock UnitTrade on maintenanceand repairs of rollingstock UnitRolling stockmaintenanceand repairs SectionManagement on maintenanceand repairs of rollingstock UnitTechnical and technologicalsafety on infrastructureof maintenance and repairs UnitTechnical developmentand administration ofrolling stock SectionUnit for modernisationand reconstructionof rolling stockDomestic transportationinput control UnitInternational transportationaccounting UnitTransportation accountingand clearing UnitControl andmethodology UnitTraction managementUnitPower stations UnitUnit for administrationof rolling stockTechnical operationsof waggon managementUnitICT SectionEast SlovakTransshipmentSectionIT Projects UnitTechnologicaltransahipment UnitICT services UnitTechnical-technologicaltransshipment infrastructureUnit54

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