MOTOR SICH PJSC

2009 MOTOR SICH annual report

ANNUAL REPORT 2009 MOTOR SICH annual report 2009

CONTENTS

BASIC DATA ABOUT COMPANY MANAGEMENT BODIES OF JSC “MOTOR SICH” Information About Company ...... 5 Corporate Management ...... 29 Information About Registrar ...... 5 Board of Directors ...... 30 Quantity and Structure of Shareholders ...... 5 Supervisory Board ...... 33 Internal Audit Commission ...... 36 Acquiring banks ...... 6 Information About Statutory Capital ...... 8 FOREIGN ECONOMIC ACTIVITY Strategy of Company ...... 8 Business Strategy ...... 39 Priority Activities of Company ...... 9 Mission of Company ...... 10 PRODUCTION ACTIVITY Specialization ...... 10 Main Aspects of Production and Financial Activity ...... 45 Positioning in Industry ...... 11 Production Activity ...... 46 Certification ...... 13 Advanced Technologies ...... 48 Securities of JSC “Motor Sich” ...... 15 Service Maintenance ...... 50 Structure of Company ...... 16 Capital Construction ...... 51 Air Company ...... 18 Prospects for 2010 ...... 52 Subsidiary Companies ...... 19 FINANCIAL AND ECONOMIC ACTIVITY . . . . . 55

MAIN RISK FACTORS PERSONNEL POLICY Industry Risks ...... 21 Labour and Wages ...... 57 Financial Risks ...... 24 Legal Risks ...... 25 SOCIAL SPHERE ...... 61

FINANCIAL REPORT INVESTMENT ACTIVITIES Balance ...... 63 Trend Analysis of Stock Value ...... 27 Report on Financial Results ...... 64 Preproduction Activities ...... 27 Main Aspects of Accounting Policy ...... 65 Involvement of Budget and Credit Funds . . . . 27 Notes to Financial Report ...... 66

MOTOR SICH annual report 3 2009

Motor Sich PJSC is one of the leading aircraft engine- We are always open to all enterprises and organizations building factories of the world in the field of develop- ready to extend their relations for mutually-beneficial and ment, production, testing, in-service support and promising cooperation in the field of development, man- overhauling of modern aircraft engines. ufacturing and operation of aviation equipment. The factory products are used in versatile airplanes and helicopters in more than 120 countries worldwide. All products offered by the company to the world market possess high functional characteristics and are produced by means of certified production facilities. V.A. Boguslayev Modern technologies developed and incorporated at Motor Chairman of the Board of Directors Sich PJSC, new engineering and technological solutions, Motor Sich PJSC well-developed scientific and technical infrastructure and highly qualified personnel establish the basis of success and continuous development of Motor Sich PJSC. Efficient system of the delivered products servicing allows rendering highly competitive services in maintenance of engines practically in any part of the globe. BASIC DATA ABOUT COMPANY MOTOR SICH annual report 5 2009

Information About Company Information About State Short title: Motor Sich PJSC Registration Full title: Motor Sich Public Joint-Stock Company Company Code 14307794 Legal address: 15 Motorostroiteley Avenue, Certificate Series and No. – А00 207866. Zaporozhye 69068, Ukraine Record No. – 1 103 107 0031 005089. Phone: (380 61) 720-48-14 Registration place – the Executive Committee of Fax: (380 61) 720-50-00 Zaporozhye City Council. E-mail: [email protected] Date of registration – 25.05.1994. Web page: www.motorsich.com

Quantity and Structure of Shareholders as of 31.12.2009 Owners of shares Q-ty of entities Share in Statutory Capital Q-ty of shares pc. (Shareholders) (persons) of MOTOR SICH PJSC (%) Legal entities 26 3 515 0,17 Natural persons 9 145 466 881 22,47 Nominee shareholders * 4 1 509 996 72,70 Emitter 97 598 4,70 State 0 0,00 Total 2 077 990 100,00

* Nominee shareholders are not owners of securities

As of 01.02.2010 (registration date – date of opening the register for mailing Notifications to the shareholders about holding the general meeting of shareholders on 25.03.2010) shareholders of the company are natural persons and legal entities, including: natural persons – 9 320 shareholders; legal entities – 210 shareholders. Holders of More Than 10% Share of Statutory Capital Title Total nominal value, Share in Statutory Q-ty, pc. (Full name for natural persons) UAH Capital, % Vyacheslav Alexandrovich Boguslayev 311 421 42 041 835,00 14,99 Information About Registrar Information About Auditor Records on the right of ownership of securities of Reliability and completeness of financial reports of MOTOR SICH PJSC are kept by an independent regis- MOTOR SICH PJSC for 2009 is confirmed by an auditing trar – Sich-Register Ltd. (Enterprise Code 30801610). company ZaporozhAudit-Consult CJSC (Enterprise Code Location: 21 Omelchenko Street, Zaporozhye 69068, 13625523) according to Agreement No 3/2/2140/08 – Д Zaporozhye region. (general accounting) dated 27.02.2008. Operating license – АВ No. 115244 dated 14.06.2006. Location of auditing company: 6 Tikhy Pereulok Street, Phone: 7204863, Fax: 2139764. Zaporozhye.Date of state registration of ZaporozhAudit- Web-page: www.s-reestr.com.ua Consult JSC – 21.01.1994; E-mail: [email protected]. Enterprise code – 1 103 120 0000 012930. Certificate of Auditing chamber No. 0057, dated 26.01.2001, about registration as a subject of auditing activity. Validity term of Certificate is extended till December 15, 2010. MOTOR SICH 6 annual report 2009

SERVICING BANKS

List of current accounts of Motor Sich PJSC FULL TITLE OF BANKING DATE OF ACCOUNT NAME NUMBER INSTITUTION, MFO OPENING

Branch of FUIB PJSC Current (main) - (980 - UAH) No. 26000976712139 23.11.99 MFO 313623 69035 Zaporozhye Currency - (643 - Rus. Rub.) No. 26000976712139 29.11.99 57, 40 Let Sovetskoy Ukrainy Street Enterprise Code – 20513546 Currency - (840 - USA dollars) No. 26000976712139 23.11.00

Currency - (978 - Euro) No. 26000976712139 15.09.00

Donetsk Branch of Current - (980 - UAH) No. 26007198002341 29.04.98 Creditprombank OJSC MFO 335593 Currency - (643 - Rus. Rub.) No. 26003181002341 29.04.98 83062 Donetsk 113, I. Tkachenko Street Currency - (840 - USA dollars) No. 26000184002341 29.04.98 Enterprise Code - 25098916 Currency - (978 - Euro) No. 26004197802341 21.04.99

Zaporozhye Branch of Current - (980 - UAH) No. 26004099800012 01.02.05 Creditprombank OJSC MFO 373135 Currency - (840 - USA dollars) No. 26007098400012 01.02.05 69005 Zaporozhye 5 Gagarina Str., office 106 Currency -(978 - Euro) No. 26005099780012 24.03.05 Enterprise Code – 33151845 Currency - (643 - Rus. Rub.) No. 26002096430012 21.03.06

State credit-import bank of Current - (980 - UAH) No. 260090175838 14.02.02 Ukraine PJSC MFO 313979 Currency - (643 - Rus. Rub.) No. 260090175838 11.01.05 69063 Zaporozhye Enterprise Code – 24905013 Currency - (840 - USA dollars) No. 260090175838 11.01.05

Currency -(978 - Euro) No. 260090175838 11.01.05

Central Department of Current - (980 - UAH) No. 26006450001000 26.09.03 Dongorbank CJSC MFO 334970 01021 Kiev Currency - (643 - Rus. Rub.) No. 26003450001003 26.09.03 5 Klovsky Spusk Street Enterprise Code – 20365318 Currency - (840 - USA dollars) No. 26005450001001 26.09.03

OTP Bank PJSC Current - (980 - UAH) No. 26006001301191 24.09.03 MFO 300528 69063 Zaporozhye Currency - (643 - Rus. Rub.) No. 26006001301191 24.09.03 66 Lenin Avenue Enterprise Code – 21685166 Currency - (840 - USA dollars) No. 26006001301191 24.09.03

Currency - (978 - Euro) No. 26006001301191 24.09.03 MOTOR SICH annual report 7 2009

FULL TITLE OF BANKING DATE OF ACCOUNT NAME NUMBER INSTITUTION, MFO OPENING Rodovid Bank OJSC Current - (980 - UAH) No. 260056640 26.05.04 MFO 471717 04136 Kiev Currency - (840 - USA dollars) No. 260056640 26.05.04 Enterprise Code -14349442 Currency - (643 - Rus. Rub.) No. 260056640 01.10.04

UkrSibbank JSC Current - (980 - UAH) No. 26003044619000 19.06.06 MFO 351005 61050 Kharkiv Currency - (643 - Rus. Rub.) No. 26000044619003 19.06.06 60 Moskovsky Avenue Currency - (840 - USA dollars) No. 26002044619001 19.06.06 Enterprise Code – 09807750 Currency - (978 - Euro) No. 26001044619002 19.06.06

Zaporozhye Branch of Current - (980 - UAH) No. 26006301001537 VTB Bank OJSC 11.10.07 69001 Zaporozhye Currency - (840 - USA dollars) No. 26006301001537 11.10.07 35А Pobedy Street Enterprise Code – 25970260 Currency - (643 - Rus. Rub.) No. 26006301001537 11.10.07

Ukrainian Bank for Reconstruction and Development OJSC MFO 380883 Current - (980 - UAH) No. 260050011066 24.10.07 04080 Kiev 4 Alexey Terehin Street Enterprise Code – 26520688 MOTOR-BANK OJSC Current - (980 - UAH) No. 26006001000017 17.01.08 MFO 313009 69068 Zaporozhye Currency - (643 - Rus. Rub.) No. 26006001000017 17.01.08 54-b 8 March Street Currency - (840 - USA dollars) No. 26006001000017 17.01.08 Enterprise Code – 35345213 Currency - (978 - Euro) No. 26006001000017 03.07.08

BROKBUSINESSBANK PJSC Current - (980 - UAH) No. 260075025801 03.12.08 MFO 373254 69005 Zaporozhye Currency - (643 - Rus. Rub.) No. 260075025801 03.12.08 5 Gagarina Street, office 107 Enterprise Code – 34540988 Currency - (840 - USA dollars) No. 260075025801 03.12.08 Currency - (978 - Euro) No. 260075025801 03.12.08

Swedbank PJSC Current - (980 - UAH) No. 26008003842801 04.02.09 MFO 300164 69091 Zaporozhye Currency - (643 - Rus. Rub.) No. 26008003842801 04.02.09 52 А Pobedy Street Currency - (840 - USA dollars) No. 26008003842801 04.02.09 Enterprise Code – 19356840 Currency - (978 - Euro) No. 26008003842801 04.02.09

Credit Dnepr Bank PJSC Current - (980 - UAH) MFO 305749 No. 2600430373402 19.10.09 69035 Zaporozhye 153 Lenin Avenue, Office 89 Currency - (840 - USA dollars) No. 2600430373402 19.10.09 Enterprise Code – 14352406 MOTOR SICH 8 annual report 2009

INFORMATION ABOUT STATUTORY CAPITAL

The statutory capital of MOTOR SICH PJSC is UAH 280 528 650 (Two hundred and eighty million, five hun- dred and twenty-eight thousand, six hundred and fifty), and is separated into 2 077 990 (Two million, seventy-seven thousand, nine hundred and ninety) simple registered shares. Nominal value of each share is UAH 135 (One hundred and thirty-five). The amount of statutory capital of MOTOR SICH PJSC did not change during the last three years. STRATEGY OF COMPANY

Strategy of MOTOR SICH PJSC is directed to: ■ increase volume of realized products ■ expand product markets ■ promote products to the world markets ■ develop perspective products ■ receive maximal profit ■ preserve labour collective.

For that purpose MOTOR SICH PJSC:

■ develops progressive research and engineering, process design solutions, and intorduces them into production;

■ strengthens and develops cooperation with developers and partners;

■ develops and introduces joint programs, supported by intergovernmental agreements with the Russian Federation: joint production of An-140 airplane in Kharkov and Samara, An-148 in Kiev and Voronezh, Be-200 in Taganrog, renewal of production of An-124 “Ruslan” airplane in Ulyanovsk;

■ participates in joint projects on creation and mod- ernization of civil and military helicopters Mi-28, Mi-17, Ka-50, Ka-52, Ka-32 with engines series TV3-117, VK-2500, TV3-117VMA-SBM1V, helicopter Mi-26 with Ukrainian engines D-136 having the greatest carrying capacity, Mi-2 helicopter with MC-500V engines;

■ co-operates with Ukrainian and Russian aviation firms and research centers in the sphere of aviation engine- building. MOTOR SICH annual report 9 2009

PRIORITY ACTIVITIES OF COMPANY

Business strategy of MOTOR SICH PJSC is directed to increase in Along with manufacture of aviation equipment, in order the volume of realized products, expansion of sales markets, to increase production volume, Company has mastered active promotion of products to the world markets, receipt of manufacture of gas-turbine drives of different power, maximal profit, introduction of new perspective goods into gas-pumping units, mobile power stations, as well as wide production. range of consumer goods. MOTOR SICH PJSC has effective corporate strategy, which In order to hold positions at the aviation engine-building primary purposes and tasks are as follows: market, systematic work is required on improvement of ■ to keep up high-attractive image of legal entity with effec- quality and characteristics of manufactured products, tive control system. as well as development of new engines and modifica- ■ to diversify sales markets, expand geography of its tions which conform to the growing requirements of presence and retain steady share of engine-building customers. market. ■ to provide contractors with complete set of high-quality MOTOR SICH PJSC constantly introduces new perspective aftersales services and repairing of aviation engines. types of aviation engines into production. Priority activity ■ to provide effective system of financial calculations with of Company at the present time is to develop production contractors for planned reduction of specific debts of engines: receivable, to introduce quality control system at all pro- ■ D-436-148 and AI-450-МS – dual-flow turbojet duction and realization stages for minimization of engines and auxiliary power units for the newest financial losses of Company. regional airplanes An-148; ■ to realze aggressive marketing policy at the required ■ AI-25TLK(TLSh) – dual-flow turbojet engine success- level of profitability taking into account characteristic fully operating in the training airplanes L-39 and K-8J; features of each sales region, to provide further devel- ■ TV3-117VMA-SBM1V – turboshaft engine designed for opment of extensive network of service maintenance by Mi-28N, Ka-52, Ka-28/29 helicopters, as well as for skilled personnel. modernization of Mi-17, Mi-24, Mi-28, Ka-32, Ka-50 ■ to realze strategy of advanced development of new helicopters. The engine meets the world level of tur- modern hi-tech and competitive types of goods on the boshaft engines. Its application in helicopters instead of basis of perspective development plans. TV3-117 engines allows to improve flying characteristics ■ to provide effective management of human resources; of aircrafts; permanent improvement of organizational structure; ■ AI-222-25 – dual-flow turbojet engine optimized for formation of personnel policy directed to achievement operation in modern training airplanes Yak-130, as well of economic success, by providing Company with as AI-222К-25F engine for a new Chinese training competent employees interested in the end result of airplane/training-combat airplane L-15; their labour. ■ AI-450 – turboshaft engine, which is one of the greatest expectations of Company. Series of these engines with power from 450 up to 600 h.p. can be used not only in helicopters Ka-226 and “ANSAT”, but also in pilotless aircrafts. By its technical, eco- nomical and ecological characteristics this engine is one of the best in its class.

In addition, specialists of Company are now designing and manufacturing prototype models, refining design and introducing into serial production several perspective engines, such as MS-14, MS-500V. MOTOR SICH 10 annual report 2009

MISSION OF COMPANY

We work to be the best company of aviation industry in We enforce harmonious combination of interests of all aspects of activity: customers, employees, shareholders and Company. We try to satisfy consumers of our products and services ■ in satisfaction of consumer demands – providing at the account of: consumer with the best products; ■ high qualification of employees, permanent increase of ■ in influence upon society – Company’s activity their professionalism; recognized as socially usefull by society; ■ rightful, active and harmonious cooperation of all ■ in business – providing growth of income and profits of interested persons and Company; our shareholders; ■ ambition to be an influential participant of the market, ■ in provision of working conditions and living stan- building mutual relations on principles of amicability dards of personnel – people should know that they and mutual respect, reliability and openness, ethics, are important for Company, which appreciates and honest and open fulfillment of their duties. takes care about them.

SPECIALIZATION

Development and production of gas turbine engine for military and civil aviation, industrial units and power generating plants, consumer goods. MOTOR SICH annual report 11 2009

POSITIONING IN INDUSTRY

MOTOR SICH PJSC is a specialized enterprise, which basic products are gas turbine engines for civil and mil- itary aviation, as well as created on their base industrial gas turbine drives for power and gas-pumping stations. Tens of thousands of engines produced by MOTOR SICH PJSC are installed in aircrafts of worldwide known firms of Antonov, Ilyushin, Beriev, Tupolev, Yakovlev, Kamov, Mil, Czech «Aero Vodochody» and Chinese NAMC. They operate in civil and military aviation of more than 120 countries of the world. Many engines, manufactured at the enterprise, became world leaders in their class: AI-25TL turbojet engines lift in the sky more than three thousand training airplanes and training-combat airplanes in 40 countries of the world; helicopter engines TV3-117, used in 61 countries of the world in all helicopters of average carrying capac- ity produced in Russia; D-18 engine for “Ruslan” and “Mriya” the highest capacity transport airplanes in the world; D-136 the most powerful engine in the world for helicopters and others. For several years Company invests own capitals into the development of engines of new generation. Russian Federation was and is our leading partner in creation and manufacture of new products. Development of industry, which potential was significantly reduced due to eco- nomic crisis, is possible by means of maintainance and expansion of cooperation, consolidation of efforts and funds with Russian aviation engine-building complex, with remaining in Russia after disintegration of the USSR aviation research centres (TsIAM, TsAGI), developers and manufacturers of aviation materials (VIAM, VILS) and components for aviation engines. MOTOR SICH PJSC is a part of aviation industry com- plex of Ukraine, traditionally deeply integrated with enterprises of aviation industry of Russia. In 2007 SE «Ivchenko-Progress» and MOTOR SICH PJSC have founded «Research and Production Association named after A. Ivchenko», which is able to satisfy main needs of Ukrainian aircraft industry (ANTK “Antonov”, KiGAZ “AVIANT”, KHGAPP), to provide considerable export supplies of engines to Russia, CIS and non-CIS countries, as well as to present wide range of ground gas-turbine plants for the energy market. MOTOR SICH 12 annual report 2009

At the present time production process of MOTOR increase of reliability and operating characteristics SICH PJSC includes: of engines. serial production – improvement and modernization Except for the basic aviation and industrial products, of consumer features of such engines, as D-18T and MOTOR SICH PJSC produces a wide range of consumer its modifications, AI9-3B, TV3-117VMA-SBM1, D-36 goods. of all series, families TV3-117V, D-436T1, D-436TP, D-436-148, AI-450-МS; At the present time MOTOR SICH PJSC has to work in development, preparation of experimental and serial conditions of very hard competition at the aviation production of the following goods: world market. It means that priorities shoud be given to new, perspective products, which are able to compete ■ new modification of AI-25TL – AI-25TLSh engine for with the goods of the leading world companies. modernization of L-39 training asirplanes; Thus, based on the analysis of tendencies for the ■ AI-222 engines for training airplanes and light combat development of the world and domestic aviation airplanes, whch are prepared for production in Russia engine-building, as well as needs of the aviation mar- and China; ket and real economic state of Ukrainian aviation ■ TV3-117VMA-SBM1V engine for a great fleet of “Mi” industry, the following main directions of activity are and “Ka” helicopters all over the world; pointed out: ■ TV3-117VMA-SBM1 engine (series 4) for modernization of Mi-8Т helicopters; ■ to continue works on field service of series-produced ■ engines series MS-14 for modernization of An-2 up to engines, as well as to increase their consumer charac- An-3 airplanes and new T-107 airplane; teristics (reliability, service life, cost effectiveness); ■ turboshaft engine MS-500V for “ANSAT” helicop- ■ to develop and master production of new competitive ters; engines, which have great export potential and cover ■ MS-400, MS-400P, MS-450, MS-200 small engines demand of Ukraine in aviation products; for light aircrafts; ■ gas-turbine drives and power stations for needs of ■ to develop modifications of engines, which are Russia and Ukraine. requested at the market of aviation products, in order to reduce time and money expenses for the develop- Production of industrial gas-turbine drives, created on the ment of products; basis of long-term experience of manufacture and field ■ to develop scientific and technical reserve in order to service of aviation engines, occupies a considerable place provide competitiveness of domestic engines in the in the production program of MOTOR SICH PJSC. This kind near future; of products includes about ten types of drives with power range from 1 to 10 MW. ■ to develop modifications of aviation engines for ground application (oil and gas pumping, power and transport industry); To provide reliable, cost-effective operation of sev- eral thousand engines the Company has organized ■ to develop modifications of gas-turbine power sta- network of service centers and representative offices tions, thermal power complexes and gas pumping all over the world. Having highly skilled specialists, plants; modern instruments and equipment they render wide ■ to expand and deepen integration relations with range of services from diagnostics to repairs at the Russian aviation engine-building complex; place of operation, observing the strictest require- ments to quality of performed works. ■ to expand presence at the international market with primary orientation to the market of CIS and Asian countries. Possessing extensive experience and high technolo- gies, MOTOR SICH PJSC is able to perform high- quality repairs of engines in workshop conditions within short period according to flexible contract terms and conditions. The Company introduces the latest technical achievements, aimed at further MOTOR SICH annual report 13 2009

CERTIFICATION

Certification of quality management system, approval of production and repair organization.

Certification of repairs of aviation equipment and its components was performed by the State Aviation Administration of Ukraine. There was received “Certificate of Technical Maintenance Organization” No. VR 0030.

Certification of repairs of aviation equipment was performed by the Aviation Register of Interstate Aviation Committee (IAC). There was received “Certificate of Repair Organization” No. SPR-11.

Certification of serial production of aviation equipment was performed by the State Aviation Administration of Ukraine. There was received “Production Approval Certificate” No. SV 0004.

Certification of serial production of aviation equipment was performed by the Aviation Register of IAC. There was received “Production Approval Certificate” No. OP01-PD.

There was performed supervisory audit of quality management system according to the State Aviation Objects Certification System (GOSA) by the commission of Certification Centre “Gosavia-certifica” (Russia) regarding overhauling of all types of equipment repaired by the Company. There was received “Certificate of Conformance” SK No. 126.

There was performed supervisory audit of quality man- agement system according to “Military Register” Certification System (Russia) regarding development, production, overhauling and technical maintenance of aviation equipment. There was received “Certificate of Conformance” No. VR 27.1.2516-2009.

Bureau Veritas Certification Company has performed supervisory audit of quality management system regard- ing development, designing, production, overhauling and technical maintenance of aviation engines, gas-turbine drives and mobile gas-turbine power-stations. There was confirmed validity of “Certificate of Conformance” No. 213545. MOTOR SICH 14 annual report 2009

Type Certificates of aviation equipment Type Certificates of ground equipment and consumer products There was received Supplement to Type Certificate of There were received Certificates of Conformance acording AI-450-МS auxiliary power unit No. ST260-VD/D-03 to GOST R system: (Aviation Register of IAC, Moscow) due to increased ■ ROSS UA. MX04.V00108 (Certification Centre engine service life till the 1st capital repairs and service “Quality”, Russia) of gas-turbine drive D-336-1/2, life limit of its main components. D-336-2T, AI-336-2-8, D-336-1/2-E, D-336-2T-E, There was received 3rd edition of “Data sheet” to Type AI-336-2-8-E; Certificate No. TDD 0009 of AI-450-МS engine (the State ■ ROSS UA. MX04. V00113 (Certification Centre “Quality”, Aviation Administration of Ukraine) due to increased Russia) of GTE-8/МS gas-turbine drive;

engine service life till the 1st capital repairs and service life ■ ROSS UA. MX04. V00114 (Certification Centre “Quality”, limit of its main components. Russia) of GTE-6,3/МS gas-turbine drive;

There was received Developer’s Certificate of aviation ■ ROSS UA. MX04. N00246 (Certification Centre equipment No. SR 0009, issued by the State Aviation “Quality”, Russia) of “Motor Sich EG6000T-T10500- Administration of Ukraine, for the right to develop 3VNM1UXL1” gas-turbine power station; AI-450-МS, TV3-117VMA-SBM1V, TV3-117V, units ■ ROSS UA. MЕ22. N00245 (ANO “Certification Centre of TMA-36, TMT-18Т, VMA-218, VMA-309, VMA-317 Electrical Equipment and Power Consumers”, Russia) of engines. “Motor Sich PAES – 2500” gas-turbine power station; There was received Supplement to Type Certificate ■ ROSS UA. MЕ22. N00244 (ANO “Certification Centre of No. ST 267-AMD/D-02 (Aviation Register of IAC) Electrical Equipment and Power Consumers”, Russia) of “Motor of TV3-117VMA-SBM1V engine due to introduction of Sich EG1000T-T400-3UXL1” gas-turbine power station; “continuous takeoff power mode”. ■ ROSS UA. MP092. V01309 of “Motor Sich KPO-60-1” stern drives (Federal State Institution “Russian Maritime There was received 1st edition of “Data sheet” to Type Register of Shipping”). Certificate No. TD 0035 of TV3-117VMA-SBM1V engine (the State Aviation Administration of Ukraine). ■ Type Certificate of Approval No. ODC 0550-0209/2.1 of D-336 and AI-336 gas-turbine drives issued by FE Complete set of documents was translated into “SGS-Ukraine”. English. There was submitted application for validation There were received the following UKRCEPRO Certificates of TV3-117VMA-SBM1V engine in the Aviation of Conformance: Administration of China. ■ No. UA 1.014.0036618-09 of «Motor Sich STsM-80» skimming machine (R&D Centre “Stankocert” Ukraine); ■ No. UA 1.050.0029643-09 of “Motor Sich MB-4,05” motor cultivator (INPOMT, Ukraine). MOTOR SICH annual report 15 2009

SECURITIES OF JSC “MOTOR SICH”

There was registered one emission of MOTOR SICH Shares of MOTOR SICH PJSC are included into «index bas- PJSC securities. Total amount of shares issued by ket» of Ukrainian Trade Index (UТХ) of Vienna Stock MOTOR SICH PJSC is 2 077 990 pcs. 2 077 990 pcs. of Exchange and Russell Global Index. “Russell Global Index” shares were distributed among legal entities and natu- Company has included shares of sixteen Ukrainian com- ral persons in the course of privatization. There were panies into its global index, including shares of ten com- registered two issues of MOTOR SICH PJSC securities. panies, which are “blue chips” of FSTS: Avdeyevsky coking The first isue was cancelled. The second isue was con- plant, Azovsteel, Dneproenergo, Centrenergo, nected with indexation of fixed assets by increasing Yenakiyevsky metallurgical plant, Kievenergo, Motor Sich, nominal value of shares: 1 original share was exchanged Reiffeisen Bank Aval, Ukrnafta and Zapadenergo. for 1 share of the second issue. Russell Global Index has started up in 2007 and includes 10 thousand securities from 70 countries of Issue registration date – 28.03.2001. the world. The fact that securities were included into Issue Registration Certificate No. – 142/1/01. index baskets by leading index agencies means that Body, which has registered issue - world pool of investors has recognized viability of the State Commission of securities and stock market. Ukrainian stock market. Securities code – UA 0800541007. Presently, shares of MOTOR SICH PJSC are one of the Existence and issue form - documentary. most liquid and callable securities at the Ukrainian stock Nominal value (UAH) – 135,00. market. In 2009 total turnover of the Company’s securities Quantity of shares (pcs.) - 2 077 990. at stock exchanges has reached about 297 mln. UAH, Total nominal value (UAH) - 280 528 650,00. including: Share in statutory capital (%) – 100. ■ at Ukrainian Stock Exchange OJSC - about 163 mln. UAH; There was no additional emission of shares in 2009. ■ at FSTS Stock Exchange - about 134 mln. UAH. Presently, shares of MOTOR SICH PJSC have passed In 2009 MOTOR SICH PJSC has not effected emissions listing and are actively traded at two Ukrainian Stock of bonds and other securities, which issue is subject to Exchanges: the First Stock Trading System (FSTS) and registration. In 2009 the Company has not made decisions Ukrainian Stock Exchange OJSC: about repurchase of own shares. ■ On August 1, 2007 securities of MOTOR SICH PJSC were Information regarding issued securities certificates: included into “index basket” of FSTS; ■ quantity of ordered forms of securities certificates – ■ On December 18, 2009 securities of MOTOR SICH PJSC 50 000 pcs.; were included into the 1st level of listing of Exchange ■ quantity of securities certificates issued to the owners as register of Ukrainian Stock Exchange OJSC. of 01.01.2010 - 34 200 pcs. MOTOR SICH 16 annual report 2009

STRUCTURE OF COMPANY

KIEV Volochysk

Snezhnoye

Zaporozhye

Primorsk

Alushta

Snezhnoye Machine- Line of activity: Building Plant (SMZ) ■ production of blades for gas-turbine engines; Year of foundation - 1974 ■ production of components and assembly units for mining equipment; ■ production of consumer goods with special emphasis on agricultural and utility equipment.

Zaporozhye Machine- Line of activity: Building Plant named ■ testing of aviation engines; after V.I. Omelchenko ■ assembly and testing of EG-1000 and EG-6000 gas-turbine power stations; Year of foundation - 1988 ■ testing of 6.3 and 8 MW gas-turbine drives D-336, AI-336; ■ assembly and testing of GPAK/5,5-GTP/6,3SК gas-turbine pumping units; ■ manufacture of blades; ■ foundry.

Volochysk Machine- Line of activity: Building Plant (VMZ) ■ providing aircraft engines with mass-produced parts and metal products; Year of foundation - 1971 ■ production of technological tooling; ■ overhaul of AI-20 engine and its modifications; ■ production of EG-1000, PAES-2500 power stations; ■ manufacture and assembly of GTE-MS-2,5; AI-2500M power drives; ■ production of consumer goods with special emphasis on a wide range of mufflers for motor cars and agricultural equipment. MOTOR SICH annual report 17 2009

Health Centre “Priboy” Primorsk, Zaporozhye region (Azov seashore)

Main advantages: comfortable rooms, caloric food, equipped beach, vari- ous leisure facilities, gymnasium.

Health Centre “Motor” Primorsk, Zaporozhye region (Azov seashore)

Capacity: 4 comfortable buildings for 500 persons. Number of vacationers p.a.: more than 3 thous. persons. Line of activity: family recreation.

Main advantages:

■ comfortable, home atmosphere; perfect living condi- tions; ■ the best equipped beach at Azov seashore; ■ tennis courts with special cover; ■ two thousand square meters of sport grounds; ■ gymnasium; ■ billiard, cinema and concert halls; ■ excellent national cuisine.

Medical-Care Vacation Hotel “Horizont” South coast of Crimea, Alushta

Capacity: 3 bedroom buildings for 500 persons. Number of vacationers p.a.: more than 4 thous. persons. Specialisation: medical treatment of diseases of respiratory organs, functional diseases of nervous system, as well as ear, nose and throat diseases.

Line of activity: family recreation.

Main advantages: comfortable rooms, picturesque scenery, clean air, warm sea, qualified medical service, balanced diet, various leisure facilities, equipped sports and play grounds, chain of stores and cafes. MOTOR SICH 18 annual report 2009

AIR COMPANY

MOTOR SICH PJSC Airline was founded in 1984 and is Aircraft fleet of the Air Company consists of passenger, a structural subdivision of MOTOR SICH PJSC. At present, cargo/passenger and cargo planes: it operates on the market of cargo and passenger air transportation in Ukraine, CIS, non-CIS countries. Yak-42...... 1 plane Base airfield is Zaporozhye airport (OZH/UKDE) – Yak-40...... 2 plane “Mokraya” airfield. An-24PB...... 2 planes Since 2004 the Air Company is accredited at UN as an An-140...... 1 plane official supplier of air transportation services for UN and An-74TK-200...... 1 plane takes part in air transportation according to UN program An-12...... 3 planes. in Sudan using An-74TK-200 aircraft.

Airline uses the following aviation systems: International codes: ■ AFTN aviation communication system (УКДЕМСИЬ); ■ ICAO code – MSI. ■ IATA code – M9 and 011. ■ SITA international commercial aviation system (OZHSMXH); Representation offices: ■ SIRENA, Amadeus, Gabriel, Galileo and other systems Kiev (Ukraine), for sale and reservation of air tickets. Moscow (Russia), Istanbul and Ankara (Turkey)

Services:

■ cargo and passenger air transportation (scheduled, charter flights and business flights) to all regions of the world; ■ air transportation of hazardous cargo and special-pur- Charter flights are performed to: Iran, India, Thailand, pose cargo; Bangladesh, Sri-Lanka, Algeria, Israel, Armenia, ■ line maintenance and periodic maintenance of Georgia, Syria, Italy, Spain, Turkey, Egypt, Kyrgyzstan, airplanes: An-140, An-24, An-12 and Yak-40, Kazakhstan, UAE, Slovenia, Germany, France, line maintenance of An-74TK-200 airplane. Hungary, Belgium and other countries. MOTOR SICH annual report 19 2009

SUBSIDIARY COMPANIES

The Company has founded the following subsidiaries, which are carrying out their activity at the present time.

Gulaypole Main lines of activity: Machine-Building ■ development, preparation and organization of research and serial production Plant of machine-building products; ■ sales of manufactured products; Ukraine, Zaporozhye region, ■ production, procurement and sales of agricultural products; Town of Gulaypole, 17, 9th ■ provision of services to people on repairing and maintenance of motor vehicles, January Street as well as delivery of spare parts for them; ■ sales of process equipment, cars and tractors, withdrawn from process usage.

Gulaypole Mechanical Main lines of activity: Plant ■ preparation and organization of research and serial production of aviation Ukraine, Zaporozhye region, engines, aviation equipment and property; Gulaypole district. ■ development, manufacture, sales and repairs of weapons, individual protective Zheleznodorozhnoye village, equipment and cold steel according to licences, issued by special authorities 2 Kotovskogo Street according to effective Ukrainian legislation; ■ manufacture of electrical machines, equipment and devices, industrial products; ■ manufacture of agricultural machines, process equipment for textile industry, agricultural and garden tools; ■ production of paint-and-lacquer materials; ■ production of metal and cardboard containers.

Lebedin Main lines of activity: Engine-building ■ development, preparation and organization of research and serial production Plant of machine-building products; Ukraine, Sumy region. ■ sales of manufactured products; Town of Lebedin, 18 ■ development of personal market gardens; Grushevaya Street ■ manufacture of industrial products, consumer goods, fuel and lubricants.

Share of MOTOR SICH PJSC in statutory capital of the above subsidiary companies is 100%. MAIN RISK FACTORS

■ Industry Risks

■ Financial Risks

■ Legal Risks MOTOR SICH annual report 21 2009

INDUSTRY RISKS

Risk of consumer loss

Demand for aviation engine-building products is life, and to avoid overhauling of engines or purchase not too high at the Ukrainian market. Ukrainian air of new products. Moreover, we must add the follow- companies do not have enough funds for financing of ing adverse factors, as intention of Russian competi- aicraft-building process, and budget financing is not tors represented by aircraft repair plants, designers provided on regular basis. The State discourages pro- (Klimov OJSC) and producers of aviation engines curement of domestic aviation equipment. Therefore, (Salut MMPP, Saturn NPO and others), as well as the Russia and Asian countries remain main sales markets. Ministry of Defence of Russia to force MOTOR SICH However, volume of cash inflow may decrease due to PJSC out of their domestic, and then out of foreign unpredictable foreign policy of the State concerning markets in the whole range of products by dumping relations with Russian consumers, general crisis in avi- prices for them. ation industry, intention of operators to extend service

Complex competitive environment

Degree of competition is very high at the market of strengthen positions at the market. Such work requires aviation engines. Serious competitors are Snecma considerable material expenses. Till the present time (France), BMW Rolls-Royce (Germany/England) financing of works on serial production preparation General Electriс (USA), which are still at the top of the was performed mainly at the account of own funds, list of leading producers of aviation engines. Regular investments and bank credits. Volume of budget work on improvement of quality and characteristics of financing is quite insignificant. The Company particu- products, as well as development of new engines and larly needs state support in hard conditions of world their modifications in accordance with increased economic crisis. requirements of customers, is required to hold and MOTOR SICH 22 annual report 2009

Risk of losing the supplier of raw materials and assembly units

мaterials and assembly units, which list includes SICH PJSC works with many of them for many more than 51.1 thous. titles, are purchased by the decades. In particular, with Aviation Bearing Plant Company from more than 300 suppliers of Ukraine, OJSC (Samara) - over 45 years, with FED Corporation Russia and other countries of the world. Delayed sup- CJSC (Kharkov), VSMPO-AVISMA (Verkhniaya Salda) - ply of assembly parts creates risk of failure to perform over 30 years, with Uglekompozit OJSC (Zaporozhye), contract terms. Narrow circle of suppliers leads to Electric Machine Building Works “Lepse” JSC (Kirov), unreasonable escalation in prices. It is necessary to Electropribor PJSC (Kazan) - over 25 years. As a result develop domestic production of assembly parts and of long-standing relations with partners, in the past stimulate development of business competition. decade there was reached financial stability and MOTOR SICH PJSC maintains friendly and confidential increased responsibilty of suppliers for fulfilment of relations with many companies. Therefore, it is their contractual obligations. regular customer. Describing long-standing relations with suppliers, it is necessary to note that MOTOR

Risk of purchasing overpriced or low-quality materials and assembly units

It is poossible that companies with large volume of from the supplier, which is not mentioned in design purchased materials and assembly units will conclude documentation, till introduction of corresponding rea- overpriced delivery contracts. Furthermore, due to sonable amendments into design documentation. production specifics assembly units and parts shlould Tender commission is created and works at the meet technical and quality parameters. Suppliers of Company for selection of economically favourable assembly units and parts for the goods of MOTOR suppliers and minimization of risks connected with SICH PJSC are indicated in design documentation of purchase of goods and services, which suppliers are product. It is not allowed to purchase assembly units not regulated by design documentation.

Compliance of the Company’s products with innovative technologies

While worldwide accepted practice implies partial and consumer goods. Over 100 mln. UAH are annually financing of the development of aviation equipment spent for research and design works, as well as for at the account of state budget, state support of new mastering new kinds of products. Special attention is equipment creation and implementation of innovative paid to inroduction of innovative technologies at all technologies is practically not available in Ukraine in stages of engine life cycle – from its development up recent years. Almost all innovative activities of MOTOR to operation. SICH PJSC are performed at the account of own funds. The Company regularly introduces into production new advanced kinds of aviation engines, general-purpose MOTOR SICH annual report 23 2009

Insufficient quantity of qualified staff

Significant problem for companies of aircraft industry in Ukraine is shortage of qualified engineering and regular labor force. MOTOR SICH PJSC has developed and introduced «Personnel» programme, which aim is to preserve and additionally attract highly-qualified staff. MOTOR SICH 24 annual report 2009

FINANCIAL RISKS

Credit risks

Credit risks are connected with failure of borrower to pay principal debt and interests accrued on credit. Credit indebtedness was timely repayed in 2009. It has allowed to avoid fines, penalties and to reduce interest risks. Bank guarantees has become basic instrument for reduction of credit risk. Such approach has allowed not only to reduce risk and losses of the Company, but also to provide our contractors with convenient tool of mutual settlements. As a result, there was abandoned necessity to exclude significant monetary assets from the turnover for performance of advance payments. Sales of aviation engines have received additional incentive. Currency risks Risks are mainly connected with weakening of Ukrainian hryvnia and strengthening of US dollar. Main part of credit resources of MOTOR SICH PJSC committed for purchase of imported equipment, as well as for required completion and technical upgrade of production and engineering base of the Company, is attracted in for- eign currency in order to reduce currency risk. Liquidity risks Liquidity risk is a probability of losses due to cash shortage in certain period of time, and, consequently, failure of the Company to fulfill its obligations. Detailed budgeting, cash flow forecasting, financial and industrial planning is used at MOTOR SICH PJSC for minimization of liquidity risks. Such procedures allow to reveal liquidity strain and to attract required financial resources in due time. Reduction of nonpayment risk on the part of customers, which may also lead to liquidity problems, is achieved by means of advance payment of orders. MOTOR SICH annual report 25 2009

LEGAL RISKS

Risk factors connected with investment in securities of MOTOR SICH PJSC

MOTOR SICH PJSC has determined the following risk factors connected with investment in its securities: ■ Factors, which are limiting ability of shareholders to financial state, shares of the Company have got high influence upon decisions concerning election of mem- level of liquidity and are actively quoted at the organ- bers of management bodies or other questions, which ized stock market. are settled by means of voting. These factors should ■ Legal acts, which regulate import and export of capi- be estimated as insignificant ones. Shareholders of tal, and which may influence upon payment of divi- MOTOR SICH PJSC have got equal rights to influence dends or other payments to nonresidents. These factors upon settlement of questions regarding election of are well-known, and interested parties should estimate members of management bodies or other questions, their influence by themselves. which are settled by means of voting. ■ Procedure of securities income taxation may influence ■ Factors, which may cause “dilution” of existing share upon the size of yield. This factor is also well-known. in the statutory capital of MOTOR SICH PJSC. They Any changes in tax legislation may influence upon the should not be considered significant ones, as author- current taxation procedure and, correspondingly, upon ized body has not taken decision about additional issue the size of yield. of shares in 2009. ■ Any other factors, which may negatively influence upon ■ Factors, which may limit payment of dividends on the rights of shareholders of MOTOR SICH PJSC, including shares of MOTOR SICH PJSC. These factors should be possibility to realize their rights. They are not forecasted considered insignificant ones, as the Company con- for 2010. ducts common clear dividend policy for many years. ■ Insufficient liquidity of securities and other factors, which may limit possiblility to purchase securities of MOTOR SICH PJSC. These factors should be considered insignificant ones, as the Company has got stable Uncertainty of regulatory situation for emitter’s activity

MOTOR SICH PJSC has initiated introduction of of amendments into certain laws regarding the state amendments into a number of legislative acts of support of aircraft industry”, which provides tax Ukraine, which will increase the level of domestic advantages for the period till 2016, simplification of engine-building, improve conditions of economic customs procedures and increases payment terms of activity for enterprises of aviation industry, form sta- export deliveries, - there will be significantly reduced ble positions of Ukrainian enterprises at the foreign production expenses of the Company and will be markets, as well as promote the development and improved foreign economic relations of the Company mastering of new equipment. If in 2010 the Supreme with nonresident customers. Council of Ukraine will adopt law “About introduction INVESTMENT ACTIVITIES MOTOR SICH annual report 27 2009

Trend Analysis of Stock Value of MOTOR SICH PJSC

At the present time shares of MOTOR SICH PJSC are ties of Ukranian stock exchanges with maximum level one of the most liquid and called-up secutities at the of unsatisfied demand. MOTOR SICH PJSC has man- stock market of Ukraine. Price of shares has aged to bring the cost of its shares closer to fair mar- increased from 400 up to 1870 UAH/piece from ket price, to increase capitalization of the Company, 2007 till the beginning of 2010. Shares of MOTOR to attract additional financial resources at the SICH PJSC have indicated their ability to withstand account of domestic and foreign investors, to raise general market tendency and to increase in price funds, providing appropriate supervision over their even, when price of other securities falls due to the effective use. world financial instability. Cost of shares of MOTOR Investments of the Company in legally independent SICH PJSC was skyrocketing in 2009: shares of the economic entities Company have become one of the main index growth drivers of the First Stock Trading System and the ВIn 2009 the Company has made investments in enterprises, Ukranian Stock Exchange from April 2009. Shares of which are included into financial-industrial group of MOTOR MOTOR SICH PJSC are constantly among five securi- SICH PJSC, in the amount of about 20 mln. UAH.

New Products Preproduction Activities

MOTOR SICH PJSC has developed business plans of outdated engines for TV3-117VМА-SBМ1V series 4 investment projects: engines”. ■ “Research and development work on modernization of ■ “Construction of facilities for mounting of gasostatic power unit of An-26 airplane by replacement of outdated extruder”. engines for ТV3-117VМА-SBМ1 engines”. ■ “Modernization of Мi-2 helicopter with replacement of ■ “Research and development work on modernization outdated engines for AI-450M turboshaft gas-turbine of power unit of Мi-8Т helicopter by replacement of engines”.

Involvement of Budget and Credit Funds for Financing of New Products Development and Preproduction Activities in 2009

The Company has not submitted investment projects to the State Innovation Finance and Credit Organization (SIFCO) and the Ministry of Industrial Policy, as there were held no tenders due to the absence of funds for investment projects in the budget of 2009. Nevertheless, specialists of the Company have developed the following projects, which are ready to tenders: ■ “Mastering and serial production of ТV3-117VМА-SBМ1 engines for An-26 airplane”. Project intends modernization of An-26 airplane into An-26М variant with ТV3-117VМА-SBМ1 engines. ■ “Mastering and serial production of TV3-117VМА-SBМ1V engines for Мi-17, Мi-8МТV helicopters”. ■ “Mastering and serial production of “Motor Sich VEU-5-1500/5-96” wind-driven power plant”. Investment project was submitted to SIFCO. However, tenders were not held due to the absence of funds in the budget of 2009. MANAGEMENT BODIES OF MOTOR SICH PJSC

■ Corporate Management

■ Board of Directors

■ Supervisory Board

■ Internal Audit Commission MOTOR SICH annual report 29 2009

CORPORATE MANAGEMENT

Management and control bodies of MOTOR SICH PJSC pay particular attention to openness, efficiency, honesty, responsibility and achievement of the specified objectives in order to provide efficient corporate management accord- ing to international standards. The Company guarantees quality control in all directions of its activity under the corporate management system. It maintains good and fair relations with shareholders, provides transparent and prompt accounting reports.

Management bodies of MOTOR SICH PJSC: ■ General meeting of shareholders; ■ Supervisory Board; ■ Board of Directors.

Authorities and obligations of management bodies are clearly divided and balanced. Corporate management sys- tem of MOTOR SICH PJSC is built according to international standards, the best world experience and legislation of Ukraine. It provides: ■ efficient cooperation between management and control bodies, as well as external auditors and all interested parties (shareholders, contractors, state bodies); ■ monitoring of the Company’s activity for achievement of the specified objectives.

Corporate management system of MOTOR SICH PJSC is based on the following principles:

■ The Company protects rights of shareholders. ■ The Company provides equal relations towards all shareholders, including minority and foreign shareholders. ■ The Company acknowledges legal rights of the interested parties and encourages active cooperation between MOTOR SICH PJSC and all the interested parties for increase of social wealth, creation of new work places and achievement of financial stability of the Company. ■ The Company provides timely disclosure of reliable information about all important aspects of MOTOR SICH PJSC activities, including data about financial state, results of business activity, structure of shareholders and management. ■ Board of Directors provides strategic business management and efficient control of all subdivisions. It regularly reports to its shareholders. СОВЕТ ДИРЕКТОРОВ

Vyacheslav Alexandrovich BOGUSLAYEV Chairman of the Board of Directors

Pavel Dmitrievich Vasily Vasillyevich Mikhail Naumovich ZHEMANYUK TKACHENKO BEREZOVSKY Deputy Chairman Deputy Chairman Deputy Chairman of the Board of Directors, of the Board of Directors, of the Board of Directors, Technical Director Production Director Director of Construction and Social Development

Viktor Alekseyevich Vladimir Borisovich Alexander Petrovich LUNIN SEMENOV NEDASHKOVSKY member of the Board of member of the Board of member of the Board of Directors, Directors, Financial Director Directors, Director of Corporate Director of Snezhnoye Machine- Laws and Investment Projects Building Plant Vladimir Timofeyevich Olimpy Valerianovich SHIRKOV POKATOV member of the Board of member of the Board of Directors, Marketing Director Directors, Director of Personnel Management

Konstantin Ivanovich Vasily Vladimirovich GORBIK KHVOSTAK member of the Board of member of the Board of Directors, Head of Directors, Deputy Financial Workshop No. 17 Director MOTOR SICH 32 annual report 2009

Competence of the Board of Directors according to Statute of MOTOR SICH PJSC

The Board of Directors is a permanent executive body of the Company’s current activities according to the of the Company, which shall perform management of Statute and legislation of Ukraine. its current activities according to the Statute of Chairman of the Board of Directors shall perform all MOTOR SICH PJSC. legitimate activities out of the Company’s power of The Board of Directors at its own discretion, within its attorney. He shall represent the Company in all rela- power stipulated by effective legislation, Statute and tions with the third parties, hold negotiations and internal documents of the Company, shall make deci- conclude any agreements (contacts, treaties etc.), sions, conclude agreements and carry out activities, sign legal acts (documents) related to the Company’s which belong to its authorities according to legislation activities, issue Powers of Attorney (Orders), open of Ukraine and are its rights or obligations. bank accounts, sign labour contract with work collec- Chairman of the Board of Directors is in charge of its tive, issue orders, directives to conclude labour con- work. He shall allocate responsibilities among the tracts with the Company’s employees and discharge elected members of the Board of Directors. Chairman them according to current labour code of Ukraine. of the Board of Directors shall perform management

Information about MOTOR SICH PJSC shareholders among the members of the Board of Directors

Q-ty of shares, Share in statute Position Full name pcs. capital (%) Chairman of the Vyacheslav Alexandrovich Boguslayev 311 421 14,99 Board of Directors Deputy Chairman of the Pavel Dmitrievich Zhemanyuk 87 0,0042 Board of Directors Deputy Chairman of the Vasily Vasillyevich Tkachenko 3 0,00014 Board of Directors Deputy Chairman of the Mikhail Naumovich Berezovsky - - Board of Directors

member of the Board of Directors Alexander Petrovich Nedashkovsky 41 0,00197

member of the Board of Directors Olimpy Valerianovich Pokatov 23 0,0011

member of the Board of Directors Vladimir Timofeyevich Shirkov 22 0,0011

member of the Board of Directors Viktor Alekseyevich Lunin 12 0,00058

member of the Board of Directors Vladimir Borisovich Semenov 10 0,00048

member of the Board of Directors Konstantin Ivanovich Gorbik 6 0,00029

member of the Board of Directors Vasily Vladimirovich Khvostak 1 0,000048 MOTOR SICH annual report 33 2009

SUPERVISORY BOARD

Anatoly Nikolayevich MALYSH, Chairman of the Supervisory Board, Director of public relations of MOTOR SICH PJSC. Date of birth: 15.04.1956. Education: higher.

Alexander Vyacheslavovich BOGUSLAYEV, Deputy Chairman of the Supervisory Board of MOTOR SICH PJSC, Leading Manpower Training Engineer of the Personnel Training Department of MOTOR SICH PJSC. Date of birth: 02.08.1978. Education: higher.

Sergey Anatolyevich VOITENKO, Secretary of the Supervisory Board, Quality Director of MOTOR SICH PJSC. Date of birth: 27.08.1954. Education: higher. MOTOR SICH 34 annual report 2009

Yury Vladimirovuch BURYA, member of the Supervisory Board, Head of workshop No. 41 of MOTOR SICH PJSC. Date of birth: 10.04.1951. Education: higher.

Yury Mikhailovich GRECHIKHA, member of the Supervisory Board, Assembly fitter of engines of workshop No. 31 of MOTOR SICH PJSC. Date of birth: 06.07.1954. Education: specialized secondary.

Peter Ivanovich KONONENKO, member of the Supervisory Board, Director of Moscow Representative office of Motor Sich PJSC. Date of birth: 05.12.1955. Education: higher.

Valery Mikhailovich LOGVIN, member of the Supervisory Board, Director of Catering Centre of MOTOR SICH PJSC. Date of birth: 23.07.1952. Education: higher. MOTOR SICH annual report 35 2009

Mikhail Ivanovich TRUSH, member of the Supervisory Board, Chairman of trade union committee of MOTOR SICH PJSC. Date of birth: 10.06.1949. Education: higher.

Svetlana Alexandrovna KHOREVA, member of the Supervisory Board, Head of Finance-and-Economy Department of MOTOR SICH PJSC. Date of birth: 21.12.1953. Education: higher.

Scope of functions of the Supervisory Board of MOTOR SICH PJSC according to Statute

The Supervisory Board of MOTOR SICH PJSC is a body, which shall protect rights of shareholders and, within the scope of its functions stipulated by Laws and Statute, shall control and regulate activities of the executive body. MOTOR SICH 36 annual report 2009

INTERNAL AUDIT COMMISSION

Alexander Nikolayevich POLYVIANY, Chairman of Internal Audit Commission of MOTOR SICH PJSC, Deputy Head of Finance-and-Economy Department, Head of Labour and Wages Department of MOTOR SICH PJSC. Date of birth: 10.12.1954. Education: higher.

Anatoly Yuryevich GRINCHENKO, member of Internal Audit Commission, Chief dispatcher - Head of Assembly and Testing Department of MOTOR SICH PJSC. Date of birth: 08.04.1948. Education: higher.

Valentin Grigoryevich PASTERNAK, Member of Internal Audit Commission, Director of Volochysk Machine-Building Plant. Date of birth: 16.02.1954. Education: higher.

Valentina Nikolayevna MOLCHANOVA, Member of Internal Audit Commission, Nondestructive testing operator of X-ray and gamma-ray examination of workshop No. 60 of MOTOR SICH PJSC. Date of birth: 26.02.1955 Education: secondary. MOTOR SICH annual report 37 2009

Igor Andreyevich PETRIK, member of Internal Audit Commission of MOTOR SICH PJSC, Chief welder of the Chief Metallurgist Department of MOTOR SICH PJSC. Date of birth: 27.05.1956. Education: higher.

Leonid Alekseyevich PIROGOV, member of Internal Audit Commission of MOTOR SICH PJSC, Deputy Technical Director - Head of Design-Engineering Department. Date of birth: 14.04.1948. Education: higher.

Viktor Yuryevich Kotsyuba, member of Internal Audit Commission, Head of workshop No. 20 of MOTOR SICH PJSC. Date of birth: 07.09.1965. Education: higher.

Competence of Internal Audit Commission according to Statute of MOTOR SICH PJSC General meeting of shareholders shall elect Internal Audit Commission for auditing of financial and economic activities of the Company. Members of the Board of Directors, Supervisory Board and other officials may not be members of Internal Audit Commission. Internal Audit Commission shall prepare conclusions on the Company’s Annual Reports and Balance Sheets, as well as supervise: ■ implemention of plans and main directions of the Company’s activities accepted at the General meeting of shareholders; ■ implemention of decisions of the Board of Directors concerning the Company’s financial and economic activities; ■ settlement of accounts with shareholders; ■ implemention of decisions on elimination of revealed faults. FOREIGN ECONOMIC ACTIVITY

■ BUSINESS STRATEGY OF MOTOR SICH PJSC MOTOR SICH annual report 39 2009

BUSINESS STRATEGY OF MOTOR SICH PJSC

Implementation of export contracts concerning aviation and ground equipment is traditionally the main financial resource in 2009. The Company supplies new aviation engines, gas-turbine drives and other ground products, spare parts, repair-assembling tools, consumer goods. It carries out overhauling, aftersale maintenance of aviation and ground equipment, renders in-operation services.

Cash inflow under the concluded contracts has increased by 16.2% in 2009 as compared to 2008. Cash inflow from consumers in Russia, CIS and non-CIS countries has increased. Cash inflow from Ukraine has remained at the level of 2008. MOTOR SICH 40 annual report 2009

Cash inflow by regions in 2009: Cash inflow in 2009: 1. From Russia – 59,4% of total receipts. Increase against the level of 2008 was about 115%. 2,4 Major part of money was received for the delivery of 6,7 different modifications of serial aviation engines TV3-117, VK-2500, AI-9V. The largest Russian consumers in 2009 were: - Kazan Helicopter Plant OJSC; - Ulan-Ude Aviation Plant OJSC; - Klimov OJSC (St. Petersburg); - Kumertau Aviation Plant OJSC; 31,4 - Rostov Helicopter Plant OJSC; - Ilyushin Finance Co. OJSC (Voronezh). 59,4

2. From non-CIS countries – 31,4% of total receipts. Increase of receipts was 120,0%. Money was received for the delivery and repair of different modifications of aviation engines, as well as for delivery of corre- From Russia – 59.4% sponding spare parts. The largest foreign consumers From non-CIS countries – 31.4% of products in reporting year were: From Ukraine – 6.7% - China; From CIS countries, except for Russia, – 2.4% - Algeria; - UAE; - India. Earned money for shipped products and rendered 3. From CIS countries, except for Russia , – 2,4% of total services as per the form of payment currency was receipts. The Company repaired aviation engines, ren- distributed as follows: dered services for extension of service life, as well as delivered and repaired ground equipment of near 7,96 abroad companies. The largest consumers: - Azerbaijan; 5,74 - Belarus.

4. From Ukraine – 6,7% of total receipts. Tht Company has delivered D-36 series 3А, D-436-148, AI-450-МS aviation engines to the internal market, as well as repaired different modifications of aviation engines for Ukrainian air companies, and D-336 gas- 56,77 turbine drives for the gas-pipeline system of Ukraine. 29,53 The largest Ukrainian consumers in 2009 were: - KiGAZ “AVIANT” (Kiev); - KHGAPP (Kharkov).

USA Dollars – 56.77%, Rus. Roubles – 29.53%, Euro – 7.96%, UAH – 5.74%. MOTOR SICH annual report 41 2009

Technical reequipment of the Company continued in There were purchased milling machine centers “Huron” 2009. New import contracts were concluded for the (France) and “Fehlmann” (Switzerland), turret machines amount about 18.3 mln. USD in the reporting year “Benzinger” (Germany) and other process equipment. according to the foreign currency spending plan. In There were concluded contracts for the purchase of addition, previously concluded contracts were executed. “Hermle” machining centers, “SIEMENS” machine con- trol systems, “Hauser” coordinate grinding machine, “LIECHTI TURBOMILL” machining center, as well as other equipment and components. Total amount paid under the import contracts in Switzerland, Germany, Sweden, USA, as well as 2009 was 8 168.2 thous. USD, of them: Czechia, Bulgaria, Hungary, Austria, Japan are main partners of MOTOR SICH PJSC in import of equipment, spare parts, overhaul and modernization. 6,9 1,6 11,0 MOTOR SICH PJSC conducts persistent and professional marketing policy, which allows not only to retain tradi- tional sales markets of our products, but also to subdue new ones. The following methods are used by the Company for organization of product sales: 54,2 ■ marketing research of sales markets for determina- tion of priorities and implementation of economically sound projects connected with production and sales of aviation and ground equipment; 26,3 ■ system of regional representative offices in different regions of the world: Russia, South-East Asia, China, India, Near East and Middle East, Africa, Latin America. The Company through its representative offices partici- pates in all tenders for the delivery of appropriate ■ for purchase of equipment – 54.2%; products and services, conducted by state organiza- ■ for overhaul and modernization of equipment – 26.3%; tions of different countries, such as China, India, ■ for equipment spare parts – 11.0%; Thailand, Bangladesh, Sri Lanka, Algeria, countries of ■ for computers and software – 1.6%; ■ зfor production components – 6.9%. MOTOR SICH 42 annual report 2009

the Persian Gulf, Bulgaria, Hungary, Turkmenistan, Russia etc.; ■ creation of the vast network of service centers all over the world for improved quality and efficiency of consumer services; ■ purposeful advertising campaigns for promotion of our products to new markets, publications in specialized magazines and catalogues; ■ participation in prestigious specialized exhibitions related to products of our Company.

MOTOR SICH PJSC took part in the following prestigious international exhibitions in 2009: ■ connected with aviation equipment - “Aero India- 2009” (India), “Paris Airshow-2009” (France), “Aviation Expo China” (China), “MAKS-2009” (Russia); ■ connected with ground equipment: “Oil and Gas” (Kiev) and “Russia Power 2009” (Moscow). As a result of participation in Kiev exhibition, was an invi- tation to participate in tenders for gas-turbine drives repairing, in Moscow exhibition – receipt of orders for the delivery of PAES-2500 power stations for Russian oil producing companies. Besides, our Company actively participated in differ- ent exhibitions related to consumer goods, in competi- tions of timber cutters in Zhitomir and Kiev regions, as well as in exhibitions and conferences devoted to the problems of traumatic surgery and orthopedics. Participation in exhibitions allows the Company not only to demonstrate its products and to represent new technologies, but also to review market state, assess options, strong and weak points of their partners and competitors, form contacts with future business partners.

MOTOR SICH PJSC will continue cooperation with our permanent consumers, as well as to conduct the search for new partners and customers in 2010. Russian aviation plants in Kazan, Ulan-Ude, Kumertau, Rostov, Voronezh, Samara remain priori- ty partners of our Company, with which it has signed contracts for delivery of aviation engines for differ- ent types of helicopters and airplanes. Russian air companies “Kuban Airlines”, “UTair”, “Volga- Dnepr”, “Polet” and others, as well as aircraft repair plants in Aramile, Rostov-on-Don, Staraya Russa, Khabarovsk, Omsk, Yeisk, Kaliningrad are traditional MOTOR SICH annual report 43 2009

partners of MOTOR SICH PJSC. bench and reference samples for the arrangement of Signed contracts and purchasing orders from aviation repair line for TV3-117 engines. enterprises and operating entities for the delivery of products and rendering of services provide basis for a Good prospects are expected for selling of aviation positive regional forecast for 2010. engines at the internal market in 2010. MOTOR SICH Apart from cooperation with the Russian Federation, PJSC is going to execute contracts KHGAPP for the great attention is paid to retention and expansion of delivery of D-36 series 3А, D-36 series 4А, TV3- sales markets in non-CIS countries. We plan to keep 117VМА-SBМ1 and AI9-3B engines, as well as contracts the achieved volume of cooperation with our regular with SE “Antonov” for the delivery of AI-20D series 5, foreign partners in 2010. There were concluded sever- D-436-148 and AI-450-МS engines. al big contracts, including contract with India (for the All in all, the concluded contracts and reached agree- term of 3 years) for the delivery of AI-20D engines, ments will provide positive sales growth rates for contract with China for the delivery of VK-2500 and MOTOR SICH PJSC in 2010. AI-25TLК engines. MOTOR SICH PJSC is planning to sign long-term contract with China for the delivery of new modern AI-222К-25 engines. The Company has signed contracts with Algeria for the delivery and repair of different modifications of AI-25TL, TVZ-117 and AI-9V engines, as well as for the delivery of non- standard equipment, repair and installation tools, test PRODUCTION ACTIVITY

■ Main Aspects of Production and Financial Activity

■ Production Activity

■ Advanced Technologies

■ Service Maintenance

■ Capital Construction

■ Prospects for 2010 MOTOR SICH annual report 45 2009

MAIN ASPECTS OF PRODUCTION AND FINANCIAL ACTIVITY

■ Growth rate of production volume in comparable prices to 2008 – 119.2%; ■ Income from sold products, works and services – 3 740.4 mln. UAH. It is by 1 683.9 mln. UAH more than in 2008; ■ Specific weight of aviation equipment in the sold products – 93.5%; ■ Export share in the income from sold products – 88.7%.

Structure of products sold by MOTOR SICH PJSC in 2009 (%)

4,2 2,3 Серийные авиационные двигатели 10,3 Ремонтные авиационные двигатели

Прочая авиатехника 15,3 2009 67,9 Продукция общетехнического назначения

ТНП MOTOR SICH 46 annual report 2009

PRODUCTION ACTIVITY

Income from sold products, works and services for 2005 - 2009.

4000 3740,4 3500 3387,8 MOTOR SICH PJSC delivered products according to the 3000 concluded contracts in 2009. There were executed 164 contracts for the delivery of series-produced and over- 2500 hauled engines, drives, power stations. There were manu- 2056,4

mln. UAH 2000 factured goods to the amount of 3 mlrd. 654 mln. UAH in 1749,7 1647,4 current prices. There were shipped goods to the amount 1398,1 1500 1238,1 of 3 mlrd. 625.6 mln. UAH. 1090,4 982,0 1000 859,1

500

0 2005 2006 2007 2008 2009

Income from sold products, works and services, mln. UAH Specific weight of sold products is distributed as including aviation equipment, mln. UAH follows: 2,3 Yield of capital investments 4,2 for 2005 – 2009 (UAH)

2

1,725

1,5

0,905 0,907 93,5 1

0,687 ■

UAH 0,612 Aviation equipment – 93.5%; 0,5 ■ General-purpose technical products – 4.2%; ■ Consumer goods – 2.3%.

0 2005 2006 2007 2008 2009

Yield of capital investments, UAH MOTOR SICH annual report 47 2009

In addition to production of engines the Company per- ■ there was manufactured preproduction series of motor formed 140 contracts for the delivery of spare parts (75 cultivator “Motor Sich МB-8”; of them - non-CIS countries, 65 - Aircraft Repair Plants ■ there was developed design documentation and in Russia). launched serial production of the set of hip joint The Company provides in-service maintenance of implants “Motor Sich ETBS-1”. engines, warranty and after- warranty maintenance. There were organized 189 points of periodic mainte- Credit funds, received for introduction of cogeneration nance and constant location of PSD experts, functions plant “Thermal energy complex “Motor Sich” in the system of air worthiness support. Work with operating amount of 20.3 mln. UAH, were mastered in full volume entities is formed on the contractual basis. In 2009 in the reporting period. There was completely mounted there were concluded about 270 contracts and 430 TEC-3 prototype model. There was performed trial run, additional agreements to running contracts with avia- performed further development of complex. tion plants of CIS countries for the increase of service TEC-6 was completed for more than 60%. life, technical maintenance of engines produced by There was increased amount of incomplete works on MOTOR SICH PJSC. auxiliary products due to created reserve for produc- In 2009 continued mastering of serial production of new tion of accessories, modernization and overhaul of kinds of aviation products. There were manufactured: equipment in 2010. ■ 3 engines МS-500; Specific weight of main products in the scope of ■ 4 engines AI-450M; incomplete production: ■ modified D-36МB ventilator; ■ as of 01.01.2009 – 93.6%; ■ there was performed pre-production and production of ■ as of 01.01.2010 – 90.9%. hardware for МS-350, AI-450-MS series 1, Reserve of incomplete production, created in ТV3-117VМА-SBМ1V series 4 prototype engines; 2009, shall provide continuous and smooth work ■ there were manufactured heat exchangers for D-36, of the Company in 2010. AI9-3B, D-18Т engines. The following consumer goods were developed and introduced in production: ■ there was developed design documentation, manufac- tured preproduction series and performed testing of wind power station “Motor Sich” VES-5; MOTOR SICH 48 annual report 2009

ADVANCED TECHNOLOGIES

Manufacture of aviation engines, which meet con- temporary requirements of the market and may com- pete with products of the leading world companies, demands constant improvement of production process taking into account the latest achievements of science and engineering.

MOTOR SICH PJSC carries out the following activities in this respect:

1. Introduction of new production processes: ■ production process of BMK-1 friction disks for rotary table of NC machines; ■ Automatic arc welding technologies of machine welding of branch pipes by new automatic machine FСР-600; ■ production processes for 2 046 components and assem- bly units for new AI-450-MS, AI-222-25, D-436-148 engines and other products.

2. Introduction of advanced preforms: ■ precise casting by consumable patterns made of heat- resistant and structural alloys; ■ precise centrifugal casting by consumable patterns made of titanium alloys; ■ casting of monocrystal blades made of heat-resistant alloys ЖС32, ЖС26; ■ chill casting of magnesium and aluminum alloys; ■ precise casting of large-size components made of nonferrous alloys.

3. Joint research and development works: ■ MOTOR SICH PJSC and UkrNIIspetssteel carry out complex of research works on introduction of new instrument and stamping steels in order to increase life of thread milling tools and life of structural stress dies by 30 - 40%; ■ MOTOR SICH PJSC and VILS OJSC, UkrNIIspetssteel and Kharkov Physics and Technology Institute carry out research works on the development of gasostat- ic extrusion of castings made of heat-resistant and MOTOR SICH annual report 49 2009

titanium alloys, as well on technologies of granula- tion metallurgy; ■ MOTOR SICH PJSC and NPP Eltechmash OJSC (Vinnitsa) work on further development of the process of ceramic coating application on turbine blades of AI-450-MS engine.

4. Development and introduction of control programs for numerical control (NС) equipment. 5. Development of new software products: ■ post-processors for TORNADO, DZ-45, МА-665/А/А2 machines; ■ Translated NC data for machines: 4FSL-8P, МА- 665А/А2, МК 6713, IR-500, WOHLENBERG, MCFHD.

6. Purchased new imported process equipment: ■ DEGEN TB 1200/1 deep hole drilling machine; ■ PICOMAX 820 VERSA machining center with numerical control; ■ BENZINGER GoFuture B2 turning machine with numerical control; ■ SMS SG1000U semiautomatic thread-grinding machine and others.

7. Introduction of efficient cutting tools and produc- tion accessories. MOTOR SICH 50 annual report 2009

SERVICE MAINTENANCE

MOTOR SICH PJSC has an after-sales service division Iran, Turkey, Turkmenia, Uzbekistan, Bulgaria, staffed with highly experienced specialists (Product Belarus, Russia, Azerbaijan. Totally 101 engines are Support Department – PSD), which is ready to effect now operating at gas-pumping stations and 6 engines technical support of all manufactured aircraft engines are used at power stations. within the whole period of their operation. Presently, PSD renders in-service support of new PSD works with customers on the basis of the concluded equipment: contracts: at present more than 300 contracts are effec- ■ Аn-148-100B airplanes with D-436-148 and AI-450- tive, 200 of them were concluded with Air Companies МS engines of Russia STC and ВАСО OJSC air compa- from CIS countries. nies; In 2009 Product Support Department: ■ Аn-140-100 airplanes with ТV3-117VМА-SBМ1 and ■ has rendered various services to the amount of 242.1 AI9-3B engines of “Motor Sich” (Ukraine), mln. UAH; “Yakutia” (Russia) air companies; ■ has performed light overhaul of 107 engines: in serv- ■ Bе-200 airplanes with D-436ТP engines; ice conditions - 68, at technical centres (Technical ■ К-8j airplanes with AI-25ТLK engine in China; Centre МSME, UAE; Technical Centre Borisfen-Avia, ■ Mi-24 helicopters with ТV3-117VМА-SBМ1V engines; Russia) - 39; ■ 10 MW gas-turbine drive at CS “Novopskov”; ■ continued to master light overhaul of D-336, AI- ■ 7 MW gas-turbine drive at CS “Eskisehir” (Turkey); 336-2-8, D-436Т1/TP, D-436-148, AI-450-МS, ■ 8 MW gas-turbine drive at BCS “Shurtan”, «Zevardy», ТV3-117VМА-SBМ1, AI9-3B engines; “Pamuk” (Uzbekistan); ■ has developed new kinds of repair technologies for ■ 8 MW gas-turbine drive at CS “Lozenets” (Bulgaria), ТV3-117VМА-SBМ1, AI9-3B, D-18Т, D-36 engines. CS “Yuzhno-Balykskaya” (Russia); The sphere of PSD activity has become wider, when ■ 6 MW gas-turbine drive at “Igolskaya” gas-turbine new gas-pumping stations were put into operation in power station. MOTOR SICH annual report 51 2009

CAPITAL CONSTRUCTION

At the reporting period of 2009 Construction and Construction and Social Development Department has Social Development Department has completely ful- performed the following works at the reporting period: filled tasks for reconstruction and technical reequip- ■ complex of works on construction and installation of ment of operating production facilities, construction equipment of thermal energy complex (TEC-3) of of social facilities, capital and light repair of buildings experimental industrial sample on generation of thermal and structures. and electric power; 222.6 mln. UAH of the Company’s own funds were ■ reconstruction of test benches; directed for these purposes, including: ■ overhaul of substation; ■ purchase of required equipment; ■ reconstruction of premises; ■ modernization of equipment; ■ construction and installation works on mounting of ■ construction and installation works on reconstruction of thermal vacuum furnace; facilities; ■ construction of boiler house, utility and storage facilities. ■ capital and current repair of buildings and struc- Therу was performed the planned scope of capital tures. construction of social facilities. All recreation centers, These significant funds were spent for the replace- preventoriums and children's health camps were time- ment of physically and morally obsolete equipment ly prepared for summer recreational season. and reconstruction of production facilities. It has There was performed significant volume of design and allowed MOTOR SICH PJSC to increase labour effi- special works on reconstruction and technical reequip- ciency and production standards, to improve labour ment of operating production facilities; valuation of conditions of production personnel, as well as inventory, certification and inspection of buildings and maintain the Company’s buildings and structures in structures; valuation of inventory and topographic- good technical state. geodetic survey of the Company’s lands. MOTOR SICH 52 annual report 2009

PROSPECTS FOR 2010

Works on aviation engines ■ To perform works with helicopter companies and ■ To perform experimental and design works on adap- foreign customers on application of TV3-117VМА- tation of TV3-117VMA-SBМ1-26 engine for An-26 SBМ1V engine in Mi-8МТ/Mi-17, Mi-24 and Ка-32 airplane; helicopters; ■ To continue cooperative deliveries of assembly units for ■ To manufacture МS-450 demonstrator engine; AI-222-25 and AI-222К-25 turbofan engines for manu- ■ To continue works on МS-400 engine; facture of engines under the concluded contracts; ■ To develop Terms of Reference and prepare pilot project ■ To manufacture parts and assembly units of AI-222К- on МS-200 engine; 25F engine, as well as to perform tests of prototype ■ To carry out pilot operation of AI-20DMN gas conden- engines; sate engine at Sterkhovoye Field (Russian Federation). ■ To start in-series production of AI-25TLSh engine and master modernization of AI-25TL into AI-25TLSh; Works on ground equipment ■ To participate in completion and design supervision of ■ To continue 5000-hour tests of GTE-МS-2,5 gas-turbine D-27 engines for performance of state certification drive reducer with sleeve bearings; tests; ■ To continue optimization of dual-fuel system of ■ To manufacture components and assembly units GTE-МS-2,5D engine as a part of dual-fuel power for AI-450-MS series 1 and AI-450M engines. To station; perform experimental tests of AI-450M engine in ■ To perform works on creation of GTE-8,3/МS gas- Мi-2М helicopter; turbine drive for EG-8000МS power station; ■ To continue work in accordance with integrated ■ To complete design documentation for AI-312N gas- schedule for launching production of AI9-3B series turbine drive at SE “Ivchenko-Progress” and manufac- 1 engine; ture prototype model at MOTOR SICH PJSC; ■ To sign Terms of Reference for MS-14S1 engines of ■ To manufacture and test the first prototype model of Т-107 airplane produced by ТК&Т OJSC; EG-1000МS power station; ■ To continue works on MS-500V engine. ■ To develop gas control unit and air bleed valve’s control system with new electronic components for 2.5 MW Works on TV3-117VМА-SBМ1V engine: power station; ■ To perform flight tests of Mi-24 helicopter engines ■ To develop design documentation and operational doc- under hot-and-high conditions, as well as flight tests of umentation on modernization of PAES-2500G power Mi-8МТ/ Mi-17 helicopter engines; stations; ■ To increase engine life; ■ To develop design documentation for modernization of ■ To create modifications of TV3-117VМА-SBМ1V PAES-2500 gas-turbine power station with accelerated series 1 engine with new full authority digital engine startup; control (FADEC) and redundancy hydromechanical ■ To complete tests of the prototype model of gas system; pumping unit at test bench; MOTOR SICH annual report 53 2009

■ To continue experimental works aimed at cheapening of the design of gas pumping modules and units, replace- ment of materials, standardization of components and assembly units, their application in the development of design documentation for the further deliveries of gas pumping units; ■ To complete complex operational, preliminary, accept- ance tests of the prototype model of gas pumping unit and to put the first gas pumping unit in pilot operation; ■ To develop Terms of Reference and conceptual design of new gas pumping unit GPA-К/5,5-GTD/12 with 12 MW gas-turbine drive.

Works on consumer goods ■ To manufacture, perform development and acceptance tests of MGT-02U mini-tractor; ■ To manufacture and perform acceptance tests of “МS-475” chain saw of enhanced design; ■ To carry out in-series manufacture of МB-8 motor cultivators; ■ To develop and manufacture pilot batch of “Motor Sich ETBS” hip joint implant system; “Motor Sich INETS-1” and “Motor Sich INEKS-1” instrument sets.

Works on capital construction ■ To perform reconstruction of main production shops; ■ To perform reconstruction of two hangars of MOTOR SICH PJSC Air Company for assembly of helicopters; ■ To complete construction of TEC-3; ■ To complete works on installation of TEC-6; ■ To perform reconstruction of test benches; ■ To continue construction of the Company’s museum; ■ To continue works on energy conservation. FINANCIAL AND ECONOMIC ACTIVITY MOTOR SICH annual report 55 2009

MOTOR SICH PJSC has carried out flexible financial Bank) and implementation of investment projects policy aimed at attraction of additional credit capital (contract with SIFCO for introduction of “Thermal from residential and non-residential financial and energy complex “Motor Sich” cogeneration plant). banking institutions in order to provide stable financial and economic activity of the Company. Long-term Specific weight of credit resources on the liabilities credits were attracted for the purchase of equipment side has reduced from 18.1 up to 15.7% at the end (Long-term credit agreement with Swiss “UBS AG” of 2009.

Specific weight of credit resources on the liabilities side for 2005 - 2009 (%)

20 18,1 18 15,7 16 13,8 14,2 14 13,0 12 % 10

8

6

4

2

0 2005 2006 2007 2008 2009

Indices of financial stability, business activity and financial soundness of the Company Profitability of sales - index, which is reflecting share of positive result of the Company’s activity. net profit in volume of sales, has increased in 2009 and Return on equity, determining efficiency of invest- has made 19.8%. ments into the Company, has increased in the report- Efficiency of current assets (which is reflecting effi- ing period, and has made 34.1%. ciency of negotiable asset and showing, what profit is produced by a unit of the Company’s circulating Return on equity of MOTOR SICH PJSC is at rather high capital) has increased and has made 28.9%. It is a level. It is an evidence of its efficient activity. PERSONNEL POLICY

■ Labour and Wages MOTOR SICH annual report 57 2009

The Company’s labour remuneration system shall Labour force at the parent enterprise has increased by provide fair remuneration for employees’ labour 266 persons in 2009. Labour force structure has depending on complexity and conditions of work, changed due to the increased amount of direct workers. employee’s professional and business qualities, results Personnel structure is as follows as of 31st December of the employee’s work and economic activity of the 2009: 34% - direct workers, 20% -auxiliary workers, Company’s corresponding subdivision. 37% - engineers and technicians, 6% - quality control Pursuant to Article No.56 of Law of Ukraine No.835- department, 3% - other categories. VI dated 26.12.2008 “On the state budget of Ukraine for 2009” in order to increase social standards for all Labour fluctuations at the parent enterprise have categories of workers, MOTOR SICH PJSC has intro- reduced by 2.1 times in 2009: at the average from duced new wage rates and official salaries from 8.92% per 2008 up to 4.32% per 2009. 01.05.2009.

Increase of average wages from January till December 2009 has made 134.5% at 115.9% average official rate of Personnel structure as of 31.12.2009, % inflation per year.

Average wages of production and industrial personnel 6 in December 2009 amounted to 2 439 UAH, of industri- 3 al workers - 2 606 UAH, of chief foremen - 3 336 UAH, of foreman - 2479 UAH. Main indices of the Company’s performance (average wages of all categories of work- ers, efficiency rates, wages of retired persons) were 37 constantly analyzed. Average efficiency rate in 2009 34 has made 117.2%. The Company has no wage arrears, as well as tax arrears to budgetary and extra-budgetary funds.

20 Comparative analysis of labour fluctuations for 2009 1,2

0,98 1,0 0,92 0,92 0,94 0,86 0,77 0,77 0,8 0,73 0,61 0,6 0,54 0,52 0,53 0,47 0,36 0,36 0,37 0,37 0,4 % 0,4 0,33 0,34 0,29 0,31 0,29 0,25 0,2

0 1 2 3 4 5 6 7 8 9 10 11 12 Month 2008 2009 MOTOR SICH 58 annual report 2009 2,1 Educational structure of production and industrial 26,4 personnel for the parent enterprise, %: 31,4

Higher education ...... 26,4 Specialized secondary education ...... 23,4 Secondary technical education ...... 16,7 Secondary education ...... 31,4 Incomplete secondary education ...... 2,1 23,4 28 Candidates of Science are employed at the Company. 16,7

9 Qualitative indices of staff: Personnel structure by categories, % 34 Industrial workers ...... 34,0 Auxiliary workers ...... 20,0 Engineers and technicians ...... 37,0 Other categories...... 9,0 From total amount: 37 disabled persons – 4%, working pensioners – 20%. 20

8,9 Age structure for the parent enterprise, % 11,4 27,2 up to 30 years ...... 27,2 31 - 40 years ...... 17,8 41 - 50 years ...... 21,5 51-55 years ...... 13,2 13,2 56 - 60 years ...... 11,4 over 60 years ...... 8,9 17,8 The average age of the Company’s employees is 42.2 years. 21,5

Training and professional development oriented at Staff recruitment system: systematic and comprehensive work with personnel ■ competitive selection of employees; reserve: ■ psychological testing for objective estimation of the ■ production-technical training courses, special training candidate’s intellectual and psychological potential; courses; ■ candidate’s interview by the head of subdivision; ■ cooperation with educational institutions; ■ probation period. ■ training in Personnel Training Department.

Growth of the average wages of employees at MOTOR SICH PJSC in 2005 - 2009 (UAH) Average wage 2005 2006 2007 2008 2009 of an employee, total 733,3 920,6 1 295,9 1 821,4 2 080,3 of a PIP employee* 751,0 946,8 1 335,3 1 871,2 2 134,8 * production and industrial personnel MOTOR SICH annual report 59 2009

In 2009 the Company has employed 149 yоung specialsts from 1996. ZNTU Department “Equipment of casting with higher education, 96 graduates of Zaporozhye production” functions from 1992. ZNTU has estab- Aviation College, Electrotechnical College, Hydroelectrical lished new specialty “Aircraft engines and power College and Zaporozhye Metallurgical secondary technical units” according to recommendations of MOTOR SICH school, graduates of technical vocational schools - 124 PJSC in 2005. persons. All together - 369 young specialists. The following number of students was trained at the plant Basic educational institutions for the Company are: in 2009: Zaporozhye National Technical University (ZNTU), ■ 580 students of the 3rd – 5th course of eleven higher Khar’kov National Aerospace University named after educational institutions were trained in 43 specialties; N.E. Zhukovsky (KhAI), Zaporozhye Aviation College ■ more than 370 students of 11 secondary technical (ZAC), Zaporozhye Electrotechnical College (ZEC), schools and colleges were trained in 21 specialties; Higher vocational school No.27. ■ more than 630 students of 10 vocational schools were The Company has concluded contracts with all young trained in 16 specialties. specialists, who will get additional payment up to the 71 children of the Company’s employees have success- Company’s average wage during 2 - 3 years. fully passed entrance examinations at Pre-university The Company pays much attention to perparation of Training Department and were enlisted to ZNTU to qualified specialists by means of correspondence edu- study the following machine-building specialties at the cation on-the-job. The majority of such students are account of the state budget: put to reserve. Competitive selection was performed on ■ “Aviation Engines Production Process”; the basis of partnership agreements with ZNTU and ■ “Aircraft Engines and Power Units”; ZEC. 33 young employees having more than 5-year ■ “Mechanical Engineering”; experience of work at the Company have got opportu- ■ “Metal-cutting Machines and Systems”. nity to study at the 1st – 4th course of these educa- The Company has rewarded 78 employees, whose chil- tional institutions on-the-job at the expense of the dren have come to the plant after graduation from state budget as a result of this selection. higher educational institutions and vocational schools, More than 950 employees of the Company are getting in order to maintain the corporate spirit and labour education via correspondence. dynasties. Cooperation with Zaporozhye Aviation College not 75 children of the Company’s employees were enlisted to only provides the Company with specialists having ZNTU Pre-university Training Department in 2009. secondary special education, but gives an opportunity The Company systematically works on occupational guid- to send them to the 3rd course of higher educational ance of schoolchildren of the 9th, 10th and 11th forms of institutions for further studies to complete earlier the schools of Zaporozhye and Zaporozhye region, formed groups. 16 graduates of ZAC were sent to the recruiting students for the basic Higher vocational school 3rd course of KhAI at the expense of the state budg- No. 27, Zaporozhye Aviation College, Zaporozhye et this year. 19 students of ZAC undergo training at Electrotechnical College, ZNTU Pre-university Training preliminary courses. Department. More than 500 children of the Company’s employees The Company constantly maintains cooperation with were sent to the full-time department of the branch Shevchenkovsky District Employment Centre and of Pre-university Training Faculty to get in-demand Zaporozhye Regional Employment Centre in order to specialties according to the agreement with ZNTU return unemployed persons to productive activity. during the period from 2005 till 2009. The Company’s Personnel Training Department is Such form of specialist training, as establishment of functioning for more than 70 years. The PTD has got branches of specialized departments of higher educa- licences of the Ministry of Education and Science of tional institutions at the plant, has got further devel- Ukraine for personnel training in 18 professions. opment. Branch of KhAI Department “Technology of production of aviation engines” functions at the plant SOCIAL SPHERE MOTOR SICH annual report 61 2009

Capital investments into social sphere in 2009 have (Khmelnitsky region) provide the resting people with amounted to 13.0 mln. UAH, including 0.9 mln. UAH different medical and preventive procedures: baths, for procurement of equipment. The Company has inhalations, ozokerite therapy, massage, remedial spent 54.2 mln. UAH for the health-care measures gymnastics, physical and therapeutic procedures. and maintenance of social facilities. That is by 0.7 Tourist camp “Meridian” is the most affordable recre- mln. UAH more than in 2008. The Company’s social ation site for the Company’s youth for many years. It is sphere includes practically all types of social benefits: situated in one of the most picturesque places, health care, education, recreation, sports, housing. Sedlasty island, not far from Kakhovka artificial lake. Social facilities are financed from the Company’s Holiday-makers are provided with more than 100 cot- assets. The Company is proud of the best local chil- tages, sports ground, tennis tables, billiard-room, dren’s health and sport camps with all conditions for rental boats and fascinating youth leasure programs. physical, psychological and social development of the 17979 persons, including 12207 employees of the younger generation. Children are provided with Company and their children have recreated in the opportunities for individual improvement, develop- health centres in 2009. The Company has introduced ment of artistic skills and activation of their natural collective arrivals, mother and child arrivals, veterans potential. 1428 children of the Company’s employees of the Great Patriotic War and veterans of labour. 1527 and 485 children of the workers of other enterprises persons are dwelling in the Company’s dormitories. have recreated at the camps. Vacation hotel 555 children study at the centre of preschool educa- “Horizont” in Crimea and health centers “Motor” and tion. “Priboy” at the Azov sea are equipped with comfort- Medical division of MOTOR SICH PJSC is equipped able sleeping buildings, spacious halls, improved with up-to-date equipment and manned with the rooms (suites and semi-suites), as well as canteens best medical staff. Thousands of engine-builders and with three daily meals, bars, saunas, billiard-rooms, inhabitants of Zaporozhye get qualified medical care cinema halls, libraries, sports grounds and children’s there every year. playgrounds. Sanatorium-preventorium in Andreyevka Collectives of the Cultural Center named after village at the bank of the Dnieper river and sanatorium T.G. Shevchenko and “Motor Sich” Sports Complex “Raduga” located in the town of Volochysk are well-known outside Zaporozhye and Ukraine. FINANCIAL REPORT MOTOR SICH annual report 63 2009

BALANCE (THOUS. UAH)

Note No. 31. 12. 2008 31. 12. 2009 ASSETS Intangible assets in residual value 1 548 839 Fixed assets in residual value 2 845 358 921 056 Incomplete construction 3 146 358 213 187 Long-term financial investments 4 239 382 253 514 Long-term debt 6 6 595 6 595 Other non-circulating assets 642 2 837 Production stock 5 1 513 866 1 585 229 Settlements with debtors 6 564 305 846 182 Monetary resources and their equivalents 7 48 947 187 390 Current financial investments 4 113 964 104 970 Other circulating assets 55 201 87 419 Deferred expenses 2 148 1 445 Total for Assets 3 537 314 4 210 663

LIABILITIES Provision of deferred expenses and payments 4 692 6 769 Long-term liabilities 9 125 766 235 405 Short-term credits 589 121 538 687 Settlements with creditors 9 1 014 983 883 311 Deferred income 119 234 Total for liabilities 1 734 681 1 664 406

OWNERSHIP CAPITAL Statutory capital 8 280 529 280 529 Additional invested capital 8 171 757 171 757 Other additional capital 8 656 127 658 522 Capital reserves 8 70 145 70 145 Retained profit 8 628 953 1 370 182 Withdrawn capital 8 (4878) (4878) Total for ownership capital 1 804 562 2 546 257 Total for liabilities 3 539 243 4 210 663 MOTOR SICH 64 annual report 2009

REPORT ON FINANCIAL RESULTS (THOUS. UAH)

Note No. 2008 2009 Income Net income (proceeds) obtained from sale of products (goods, works, services) 10 2 056 424 3 740 353 Other operational income 10 1 381 562 2 478 380 Profit of capital share 10 18 700 9 513 Other financial income 10 217 787 Other income 10 151 169 64 764 Total for income from cost accounting 3 608 072 6 293 797 Extraordinary income – –

Expenses Cost of sold products (goods, works, services) 1 326 556 2 137 504 Administrative expenses 275 792 308 658 Sales expenses 150 874 224 449 Other operating expenses 10 1 426 649 2 443 130 Financial expenses 10 53 379 84 279 Capital share expenses 10 6 816 11 887 Other expenses 10 355 310 88 277 Profit tax 10 142 254 384 Total expenses from cost accounting 3 605 518 5 552 568 Extraordinary expenses Net profit 2 554 741 229 MOTOR SICH annual report 65 2009

Main Aspects of Accounting Policy

The principles of accounting policy used as a basis for preparation of summary financial report are determined by effective legislation of Ukraine, Regulations (Standards) for Accounting (R(S)A), accounting policy of MOTOR SICH PJSC approved by Chairman of the Board of Directors, and other regulatory documents of the Company. Accounting policy is common for the head plant and all its subsidiaries. Assets and liabilities are reflected in the Balance Sheet at historical (actual) cost, with the account of the fact that the cost of fixed assets, intangible assets and stocks may be revaluated in compliance with the requirements of National accounting standards. Currency of the Company’s Financial Report – national monetary unit of Ukraine, hryvnya (UAH). MOTOR SICH 66 annual report 2009

Note 1 NOTES Intangible assets TO FINANCIAL

REPORT Intangible assets are accounted according to the fol- lowing groups: software products for personal com- puters, rights to products and services trademarks, rights to objects of industrial property, incomplete capital investments in intangible assets, licenses for effecting definite types of activity for over one year. Intangible assets should be estimated by cost price when they are entered to balance. Costs for creating Company's own trademark are included in costs of the period under account. Assets acquired from the third parties are considered as intangible ones.

Structure and flow of intangible assets (thous. UAH)

Item Software Other intangible assets Total

Cost Balance as of 31.12.2008 14 276 163 14 439 Received per year 802 – 802 Retired per year – – – Balance as of 31.12.2009 15 078 163 15 241

Depreciation Balance as of 31.12.2008 13 827 64 13 891 Accrued per year 511 – 511 Retired per year – – – Balance as of 31.12.2009 14 338 64 14 402

Net Balance value as of 31.12.2008 449 99 548 Net Balance value as of 31.12.2009 740 99 839

Intangible assets of the Company consist mainly of the computer software and computer networks. Intangible assets depreciation is calculated according to the straightforward method. Useful life is deter- mined for each intangible asset. The Company has no intangible assets, which are under limitation of the right of ownership and which have been registered under security conditions. MOTOR SICH annual report 67 2009

Note 2 Fixed assets and low-value non-negotiable tangible assets

Fixed assets include tangible assets held by the Company respect to their first cost. First cost of the object of in order to use them during production or delivery of fixed assets and low-value non-negotiable tangible goods and rendering of services, as well as to lease to assets consists of acquisition price and costs that are other persons or to realize administrative and social-and- directly related to bringing fixed assets to condition at cultural activities; their expected useful life is more than which their operation is possible. one year. Residual value of fixed assets was not used in the Fixed assets and low-value non-negotiable tangible assets accounting year. Additional evaluation of fixed assets are shown in the balance with respect to their historical was not carried out. and depreciated cost. Depreciation of fixed assets is accrued during useful life Initial evaluation of objects of fixed assets and low- of the object by means of straightforward method. value non-negotiable tangible assets is carried out with

Structure and flow of fixed assets (thous. UAH)

Buildings, Tools, Low-value structures, Machines and Other Item equipment and non-negotiable Total transfer equipment fixed assets facilities tangible assets facilities

Historical cost Balance as of 31.12.2008 754 846 690 570 148 740 227 781 136 020 1 957 957 Received per year 48 567 74 840 32 108 42 965 10 681 209 161 Retired per year 20 095 12 265 2 339 11 553 25 271 48 417 Balance as of 31.12.2009 783 318 753 145 178 509 259 193 121 430 2 118 701

Depreciation Balance as of 31.12.2008 290 512 483 510 66 916 195 936 75 725 1 112 599 Accrued per year 17 537 39 387 14 553 37 913 8 513 117 903 Retired per year 8 368 11 018 1 432 10 345 22 384 32 857

Balance as of 31.12.2009 299 681 511 879 80 037 223 504 82 544 1 197 645 Net balance value as of 31.12.2008 464 334 207 060 81 824 31 845 60 295 845 358 Net balance value as of 31.12.2009 483 637 241 266 98 472 35 689 38 886 921 056 MOTOR SICH 68 annual report 2009

The Company does not have fixed assets, with respect Cost of fixed assets received under operational lease to which there exist limitations stipulated by the conditions is 19 074 thous. UAH. effective legislation regarding the right of ownership, In 2009 fixed assets were acquired for monetary funds possession, management, as well as fixed assets, and built up by the Company. Fixed assets were retired which are temporarily not in use. due to liquidation, since they no longer met the criteria Historical (revaluated) cost of fully depreciated fixed assets, for acceptance as assets, as well as since they were sold which continue to be used, is 457 483 thous. UAH, cost of or transferred gratis. fixed assets issued as mortgage is 619 382 thous. UAH.

Note 3 Capital Investments

non-negotiable tangible assets, which were not put in Incomplete capital investments form a separate group; service as of the date of the Balance Sheet, as well as an individual object of incomplete capital investments is advance payments for financing of construction. considered as a unit for their accounting. Incomplete capital investments are accounted by their Incomplete capital investments in capital tangible assets historical cost. Depreciation is not accrued for them. are capital investments in construction, manufacture, The amount of 276 792 thous. UAH was spent for capital reconstruction, modernization, acquisition of objects of investments in fixed assets during the accounting year.

Structure and Movement of Capital Investments (thous. UAH)

Item Balance as of Received Retired Balance as 31.12.2008 per year per year of 1.12.2009

Capital construction 111 871 167 535 102 710 176 696 Acquisition (manufacture) of fixed assets 21 041 60 922 58 838 23 125 Acquisition (manufacture) of other non-negotiable tangible assets 11 675 47 388 45 710 13 353 Other 1 771 947 2 705 13 Total 146 358 276 792 209 963 213 187 MOTOR SICH annual report 69 2009

Note 4 Financial Investments

Оne of directions of the Company’s activity is invest- 38 enterprises. ment activity. The Company holds 100% of shares of sub- Financial investments with the stakes exceeding 20% are sidiaries and has stakes in statutory capitals of Motor Sich accounted by method of participation in capital and are Middle East (SAIF zone, Sharjah, United Arab Emirates) - shown as of the date of Balance Sheet with the value 100%, Energo-Service CJSC (Strizhevoye, Russian determined taking into consideration change of total Federation) - 49%, Dubnenskiye motory CJSC, (Dubna, value of ownership capital of investment object. Russian Federation) - 24.9%, Sodruzhestvo story Ltd. Balance value of investments has been (Zaporozhye) - 99.74%, Iveco - Motor Sich CJSC increased/decreased by the sum that is the investor’s (Zaporozhye) - 10.37%, Motor Bank Ltd. (Zaporozhye) - stake in the net profit/negative profit of the invest- 4.99%, Zaporozhye fish factory CJSC (Zaporozhye) - ment object and is included into the amount of 72.73%, Motor Garant Insurance Company ALC income/losses from the shareholding. At the same (Zaporozhye) - 30% and a number of other enterprises in time the balance sheet value of the investment is Ukraine and Russia. decreased by the amount of declared dividends. All Long-term financial investments of the Company make other financial investments as of the date of balance 247,251 thous. UAH as of 31.12.2009. statement are shown at their self-cost. All in all, the Company has made investments into

Flow of financial investments (thous. UAH)

Financial investment, according to the shareholdings method, in: Current Other financial Item Total financial Associated investments Subsidiaries investments enterprises

Balance as of 31.12.2008 224 293 2 484 12 605 239 338 113 964 Investments acquired 21 567 1 000 22 567 34 774 Additional capital 1 307 1 351 Profit from shareholding 9 488 25 9 513 Readjustment of rates 1 088 1 088 Acquired dividends Investments retired 1 114 7 342 8 456 43 768 Expenditures due to shareholding 11 405 482 11 887 Balance as of 31.12.2009 245 224 2 027 6 263 253 514 104 970

Long-term financial investments increased during reporting been partially sold during reporting period for the amount of period by the amount of 20 474 thous. UAH. During current 13 734 thous. UAH. Financial investments into associated reporting period there was received capital share income for companies amounted to 21 567 thous. UAH in 2009. the amount of 9 513 thous. UAH and there were suffered Current financial investments of emitters include the losses for the amount of 11 887 thous. UAH. The stakes of shares with total amount of 104 970 thous. UAH acquired corporate rights in the property of some enterprises have for further resale. MOTOR SICH 70 annual report 2009

Note 5 Process Stock

The stock is considered to be an asset, if there is their quantity is organized in places of their con- a possibility that the Company will get future eco- sumption, and stock audit is regularly performed. nomical benefits connected with their utilization The stock is reflected in accounting and balance statement and their cost can be reliably determined. Each item at the historical cost as of the balance date. If price of the of valuables is a stock unit. stock has decreased or inventory items got spoiled, When stock is transferred into production, sold or became obsolete or lost originally expected economic disposed otherwise, their evaluation is done accord- value as of the date of balance statement, they are ing to the first-in-first-out method. For monitoring reflected by net liquidation value. consumption of inventory items, accounting of

Balance value of the stock (thous. UAH)

Item Balance value as of Balance value as of 31.12.2008 31.12.2009

Raw staff and materials 88 837 204 195 Vendor semi-finished items and component parts 92 737 80 826 Fuel 23 685 10 755 Construction materials 1 260 1 780 Spare parts 37 616 44 898 Low-value and rapidly amortizable items 13 185 16 939 Work-in-progress 1 161 936 1 118 765 Finished products 88 816 96 522 Commodities 3 661 4 298 Other stock 2 133 6 251 Total 1 513 866 1 585 229 MOTOR SICH annual report 71 2009

Note 6 Debt Receivables

Debt receivables are considered to be assets, if there is Debt receivables for products and goods are reflected a possibility that the Company will get future economical in the balance by net cost of sales, which is equal to benefits and their cost can be reliably determined. Current the amount of debt receivables minus the reserve of debt receivables for products/goods and services are doubtful debts. accepted as the asset simultaneously with acceptance of Bad debt receivables are written off from the assets sales income and is evaluated by historical cost. with non-recurring reduction of the reserve of Current debt receivables for products, goods and servic- doubtful debts. If the reserve amount of doubtful es are included in the balance total by net cost of sales. debts is not sufficient, doubtful debts are written Reserve of doubtful debts is accrued as of the date of off from the assets of the Company to other opera- balance statement for determining net cost of sales. tional expenditures. The compensation amount of This reserve is reflected in the report on financial results earlier written off debt receivables is included in being included in other operational expenses. other operational profits. Reserve amount of doubtful debts is determined based Bad debt receivables in the amount of 1,309 thous. UAH on financial solvency of individual debtors. Criteria of were written off in the accounting year at the account of referring to debt receivables as doubtful debts are as reserve of doubtful debts. follows: debt, which limitation period is expiring earli- er than 12 months after the accounting date, if the debtor is declared a bankrupt or is absent at the address indicated in documents.

Structure of the Company debt receivables (thous. UAH)

Item as of 31.12.2008 as of 31.12.2009

Bills received – – Debt receivables for products, goods and services: ■ net cost of sales 194 848 140 299 Debt receivables for settlements: ■ of budgetary payments 49 686 69 697 ■ for advances granted 230 845 529 099 ■ for internal settlements 2 818 4 305 Other current debt receivables 86 108 102 782 Total 564 305 846 182

The debts with connected persons is 20,442 thous. UAH of claims, and debt receivables for non-commercial as of the end of the year. operations. Item ‘Long-term debt receivables’ reflects contribution The other debt receivables in the accounting are debt to the joint activity with Zaporozhye Plant of Consumer receivables for sums granted against reports, settlements Goods Ltd. MOTOR SICH 72 annual report 2009

Note 7 Funds

Funds of the Company are allocated on the current advance payment. accounts and cash accounts of the Company both in Balance value of the stated balance sheet items in future national and foreign currency. Foreign currency transac- will be determined (evaluated) according to correspon- tions are reflected at primary acknowledgment by conver- ding provisions (standards) of business accounting. sion of the sum in foreign currency into the balance cur- Exchange rate differences as per the foreign currency rency according to the exchange rate of National Bank of monetary items are determined as of the date of settle- Ukraine as of the date of transaction. The amounts of paid ment and the date of balance. Exchange rate differences and received advance payments in foreign currency are from conversion of the balance sheet items denominated converted into the reporting currency with the use of the in foreign currency are reflected in operational and other currency rate as of the date of payment or receipt of profits (expenses).

Funds (thous. UAH)

Item 2008 2009

Payment office 143 186 Current accounts in banks 33 751 146 834 Other accounts in banks (letters of credit, cheque-books) 15 053 25 369 Funds in transit - 1 Equivalent funds - 15 000 Total 48 947 187 390

Note 8 Ownership Capital

The registered Statutory fund of MOTOR SICH PJSC the corporate capital part. Net profit per one share was 280,528,650 UAH in 2009. It consisted of amounted to 374.28 UAH. 2,077,990 ordinary registered shares with nominal The other additional capital includes the cost of fixed value of 135 UAH. assets indexation and unfinished construction, addi- Given below is the structure of capital stock of the tional evaluation of stock, property received free of factory with respect to types of owners as of charge as a result of privatisation. Correction of mis- 31.12.2009. takes made during preceding periods has been effect- At the end of the year the amount of shares in circula- ed by correcting the balance of undistributed profit tion made 1,980,394. All shares give equal rights for with simultaneous acknowledgement of income and taking part in voting, receiving dividends and returning expenses. MOTOR SICH annual report 73 2009

Changes in ownership capital during 2009 (thous. UAH)

Additionally Other Statutory Reserve Undistributed Withdrawn Item invested additional Total fund capital profits capital capital capital

Balance as of the beginning of year 280 529 171 757 656 767 70 145 630 242 (4 878) 1 804 562 Adjustment: ■ correction of mistakes (640) (1 289) (1 929) ■ other changes

Adjusted balance as of the beginning of year 280 529 171 757 656 127 70 145 628 953 (4 878) 1 802 633 Increases in the value of fixed assets 1 307 1 307 Net profit during reporting period 741 229 741 229 Distribution of profit: – – Payments of dividends Contribution to reserve capital – – –

Other changes in capital (exchange differences per financial investments) 1 088 1 088

Total number of changes in capital 2 395 741 229 743 624 Balance as of the end of year 280 529 171 757 658 522 70 145 1 370 182 (4 878) 2 546 257

Note 9 Liabilities

The Company acknowledges liabilities, if their value Reserve of future expenses for payment of vacation can be truly assessed and there is possibility of allowances is accrued by the Company. Reserves for decreasing economic gains in future due to their liqui- warranty service, for annual remuneration for employ- dation. If formerly acknowledged liabilities are not ment years etc. were not created. In the reporting period subject to liquidation as of the balance sheet date, there were accrued provisions for payment of vacation their amounts are included into the incomes of the allowances in the amount of 56 749 thous. UAH. There reporting period. were used 54 570 thous. UAH. MOTOR SICH 74 annual report 2009

Structure of the Company's long-term liabilities (thous. UAH)

Item as of 31.12.2008 as of 31.12.2009

Long-term bank credits 48 187 96 222 Other long-term financial liabilites 20 300 19 203 Deferred tax liabilities 57 279 119 980 Total 125 766 235 405

Item “Other long-term liabilites” reflects credit given residual cost in the tax accounting, incomes and by the State innovation-and-crediting institution for expenses of future periods. incorporation and implementation of the innovation Deferred tax liabilities (amount of profit tax that will be project ‘Implementation of cogeneration power-sav- paid in future periods from the time-based tax differ- ing plant “Motor Sich thermal power generation ences subject to taxation) were increased for the complex”. amount of 62 701 thous. UAH in the reporting period. Deferred tax liabilities were accrued on the amounts of The amount of deferred tax assets and liabilities is reflect- received and issued advance payments, residues of ed in item “Deferred tax liabilities” of the balance sheet. incomplete production and finished products to the extent of direct overhead costs, on the amount of sur- plus of residual cost of industrial fixed assets over their

Structure of the Company's current liabilities (thous. UAH)

Items as of 31.12.2008 as of 31.12.2009

Bills issued 108 601 9 312 Accounts payable for goods, works and services 146 802 86 701

Current liabilities on settlements: ■ of obtained advance payments 684 003 657 279 ■ with budget 6 031 49 122 ■ of insurance 14 251 19 142 ■ of salary 30 171 38 827 ■ with participants 10 917 9 953

Other current liabilities 14 207 12 975 Total 1 014 983 883 311

Items of current liabilities reflect debts, which liquidation term did not become due as of the balance sheet date. Item “Other current liabilities” reflects the amount of liabilities on non-commercial transactions and transactions with other creditors. MOTOR SICH annual report 75 2009

Note 10 Incomes and Expenses Items of incomes and expenses are taken into account Accounting of percentage incomes and expenses is and evaluated at the moment of assets sale or service carried out by accrual method. Cash basis method is provision. All the Company's incomes and expenses used only for accounting of percentage incomes taking place in the reporting period are reflected with- added to demand balance on bank accounts. in the same period regardless of date of actual acquisi- Profit from selling products (goods, works, services) tion or payment of monetary funds. amounted to 1 602 849 thous. UAH in 2009. Incomes, which were received in the reporting period, Basic types of activity of Motor Sich PJSC in 2009 were but were to arrive in the next period, are accounted as production and overhaul of aircraft engines, as well as incomes of future periods. Incurred expenses and pay- ground equipment based on aircraft engines. ments relating to future periods are accounted as expenses of future periods.

Structure of incomes with respect to ordinary types of activity (thou. UAH)

Item Reporting Preceding Absolute Rate of period period changes growth, %

Net income (proceeds) from selling products (works, services) 3 740 353 2 056 424 1 683 929 81,9 from production and repairing of air-engines 3 387 759 1 656 445 1 731 314 104,5 from production of ground equipment 153 466 178 347 -24 881 -14,0 from consumer goods 84 411 78 189 6 222 8,0 other goods, works, services 114 717 143 443 -28 726 -20,0

Structure of incomes with respect to ordinary types of activity has not changed since the previous reporting peri- od. Incomes from the ordinary types of activity, the same as in the previous period, for 90% consist of incomes from production and overhaul of aircraft engines, and ground equipment. Income from selling consumer goods is negligible. Absolute values of incomes from the ordinary types of activity increased by 81.9% in 2009 against the figures of the previous period due to increased volumen of sales of helicopter engines and exchange rate fluctuations. MOTOR SICH 76 annual report 2009

Given below are the incomes and expenses from other operating, investment and financial activity:

Reporting Item Preceding Absolute period period changes Other operating incomes Operating lease of assets 3 681 2 865 816 Operating difference in rates 33 721 52 415 -18 694 Income from selling other circulating assets 65 152 32 443 32 709 Received penalties, fines and forfeits 87 30 57 Maintenance of objects of housing and communal services, social sector 3 610 3 011 599 Income from selling foreign currency 2 344 346 1 259 923 1 084 423 Other operating incomes and expenses 27 783 30 875 -3 092 Total 2 478 380 1 381 562 1 096 818 Incomes from participation in capital from investments in: Associated enterprises 9 488 18 402 -8 914 Subsidiary companies 25 298 -273 Total 9 513 18 700 -9 187 Other financial income Other financial income 787 217 -217 Total 787 217 -217 Other income Realization of financial investments 38 397 125 256 -86 859 Non-operating difference in rates 25 090 19 498 5 592 Other income 1 277 6 415 -5 138 Total 64 764 151 169 -86 405 Other operating expenses Operating difference in rates 42 836 34 616 8 220 Selling of other negotiable assets 41 386 23 171 18 215 Penalties, fines and forfeits 4 157 5 331 -1 174 Doubtful and bad debts 3 066 -3 066 Maintenance of objects of housing and communal services, social sector 69 815 68 033 1 782 Self-cost of selling foreign currency 2 275 590 1 274 290 1 001 300 Other operating incomes and expenses 9 346 17 670 -8 324 Total 2 443 130 1 426 177 1 016 953 Incomes from participation in capital from investments in: Associated enterprises 11 405 4 813 6 592 Subsidiary companies 482 848 -366 Total 11 887 5 661 6 226 Other financial expenses Interest on credit 84 279 53 379 30 900 Total 84 279 53 379 30 900 Other expenses Realization of financial investments 38 199 137 255 -99 056 Non-operating difference in rates 46 063 212 755 -166 692 Other expenses 4 015 5 300 -1 285 Total 88 277 355 310 -267 033 The highest figures in items “Other operating incomes and expenses” belong to the receipts and expenses related to selling of foreign currency and other negotiable assets, as well as maintenance of social sphere facilities. Absolute values of receipts/expenses have increased significantly in comparison with the previous year. MOTOR SICH PJSC 15 Motorostroiteley Avenue, Zaporozhye 69068, Ukraine Tel.: (380 61) 720-48-14 Fax: (380 61) 720-50-00 Е-mail: [email protected] www.motorsich.com