Motor Sich JSC today is one of the leading aircraft engine-eng... · License of the Ministry of...

ANNUAL REPORT MOTOR SICH JSC 2008 1

Motor Sich JSC today is one of the leading aircraft engine-building factories of the world in the field of development,production, testing, in-service support and overhauling ofup-to-date aircraft engines.

The produce of the factory is used in versatile airplanesand helicopters in more than 120 countries worldwide.

All products offered by the company to the world marketfeature high functional characteristics and are produced atcertified production facilities.

The modern technologies developed and incorporated atMotor Sich JSC, new engineering and technological solutions,well-developed scientific and technical infrastructure andhighly qualified personnel establish a basis of success andcontinuous development of Motor Sich JSC.

The up and running system of maintenance of the producedelivered to the customers allows rendering highlycompetitive services in maintenance of engines practicallyin any part of the globe.

We are always open to all enterprises and organizationsready to extend their relations for mutually-beneficial andpromising cooperation in the field of development,manufacturing and operation of aviation equipment.

With best regards,

V. BoguslayevChairman of the Board of Directors

Motor Sich JSC

2

ABOUT COMPANY

ANNUAL REPORT MOTOR SICH JSC 2008

YEAR OF FOUNDATION1907

SPECIALIZATIONDevelopment and manufacture of gas-turbine engines formilitary and civil aviation, industrial drives, power generatingsets and consumer goods

ORGANIZATIONALSTRUCTURE

Joint Stock Company (since 1995)

BASIC FEATURESNumber of shareholders 9, 591Number of employees 21, 236Company assets, million UAH 3, 539.2Company capital, million UAH 1, 804.6Statutory fund, million UAH 280.5Net profit from salesin 2008, million UAH 2, 047.3

MOTOR SICH JOINT STOCK COMPANYIS A MEMBER OF THE FOLLOWINGASSOCIATION OF FACTORIES:

Association of Ukrainian Aviation Industry Enterprises"Ukraviaprom" (Kiev)

The association has been established to coordinate the efforts of participants regarding production, business and scientificactivity, uniting financial, physical and other resources for the development of production of aviation materiel.The subject of activity consists in rendering services to the members of association, and to other physical and legalpersons in legal, economical and organizational issues.

Association "Union of Aviation Engine-Building"(Moscow)

The association has been established to satisfy the needs of national economy in the products of aircraft engine-building,accessories for it, equipment for light and food industry, consumer goods and other products.The subject of activity is the development of new types of aircraft engines and other types of equipment, rendering seriesproduction of the aircraft engines.

Zaporozhye Regional Union of Manufacturers andBusinessmen "Potentsial" (Zaporozhye)

The association has been established for increasing the efficiency of production, increasing of output of consumer goods,protection of interests of collectives and leaders.The subject of activity is the creation of high social status and prestige of economy leader and businessman in theparticular region.

Non-profit Organization "Union of Oil-and-GasEquipment Manufacturers" (Moscow)

The organization has been established for coordinating the common activity and protecting general interests of the union members.The subject of activity is the promotion of its members to the Russian and foreign markets, assistance in invitinginvestments for budgeting of promising programs.

Non-profit Partnership "International Union of AircraftIndustry" (Moscow)

The association has been established for rendering assistance in the development of business activity in the field ofaviation and aircraft-building industry, social and legal status of the factories in the industry.The subject of activity is to render the informational assistance to the members of partnership, organization and carryingout exhibitions, competitions and festivals for the sake of promotion of aviation science.

3ANNUAL REPORT MOTOR SICH JSC 2008

VOLOCHYSK

ALUSHTA

ZAPOROZHYE

PRIMORSK

SNEZHNOYE

STRUCTUREThe Joint Stock Company incorporates 14 structural units(without the right of legal body) situated in various regionsof Ukraine, as well as representation offices in Kiev, Russia(Moscow), India, China, UAE, Iran.

4

ABOUT COMPANY


ZAPOROZHYEOMELCHENKO

MACHINE-BUILDINGPLANT

Year of foundation — 1988.Lines of activity:

Testing of aircraft engines;Assembly and testing of gas-turbine power generating

sets EG-1000 and EG-6000;Testing of 6.3, 8, 10 MW D-336, AI-336 gas-turbine drives;Assembly and testing of gas-turbine pumping units

GPA-Ts-6,3;Manufacture of gas-pumping complex GPA-K/5,5-GTP/6,3SK;Manufacture of blades;Foundry.


SNEZHNOYEMACHINE-BUILDING

PLANT (SMZ)Year of foundation — 1974.

Lines of activity:

Production of blades for gas-turbine engines;

Manufacture of parts and units for mining equipment;

Manufacture of consumer goods with special emphasison agricultural and utility equipment.

6

ABOUT COMPANY


VOLOCHYSKMACHINE-BUILDING

PLANTYear of foundation — 1971.

Lines of activity:

Providing aircraft engines with mass-produced partsand metal products;

Production of technological tooling;

Overhaul of AI-20 engine and its modifications;

Manufacture of EG-1000, PAES-2500 power generating sets;

Manufacture and assembly of GTE-MS-2,5; AI-2500Mpower drives;

Manufacture of consumer goods with special emphasison a wide range of silencers for cars and agricultural equipment.


HEALTH CENTREPRIBOY

Location: Primorsk, Zaporozhye region (Azov seashore).Capacity: Seven buildings for 490 persons.Number of vacationers p.a.: more than 3 thou persons.Line of activity: family recreation.Main advantages:

Comfortable rooms;Caloric food;Equipped beach;

Providing various leisureGymnasium.

8

ABOUT COMPANY


HEALTH CENTREMOTOR

Location: Primorsk, Zaporozhye region (Azov seashore).Capacity: 4 buildings for 500 persons.Number of vacationers p.a.: more than 3 thou persons.Line of activity: family recreation.Main advantages:

Comfort, home-making environment;Perfectly-organized way of life;

Best-equipped beach at Azov seashore;Tennis-courts with special covering;Two thousand square meters of sport grounds;Gymnasium;Billiard, cinema and concert halls;Excellent national cuisine.


MEDICAL-CAREVACATION HOTEL

HORIZONTLocation: south coast of Crimea, Alushta.Capacity: 3 sleeping buildings for 500 persons.Number of vacationers p.a.: more than 4 thou persons.Specialisation: medical treatment of diseases of respiratoryorgans and functional diseases of nervous system, and ear,nose, throat diseases.Line of activity: family recreation.Main advantages:

Comfortable rooms;Picturesque scenery;Clean air;Warm sea;Qualified medical service;Adequate diet;Providing of various leisure;Equipped sports and play grounds;Line of stores and cafes.

10

ABOUT COMPANY


MOTOR SICH JSCAIRLINE

Motor Sich JSC Airline was founded in 1984 and now is astructural subdivision of Motor Sich JSC. At present itoperates on the market of cargo and passenger airtransportation in Ukraine, CIS, non-CIS and overseas countries.Base airfield is airport in Zaporozhye (OZH/UKDE),Mokraya airfield.Since 2004 the Airline is accredited at UN as the officialsupplier of air transportation services for UN and takespart in air transportation according to UN program inSudan using aircraft An-74TK-200.Aircraft fleet of the airlineis composed of passenger,cargo/passenger and cargo planes:

Yak-42D 1 planeYak-40 1 planeYak-40 (business arrangement) 1 planeAn-24 2 planesAn-140 2 planesAn-74TK-200 1 planeAn-12 2 planes

Representation offices:Kiev (Ukraine),Moscow (Russia),Istanbul and Ankara (Turkey).

International codes:ICAO code — MSI;IATA code — M9 and O11.

Rendered services:cargo and passenger air transportation (scheduled

and charter flights, and business flights) to all regionsof the world;

air transportation of hazardous cargo and special-purpose cargo;

line maintenance and periodic maintenance of airplanesAn-140, An-24, An-12 and Yak-40, line maintenance ofairplane An-74TK-200.Airline uses aviation systems:

System of aviation communications AFTN (ÓÊÄÅÌÑÈÜ);International commercial aviation system SITA

(OZHSMXH);Systems SIRENA, Amadeus, Gabriel, Galileo and other

systems for sale and reservation of air tickets.


Motor Sich JSCAirline flies scheduled

passenger flightson routes:

Zaporozhye - Kiev,Zaporozhye - Moscow (Russia)Zaporozhye - Istanbul (Turkey),

Kiev - Ankara (Turkey)

KIEV

ZAPOROZHYE

ANKARA ISTANBUL

MOSCOW

UKRAINE

AROUND THE WORLD IN 24 HOURS

Charter flights are performed to: Iran, India, Thailand,Bangladesh, Sri-Lanka, Algeria, Israel, Armenia,Georgia, Syria, Italy, Spain, Turkey, Egypt, Kyrgyzstan,Kazakhstan, UAE, Slovenia, Germany, France,Hungary, Belgium, Canada, USA and other countries.According to results of year 2008 the aircraft ofairline:

performed 2,158 flights;accumulated 6,439.9 flight hours;carried 37,900 passengers;carried 1,259.6 tons of cargo;

Achievements of Airline:2001 - 2004 — participation in transportation

of participants of Paris-Dakar rally;2003 — gold medal of international fund "For

high quality in business practice" (Switzerland);2004 — Certificate of Quality System ISO 9001

(Russia) was awarded;

2005 — Certificate of Quality System ISO 9001was confirmed.

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ABOUT COMPANY


CERTIFICATES

Quality System has been certified by:Company BUREAU VERITAS Certification for compliancewith the requirements of International StandardISO 9001:2000;Certification center Gosaviasertifika in "Military Register"system (Moscow);Central Authority of RF certification system;ANO of CC "Quality".

Production of aviation equipment has been certified by:Aviation Register of Interstate Aviation Committee;State Aviation Administration of Ukraine.

Overhauling of aviation equipment has been certified by:Aviation Register of Interstate Aviation Committee;State Aviation Administration of Ukraine.

Certificate of design authority:Ñertificate of design authority No. R-56 issued byAviation Register of Interstate Aviation Committee.

Type Certificates:Type Certificate No. ST260-VD for AI-450-MS engineissued by Aviation Register of Interstate AviationCommittee;Type Certificate No. TDD 0009 for AI-450-MS engineissued by State Aviation Administration of Ukraine;Type Certificate No. ST267-AMD for TV3-117VMA-SBM1Vengine issued by Aviation Register of Interstate AviationCommittee;Type Certificate No. TD 0035 for TV3-117VMA-SBM1Vissued by State Aviation Administration of Ukraine.

Certificates of air service:Certificate by State Authority of Ukraine on supervisionof aviation safety assurance VR No. 0174 onorganization of aviation transport maintenance;Certificate of Operator by State Authority of UkraineNo. 025.


LICENSESLicense of State Authority of Ukraine on Supervision

of Aviation Safety Assurance ÀV No. 041679 dtd. 23.08.2007about rendering services for passenger and cargotransportation by air;

License of the Ministry of Transport of Ukraine ABNo. 323668 dtd. 23.04.2007 for rendering services forinternational passenger and cargo transportation by road;

License of the Ministry of Health of Ukraine AV No.348265 dtd. 25.05.2007 and license AB No. 123126 dtd.25.10.2004 for rendering medical services with expiry dateon 20.10.2009;

License of the National Regulatory Commission forElectrical Power Industry of Ukraine PS No. 538 dtd.21.07.1998 for the right of rendering business activity forsupplying electric power at unregulated tariffs;

License of the State Committee for Communicationand Information of Ukraine RA No. 004356 dtd. 28.04.2004for utilization of radio-frequency resource of Ukraine.

License of the National Regulatory Commission forElectrical Power Industry of Ukraine AV No. 078001 dtd.03.03.2006 for supplying gas at unregulated tariffs.

PATENTS OF UKRAINE

UA 21314 dated 19.08.2006 "Bypass gas-turbine engine";

UA 23249 dated 29.01.2007 "Method of overhaul ofgas-turbine engine";UA 25781 dated 12.03.2007 "Method of overhaul ofgas-turbine engine";UA 29287 dated 27.08.2007 "Protective device againstimpermissible rotational speed of free turbine rotor";UA 35074 dated 25.04.2008 "Heat exchanger of air-oil cooler";

UA 66029A dated 15.04.2004 "Method of electrolytic-and-plazma dimensional treatment";UA 4814 dated 26.04.2004 "Mobile automated gas-turbine power-generating set";UA 27817 dated 27.07.2007 "Gas-turbine power-generating plant";UA 56153 dated 01.07.1998 "Joint implant of thesurface of femoral-head prosthesis of Rudenko system";

UA 70181 dated 29.12.2003 "Retainer for osteosynthesisof broken femoral neck;No. 20479 dated 21.08.2006. Condylar prosthesis.

14

ABOUT COMPANY


EUROPEAUSTRIAALBANIABELARUSBULGARIABOSNIA AND HERZEHOVINAGREAT BRITAINHUNGARYGERMANYGREECEIRELANDSPAINITALYCYPRUSLATVIALITHUANIAMACEDONIAMOLDOVAPOLANDPORTUGALRUSSIAN FEDERARIONRUMANIASLOVAKIASLOVENIAUKRAINEFRANCECROATIAMONTENEGROCZECH REPUBLICSWITZERLANDESTONIA

AMERICAARGENTINABOLIVIABRAZILVENEZUELACANADACOLOMBIACUBAMEXICONICARAGUAPANAMAPERUUSAECUADOR

ASIAAZERBAIJANARMENIAAFGHANISTANBANGLADESHBAHREINVIETNAMGAITIGEORGIAISRAELINDIAINDONESIAIRAQIRANYEMENKAZAKHSTANCAMBODIAPEOPLE"S REPUBLIC OF CHINA

14 ANNUAL REPORT MOTOR SICH JSC 2008


DEMOCRATIC PEOPLE"SREPUBLIC OF KOREA

KYRGYZSTANLAOS

MALAYSIAMONGOLIA

UNION OF MYANMARNEPAL

UNITED ARAB EMIRATESPAKISTANPALESTINE

REPUBLIC OF KOREASINGAPORE

SYRIATADJIKISTANTHAILAND

TURKMENISTANTURKEY

UZBEKISTANSRI LANKA

AFRICAANGOLAALGERIA

BENINBURKINA FASO

BURUNDIGHANAGUINEA

DJIBOUTIDEMOCRATIC REPUBLIC OF

CONGOEGYPT

ZAMBIAWESTERN SAHARA

ZAIRZIMBABWE

CAPE VERDEKENYA

CONGOCOTE D"IVOIRE

LIBERIALIBYA

MAURITANIAMADAGASCAR

MALIMOZAMBIQUE

NAMIBIANIGER

NIGERIASAR

RWANDASENEGALSUDAN

SOMALIASIERRA LEONE

UGANDACENTRAL AFRICAN REPUBLIC

REPUBLIC OF CHADEQUATORIAL GUINEA

ERITREAETHIOPIA

AUSTRALIA AND OCEANIAAUSTRALIA

EASTERN TIMORNEW ZEALAND

PAPUA NEW GUINEA

OPERATORS OF AIRCRAFTPOWERED BY THE ENGINES

OF MOTOR SICH JSCAmong the Customers of our produce are the world-known companies, such as:

Antonov ANTK, Illyusin Aviation Complex JSC, BerievTANTK JSC, Tupolev JSC, Yakovlev Design Bureau JSC,Kamov JSC, Mil MVZ JSC, AeroVodochody (CzechRepublic), HONGDU AVIATION INDUSTRY (China), etc.

15

16

ABOUT COMPANY


MILESTONES OF BECOMINGAND DEVELOPMENT

Ilya Muromets

1916Deka M-100

La-5FN

1942ASh-82FN

An-12

1957AI-20

Mi-8

1970TV3-117


An-225 Mriya

1984D-18T

An-148

2004D-436-148

Mi-28N

2008TV3-117VMA-SBM1V

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ACTIVITY REVIEW


PRODUCTION ACTIVITYProduction activity achievements of Motor Sich JSC inaccounting year 2008:

Obtained commodity realization growth rate of 114.5%as compared to year 2007;

Specific share of aviation equipment is 86.5%;Obtained commodity output for realization of products,

works and services in the amount of UAH 2 billion 47.3million, that is by UAH 297.8 million more than in 2007;

Share of export in commodity output for realizationof products made up 83.8%;

Transferred UAH 343.3 million of taxes and chargesto the state budget and off-budget funds, includingUAH 240.8 million;

Manufactured series engines of various types and industrialinstallations to the amount of UAH 986.3 mln, shipped tocustomers to the amount of UAH 963.5 mln. Overhaul ofengines: overhauled to the amount of UAH 419.2 mln, soldto the customers to the amount of UAH 443 mln.

In 2008 the following work continued:Mastering of series production of new types of aircraft

engines: AI-222-25, TV3-117VMA-SBM1V, AI-450ÌS andD-436-148;

Pre-production and production of hardware of prototypesof MS-450, MS-500, D-36MB, AI-450M.

Manufacturing heat exchangers for AI-225-25, D-436-148, D-36, AI-25, AI9-3B, TV3-117VMA-SBM1, AI-450.

The Company has spent UAH 20.5 mln of proprietaryfunds for the development and preparation to seriesproduction of new types of aviation products, industrialarticles and consumer goods.Consumer goods have been sold to the amount ofUAH 78.2 mln.


Structure of produce manufactured byMotor Sich JSC in 2008, %

Aviation products 86.5General-purposeproducts 9.4Consumer goods 4.1

4.1

86.5

9.4

Dynamics of sales of products, works and services by MotorSich JSC in 2003 thru 2008 in effective prices (UAH mln):

— product sales, total (UAH mln)— including aviation equipment (UAH mln)

2003 2004 2005 2006 2007 2008Sold product, total(UAH million) 1,155.4 1,083.1 1,090.4 1,238.1 1,749.7 2,047.3Including aviationequipment (UAH million) 947.0 829.7 859.1 982.0 1,398.1 1,647.3

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ACTIVITY REVIEW


Advancedtechnologies

The manufacture of aircraft engines that meet the marketrequirements and are capable of competing the produce ofthe leading world companies necessitates constantimprovement of production technology taking into accountthe latest achievements of science and engineering.

In this respect Motor Sich JSC carries out the followingactivities:

Introduction of crucially new production processes of:- manufacture of noise-suppression boards for

compressors and pneumatic compressors by means of powdermetallurgy, restoration of HPT blades for D-18T engines bymeans of plazma-powder build-up welding.

Introduction of progressive blanks:- precise and centrifugal casting from heat-resistant

and structural alloys, from titanium, magnesium and aluminumalloys, precise casting of oversize parts from non-ferrousalloys.

Introduction of new alternative materials:- fabrication of adhesive VK-2 on the basis of isopropyl

alcohol instead of ethyl dehydrated alcohol, production oftitanium electrodes from titanium sponge, etc.

Work is underway together with the Institute of materialscience on the use of nanotechnology in metallurgicalprocedures.

Development and introduction of control programs forthe ÑNÑ equipment.

Elaboration of new program development:- post-processors for machines EEN-320, FP-17M,

6M13GN, post-processor for continuous five-axis machiningat machines K2X15;

- control program for machining of centrifugal wheelof MS-500 engine for machine DUS-560ti, etc.

Use of advanced technologies for the tool-productionfacilities:

- production of solid hard-metal milling cutters anddrills that helped provide process of manufacture of bliskswith high-quality tools;

- using method of high-speed milling;- manufacturing tools with the use of fast-prototyping

technology, etc.Improvement and development of system of designing

and pre-production engineering.Modernization of technical and program basis of a

net-bound information-computer complex.Introduction of computation complex CONCEPT NREC

for designing of turbomachinery.


APPLICATION OF EROSION-RESISTANTTITANIUM NITRIDE COATING

HIGH-SPEED MILLINGOF BLADED DISKS FOR GTE

PLASMA GAS-SPRAYINGOF INTRICATE-SHAPE

PARTS FOR GTE

WELDING AND LOCALANNEALING WITHELECTRON BEAM

22

ACTIVITY REVIEW


CERAMIC CORES FOR CASTING

ULTRASONIC HARDENINGOF PART SURFACES


EQUIPMENT FOR MAKING ANALYSIS OFCHEMICAL COMPOSITION OF MATERIALS,DIAGNOSTICS OF WEARING-OUT OF ENGINESIN SERVICE WITH THE USE OF ENERGY-DISPERSIVE ROENTGENOFLUORESCENTSPECTROMETER "SPECTRO XEPOS"

PRECISION CASTING OF BLADES FROM HEAT-RESISTANTALLOYS USING HIGH-SPEED DIRECTIONAL

CRYSTALLIZATION METHOD

IONIC NITRATION

EQUIPMENT FOR ATOMIC-AND-ABSORPTION METHOD OFANALYSIS OF CHEMICAL COMPOSITION OF ALLOYS ANDMATERIALS USING INSTRUMENT "AANALYST 200"

24

ACTIVITY REVIEW


DEVELOPMENTPROSPECTS

It is planned that in 2009 the increase rate of: — productionvolume will make 115%, — volume of selling the produceto customers will make 158.5%.Basic directions of activity in 2009:

Invitation of budgetary funds:- for development and manufacture of piston engines

for the samples of aviation materiel;- for development of technology for building piston

engines featuring power of 120 kW to be used as powerplantsin aircraft;

- for mastering and series production of TV3-117VMA-SBM1engines for An-26 airplane, TV3-117VMA-SBM1V enginesfor Mi-17, Mi-8MT helicopters, TV3-117VMS engines forMi-8T helicopter (instead of TV2-117 engine).For accomplishing investment business projects of:

- windmill-electric generation plant Motor SichVEU-5-1500/96;

- heat-energy gas-turbine systems for recovery ofmine methane;

Participation in preparation of materials for the projectof building SPM-21 turbofan engine for MS-21 plane.

Accomplishment of works with regard to foreign-economic contracts with Russia, China, Algieria, Iran,Turkmenistan, countries of South-East Asia, Africa, MiddleEast, Latin America, etc.

Manufacture of parts and assembly units of AI-222K-25F, AI-450-2, AI-450M, MS-400 engines and conduct testsof the prototype engines, assembly and testing ofdemonstrators.

Providing completion of state tests of modernizedL-39 plane with AI-25TLSh engine.


Participation in additional furnishing and designersupervision of D-27 engines for continuation of combinedstate bench certification test (ÑSBÑT);

Continuation of work in accordance with integratedschedule for launching production of AI9-3B, Series 1,engine;

Continuation of productionizing and manufacture ofprototype of AI-12N GTD;

Carrying out flight tests of Mi-24 helicopter with TV3-117VMA-SBM1V engines under hot-and-high conditions withthe use of helicopter munitions as well as ensuring flighttests for helicopters of Mi-8MT/Mi-17 type. Exercising effortsfor further increase of time limits for TV3-117VMA-SBM1Vengine. Building modifications of TV3-117VMA-SBM1V, Series1, engine provided with a new system of automatic control(FADEC) and redundancy hydromechanical system;

Continuation of efforts aimed at optimization ofelectrically-assisted starting of MS-400 engine by means ofits turbogenerator;

Optimization of dual-fuel system of GTE-MS-2,5Dengine as part of a power generating set;

Experimental and industrial operation of AI-20DMNengine with the use of gas condensate;

Accomplishment of work for building an auxiliarydemonstrator MS-500UBE engine for special-purpose airplanes;

Conducting development work relating to the gas-turbine drive TV3-137 aimed at incorporation of control forinlet guide vanes assembly (IGV) and air bleed valve.

26

ACTIVITY REVIEW


AFTER-SALESSERVICE

Motor Sich JSC has an after-sales service division staffedwith highly experienced specialists (Product SupportDepartment — PSD), which is ready to effect technicalsupport of every manufactured aircraft engine within thewhole period of its operation.The cooperation of PSD with Customers is determined bythe agreements concluded with them: at present more than600 agreements are effective, 350 agreements from thisnumber have been concluded with the Operators from CISand Baltic states.In 2008 PSD achieved the following:

Rendered various services to the amount of UAH 143.3 mln;Restored 93 engines to the amount of UAH 43.1 mln

by means of light overhaul in service. The growth of revenuesfrom this type of activity made 249.1% as compared to 2007;

Mastered light overhaul of AI-450-MS, VK-2500, D-436engines and their modifications;

Experimental work is underway to optimize theTV3-117VMA-SBM1V engines.Range of services pertaining to gas-pumping drives andconsumer goods has been extended:

Mechanism of rendering services with regard to theconsumer goods not only during repair but directly at theConsumer"s has been worked out that helped widen thescope of services and earn UAH 70.1 thousand.The sphere of PSD activity became wider by putting newstations BCS Shurtai, BCS Zevardy and BCS Pamuk inUzbekistan and gas-turbine power generating set EG-6000 inGrodno (Belarus) into operation in 2007.Totally 98 engines are operated now at the gas-pumpingstations and 7 engines are used at power-generating stations.Presently, the PSD renders in-service support of new equipment:An-148 airplanes with D-436-148 and AI-450-MS engines.


LABOUR AND WAGESThe arrangement of labor remuneration at the factory is intendedto provide the remuneration of employees for their labourtaking into account the complexity and conditions of the workdone, professionalism and organizational merits, results ofemployee's work and economical activity of the factory'sdivision he(she) works for, and the results of activity of theentire factory.Average wages of the production and industrial personnel inDecember 2008 of the account year amounted to UAH 1,931.6,while the wages of production workers made UAH 2,268.9.The factory has no debts in paying out wages and payingtaxes to the budged and off-budget funds.

Dynamic of growth of average annual wages of Motor Sich JSCemployees within a period of 2003 thru 2008 (UAH)

— Average wage for one employee (UAH)— Average wage for one productionand industrial personnel employee (UAH)

Average wage for 2003 2004 2005 2006 2007 2008one employee 587.3 692.4 733.3 920.6 1,295.9 1,821.4one productionand industrial personnelemployee 599.4 706.6 751.0 946.8 1,335.3 1,871.2

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ACTIVITY REVIEW


Structure of Motor Sich JSCfixed assets as of 01.01.2009amount (thou UAH), %

Amount Percen-(thou UAH), tage

Buildings, structuresand transferfacilities, land 754,882 38.5Transport facilities,furniture, devicesand tools 261,940 13.4Machineryand equipment 690,570 35.3Other fixedassets 250,565 12.8TOTAL FIXEDASSETS 1,957,957 100.0

35.3

13.4

12.8

38.5

UTILIZATIONOF FIXED ASSETS

The fixed assets make a basis of the long-term assets.Effective utilization of the basic production assets directlyinfluences the fulfillment of production plan and reductionof cost of manufacture of products.The Company has received the industrial and productionassets in 2008 to the amount of UAH 179.7 million andthe amount of UAH 44.7 million retired. Thus, the cost offixed assets has increased by UAH 135 mln (7.4%).The working machines and equipment constitute the mostactive part of fixed production assets, which determine theeffectiveness and engineering level of production. Due toreceiving new equipment the cost of working machinesand equipment got increased by UAH 34 mln (5.2%) whiletheir share in total cost of fixed assets made up 35.3%.The capacity factor of all production equipment has madeup 0.32, including 0.37 for CNC machines.


Yield of capital investments in 2003 - 2008 (UAH)

Depreciation of fixed and intangible assets has made UAH107.2 mln, including depreciation of fixed production assetsamounting to UAH 106.9 mln and that of intangible assetsamounting to UAH 0.3 mln.The yield of capital investments is a basic activity ofevaluating effectivity of utilizing basic assets, it madeUAH 0.975 during accounting period as compared withUAH 0.905 according to report of 2007.The increase of yield of capital investments by UAH 0.07indicates that the increase of produce production volumetakes the lead over the increase of cost of the factoryfixed assets. The utilization of the fixed assets over theaccounting period is considered effective.

2003 2004 2005 2006 2007 2008Yield of capitalinvestments with regardto salable produce 0.823 0.746 0.612 0.687 0.905 0.975

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ACTIVITY REVIEW


PERSONNEL POLICYPurpose:Keep and attract additionally highly skilled personnelTasks:

rendering the employees the real opportunities forprofessional growth;

provision of competitive work remuneration;creation of conditions for career promotion;ensuring favourable and safe conditions for work;ensuring social security for the employees, including

pensioners.

Staff recruitment system:competitive selection;psychological testing aimed at objective estimation of

intellectual and psychological potential of people;interview of candidates with heads of subdivisions;

probation period for a candidate.Training and professional development oriented at systematicand comprehensive work with personnel reserve:

production and technical training courses and dedicatedcourses;

relations with educational institutions;training in Training Center.

Educational structure of productionand industrial personnel

for the parent plant, %high education 25.6

specialized secondaryeducation 23.5secondary technicaleducation 15.5secondary education 32.2incomplete secondaryeducation 3.2

25 Candidates of Science are employedat the factory.

25.6

23.515.5

32.2

3.2


Qualitative standards of staff:Structure of employees at the

headquarter plant shown incategories, % (as of 01.01.09)

basic workers 37.5auxiliary workers 20.2engineers andoffice workers 37.3other categories 5.0

From total amount, %disabled persons 4.0working pensioners 24.2

Age structure for the headquarterplant, % (as of 01.01.09)

up to 30 years 24.131 to 40 years 17.941 to 50 years 22.051 to 55 years 14.056 to 60 years 12.3over 60 years 9.7

The average age of the Company"semployees is 42.3 years.

Every year from 120 to 150 young specialists with highereducation, 100 to 120 people with secondary technicaleducation and 150 to 170 graduates of vocational schoolscome to work for the factory.The major basic educational institutions for the factory are:The Zaporozhye National Technical University (ZNTU), theKhar"kov National Aerospace Zhukovsky University (KhAI),the Zaporozhye Aviation College (ZAC), the ZaporozhyeElectrotechnical College (ZEC), Higher vocational school No. 27.

37.3

20.2

37.5

5.0

24.1

17.9

22.0

12.3

9.7

14.0

32

ACTIVITY REVIEW


Agreements have been concluded with all young specialistsworking for the company, in accordance with theseagreements the young specialists get additional paymentwithin 2 to 3 years to reach the level of average salarypaid at the factory.

Much attention has been paid to on-the-job training of theworking young people. At present more than 900 personsare getting education in different higher educationalinstitutions (HEI) by correspondence.

In 2008 alone 68 employees of Motor Sich JSC have beenrecommended on competition basis to higher educationalinstitutions of different levels of accreditation at the expenseof state budget. Totally, 153 employees of the factory aregetting education at the expense of state budget.

The cooperation with the base Zaporozhye aviation collegegrants a possibility not only to provide the factory withspecialists having secondary special education, but torecommend them to continue education at the expense ofstate budget in HEI being enrolled in the third year ofZNTU and KhAI. In 2008 16 graduates of ZAC were sentto HEI for education.

According to an agreement with ZNTU more than 500children of the employees of Motor Sich JSC have beensent within the period from 2004 to 2008 to a day-timedepartment of the branch of faculty of pre-HEI training toget professions most demanded at the factory.

Another form of training specialists, such as the establishmentof affiliations of HEI chairs at the factory, has advancedfurther. Beginning from 1996 the affiliation of KhAI chair"Technology of production of aviation engines" and from1992 the chair of the ZNTU "Equipment of casting production"function at the factory. In 2005 the affiliation of the ZNTUchair "Technology of production of aviation engines" wasestablished and according to recommendations of MotorSich JSC the ZNTU has established a new speciality"Aircraft engines and power units".

In 2008 the following students had traineeship at thefactory:

665 HEI students in 26 professions;

more than 450 students from 9 training schools andcolleges in 21 profession;

more than 500 students of 6 vocational schools andlyceums in 15 professions.


In order to maintain the corporate spirit and labourdynasties, 84 employees of the factory whose childrencame to work at the factory after graduation from highereducational institutions and vocational schools in 2008,have been awarded.

86 children of the factory's employees have been enlistedto the faculty of ZNTU pre-university training with subsequenttraining in the University on the account of state budget.

84 children of the factory employees have successfullypassed the entrance examinations and have been enlistedto the Zaporozhye National Technical University to geteducation in the prevailing machine-building professionson the account of state budget:

"Technology of production of aircraft engines";

"Technology of machine-building";

"Metal-cutting machines and systems".

For more than 70 years the personnel training division isfunctioning at the factory, now its name is a PersonnelTraining Department. The PTD has a license of Ministryof Education and Science of Ukraine in 18 machine-building professions.

Motor Sich JSC carries out a systematic work on professionaltraining, re-training and further training of the factory'spersonnel, dedicated training of workers, engineers andadministrative employees on safety engineering and hazardousprofessions. This helps improve the awareness of personneland the quality of manufactured products in accordancewith the requirements of International standards.

Since 2006 the Personnel Training Department has got aright on a tender basis to conduct training of unemployedpeople registered at Zaporozhye regional and districtemployment centers. It gives a possibility for the factory totrain personnel to demanded professions on the account ofemployment centers.

34

ACTIVITY REVIEW


60.2

28.3

FOREIGN ECONOMICACTIVITIY

Motor Sich JSC remained in 2008 to be the export-oriented factory. The major part of monetary assets hasbeen obtained like in the previous years from the exportof aircraft engines, gas-turbine drives, power-generatingsets, spares, as well as for provided overhaul, after-salessupport of aviation and industrial equipment.

The inpayment obtained from the regions(2008), %:

Russia 60.2%non-CIS countries 28.3%

Ukraine 7.2%CIS-countries less Russia 4.3%

7.24.3

The inpayment of money according to foreign economiccontracts has increased by more than 30% as comparedwith 2007.

Russia is one of the biggest marketing outlets for ourfactory, we have accumulated experience of many yearsof mutually-beneficial cooperation with many Russiancompanies. In 2008 the growth of inpayment receivedfrom Russia made 155% as compared with the level ofyear 2007. In this case the main amount of funds wasreceived in 2008 for the delivery of aircraft engines.For years we have successful cooperation with manyRussian airlines, such as "Voga-Dnepr", "UTair", "Polyot","Kuban Airline" and other. We render overhaul of enginesof various types for these airlines.

The inpayment has been received forfulfilling the following work, %:

Delivery of aircraft engines 59.8Overhaul of aircraft engines 24.6Delivery of spare parts 5.6Delivery of industrialequipment 6.6

Other servicesand consumer goods 3.4

59.8

5.66.63.4

24.6


Geography of deliveries:Russia, China, Algeria, India, Algeria, South Korea, Belarus,Uzbekistan, Turkmenistan, countries of South-East Asia, MiddleEast, Africa and Latin America.ImportThe technical re-equipment of the Company continued. The newcontracts have been concluded for procurement of high-techimport equipment amounting totally to USD 27.7 thou (contractsfor procurement of gear-grinding machine, grinding machine formanufacture of broaches, electrical discharge machine and hotisostatic press). Apart from this, the execution of contractsconcluded earlier has been continued.Advertisement and widening of contactsMotor Sich JSC takes an active part in the biggest internationalexhibitions and undertakings thematically related to productsmanufactured at Motor Sich JSC. It helps not only exhibit ourproduce and demonstrate new technologies but estimate thestate of market, get awareness of the capabilities as well asstrong and weak points of our partners and competitors, establishcontacts with future business partners:

with respect to aviation equipment we have taken part in2008 in the following exhibitions: "DEFEXPO INDIA-2008" (Delhi,India), "Engines-2008" (Moscow, Russia), "Heli-Russia-2008" (Moscow,Russia), "FARNBOROUGH-2008" (London, Great Britain), "ILA-2008" (Berlin, Germany), "High technologies-2008" (Moscow,Russia), "AirShow China-2008" (Zhoukhai, China), "ACTO-2008"(Kazan, Tatarstan), "Gidroaviasalon" (Ghelenjik, Russia), etc;

with respect to industrial equipment and consumer goods wehave taken part in exhibitions "Oil and Gas" held in Russia,Turkey, Iran, Uzbekistan, Kazakhstan, Turkmenistan, Ukraine;"Construction 2008", "Machine-building. Metallurgy", "Compositematerials and glass fiber plastics", etc.

The consistent policy pursued by the company with the emphasison diversification of outlet markets helped increase the volumeof orders from Asian countries, which have been less exposed tothe world financial crisis. So, a number of big contracts for thedelivery of engines and license overhaul of engines signed withChina will ensure inpayment of more thanUSD 65 mln. The contracts with Algeria for overhaul of enginesand establishment of engine overhaul line will add USD 30 mlnto the backlog of orders.In general, the concluded contracts and reached agreementswill provide a positive rate of sales" growth for Motor SichJSC in 2009. We expect to get more than USD 400 mlnaccording to Contracts for shipment of aircraft engines andindustrial equipment.

36

ACTIVITY REVIEW


SOCIAL ACTIVITIESAND CHARITY

The capital investments into social sphere in 2008 haveamounted to UAH 15.9 mln, including UAH 4.4 mln forprocurement of equipment.

In the context of individual objects the major amount offunds has been channeled for reconstruction of SC MotorSich (UAH 2.7 mln), buildings of HC Motor (UAH 2.1 mln),buildings of HC Priboy (UAH 4.5 mln), MC (UAH 2.9 mln),sanatorium-preventorium (UAH 1.2 mln), vacation hotelHorizont, HR Mayak, dormitory, children's establishments,holiday camp Meridian (UAH 2.5 mln).

The Company has spent UAH 53.5 mln for carrying outthe health-care measures and maintenance of objects ofthe social sphere, which is by UAH 9.8 mln more than inthe year 2007.

The social sphere of the Company encompasses practicallyall existing types of social security of a human being:health care, education, recreation, sports, housing.

Assets of the Company have been used as a source ofbudgeting the social sphere.

The following is the subject of Company's pride:

The best in the city children's health and sport campswith all conditions provided for physical, psychologicaland social development of the younger generation. Thechildren have conditions for individual improvement, foropening of creative capabilities and promotion of naturalpotential;

Medical center furnished with the up-to-date equipmentand staffed with the best medical personnel, which providesannually thousands of engine-builders and inhabitants ofZaporozhye region with the qualified care;

The collectives of Shevchenko cultural center andsporting complex Motor Sich JSC known well beyond theboundaries of the city and the country;


Vacation hotel in Crimea and health centers at Azovsea provided with comfortable sleeping buildings, spacioushalls, improved rooms, suites and semi-suites as well ascanteens with three daily meals, bars, saunas, billiards,cinema halls, libraries, sporting grounds and children'playgrounds;

Sanatotim-preventorium in stlm. Andreyevka at thebanks of Dnieper and sanatorium Raduga situated in thetown of Volochysk in the western part of Ukriane. Thepeople having rest in sanatorium are prescribed differentmedical and preventive procedures: baths, inhalation,ozokerite therapy, massage, remedial gymnastics, physicaland therapeutic procedures;

Tourist camp Meridian, which for years is the mostaffordable recreation site for the Company's youth. It issituated in one of the most picturesque places, Sedlastyisland not far from Kakhovka artificial lake. Provided forthe disposal of holiday-makers are more than 100 smallhouses, sporting grounds, tennis tables, snooker, rentalboats and fascinating youth leasure programs.

The factory has introduced the system of medical insuranceof employees, which effectively functions now.

Since long not only family-members of the engine-buildersconsider themselves concerned with the factory's activitiesbut the majority of Shevchenko district inhabitants as well.Not insignificant role in finding solutions for such problemsas landscaping of the near-plant territory, arrangement ofroads, maintaining of the park areas in adequate condition,solving of transportation problems, is played by the Company.

In 2008 the factory spent UAH 5.2 mln for charity. Thebasic channels of charity are the revival of centers ofUkrainian culture and centuries-old traditions of our people,assistance to educational and medical institutions and non-profit organizations. Apart from this, different sorts of helpcosting UAH 5.6 mln have been rendered to veterans ofGreat Patriotic war and labour, disabled people, retiredCompany pensioners, low-income people and families ofdependent children.

38

F INANCIAL REPORT


AUDITCONCLUSION


BALANCE (THOU UAH)No. of Notes 31.12.07 31.12.08

ASSETS

Intangible assetsin residual value 1 445 548Fixed assets in residual value 2 786,242 845,358Incomplete construction 3 133,827 146,358Long-term financial investments 4 239,824 241,173Long-term debt 6 6,595 6,595Other non-circulating assets - 642 642Production stock 5 1,149,774 1,522,344Settlements with debtors 6 389,028 555,526

Monetary resourcesand their equivalents 7 83,816 48,947Current financial investments 4 103,266 113,964Other circulating assets - 30,153 55,640Deferred expenses - 1,367 2,148TOTAL for Assets 2,924,979 3,539,243

LIABILITIES

Provision of deferred expenses and payments 3,844 4,692Long-term liabilities 9 102,912 125,766Short-term liabilities 357,838 589,121Settlements with creditors 9 660,382 1,014,983

Deferred income 931 119TOTAL for liabilities 1,125, 907 1,734,681

OWNERSHIP CAPITAL

Statutory capital 8 280,529 280,529

Additional invested capital 8 171,757 171,757Other additional capital 8 650,367 656,767Capital reserves 8 63,145 70,145Retained 8 638,152 630,242Withdrawn capital 8 (4,878) (4,878)TOTAL for ownership capital - 1,799,072 1,804,562TOTAL FOR LIABILITIES 2,924,979 3,539,243

40

F INANCIAL REPORT


REPORT ON FINANCIALRESULTS (THOU UAH)

No. of Notes 2007 2008

INCOMES

Net income (proceeds) obtainedfrom sale of products(goods, works, services): 10 1,749,747 2,047,314Other operating incomes 10 920,600 1,381,562Profit of capital share 10 30,141 18,696Financial incomes 10 - 217Other incomes 10 72,851 151,169

Total for incomesfrom operating activity 2,773,339 3,598,958Extraordinary incomes - -

EXPENSES

Cost of products sold(goods, works, services) - 984,263 1,317,879Administrative expenses - 260,574 275,792Sales expenses - 138,100 150,775Other operating expenses 10 983,228 1,426,177Financial expenses 10 37,328 53,379Capital share expenses 10 4,397 5,661Other expenses 10 75,347 355,310Profit tax - 73,839 10,142Total expensesfrom operating activity 2,557,076 3,595,115Extraordinary expenses - - -Net profit 216,263 3,843Net profit per one simple share(in UAH per share,) 115.69 1.94


Main aspects ofaccounting policy

The principles of accounting policy used as a basis forpreparation of consolidated financial report are determinedby effective legislation of Ukraine, Regulations (Standards)for Accounting (R(S)A), accounting policy of Motor SichJSC approved by Chairman of the Board of Directors , andother regulatory documents of the Company.The accounting and financial reporting at the Company isbased on the principles of continuity, full coverage, discretionand priority of content over form.Accounting policy is common for the head plant and all itssubsidiaries.Assets and liabilities are reflected in the Balance Sheet athistorical (actual) cost, with the account of the fact thatthe cost of fixed assets, intangible assets and stocks maybe revaluated in compliance with the requirements ofNational standards for accounting.The currency for the Company financial statement is anational monetary unit of Ukraine, a hryvnya, (UAH).

NOTES ONFINANCIAL REPORT

42

F INANCIAL REPORT


Structure and flow of intangible assets (thou UAH)

CostBalance as of 31.12.2007 19,930 163 14,093Received per year 346 - 346Retired per year - - -Balance as of 31.12.2008 14,276 163 14,439

DepreciationBalance as of 31.12.2007 13,599 49 13,648Accrued per year 228 15 243Retired per year - - -Balance as of 31.12.2008 13,827 64 13,891

Net balance costas of 31.12.2007 331 114 445Net balance costas of 31.12.2008 449 99 548

OtherSoftware intangible Total

assets

NOTE 1INTANGIBLE ASSETS

Intangible assets are accounted according to the followinggroups: software products for personal computers, rights toproducts and services trademarks, rights to objects ofindustrial property, incomplete capital investments in intangibleassets, licenses for effecting definite types of activity forover one year. The intangible assets should be estimatedby cost price when placing to a balance.Costs for creating Company's own trademark are includedin costs of the period under account. The trademarksacquired elsewhere are considered as intangible assets.Intangible assets of the company consist mainly of thecomputer software and computer networks.Intangible assets depreciation is calculated according tothe straightforward method. Useful life is determined foreach intangible asset.

The Company has no intangible assets, which are underlimitation of the right of ownership and which have beenregistered under security conditions.


NOTE 2FIXED ASSETS ANDNON-NEGOTIABLETANGIBLE ASSETS

Fixed assets include tangible assets held by the Companyin order to use them during production or delivery ofgoods and rendering of services as well as to lease toother persons or to realize administrative and social-and-cultural activities; their expected useful life is morethan one year.

Fixed assets and low-value non-negotiable tangible assetsare shown in the balance with respect to their historicaland depreciated costs.

Initial evaluation of objects of fixed assets and low-valuenon-negotiable tangible assets is carried out with respectto their first cost. First cost of an object of fixed assets andlow-value non-negotiable tangible assets includes acquisitionprice, as well as costs that are directly related to bringingthe asset to conditions at which its operation is possible.

Residual value of fixed assets is not used.

Additional evaluation and reduction of fixed assets was notcarried out.

Depreciation of fixed assets is accrued during useful life ofan object using the straightforward method.

44

F INANCIAL REPORT


Flow of fixed assets (thou UAH)

CostBalance as of 31.12.2007 719,318 656,792 107,075 143,964 195,820 1,822,969Received per year 54,861 46,042 8,457 30,469 39,852 179,681Retired per year 19,333 12,006 2,332 2,719 8,303 44,693Balance as of 31.12.2008 754,846 690,828 113,200 171,714 227,369 1,957,957DepreciationBalance as of 31.12.2007 282,548 457,937 60,678 63,563 172,001 1,036,727Accrued per year 16,121 37,497 6,328 16,026 30,952 106,924Retired per year 8,157 11,632 1,829 2,238 7,196 31,052Balance as of 31.12.2008 290,512 483,802 65,177 77,351 195,757 1,112,599Net balance costas of 31.12.2007 436,770 198,855 46,397 80,401 23,819 786,242Net balance coston 31.12.2008 464,334 207,026 48,023 94,363 31,612 845,358

Buildings, Machines Transport Other Low-valuestructures, and facilities fixed nonnegotiable Totaltransfer equipment assets tangiblefacilities assets

The Company does not have fixed assets, with respectto which there exist limitations stipulated by the effectivelegislation regarding the right of ownership, possession,control as well as fixed assets which are temporarilynot in use.Primary (revaluated) cost of fully depreciated fixed assets,which continue to be used is UAH 412,845 thousand, costof fixed assets issued as mortgage is UAH 548,179 thousand.Cost of fixed assets received under operational leaseconditions is UAH 13,386 thousand.In 2008 fixed assets were acquired for monetary funds aswell as they were built-up at the Company. Fixed assetswere retired due to liquidation because they no longer metthe criteria for acceptance as assets as well as becausethey were sold or transferred gratis.

NOTE 2(continued)


as of 31.12.2007 Received Retired as of 31.12.2008

Structure of capital investments (thou UAH)

Capital construction 104,568 98,530 91,227 111,871Acquisition (manufacture)of fixed assets 19,926 43,259 42,144 21,041Acquisition (manufacture)of other non-negotiabletangible assets 9,062 48,811 46,198 11,675

Other 271 1,958 458 1,771Total 133,827 192,558 180,027 146,358

NOTE 3CAPITAL

INVESTMENTS

Incomplete capital investments (further referred to as ICI)form a separate group; an individual object of ICI isconsidered as a unit for their accounting.The ICI in capital tangible assets are capital investments inconstruction, manufacture, reconstruction, modernization,acquisition of objects of non-negotiable tangible assetswhich were not put in service as of the date of theBalance Sheet as well as advance payments for financingof construction.The ICI are accounted with their initial cost, depreciationis not accrued for them.

The amount of UAH 192,558 thou was spent for capitalinvestments to fixed assets during the accounting year.

46

F INANCIAL REPORT


NOTE 4FINANCIAL

INVESTMENTSOne of the directions of the Company's activity is theinvestment activity. The Company holds 100% of shares ofsubsidiaries and has stakes in statutory capitals of MotorSich Middle East SAIF, Sharjah zone (United Arab Emirates)(100%), Energo-Service Pvt. JSC (Strizhevoi, Russian Federation)(49%), Dubnenskiye motory Pvt. JSC, (Dubna, RussianFederation) (24.9%), Sodruzhestvo stroy Ltd. (Zaporozhye)(99.74%), Iveco-Motor Sich Pvt. JSC (Zaporozhye) (10.37%),Motor Bank JSC (Zaporozhye) (4.99%), Zaporozhye fisheryfacility Pvt. JSC (Zaporozhye) (72.73%), ODO Motor GarantInsurance Company (Zaporozhye) (30%) and a number ofother enterprises in Ukraine and Russia.The long-term financial investments of the Company makeUAH 241,173 thou as of 31.12.2008.In all the JSC has investments into 38 enterprises.The financial investments with the stakes exceeding 20%are accounted by a method of participation in capital andare shown as of the date of Balance Sheet with the valuedetermined taking into consideration change of total valueof ownership capital of investment object.The balance value of investments has been increased/decreased by the sum that is the investor's stake in the netprofit/negative profit of the investment object and is includedinto an amount of income/losses from the shareholding.

Line No. Share in statutory Number of enterprises Number of enterprises

capital (%) as of 31.12.2007 as of 31.12.2008

associated affiliated associated affiliated

Financial investments shown as shares in statutory capital

1 up to 5% 3 32 from 5 to 10% 2 23 from 10 to 20% 2 34 over 20% 22 245 100% 3 3 3 3

Total: 32 3 35 3


Balance as of 31.12.2007 231,668 2,211 5,945 239,824 103,266Investments acquired 7,970 823 6,660 15,453 112,592Additional capital (665) (665)Profit from shareholding 18,398 298 18,696Readjustment of rates 7,066 7,066Acquired dividends (210) (210)Investments retired (33,330) (33,330) (101,894)Expenditures dueto shareholding (4,813) (848) (5,661)Balance as of 31.12.2008 226,084 2,484 12,605 241,173 113,964

At the same time the balance sheet value of the investmentis decreased by the amount of declared dividends. Allother financial investment, as of the date of balancestatement, is shown at their first cost.The long-term financial investments increased duringaccounting period by an amount of UAH 1,349 thouIncomes to an amount of UAH 18,696 thou have beenreceived, losses have been suffered to an amount of UAH5,661 thou and dividends to an amount of UAH 210 thouhave been received during accounting period. The stakesof corporate rights in the property of some enterpriseshave been partially implemented during accounting periodto an amount of UAH 13,734 thou. The financial investmentsinto associated companies amounted in 2008 to UAH8,793 thou.The current financial investment with total amount of UAH113,964 thou include the shares of 29 emitters acquired forfurther resale.

Flow of financial investment (thou UAH)

Long-term financial investments

Currentfinancial

investment

Financial investment,according to the

shareholdings method, inOther

financialinvestment

Total

associatedenterprises Subsidiaries

48

F INANCIAL REPORT


As of 31.12.2007 As of 31.12.2008

Balance value of stock (thou UAH)

Raw staff and materials 93,314 88,837Vendor semi-finished itemsand component parts 99,192 92,737Fuel 5,609 23,685Construction materials 1,116 1,260

Spare parts 40,136 37,616Low-value and rapidlyamortizable items 13,661 13,185Work-in-progress 792,347 1,170,414Finished products 97,325 88,816

Commodities 3,369 3,661Other stock 3,705 2,133Total 1,149,774 1,522,344

NOTE 5PROCESS STOCK

Stock is considered to be the asset, if there exists apossibility that the Company will get future economicalbenefits connected with their utilization and their cost canbe trustworthily determined. Unit of the stock is each itemof the nomenclature.When stock is transferred into production, sold or disposedotherwise, their evaluation is done according to the first-in-first-out method. For monitoring consumption of inventoryitems, accounting of their quantity is organized in placesof their consumption and stocktaking is performed regularly.The stock is shown in accounting and balance statementaccording to their basic cost as of balance date. If on thedate of balance statement price of the stores got decreasedor if inventory items got spoiled, became obsolete or lostthe expected economic benefits, they are reflected accordingto the net liquidation value.


NOTE 6DEBT RECEIVABLES

Debt receivables are considered to be assets, if thereexists a possibility that the Company will get futureeconomical benefits and their cost can be trustworthilydetermined. Current debt receivables for products, goodsand services rendered are accepted as the assetsimultaneously with acceptance of sales income and isevaluated according to the basic cost.The current debt receivables for products, goods and renderedservices are included in the balance total according to thenet cost of sales. For determining the net cost of sales asof the date of balance statement a reserve of doubtfuldebts, which is presented in the report on financial resultsbeing included in other operational expenditures.The amount of reserve of doubtful debts is determinedproceeding from the financial solvency of individual debtors.The criteria of referring to the debt receivables as doubtfuldebts is as follows: the debt with time allowed for claimsexpiring earlier than 12 months since the date ofaccountancy, if the factory debtor is declared bankrupt oris absent at the address shown in the documents.The debt receivables for products and goods are presentedin the balance total according to the net cost of sales,which is equal to total debt receivables less the reserve ofdoubtful debts.The bad debt receivables are written off from the assetswith one-off reduction of the reserve of doubtful debts. Ifthe amount of the reserve of doubtful debts is not sufficientthe doubtful debts are written off from the assets of theCompany for other operational expenditures. The amountof compensation of earlier written off debt receivables isincluded in other operational profits.

This financial year on account the doubtful debts the baddebt receivables in amount of UAH 8,648 thousand werewritten off.

50

F INANCIAL REPORT


as of 31.12.2007 as of 31.12.2008

Composition of Company debt (thou UAH)

Bills received - -Debt receivables for products,goods and rendered services —net cost of sales 116,217 194,848Debt receivables in settlement:

with budget 24,886 49,686in advances granted 206,326 231,077in internal settlements 1,681 2,818

Other current debt receivables 39,918 77,097Total: 389,028 555,526

The debts with connected persons as of the end of theyear is UAH 25,760 thou.The other debt receivables in the report are debt receivablesin sums given on account, payments under claims, anddebt on non-commercial operations.The item "Long-term debt" reflects the due to the jointactivity with Consumer goods factory (Zaporozhye) Ltd. Co.


2007 2008

Funds as of the end of the year, thou UAH

Payment office 137 143Current accounts in banks 40,294 33,751Other accounts in banks(letters of credit,cheque-books) 24,037 15,053

Funds in transit 13 -Equivalent funds 19,335 -Total: 83,816 48,947

NOTE 7FUNDS AND

INFLUENCE OFEXCHANGE RATES

The funds of the Company are allocated on the currentaccounts and in the payment office of the Company andexist both in national and foreign currency. Operationswith the foreign currency are reflected after primaryacknowledgment by conversion of the sum in the foreigncurrency into the currency of balance according to theexchange rate of National Bank of Ukraine at the date ofimplementation of operations. The sums of paid and receivedadvance payments in the foreign currency are convertedinto the currency of account with the use of the currencyrate at the date of payment or receipt of advance payment.The balance value of the stated balance sheet accounts infuture will be determined (evaluated) according to thecorresponding provisions (standards) of the businessaccounting.The differences in rates by the monetary clauses in theforeign currency are determined at the date of settlementand at the date of balance. The differences in rates asresult of conversion of the balance clauses denominated inthe foreign currency are reflected in other operational andother profits (expenses).

52

F INANCIAL REPORT


Total nominal Share inQuantity of Quantity of value of stockshareholders securities securities capital (%)

(UAH)

Composition of shareholders of Motor Sich JSC

Registered securities,including - 2,077,990 280,528,650 100.00

1. Natural persons 9,591 474,564 64,066,140 22.842. Juridical persons 24 710 95,850 0.033. State institutions 0 0 0 0.004. Keepers 2 966,114 130,425,390 46.495. Depositaries 1 539,004 72,765,540 25.946. Issuer - 97,598 13,175,730 4.70

NOTE 8OWNERSHIP CAPITAL

The registered Statutory fund of Motor Sich JSC amounted in2008 to 280,528,650 UAH and consisted of 2,077,990 ordinaryregistered shares with nominal value of 135 UAH.

Given below is the structure of capital stock of the factory withrespect to types of owners as of 31.12.2008.

At the end of the year the amount of shares in circulation made1,980,394. All shares give equal rights for taking part in voting,receiving dividends and returning the corporate capital part. Thenet profit per one share amounted to UAH 1.94.On the basis of activity results in 2007 a decision wasmade at the shareholders meeting to direct UAH 4,753thousand for payment of dividends and UAH 7,000 thousandto reserve fund.The other additional capital includes the cost of indexationof fixed assets and unfinished construction, additionalevaluation of stock, property received free of charge as aresult of privatisation.The correction of mistakes made during preceding periods hasbeen effected by correcting the balance of undistributed profitwith simultaneous acknowledgement of receipts and expenses.


Statutory Additionally Other Reserve Undistri Withdrawnfund invested additional capital -buted capital Total

capital capital profits

Changes in ownership capital during 2008 (thou UAH)

Balance as ofthe beginning of year 280,529 171,211 650,367 63,145 629,545 (4,878) 1,789,919

Adjustment:

- correction of mistakes 546 (404) 142

- other changes 9,011 9,011

Adjusted balance as ofthe beginning of year 280,529 171,757 650,367 63,145 638,152 (4,878) 1,799,072

Net profit duringaccounting period 3,843 3,843

Distribution of profit:

Payments of dividends (4,753) (4,753)

Contribution toreserve capital 7,000 (7,000)

Other changes in capital(exchange differencesperfinancial investments) 6,400 6,400

Total number ofchanges in capital 6,400 7,000 (7,910) 5,490

Balance as ofthe end of year 280,529 171,757 656,767 70,145 630,242 (4,878) 1,804,562

54

F INANCIAL REPORT


NOTE 9LIABILITIES

The Company acknowledges liabilities if their value can betruly assessed and if there is a possibility of decreasingeconomic gains in future due to cancellation. If on the dateof balance formerly acknowledged liabilities are not thesubject to cancellation, their amounts are included into theincomes of the period under report.The reserve of future expenditures for payment for the holidaysof employees is accrued at the factory. The reserves forguaranteed servicing, for paying annual length-of-serviceremuneration, etc. have not been formed. The provisions forpayment for holidays have been accrued in the accountingperiod in the amount of UAH 46,545 thou, UAH 45,746 thouof this amount have been used.

as of 31.12.2007 as of 31.12.2008

Composition of Company's long-term liabilities (thou UAH)

Long-term bank credits 48,187Other long-term financial liabilites 20,300 20,300

Deferred tax liabilities 82,612 57,279Total: 102,912 125,766

The item "Other long-term liabilites" shows a credit given bythe State innovation-and-crediting institution for incorporationand implementation of the innovation project "Incorporation ofco-generation power-saving plant "Motor Sich heat- and power-generation complex".The deferred tax liabilities have been accrued on the amountsof received and issued advance payments, residues of work-in-progress and finished products to the extent of directoverhead costs, on the amount of surplus of residual cost ofindustrial fixed assets over their residual cost in the taxaccounting, incomes and expenditures of future periods.


as of 31.12.2007 as of 31.12.2008

Composition of Company's current liabilities (thou UAH)

Bills issued 106,075 108,601

Accounts payable for goods,works and services 107,391 146,802Current liabilities in settlements :

- in advances granted 371,415 684,003- with budget 21,655 6,031- in insurance 11,623 14,251

- in payment of labour 25,704 30,171- with participants 6,755 10,917

Other current liabilities 9,764 14,207Total: 660,382 1,014,983

The deferred tax liabilities (sum of tax per profit that will be paidin future periods from the time-based tax differences subject totaxation) have been decreased by the amount of UAH 25,333thou. in the year of account.The amount of deferred tax assets and liabilities is generalized initem "Deferred tax liabilities" of balance.

The items of current liabilities show debts, the cancellation datefor which did not come by the date of balance report. The item"Other current liabilities" shows the amount of liabilities on non-commercial operations and other creditors.

56

F INANCIAL REPORT


NOTE 10RECEIPTS AND

EXPENSESThe items of receipts and expenses are taken into accountand evaluated at the moment of assets sale or serviceprovision. All Company's receipts and expenses takingplace in the accounting period are reflected within thesame period regardless of date of actual acquisition orpayment of monetary funds.Receipts, which had been received in the accounting period,but should arrive in future are accounted as receipts offuture periods. Incurred expenses and payments relating tofuture periods are accounted as expenses of future periods.Accounting of percentage receipts and expenses is carriedout by accrual method. Cash basis method is used only foraccounting of percentage income added to demand balanceon bank accounts.The profit from selling the produce (products, work, services)amounted in 2008 to UAH 729,435 thou.The basic types of activity of Motor Sich JSC in 2008 werethe production and overhaul of aircraft engines as well asindustrial equipment based on aircraft engines.

Accounting Preceding Absolute Rate ofperiod period changes growth

Structure of receipts with respect to ordinary types of activity, (thou UAH)

Net income (proceeds)from selling produce(works, services) 2,047,314 1,749,747 297,567 17.0from aviation-relatedproduce 1,647,335 1,398,126 249,209 17.8from general-purposeproduce 178,347 192,114 -13,767 -7.2from consumer goods 78,189 71,998 6,191 8.6other goods,works, services 143,443 87,509 55,934 63.9

The structure of receipts with respect to ordinary types ofactivity has not changed since the previous accountingperiod. The incomes from the ordinary types of activity90% consists of incomes from the production, overhaul ofaircraft engines and industrial equipment, the same as inthe previous period. The income from selling consumergoods is negligible. The absolute values of incomes fromthe ordinary types of activity increased by 17.0% in 2008against the figures of the previous period.


Accounting Preceding Absoluteperiod period changes

Other operating receipts

Operational lease of assets 2,865 2,352 513

Operational difference in rates 52,415 7,186 45,229Proceeds from sellingother circulating assets 32,443 28,450 3,993Received penalties, fines and forfeits 30 52 -22Maintenance of objects ofhousing and communalservices, social sector 3,011 3,622 -611Income from sellingforeign currency 1,259,923 866,620 393,303Other operating receiptsand expenses 30,875 12,318 18,557Total: 1,381,562 920,600 460,962

Receipts from participation in capital from investments in:

Associated enterprises 18,398 30,071 -11,673Affiliated companies 298 70 228Total: 18,696 30,141 -11,445

Other financial receipts

Other financial receipts 217 217Total: 217 217

Other receipts

Realization of financial investments 125,256 65,474 59,782Realization of non-negotiable assets 5,305 5,973 -668Non-operational difference in rates 19,498 757 18,741Other receipts 1,110 647 463Total: 151,169 72,851 78,318

Given below are the receipts and expenses of otheroperating, investment and financial activity:

58

F INANCIAL REPORT


Accounting Preceding Absoluteperiod period changes

Other operating expenses

Operational difference in rates 34,616 6,309 28,307Selling of other circulating assets 23,171 21,022 2,149Penalties, fines and forfeits 5,331 184 5,147

Doubtful and bad debts 3,066 17,428 -14,362Maintenance of objects ofhousing and communalservices, social sector 68,033 53,870 14,163Cost price of sellingforeign currency 1,274,290 872,085 402,205Other operating receiptsand expenses 17,670 12,330 5,340Total: 1,426,177 983,228 442,949

Expenses from participation in capital from investments in:

Associated enterprises 4,813 3,941 872Affiliated companies 848 456 392Total: 5,661 4,397 1,264

Other financial expenses

Interest on credit 53,379 37,328 16,051Total: 53,379 37,328 16,051

Other expenses

Selling of financial investments 137,255 66,402 70,853Selling of non-negotiable assets 3,677 5,229 -1,552Non-operational difference in rates 212,755 2,244 210,511Other expenses 1,623 1,472 151Total: 355,310 75,347 279,963


The highest figures in items "Other operating receipts andexpenses" belong to the receipts and expenses related toselling of foreign currency and other negotiable assets aswell as the maintenance of social-sector facilities. Theabsolute values of receipts/expenses have increasedsignificantly in comparison with the previous year.Owing to drastic fluctuations of currency exchange ratesproceeding from the global financial crisis the rate differenceshave influenced greatly on the results of the company'sfinancial activity. Resulting from the recalculation of assetsand liabilities in the foreign currency in the year of accountUAH 71,913 thou were received as incomes and UAH247,371 thou were accredited to expenses.


CONTENTS

1 WELCOME ADDRESS

2 ABOUT COMPANY

2 ........................ General characteristicof Company

3 ............................ Company's structure12 .................. Certificates and licenses16 ...........................Main achievements

18 ACTIVITY REVIEW

18 ............................ Production activity20 ................... Progressive technologies27 ............................ Labour and wages28 ................ Utilization of fixed assets30 ................................ Personnel policy34 ............... Foreign economic activity36 ................. Social sector and charity

38 FINANCIAL REPORT

38 .......................... Auditor's conclusion39 ......................... Balance (UAH thou)40 ........................... Report on financial

results (UAH thou)41 .................Notes on financial report

Zaporozhye,69068, Ukraine

Phone: (380 61) 720-47-77,(380 61) 720-48-14

Fax: (380 61) 65-48-14,(380 61) 720-50-00

E-mail: [email protected]: www.motorsich.com

ÎÀÎ «Ìîòîð Ñè÷» 04.2009,çàê. 1741, òèð. 5

Motor Sich JSC today is one of the leading aircraft engine-eng... · License of the Ministry of...

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