financial statements for the year ended 31 december...

Closed Joint-Stock Company “SUKHOI CIVIL AIRCRAFT” Financial Statements for the year ended 31 December 2008

CLOSED JOINT STOCK COMPANY “SUKHOI CIVIL AIRCRAFT”

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Contents

INDEPENDENT AUDITORS’ REPORT .............................................................................3

BALANCE SHEET ..................................................................................................................4

INCOME STATEMENT.........................................................................................................5

STATEMENT OF CASH FLOWS...........................................................................................6

STATEMENT OF CHANGES IN EQUITY..........................................................................7

NOTES TO THE FINANCIAL STATEMENTS...................................................................8

CLOSED JOINT-STOCK COMPANY “SUKHOI CIVIL AIRCRAFT”

The accompanying notes are an integral part of these financial statements

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INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2008 2008 2007

Notes 000’ USD 000’ USD

Revenues 13 5,956 624 Cost of sales 14 (2,970) (463) GROSS PROFIT 2,986 161

Government grants related to income 15 16,735 66,645 Research and development expenses 16 (873) (751) Selling expenses 17 (9,276) (17,920) Administrative expenses 18 (54,184) (45,258) Other operating income and expenses (171) (177) OPERATING (LOSS)/PROFIT (44,783) 2,700

Interest expense (14,402) (872) Foreign exchange (losses)/gains (80,369) 4,016 (LOSS)/PROFIT BEFORE TAX (139,554) 5,844

Income tax benefit /(expense) 19 24,841 (2,222) NET (LOSS)/PROFIT FOR THE YEAR (114,713) 3,622



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STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2008 2008 2007 000’ USD 000’ USD

OPERATING ACTIVITIES: (Loss)/Profit before tax (139,554) 5,844

Depreciation and amortization recognized in income 4,703 2,175 Unrealised foreign exchange differences 75,259 (3,094) Interest expense 14,402 872

Cash flows from operating activities before changes in working capital and income tax (45,190) 5,797

Increase in inventories (5,368) (114) Increase in trade and other accounts receivable (4,035) (6,506) (Increase)/decrease in value added tax receivable (2,476) 3,580 Increase in advances from customers 12,123 16,569 Increase in trade and other accounts payable 51,870 24,719 Increase in taxes payable 87 368 Decrease in government grants related to income - (5,875) Interest paid (52,760) (32,266)

Cash flows (used in)/from operating activities (45,749) 6,272 INVESTING ACTIVITIES:

Acquisition of property, plant and equipment (62,315) (53,415) Acquisition of intangible assets (204,462) (266,927) Increase in non-current value added tax receivable (32,708) (29,623) Interest received 3,292 4,008 Government grants related to assets 30,815 103,913

Cash flows used in investing activities (265,378) (242,044) FINANCING ACTIVITIES:

Proceeds from borrowings, net 340,644 284,230 Repayment of borrowings (74,166) (10,769) Finance lease payments (16,129) (6,988)

Cash flows from financing activities 250,349 266,473 Effect of foreign exchange on cash and cash equivalents (7,534) 6,066 (Decrease)/increase in cash and cash equivalents (68,312) 36,767 Cash and cash equivalents at the beginning of period (Note 9) 102,681 65,914 Cash and cash equivalents at the end of period (Note 9 ) 34,369 102,681



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STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2008

000’ USD Share capital

Foreign currency

translation reserve

Accumulated losses Total

Balance as at 1 January 2007 26,083 372 (24,851) 1,604

Effect of translation to the presentation currency - 269 - 269 Net profit for the year - - 3,622 3,622 Total recognized income and expenses for the year 3,819 Balance as at 31 December 2007 26,083 641 (21,229) 5,495

Effect of translation to the presentation currency - 16,763 - 16,763 Net loss for the year - - (114,713) (114,713) Total recognized income and expenses for the year (97,950) Balance as at 31 December 2008 26,083 17,404 (135,942) (92,455)


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008

Note 1. The Company

Closed Joint-Stock Company “Sukhoi Civil Aircraft” (hereafter “the Company”) was established on 25 May 2000 with the purpose of development, testing, production and operation of new types of civil aircraft. Currently, the Company carries out development of “Sukhoi Super Jet – 100” (formerly “Russian Regional Jet” or “RRJ”) - a family of civil aircraft consisting of 2 modifications: 75 and 95 seater aircraft in basic and longer range configuration.

The Company’s registered address is at: 2 build. 23B, Polykarpov Str., 125284, Moscow, Russian Federation.

The Company has the following branches:

• Komsomolsk-on-Amur branch located at address: 1 Sovetskaya Str., Komsomolsk-on-Amur 681018, Khabarobvsk Region;

• Novosibirsk branch located at address: 15 Polzunova Str., Novosibirsk;

• Voronezh branch located at address: 27, Tsiolkovskogo Str., Voronezh

The Company’s shareholders are:

• ОАО “Sukhoi OKB”, which owns 12.07 % of ordinary shares;

• ОАО “Sukhoi Aircraft Holding Company”, which owns 87.93 % of ordinary shares (the “Parent Company”).

The Company is ultimately controlled by the Federal Government of the Russian Federation.

Russian business environment

The Russian Federation has been experiencing political and economic change that has affected, and may continue to affect, the activities of enterprises operating in this environment. Consequently, operations in the Russian Federation involve risks that typically do not exist in other markets. In addition, the recent contraction in the capital and credit markets has further increased the level of economic uncertainty in the environment. The financial statements reflect management’s assessment of the impact of the Russian business environment on the operations and the financial position of the Company. The future business environment may differ from management’s assessment.

Note 2. Basis of presentation

Statement of compliance

These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”).

Basis of measurement

The financial statements are prepared on the historical cost basis except that the carrying amounts of assets, liabilities and equity items in existence at 31 December 2002 include adjustments for the effects of hyperinflation, which were calculated using conversion factors derived from the Russian Federation Consumer Price Index published by the Russian Statistics Agency, GosKomStat. Russia ceased to be hyperinflationary for IFRSs purposes as at 1 January 2003.

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CLOSED JOINT-STOCK COMPANY “SUKHOI CIVIL AIRCRAFT” NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 `

Functional and presentation currency

The national currency of the Russian Federation is the Russian Rouble (“RUR”), which is the Company’s functional currency taking into account the economic environment in which the Company operates.

These financial statements are presented in US dollars (USD), since management believes that this currency is more meaningful for the users of the financial statements. The assets and liabilities of the Company are translated from RUR into USD at the exchange rate at the end of the year. Revenues and expenses are translated into USD using rates approximating exchange rates at the dates of the transactions. The resulting exchange difference is recorded directly in equity in the foreign currency translation reserve. For translation purposes the following exchange rates were used:

• As at 1 January 2007 - RUR 26.3311 for USD 1; • As at 31 December 2007 - RUR 24.5462 for USD 1; • As at 31 December 2008 - RUR 29.3804 for USD 1; • Average exchange rate for 2007 - RUR 25.5759 for USD 1; • Average exchange rate for 2008 - RUR 24.8553 for USD 1.

The RUR is not a readily convertible currency outside the Russian Federation and, accordingly, any conversion of RUR to USD should not be construed as a representation that the RUR amounts have been, could be, or will be in the future, convertible into USD at the exchange rate disclosed, or at any other exchange rate.

Going concern

These financial statements were prepared on the basis of accounting principles applicable to a going concern, which assumes that the Company will continue operations in the foreseeable future and will be able to realise its assets and discharge its liabilities in the normal course of operations.

The ultimate realisation of the Company’s assets and its long-term liquidity will be impacted by its success in completion of the “Sukhoi Super Jet – 100” development program (refer Note 4). The “Sukhoi Super Jet – 100” program is included in the Federal Target Program “Development of the civil aircraft for 2002-2010 and for the period until 2015” approved by the Decision of the Federal Government of the Russian Federation No. 728 dated 15 October 2001. As at 31 December 2008 the Company’s existing contract portfolio included 106 aircraft with the expected delivery between 2010 and 2012.

The Company entered into a contract with Ministry of Industry and Trade (Minpromtorg) which provides for the participation of the Federal Government in the development program and aircraft marketing (see also note 15). Management believes that financial support from the Federal Government, together with the Company’s other capital resources, is sufficient to meet its obligations, as they become due.

Use of estimates and judgments

Management has made a number of estimates and assumptions related to the reporting of assets and liabilities to prepare these financial statements in conformity with IFRSs. Particularly, note 4 Intangible assets presents information on the most significant area that requires the use of estimates and the most important judgments on application of accounting policy, adopted by management in preparation of these financial statements.

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Note 3. Summary of significant accounting principles

Following are the main principles of the Company’s accounting policies that are applied consistently during all reporting periods.

(a) Foreign currencies

Transactions in foreign currencies are translated to RUR at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to RUR at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities denominated in foreign currencies that are stated at historical cost are translated to RUR at the foreign exchange rate ruling at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to RUR at the foreign exchange rate ruling at the dates the fair values were determined. Foreign exchange differences arising on translation are recognised in the income statement.

(b) Intangible assets

Research and development

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the income statement as an expense as incurred.

Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised if the product or process is technically and commercially feasible and the Company has sufficient resources to complete development. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Furthermore, borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets are included in the cost. Any related government grants are deducted from the cost. Other development expenditure is recognised in the income statement as an expense as incurred. Upon completion of the development phase capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses.

Other intangible assets Other intangible assets, which are acquired by the Company, are stated at cost less accumulated amortisation and impairment losses and less any related government grants. Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense as incurred.

Amortisation

Intangible assets with a definite lifetime are amortised on a straight-line basis over their estimated useful lives from the date the asset is available for use. The useful life of prototype-design products under the aircraft development programme is estimated at 16 years; the useful life of other intangible assets is estimated at 3-10 years.

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(c) Impairment

Financial assets

A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognised in the income statement.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised, and is recognised in the income statement.

Non-financial assets

The carrying amounts of the Company’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For intangible assets that are not yet available for use, recoverable amount is estimated at each reporting date.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest Company of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”).

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement.

Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

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(d) Property, plant and equipment

Owned assets

Property, plant and equipment is stated at historical cost less depreciation and impairment loss. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of overheads. Furthermore, borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets are included in the cost. Related government grants are deducted from cost of acquired or constructed property, plant and equipment.

Where an item of property, plant and equipment comprises major components having different useful lives, they are accounted for as separate items of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are recognised net in “other income” in the income statement as incurred.

Leased assets

Leases under which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Plant and equipment acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses.

Subsequent expenditure

Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, is capitalised with the carrying amount of the component being written off. Other subsequent expenditure is capitalised if future economic benefits will arise from the expenditure. All other expenditure, including repairs and maintenance expenditure, is recognised in the income statement as an expense as incurred.

Depreciation

Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of the individual assets. Depreciation commences on the date of acquisition or, in respect of internally constructed assets, from the time an asset is completed and ready for use. Land is not depreciated.

The estimated useful lives are as follows:

Buildings & Constructions 10-20 years Machinery and Equipment 5 - 15 years Vehicles 5 - 10 years Furniture 5 - 7 years Others 3-10 years Office equipment 3 - 5 years

Depreciation methods, estimated useful lives and residual values are re-assessed annually.

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(e) Inventories

Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

The cost of inventories is based on the weighted average principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.

(f) Non-derivative financial instruments

Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.

Non-derivative financial instruments are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below.

Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Company’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

Trade and other receivables are stated at amortised cost less impairment losses.

Loans and borrowings are stated at amortised cost using the effective interest method, less impairment losses.

Trade and other payables are stated at amortised cost.

Accounting for finance income and expenses is discussed in note 3(l).

(g) Provisions

A provision is recognised in the balance sheet when the Company has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

A provision for onerous contracts is recognised when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of fulfilling the contract. The estimate of net cost of fulfilling the contract includes expected late delivery penalties, if applicable. Before a provision is established, the Company recognises any impairment loss on the assets associated with that contract.

(h) Employee benefits

The Company makes contributions for the benefit of employees to Russia’s State pension fund. The contributions are expensed as incurred.

(i) Income tax

Income tax for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity.

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Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the temporary differences relating to initial recognition of assets or liabilities in a transaction that affects neither accounting nor taxable profit. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(j) Government grants

Government grants (including non-monetary grants at fair value), are not recognised until there is reasonable assurance that the Company will comply with the conditions attaching to them; and the grants will be received. Government grants are recognised in the income statement on a systematic basis over the periods necessary to match them with the related costs which they are intended to compensate.

A government grant, to compensate for expenses or losses already incurred is recognised as income of the period in which it becomes receivable.

(k) Revenues

Revenue from the sale of goods is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity, and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Any cash outflows related to customer penalties for late delivery of aircraft are deducted from gross amount of revenue.

Revenue from services rendered is recognised in the income statement in proportion to the stage of completion of the transaction at the balance sheet date. The stage of completion is assessed by reference to surveys of work performed.

(l) Financial income and expenses

Finance income comprises interest income on funds invested and foreign currency gains. Interest income is recognised as it accrues in the income statement, using the effective interest method, except for the interest income on the funds, which were borrowed specifically for the purposes of obtaining a qualifying asset which are deducted from the cost of such assets.

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Finance expenses comprise interest expense on borrowings, foreign currency losses and impairment losses recognised on financial assets. All borrowing costs are recognised in the income statement using the effective interest method, except for costs directly attributable to the acquisition, construction or production of qualifying assets which are included in the cost of qualifying assets.

Foreign currency gains and losses are reported on a net basis.

(m) Operating leases

Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease payments made.

(n) New standards and Interpretations not yet adopted

A number of new Standards, amendment to Standards and Interpretations are not yet effective as at 31 December 2008, and have not been applied in preparing these financial statements. Of these pronouncements, potentially the following will have an impact on the Company’s operations. The Company plans to adopt these pronouncements when they become effective.

• Revised IAS 1 Presentation of Financial Statements (2007) which becomes mandatory for the Company’s 2009 financial statements is expected to have a significant impact on the presentation of the financial statements. The Standard introduces the concept of total comprehensive income and requires presentation of all owner changes in equity in the statement of changes in equity, separately from non-owner changes in equity.

• Revised IAS 23 Borrowing Costs removes the option to expense borrowing costs and requires that an entity capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The revised IAS 23 will become mandatory for the Company’s 2009 financial statements.

• Various Improvements to IFRSs have been dealt with on a standard-by-standard basis. All amendments, which result in accounting changes for presentation, recognition or measurement purpose, will come into effect not earlier than 1 January 2009. The Company has not yet analysed the likely impact of the improvements on its financial position or performance.

Note 4. Intangible assets

000' USD Software Development of SSJ-100 program

Advances given for development costs Total

COST At 01 January 2007 8,395 129,452 36,528 174,375Additions 9,390 132,447 164,682 306,519 Transfers - 112,064 (112,064) -Government grant related to software and development costs (290) (101,522) - (101,812)Effect of translation to the presentation currency 992 15,412 4,863 21,267 At 31 December 2007 18,487 287,853 94,009 400,349 Additions 3,099 267,860 22,057 293,016Reclassification to inventory - - (35,101) (35,101)Transfers - 50,219 (50,219) -Government grant related to software and development costs (526) (30,289) - (30,815)Effect of translation to the presentation currency (3,438) (91,688) (5,724) (100,850)At 31 December 2008 17,622 483,955 25,022 526,599

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000' USD Software Development of SSJ-100 program

Advances given for development costs Total

ACCUMULATED AMORTIZATION At 01 January 2007 2,442 - - 2,442Charge for the year 2,793 - - 2,793Effect of translation to the presentation currency 294 - - 294At 31 December 2007 5,529 - - 5,529 Charge for the year 3,370 - - 3,370 Effect of translation to the presentation currency (1,429) - - (1,429)At 30 December 2008 7,470 - - 7,470

NET BOOK VALUE At 01 January 2007 5,953 129,452 36,528 171,933At 31 December 2007 12,958 287,853 94,009 394,820 At 31 December 2008 10,152 483,955 25,022 519,129

Management monitors the “Sukhoi Super Jet – 100” development program against the capitalisation criteria in IAS 38 Intangible Assets. Based on the ongoing analysis, management concluded that the criteria in IAS 38 were collectively met in October 2004, which was the date when capitalisation of development costs for the program commenced.

Capitalised development costs for the year ended 31 December 2008 include USD 58,836 thousand of capitalised borrowing costs (2007: USD 37,847 thousand).

At the reporting date the “Sukhoi Super Jet – 100” program was not available for use and, therefore, the carrying amount of capitalised development costs was tested for impairment. For impairment purposes the recoverable amount was determined in aggregate for the Company as a whole since it comprises a single cash-generating unit. The recoverable amount was determined by discounting the future cash flows from the continuing use of the assets and from their ultimate disposal. A pre-tax discount rate of 25.74%, which reflects current market assessments of the time value of money and the risks specific to the asset, was applied in determining the recoverable amount. Based on this analysis, the recoverable amount exceeded the carrying amount of the capitalised development costs. The impairment test calculation was sensitive to a number of key factors, and particularly to the expected number of aircraft to be sold through lifetime of the SSJ program. A 5% decrease in future actual sales of aircraft compared to expected sales would result in an impairment loss of USD 10,926 thousand assuming the decrease in evenly spread during the lifetime of the program except for the first deliveries which are contracted as at 31 December 2008.

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Note 5. Property, plant and equipment

000' USD Buildings and Constructions

Machinery and

equipment Vehicles Other

Advances paid for

acquisition of

equipment Total

COST As of 01 January 2007 - 15,706 639 4,507 22,683 43,535

Additions and transfers 17,225 49,408 385 3,623 (2,114) 68,527 Government grant - (2,101) - - - (2,101) Effect of translation into presentation currency 723 3,127 63 480 1,561 5,954 As of 31 December 2007 17,948 66,140 1,087 8,610 22,130 115,915

Additions and transfers 36,851 70,328 2,535 2,402 (1,429) 110,687 Disposal (2,663) (208) - - - (2,871) Effect of translation into the presentation currency (8,287) (21,615) (569) (1,718) (3,421) (35,610) As of 31 December 2008 43,849 114,645 3,053 9,294 17,280 188,121

ACCUMULATED DEPRECIATION As of 01 January 2007 - 2,817 103 1,313 - 4,233 Charge for the year 845 3,411 154 1,293 - 5,703

Effect of translation into presentation currency 36 347 14 149 - 546 As of 31 December 2007 881 6,575 271 2,755 - 10,482

Charge for the year 3,166 11,722 319 2,333 - 17,540 Disposal (102) - - - - (102)

Effect of translation into presentation currency (617) (2,887) (94) (813) - (4,411)As of 31 December 2008 3,328 15,410 496 4,275 - 23,509

NET BOOK VALUE As of 01 January 2007 - 12,889 536 3,194 22,683 39,302

As of 31 December 2007 17,067 59,565 816 5,855 22,130 105,433

As of 31 December 2008 40,521 99,235 2,557 5,019 17,280 164,612

The Company leases equipment and vehicles under a number of finance lease agreements. At the end of each of the lease period the Company has the option to purchase the equipment at a beneficial price. At 31 December 2008 the net book value of leased assets was USD 56,691 thousand (2007: USD 16,262 thousand). The leased equipment secures lease obligations (refer Note 11).

Additions to property, plant and equipment balance for the year ended 31 December 2008 include USD 738 thousand of capitalised borrowing costs (2007: USD nil).

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Note 6. Deferred tax assets

Major classes of deferred income tax assets and liabilities:

000'USD

31 Dec 2008

Recognised in income

Change in tax rate

Foreign currency

translation1 Jan 2008

Recognised in income

Foreign currency

translation1 Jan 2007

Intangible assets (2,341) 3,232 554 509 (6,636) (5,809) (283) (544)Property, plant and equipment (1,008) (693) 238 193 (746) (655) (32) (59)Trade and other accounts receivable 40 122 (9) (6) (67) (254) 3 184 Trade and other accounts payable 563 477 (133) (106) 325 366 11 (52)Loans and borrowings (1,594) (1,515) 377 300 (756) (1,132) (18) 394 Inventories (564) (800) 133 103 - - - - Tax losses carry forward 30,223 30,004 (7,146) (5,666) 13,031 5,262 732 7,037 Net deferred tax assets 25,319 30,827 (5,986) (4,673) 5,151 (2,222) 413 6,960

Management believes that it is probable that the Company will have sufficient future taxable profits to utilise the deferred tax asset after completion of “Sukhoi Super Jet – 100” development program and commencement of production and sales of the aircraft. Tax losses will expire in the period from 2012-2018 years.

Note 7. Inventories

2008

000’ USD 2007

000’ USD

Advances given for aircraft serial production 32,453 - Inventory 4,889 341 Total 37,342 341

The inventory balance for the year ended 31 December 2008 includes USD 3,332 thousand of capitalised borrowing costs (2007: USD nil).

Note 8. Trade and other accounts receivable

2008

000’ USD 2007

000’ USD

Trade accounts receivable 1,550 665 Advances to suppliers 1,924 2,058 Prepaid expenses 3,790 182 Prepaid bank commissions related to undrawn borrowing facilities 2,585 5,766 Total 9,849 8,671

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Note 9. Cash and cash equivalents

2008

000’ USD 2007

000’ USD

Current accounts RUR 14,121 40,037 Current accounts in foreign currency 3,329 4,855 Cash in hand 42 21 Cash equivalents RUR 77 10,350 Cash equivalents in foreign currency - 4,642 Bank term deposit RUR 16,800 42,776 Total 34,369 102,681

Note 10. Share capital

As at 31 December 2008 and 2007, the share capital of the Company comprised of 763,860 authorised, issued and fully paid ordinary shares all with a par value of RUR 1,000 each.

Distributable profit

In accordance with Russian legislation the Company’s distributable reserves are limited to the balance of accumulated retained earnings as recorded in the Company’s statutory financial statements prepared in accordance with Russian Accounting Principles. As at 31 December 2008 the Company had cumulative losses and, therefore, no profits available for distribution (2007: nil).

Dividends

No dividends were declared for the year ended 31 December 2008 and 2007.

Note 11. Loans and borrowings

Non-current loans and borrowings

Creditor Terms of

repayment CurrencyEffective

interest rate, %2008

000’ USD Effective

interest rate, % 2007

000’ USD

RUR Bonds (see below) 2017 RUR - 7.85 206,515 JSC "Sberbank" 2011-2017 Euro Euribor+2.3 140,005 Euribor+2.3 66,682 JSC "Sukhoi OKB" 2010-2015 RUR 8.8 49,054 8.8 58,371 JSC "Sukhoi OKB" 2010-2015 RUR 9.9 45,113 8.8 54,003 EABD 2011-2018 US dollars Libor+4 73,924 - JSC "VTB 24" 2010-2012 Euro 7.71 52,175 7.71 50,440 JSC "VTB 24" 2010-2013 Euro 8.36 18,404 8.36 16,094 JSC "Vnesheconombank" 2010-2013 GBP 11.32 8,649 11.32 3,708 JSC "VTB 24" 2010 Euro Eurobor+6.5 2,727 Eurobor+6.5 5,333 LIEBHERR-AEROSPACE SAS 2010 US dollars 3 2,401 3 2,418 JSC "Vnesheconombank" 2010-2011 GBP 11.9 2,124 11.9 2,489 JSC "VTB 24" 2009-2010 Euro Euribor+4.25 1,108 Euribor+4.25 2,196 Finance Leases (rouble) 2010-2012 RUR 22.34 1,906 22.1 1,148 Finance Leases (euro) 2010-2014 Euro 11.20 34,890 16 6,388 Finance Leases (US dollar) 2010-2014 US dollars 15.68 9,844 21.3 1,504 Others 2010 RUR 65 198 Total 442,389 477,487

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Non-current loans and borrowings are due for repayment as follows:

2008

000’ USD 2007

000’ USD During the second year 36,539 216,668 During the third year 45,555 26,028 During the fourth year 59,687 31,121 During the fifth year 55,963 39,829 After five years 244,645 163,841 Total 442,389 477,487

Current loans

Creditor Currency Effective


000’ USD Effective


000’ USD

Alenia Aeronautica S.p.A. Euro 0.0 14,105 0.0 14,639 RUR Bonds (see below) RUR 8.32 173,271 EBRD Euro Euribor+0.9 141,208 - OJSC " Industrial construction bank" US dollars - 9.0 34,092 JSC "VTB 24" US dollars - Libor+6.0 40,076 Inteza US dollars Libor+1.8 25,200 - JSC "VTB 24" Euro Euribor +6.5 2,585 Euribor+6.5 3,093 JSC "VTB 24" Euro Euribor+4.25 1,093 Euribor+4.25 1,228 JSC "VTB 24" Euro 8.36 1,843 - LIEBHERR-AEROSPACE SAS US dollars 3.0 1,196 - JSC "Sberbank" Euro Euribor+2.3 448 - Finance Leases (rouble) RUR 22.34 1,055 22.1 519 Finance Leases (euro) Euro 11.20 11,455 16.0 3,225

Finance Leases (US dollar) US dollars 15.68 3,196 21.3 1,079 Others RUR 112 124 Total 376,767 98,075

As at 31 December 2008 the Company had breached certain financial covenants related to long-term borrowing facilities due to Inteza and EBRD. Accordingly, management classified these borrowings as current liabilities as of 31 December 2008. After the balance sheet date, the EBRD waived acceleration of payments due to the breach until 31 December 2009.

In March 2007 the Company issued 5,000,000 unsecured non-convertible rouble-denominated bonds with the face value of 1,000 roubles maturing in March 2017 with twenty coupons payable semi-annually. The coupon rate for the first five coupons is 7.85% p.a. As the Company declared an offer to redeem the bonds in September 2009 the balance payable is reported as current as at 31 December 2008.

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Finance leases are due for repayment as follows:

2008 000’ USD

Minimum lease payments Interest Principal

During the first year 22,127 6,421 15,706 During the second year 19,432 4,477 14,955 During the third year 15,911 2,705 13,206 During the fourth year 11,540 1,443 10,097 During the fifth year 6,837 546 6,291 After five years 2,156 65 2,091 Total 78,003 15,657 62,346

2007 000’ USD

Minimum lease payments Interest Principal

During the first year 6,033 1,210 4,823 During the second year 4,805 1,922 2,883 During the third year 4,404 721 3,683 During the fourth year 2,501 177 2,324 During the fifth year 155 5 150 Total 17,898 4,035 13,863

The finance lease liabilities are secured by the leased assets (refer Note 5).

Note 12. Trade and other accounts payable

2008

000’ USD 2007

000’ USD Trade creditors 85,332 54,168 Wages and salaries payable 4,553 3,097 Other accounts payable 3,634 492 Total 93,519 57,757

Note 13. Revenues

2008

000’ USD 2007

000’ USD

Development services 5,473 - Consultancy 483 624 Total 5,956 624

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Note 14. Cost of sales

2008

000’ USD 2007

000’ USD

Wages and unified social tax 2,075 463 Subcontractors’ services 401 - Traveling expenses 31 - Amortization and depreciation 349 - Other expenses 114 - Total 2,970 463

Note 15. Government grants

The Company’s activity on development of the “Sukhoi Super Jet – 100” aircraft is included in the Federal Target Program “Development of the civil aircraft for 2002-2010 and for the period until 2015” approved by the Decision of the Federal Government of the Russian Federation No. 728 dated 15 October 2001. In accordance with this program, the Company receives financing from the Federal Government. Funds are received under the contract with Ministry of Industry and Trade (Minpromtorg) and Joint Stock Company “United Aicraft Corporation”(JSC “UAC”) which is structured as a contract for the development services, and as a contract to cover certain types of expenses. The summary of government grants received by the Company is presented below.

2008

000’ USD 2007

000’ USD

Grants related to development costs 30,289 101,522 Grants related to software 526 290 Grants related to equipment - 2,101 Total government grants related to assets 30,815 103,913

Total grants related to income 16,735 66,645 Change in deferred grants - (5,875) Total grants related to income received during the year 16,735 60,770

Total 47,550 164,683

Note 16. Research and development expenses

2008

000’ USD 2007

000’ USD

Expenses on SSBJ program 667 525 Expenses on HISAC program 206 226 Total 873 751

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Note 17. Selling expenses

2008

000’ USD 2007

000’ USD

Marketing costs 438 6,336 Advertising costs 4,865 6,509 Other expenses 3,973 5,075 Total 9,276 17,920

Note 18. Administrative expenses

2008 000’ USD

2007 000’ USD

Wages and unified social tax 25,025 18,309 Rent 8,647 6,996 Consultancy 4,458 5,530 Legal, audit, information and other professional services 3,320 1,991 Traveling costs 1,255 2,218 Amortization and depreciation 4,013 1,988 Bank charges 729 229 Taxes other than income tax 2,851 3,927 Other expenses 3,886 4,070 Total 54,184 45,258

Note 19. Income taxes

The applicable tax rate is the Russian Federation corporate income tax rate of 24%. In 2008, the Russian government enacted a reduction in the Russian statutory tax rate to 20%. The tax rate is effective on 1 January 2009.

2008

000’ USD 2007

000’ USD

Deferred tax - origination and reversal of temporary differences 30,827 (2,222) Change in tax rate (5,986) - Total 24,841 (2,222)

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Reconciliation of effective tax rate:

2008

000’ USD % 2007

000’ USD %

(Loss)/Profit before tax (139,554) 100 5,844 100 Theoretical income tax benefit/(expense) at the statutory tax rate 33,493 24 (1,403) (24)Tax effect of non-deductible expenses (2,666) (2) (819) (14)Change in tax rate (5,986) (4) - - Total income tax benefit / (expense) 24,841 18 (2,222) (38)

Note 20. Financial instruments

Exposure to credit, interest rate and currency risk arises in the normal course of the Company’s business. The Company does not hedge its exposure to such risk.

Credit risk

The Company does not require collateral in respect of financial assets. Credit evaluations are performed on all suppliers and customers, other than related parties, requiring credit over a certain amount.

At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet.

There is no significant individual customer credit risk concentration. There were no significant individual “past due” trade receivables or other individual trade receivable balances that required impairment recognition at the end of current or prior financial year.

Liquidity risk

The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

The table below analyses the Company’s financial liabilities into relevant maturity groups based on the remaining period from the balance sheet date to the contractual maturity date, based on the contractual undiscounted cash flows including estimated interest payments.

2008

000’ USD Carrying amount

Contractual cash flows

6 months or less

6 – 12 months 1 – 2 years 2 – 5 years

More than 5 years

Bank and other loans 583,539 827,488 203,726 26,933 63,850 240,149 292,830Unsecured bond issue 173,271 183,614 6,771 176,843 - - -Finance lease 62,346 78,003 11,624 10,503 19,432 34,288 2,156Trade and other payables 93,519 93,516 40,281 53,235 - - - Total 912,675 1,182,621 262,402 267,514 83,282 274,437 294,986

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2007 ‘000 USD

Carrying amount

Contractual cash flows

6 months or less

6 – 12 months 1 – 2 years 2 – 5 years

More than 5 years

Bank and other loans 355,184 488,337 96,388 23,447 29,238 149,402 189,862Unsecured bond issue 206,515 235,678 7,995 7,995 219,688 - -Finance lease 13,863 17,898 3,045 2,988 4,805 7,060 -Trade and other payables 57,757 57,757 39,326 18,431 - - -

Total 633,319 799,670 146,754 52,861 253,731 156,462 189,862

Market risk

Foreign currency risk

The Company incurs foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currency of the Company. The currencies giving rise to this risk are primarily USD, EURO and GBP. Management does not hedge the Company’s exposure to foreign currency risk. The Company has the following assets and liabilities denominated in foreign currency:

2008 2008 2008 2007 2007 2007

US dollars EURO GBP US dollars EURO GBP

Cash and cash equivalents 31 3,287 11 4,598 2,744 2,155 Bank and other loans (102,721) (375,701) (10,773) (76,586) (159,705) (6,197)Finance lease (13,040) (46,345) - (2,583) (9,613) - Trade and other payables (12,182) (14,015) - (14,991) (3,441) - Total (127,912) (432,774) (10,762) (89,562) (170,015) (1,553)

The following exchange rates were applied at the respective balance sheet dates: 2008 2007 Rouble Rouble US Dollar 1 equals 29.3804 24.5462 EUR 1 equals 41.4411 35.9332 GBP 1 equals 42.6163 49.0114

A 20% weakening of RUR against the US dollar, EURO and GBP based on the Company’s exposure at the balance sheet date would have decreased equity and net profit for the year by USD 91,432 thousand (2007: USD 39,692 thousand). This analysis assumes that all other variables, in particular interest rates, remain constant.

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Interest rate risk

At the reporting date the interest rate profile of the Company’s interest bearing financial instruments was: 2008 2007 000’ USD 000’ USD Fixed rate instruments Cash and cash equivalents 34,369 102,681 Bank and other loans (368,512) (443,091) Finance lease (62,346) (13,863)

Balance 31 December (396,489) (354,273) Variable rate instruments Bank and other loans (388,298) (118,608) Balance 31 December (388,298) (118,608)

Changes in interest rates impact primarily loans and borrowings by changing either their fair value (fixed rate debt) or their future cash flows (variable rate debt). Management does not have a formal policy of determining how much of the Company’s exposure should be to fixed or variable rates. However, at the time of raising new loans or borrowings management uses its judgment to decide whether it believes that a fixed or variable rate would be more favourable to the Company over the expected period until maturity.

Fair value sensitivity analysis for fixed rate instruments The Company does not recognise any fixed rate financial assets and liabilities at fair value through profit or loss, and the Company does not designate derivatives as hedging instruments under a fair value hedge accounting model. Therefore a change in interest rates at the reporting date would not affect equity or net profit for the year.

Cash flow sensitivity analysis for variable rate instruments An increase / decrease of one percentage point in interest rates based on the Company’s exposure at the balance sheet date for 2009 would have decreased / increased respectively profit for the year by USD 365 thousand. The analysis assumes that all other variables, in particular foreign currency rates, remain constant.

Fair values

The Company estimates the fair value of its financial assets and liabilities not to be materially different from their current values except of the bond issues which fair value as at 31 December 2008 approximated USD 159,971 thousand. For receivables and payables with a remaining useful life of less than one year their notional amount is deemed to reflect their fair value. For loans and borrowings and all other financial instruments fair value is determined based on discounted future principal and interest cash flows.

The interest rates used to discount estimated cash flows, where applicable, are based on the market rates of instruments with similar market risk exposure are disclosed in note 11.

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Capital risk management

The Company’s long-term objectives in managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide return for shareholders and benefits for other stakeholders. In medium and short-term, the Company’s objectives are to maintain an optimal capital structure to reduce the cost of capital and provide sufficient recourses necessary for successful commencement of a serial production of aircraft under SSJ program.

Management’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management monitors the return on capital. Management seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. As discussed in Note 2, the overall success in achieving Company’s long-term objectives is dependent on certain important external factors, and taking those into account, the Company’s capital structure in the short-term may differ from targeted medium and long-term structure, although management believes that commencement of the production phase of the SSJ program will enable the Company to closer align the short-term capital structure with the desired long-term objectives.

As part of its capital management, it is one of the Company’s objectives to maintain a strong credit rating by institutional rating agencies. Apart from certain non-financial parameters, the credit rating is based on the factors such as capital and liquidity ratios. Currently, Company’s national long-term rating from Fitch is “AA -”(rus).

Under certain loan agreements the Company has to maintain minimum level of net assets which is considered in managing capital of the Company.

There were no changes in the Company’s approach to capital management during the year.

Note 21. Commitments

The Company is committed to capital expenditure necessary for completion of the “Sukhoi Super Jet - 100” program of approximately USD 177 million as at 31 December 2008, which will incur as follows: Mln USD 2009 137 2010 40

Total 177

The Company has commitments in its contracts with customers to meet certain performance targets, including adherence to specified delivery schedules. In case of a failure to comply with the targets, the Company will be liable to penalties of up to USD 1.5 million per aircraft.

The Company has commitments to provide sales financing to customers. These sales financing transactions will generally be collateralised by the underlying aircraft. The Company believes that the estimated fair value of the aircraft securing such commitments will substantially offset any potential losses from the commitments.

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Note 22. Contingencies

Insurance

The insurance industry in the Russian Federation is in a developing stage and many forms of insurance protection common in other parts of the world are not yet generally available. The Company does not have full coverage for its facilities, business interruption, or third party liability in respect of property or environmental damage arising from accidents on Company property or relating to Company operations. Until the Company obtains adequate insurance coverage, there is a risk that the loss or destruction of certain assets could have a material adverse effect on the Company’s operations and financial position.

Taxation contingencies

The taxation system in the Russian Federation is relatively new and is characterized by frequent changes in legislation, official pronouncements and court decisions, which are often unclear, contradictory and subject to varying interpretation by different tax authorities. Taxes are subject to review and investigation by a number of authorities, which have the authority to impose severe fines, penalties and interest charges. A tax year remains open for review by the tax authorities during the three subsequent calendar years; however, under certain circumstances a tax year may remain open longer. Recent events within the Russian Federation suggest that the tax authorities are taking a more assertive position in their interpretation and enforcement of tax legislation.

These circumstances may create tax risks in the Russian Federation that are substantially more significant than in other countries. Management believes that it has provided adequately for tax liabilities based on its interpretations of applicable Russian tax legislation, official pronouncements and court decisions. However, the interpretations of the relevant authorities could differ and the effect on these financial statements, if the authorities were successful in enforcing their interpretations, could be significant.

Note 23. Related Parties

Control relationship

Related parties comprise the immediate and ultimate shareholders of the Parent Company and all other companies in which those shareholders, either individually or together, have a controlling interest. The Company is ultimately controlled by the Federal Government of the Russian Federation.

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Transactions with shareholders and other state-controlled entities

The Company had the following transactions and balances with related parties:

2008 2007

000'USD Sales/

(Purchases) Assets/

(Liabilities) Sales/

(Purchases) Assets/

(Liabilities)

Revenue from development services 5,473 - - - Acquisition of development services (168,615) (31,273) (143,978) 43,879 Acquisition of inventory (714) 31,981 - - Acquisition of property, plant and equipment (67,683) 8,693 (19,901) 11,299 Administrative expenses (9,616) (957) (6,194) (193) Distribution expenses (1,551) (666) (1,746) (480) Other expenses (2,284) (864) (33,661) (131) Cash and cash equivalents - 12,007 - 71,371 Advances from customers - (37,612) - (35,145) Loans and borrowing - (376,956) - (337,805) Interest paid on loans and borrowings (46,599) - (27,875) -

Tax transactions and balances are disclosed on the face of balance sheet income statements and in notes 6 and 8. Government grants received are disclosed in note 15.

Transactions with management

Remuneration to key managerial staff for the year ended 31 December 2008 amounted to USD 2,312 thousand (2007 – USD 2,002 thousand).

Pricing policies

Prices for related party transactions are determined on a transaction-by-transaction basis, not necessarily at arm’s length.

Note 24. Subsequent events

In April 2009, the Company completed an issue of 254,621 shares of the Company for the benefit of World Wing S.A., a 100% subsidiary of Alenia Aeronautica, for USD 183 million which gives a 25% plus one share ownership to Alenia Aeronautica in the share capital of the Company. As part of this capital transaction the Board of Directors approved amendments to the loan agreement with Alenia Aeronautica (refer note 11) which provide for loan repayment and reimbursement of interest covering the period from the loan receipt to the date of share issue approval in the amount of USD 7,500 thousand which will be deducted from share premium arising on share issue.

financial statements for the year ended 31 december...

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