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ZAO DELTALEASING REPORT AND FINANCIAL STATEMENTS For the years ended 31 December 2009 and 31 December 2008 ZAO DeltaLeasing Report and Financial Statements Contents Statement of Management Responsibilities 2 Report of independent auditors 3 Balance Sheets 4 Statements of Comprehensive Income 5 Statements of Cash Flow 6 Statements of Changes in Equity 7 Notes to the Financial Statements 8 – 35 1 ZAO DeltaLeasing Statements of Comprehensive Income for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) Note 2009 2008 Lease revenues - direct financing leases 37,694,689 41,754,483 Total revenue 37,694,689 41,754,483 Executory expenses (Insurance & taxes on leased equipment) 5,459,652 5,511,395 Operating expenses Staff salaries & wages, benefits 5,026,616 5,842,050 Compensation costs – Profit Sharing Plan (PSP) gross pre-tax 296,301 346,046 Rent & Utilities 1,218,130 1,384,985 Insurance (operating assets) 98,962 63,690 Professional services (leasing operations) 8 728,548 531,592 Office equipment and furniture (non-capitalizable), software 54,110 289,843 Marketing 134,448 413,050 Training 98,890 236,877 Communication expenses 181,164 264,036 Business trip expenses 213,415 314,224 General & administrative 403,145 742,136 Bank commissions 480,653 397,057 Loss on disposal (operating assets) 13 259 13,111 Loss on sale of repossessed lease assets 7 3,269,593 129,233 Allowance for losses on leases to customers 6, 7 991,533 2,161,104 Other taxes 14,983 90,783 Office maintenance 108,690 341,333 Other expenses 17 229,772 49,163 Other income 12 (316,307) (215,888) Subtotal executory & operating expenses 18,692,557 18,905,820 EBITDA 19,002,132 22,848,663 Interest expense 14,448,175 14,926,258 Operating Income 4,553,957 7,922,405 Depreciation expense 13 359,542 290,307 Net foreign exchange loss 17,26 4,622,824 9,800,852 Income tax (benefit)/charge 15 (805,320) 1,986,668 Net income / (loss) 376,911 (4,155,422) Other comprehensive loss 17 (259,876) - Net comprehensive income / (loss) 17 117,035 (4,155,422) The notes set out on pages 8-35 form an integral part of these financial statements 5 ZAO DeltaLeasing Statements of Cash Flows for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) Note 2009 2008 Cash flows from operating activities Lease margin (interest) received from customers 38,780,566 40,143,074 Cash paid to employees (5,255,504) (6,300,691) Other operating cash payments (8,238,690) (14,412,085) VAT (paid)/received 9 (1,820,734) 3,308,752 Interest paid (13,477,192) (13,061,033) Taxes refunded / (paid) 869,524 (977,420) Net cash provided by operating activities 23 10,857,970 8,700,597 Cash flows from investing activities Principal payments received under direct financing leases 74,007,640 75,347,214 Investment in direct financing leases (44,997,457) (152,847,860) Change in advances received from lessees (784,894) 1,135,756 Repayments from related parties 41,157 53,831 Change in advances paid to suppliers 1,414,740 (1,242,090) Purchase of property, equipment (75,395) (712,899) Sale of property, equipment 11,737 28,878 Sale of repossessed lease assets 7 13,435,009 3,124,018 Net cash provided by/ (used) in investing activities 43,052,537 (75,113,152) Cash flows from financing activities Issue of shares - 14,989,886 Borrowings received 16 27,077,795 159,194,726 Borrowings repaid 16 (84,142,791) (102,224,739) Net cash (used in) / provided by financing activities (57,064,996) 71,959,873 Net change in cash and cash equivalents (3,154,489) 5,547,318 Cash and cash equivalents at beginning of the period 7,510,249 1,962,931 Cash and cash equivalents at end of the period 5 4,355,760 7,510,249 The notes set out on pages 8-35 form an integral part of these financial statements 6 ZAO DeltaLeasing Statements of Changes in Equity for Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) Share Additional Employee Accumulated Retained Total capital paid in Share Other Comp- Earnings Equity capital Options rehensive Loss Balance at 31 December 2007 2,086,398 14,032,036 683,792 - 4,475,364 21,277,590 Issue of shares 1,010,151 13,979,735 - - - 14,989,886 Net loss for the year - - - - (4,155,422) (4,155,422) Balance - at 31 December 2008 3,096,549 28,011,771 683,792 319,942 32,112,054 Issue of shares - - - - - - Unrealized loss on derivatives (Note 17) - - - (259,876) - (259,876) Net income for the year - - - - 376,911 376,911 Balance at 31 December 2009 3,096,549 28,011,771 683,792 (259,876) 696,853 32,229,089 The notes set out on pages 8-35 form an integral part of these financial statements 7 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) Table of Note Disclosures Page 1. Principal Activities 9 2. Operating Environment of the Company 9 3. Accounting Standards Codification 10 4. Basis of Presentation and Significant Accounting Policies 10 5. Сash and Cash Equivalents 14 6. Net Investment in Direct Financing Leases 14 7. Portfolio Quality 16 8. Direct Costs Related to Managing Portfolio Quality 17 9. VAT Recoverable 17 10. Other Assets 18 11. Other Payables 18 12. Other Income 19 13. Property and Equipment, Net 19 14. Advances Paid to Suppliers 19 15. Income Taxes 20 16. Loans 21 17. Hedging 23 18. Loan Covenants 25 19. Advances from Lessees 27 20. Share Capital 27 21. Dividends 28 22. Retained Earnings 28 23. Reconciliation of Net Loss to Net Cash Received from Operating Activities 28 24. Related Party Transactions 28 25. Employee Profit-Sharing Plan (PSP) 29 26. Currency, Interest Rate, Liquidity and Credit Risk 29 27. Employee Share Option Plan 33 28. Post Balance Sheet Events: General 34 29. Post Balance Sheet Events: Loan Covenants 35 8 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 1. Principal Activities DeltaLeasing was set up in 1999 for the purpose of providing leasing services in the Far East and Siberia. Subsequent geographic expansion outstripped original goals and the company now offers leasing services through a pan-Russian distribution network of fourteen full-service offices that provide sales, distribution and monitoring in all major Russian cities. The Company Mission: We invest in business renewal, accelerate goal achievement and strive to do this better than the rest. ZAO DeltaLeasing (DL or the Company) is a leasing company 100%-owned by The U.S. Russia Investment Fund through its Cypriot holding company DL Holdings Ltd. The Fund has operated in Russia and the Russian Far East since 1995. DL began active operations in May of 2000 under the name of DeltaLease-Far East and its sole business is the provision of leasing services to registered businesses, including sole proprietors. On 5 August 2004, the Company officially adopted a new name – DeltaLeasing. DeltaLeasing considers leasing projects in all major Russian cities. It is headquartered in Vladivostok (Primorsky Krai) and maintains full-service offices in the cities of Khabarovsk, Yuzhno-Sakhalinsk, Novosibirsk, Omsk, Krasnoyarsk, Irkutsk, Tomsk, Barnaul, Kemerovo, Ekaterinburg, Moscow, Saint- Petersburg and Rostov-on-Don (also seen Note 28). DL targets medium and small sized businesses for its leasing services. Generally speaking, it searches for companies with no less than one year of business experience, well educated and experienced management, well-defined business strategies, clear competitive advantages and strong cash flow. It advertises a minimum deal size of USD 20,000 and maximum term of 84 months. The Company's average approved deal size in 2009 was USD 113,000 (2008: USD 140,500) with an average financing term of 35 months (2008: 35 months). DL transfers title to the lessees at lease expiration. No residual value has been recorded on any leases at the time of this statement. None of DL's leases qualify for operating lease treatment by the lessor. DL is a universal leasing company that, since inception, has sought to develop a portfolio that is broadly diversified by asset classes. At the time of this statement, the Company's portfolio contained approximately 40 asset categories, with no single category exceeding 25% of its overall portfolio. Leading asset categories included heavy trucks (22%), construction, heavy and earth moving equipment (17%), printing (11%), forestry (7%), retail trade (5%), wood processing (5%), light trucks and automobiles (4%), PVC windows (4%). The Company's registered address is Svetlanskaya 66 B, Vladivostok, Russian Federation. The average number of the Company's employees during 2009 was 230 (2008: 240), and the number of professional staff as of 31 December 2009 was 223 (31 December 2008: 274). 2. Operating Environment of the Company DL is active only in the Russian Federation, which continues to display the characteristics of an emerging market. These characteristics include, but are not limited to, the existence of a currency that is not fully convertible outside of the country, extensive currency control and high inflation. The Company is operating in the markets, which were inevitably affected by the world economic crisis. Since early 2007, when the beginning of problems in the U.S. sub-prime market were becoming apparent, the global economic landscape has changed beyond recognition. Initially problems were felt in western markets where inter-bank liquidity dried up especially regarding banks with high sub-prime exposure. Since then, the effects have expanded including banking and other corporate collapses. This impacted the stock market, property market, commodity and foreign exchange markets and real economy. 9 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 2. Operating Environment of the Company (continued) While Russia was initially insulated from the early stage of the crisis, it was seriously affected in 2008 and 2009. Negative events were exacerbated by falling oil prices, capital outflows and a sharply depreciating exchange rate (refer to Note 26). In 2008, its stock market indices were the worst performing in the world, dropping at times by as much as 18% in a single trading session and facing multi-day trading suspensions, eventually finishing the year some 75% down. The impact on the banking sector was severe and effects are being felt in all industries and businesses now. In response, the Central Bank of Russia ('CBR') and Russian Governmental bodies took a number of steps to lessen the impact of the crisis in Russia. Vnesheconombank ('VEB') was provided with funds from the National Wealth Fund to lend to larger banks in order to provide liquidity to the banking system. The CBR impacted exchange rates to have a managed decline and conducted open market operations, including those to support securities prices. A list of strategic industries and companies that would not be allowed to fail was drafted. The macroeconomic picture remains weak, Russia's economy contracted 9.4% in 2009 and industrial production fell by 10.8% for the same period, although within sectors there were differences (agricultural sector grew slightly). Arrears of corporations' payments to each other, and on loans, have risen sharply. Liquidity in the banking system improved in 2009, however, defaults on loans are expected to remain high in 2010. Capital investments declined by 16.2% compared to prior year. According to Victor Gazman, Russia's leading leasing expert, the volume of new business by leasing companies in Russia in 2009 declined by 60.4% (in USD terms) compared to the previous year. The Company's Management believes a proper understanding of this operating environment is essential to appreciate the context of the US GAAP financial statements. In its opinion the situation in the 4Q of 2009 began gradually improving as most businesses have adjusted to the changed economic situation. The future situation is dependent on global macroeconomic issues and also on events within Russia and the response of governmental bodies to these events. 3. Accounting Standards Codification The Accounting Standards Codification (ASC) is the single source of authoritative nongovernmental U.S. generally accepted accounting principles (US GAAP). The Codification is effective for interim and annual periods ending after September 15, 2009. All previous level (a)-(d) US GAAP standards issued by a standard setter are superseded. Level (a)-(d) US GAAP refers to the previous accounting hierarchy. All other accounting literature not included in the Codification is nonauthoritative (see ASC Topic 105, "Generally Accepted Accounting Principles", for additional details). The Codification is the result of a major 5-year project involving more than 200 people from multiple entities. The Codification structure is significantly different from the structure of previous accounting standards. The Notice to Constituents provides information that will help in obtaining a good understanding of the Codification structure, content, style and history. Publicly available Notice can be downloaded from http://asc.fasb.org/imageRoot/18/6896518.pdf. Throughout these financial statements references to previous FASB Standards have been updated and replaced by appropriate references to Accounting Standards Codification. 4. Basis of Presentation and Significant Accounting Policies The Company is domiciled in Russia and prepares its statutory accounting reports in accordance with the Regulations on Accounting and Reporting in the Russian Federation. The accompanying financial statements are based on the statutory records, which are maintained in Russian Rubles (Rubles or RUR), the official currency of the Russian Federation and are recorded under the historical cost convention. They have been adjusted in order to present the financial position and the results of operations in U.S. Dollars (USD), the principal functional currency of the Company, and have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). 10 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 4. Basis of Presentation and Significant Accounting Policies (continued) (a) Use of estimates The preparation of the financial statements in conformity with U.S. GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to realizability and depreciable lives of property and equipment, amortization and loss allowance for net investment in direct financing leases. Actual results may differ from those estimates. (b) Translation methodology The accompanying financial statements have been prepared using the U.S. Dollar as the unit of measurement, as this is the functional currency of the Company (a majority of loans and leases are effectively denominated in Dollars). Since Russian accounting regulations require transactions and balances to be measured in Rubles, all transactions and balances recorded in the Company's statutory records have been remeasured into USD in accordance with the relevant provisions of ASC Topic 830, "Foreign Currency Matters". The USD is the currency used for financial reporting purposes. Under ASC 830, revenues, costs, capital and non-monetary assets and liabilities are translated at historical exchange rates prevailing on the transaction dates. Monetary assets and liabilities not denominated in USD are translated at exchange rates prevailing on the balance sheet date. Translation gains and losses from remeasurement of monetary assets and liabilities that are not denominated in USD are credited or charged to the statement of comprehensive income. Any distributions will be paid in Rubles. Exchange restrictions and controls exist within Russia on the ability to freely convert Rubles to USD. The Ruble to USD exchange rate will not necessarily reflect the relative inflation levels of the Russian and U.S. economies. Future movements in the exchange rate between the Ruble and the USD will affect the carrying value of the Company's Ruble denominated monetary assets and liabilities. Such movements may also affect the Company's ability to realize non-monetary assets represented in USD in these financial statements. Accordingly, any translation of Ruble amounts to USD should not be construed as a representation that such Ruble amounts have been, could be, or will in the future be converted into USD at the exchange rate shown or at any other exchange rate. The exchange rate for 1 USD was 30.2442 Rubles at 31 December 2009 (29.3804 Rubles at 31 December 2008). (c) Revenue recognition The Company is the lessor in a number of leasing transactions and these are accounted for in accordance with ASC Topic 840, "Leases". Each lease is classified as either a direct financing lease or operating lease, as appropriate. During the reporting period the Company engaged only in direct financing leases. Under the direct financing lease method, the Company records the net investment in leases, which consists of the sum of the minimum lease term payments, initial direct costs, and unguaranteed residual value (gross investment) less the unearned income. Net investment in direct finance leases is equal to the leasing company's principal investment, net of VAT, in equipment. The difference between the gross investment and the cost of the leased equipment for direct financing leases is recorded as unearned income at the inception of the lease. The unearned income is amortized over the life of the lease using the constant interest rate method. Lease revenues consist of earned income and executory cost reimbursements on direct financing leases. 11 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 4. Basis of Presentation and Significant Accounting Policies (continued) (d) Allowance for credit losses The allowance for credit losses (the "allowance") is maintained at a level believed by Management to be adequate to absorb potential losses inherent in the Company's lease and accounts receivable portfolio. Management's determination of the adequacy of the allowance is based on an evaluation of historical credit loss experience, current and projected economic conditions, business volume and portfolio growth, the composition of the lease portfolio, and other relevant factors. The allowance is increased by provisions for potential credit losses charged against income. Accounts are either written off or written down when the loss is both probable and determinable, after giving consideration to the customer's financial condition and the value of the underlying collateral. The Company uses an automated allowance system based on the "specific identification" method of calculating the allowance for lease losses. The allowance is based on three risk scores for each individual lease: (1) technical risk score, which reflects leased property's condition and liquidity, (2) financial risk score, which reflects the financial strength of the lessee company, and (3) payment discipline score, which reflects the timeliness of lessee's payments. (e) Cash and cash equivalents Cash and cash equivalents include cash on hand and short term deposits with banks. (f) Borrowing costs Loan origination fees, commissions, legal and other borrowing expenses are deferred and amortized over the lives of the related loans on a straight-line basis. Interest costs are charged to the statement of comprehensive income as incurred. (g) Property and equipment Property and equipment are stated at cost, less accumulated depreciation. A threshold of USD 2,000 is established for fixed asset recognition. (h) Depreciation Depreciation is applied on a straight-line basis over the estimated useful lives of the related assets: Office & computer equipment – 3 years Other equipment & vehicles – 5 years Buildings – 15 years (i) Dividends Dividends payable are not accounted for until they have been ratified at the Company's Annual General Meeting. (j) Fair value of financial instruments The fair market value of financial instruments, consisting of cash and cash equivalents, net investment in direct finance leases, accounts receivable, accounts payable, advances and finance liabilities approximates their carrying value. (k) Income taxes Current tax charge is accrued based on profit computed under Russian accounting regulations. Non-profit based taxes are included within operating expenses. 12 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 4. Basis of Presentation and Significant Accounting Policies (Continued) (k) Income taxes (continued) Allowance is made for all foreseeable taxation liabilities. However, the Russian legal and taxation systems are currently in a period of rapid development in response to economic and social changes in the country. Consequently, legislation may be subject to varying interpretations and retrospective amendments. Penalties for minor errors and omissions or late payments may be significant. Deferred income tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statements' carrying amounts of existing assets and liabilities and their respective tax bases in accordance with ASC Topic 740, "Income Taxes". Deferred tax assets and liabilities are measured using enacted tax rates in the years in which these temporary differences are expected to reverse. Valuation allowances in respect of deferred tax assets are recorded when it is considered more likely than not that such deferred tax assets will not be realized. Interest recognized in accordance with ASC paragraph 740-10-25-56 is classified in the financial statements as income taxes. Penalties recognized in accordance with paragraph 740-10-25-57 are classified in the financial statements as other expenses. Realization of the deferred tax asset depends on achieving a certain minimum level of future taxable income within the next ten years. Management currently believes that achievement of the required future taxable income is more likely than not (l) Pensions The Company, in the normal course of business, makes payments of social tax to the Federal Budget. This tax includes elements for pensions, medical and social insurances for the benefit of its employees. All of these payments are expensed when incurred and included within staff costs. The Company has no obligation to provide pensions to any of its Management or staff and, accordingly, no allowance for future pension costs is recorded. (m) Value added tax Value added taxes related to lease revenues are payable to the Federal Budget upon collection of the receivables from customers. VAT is reclaimable against sales VAT upon payment for purchases. The tax authorities permit the settlement of VAT on a net basis. Refer to Note 9. (n) Advertising expenses Advertising expenses represent non-direct advertising and have been expensed as incurred. (o) Share-based payments The Employee Stock Option Plan (ESOP) was approved by the Board of Directors on 17 May 2005, granting employees stock options on shares in DL Holdings Ltd. Compensation expense related to share-based payments is accounted for in accordance with ASC Topic 718, "Compensation – Stock Compensation". The expense is recognized over the requisite service life using the intrinsic value method. ASC 718 requires that share-based payments awarded to an employee of the reporting entity (DeltaLeasing) by a related party (DL Holdings Ltd.) or other holder of an economic interest in the entity as compensation for services provided to the entity are to be accounted for by the reporting entity. (p) Comprehensive income ASC Topic 220, "Comprehensive Income", requires disclosure of all changes in equity during a period except those resulting from investments by and distributions to the Company's shareholders. The Company's total comprehensive income for 2008 did not differ from net income. The Company's total comprehensive income for 2009 differs from net income due to recognized effects of hedge instruments. 13 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 5. Сash and Cash Equivalents 31.12.2009 31.12.2008 Cash and cash equivalents with banks Denominated in RUR 4,314,250 6,516,045 Denominated in USD 41,510 994,204 Total cash and cash equivalents 4,355,760 7,510,249 The Company uses multiple banking institutions in order to diversify its bank-related risk and has never incurred losses in any such accounts. The Company constantly monitors its banking partners and does not believe that it is exposed to significant risk on cash. During the reporting period, the Company held accounts with the following banks: Sberbank, VTB, Primsotsbank (headquartered in Vladivostok), UniCredit, ICICI Bank Eurasia Ltd. All accounts are managed centrally by DL's finance department from Vladivostok. It is customary for the Company to finish each reporting period with high cash balances due to the fact that the majority of lease payments from lessees are received at month-end. As at 31 December 2009, the Company accumulated large cash balances to meet loan repayments to UniCredit (January 11, 2010) and Standard Bank (January 25, 2010). 6. Net Investment in Direct Financing Leases 31.12.2009 31.12.2008 Total minimum lease payments to be received (including VAT) 229,887,766 299,772,506 Total minimum lease payments to be received (excluding VAT) 194,820,141 254,044,497 Less: amounts representing executory costs (such as taxes and insurance) included in total lease payments (8,578,680) (12,760,131) Minimum lease payments receivable 186,241,461 241,284,366 Less: Unearned finance lease income (39,039,525) (54,254,671) Subtotal net investments in direct leases 147,201,936 187,029,695 Less: allowance for losses (5,667,275) (4,675,742) Total net investments in direct leases 141,534,661 182,353,953 Current net investment in direct financing leases 76,766,190 84,461,000 Long-term investment in direct financing leases 64,768,471 97,892,953 14 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 6. Net Investment in Direct Financing Leases (continued) As at 31 December 2009 there were 2,564 direct financing leases (31 December 2008: 3080) expiring over the next six years. The Company normally structures its direct financing lease contracts so that the lessee makes a prepayment or security advance of between 10% and 25% of equipment purchase price at the beginning of lease term. Average advance for projects approved in 2009 was 22% (2008: 23%), while average advance for the total existing portfolio is 18%. The Company holds title to equipment during the lease term. For some of its leases, the Company enjoys buyback or remarketing agreements with equipment suppliers, which obligate them to repurchase or assist in the remarketing of leased assets in the case of lessee default. Depending upon the lease product involved, the complexity of specific transactions and in accordance with internal policies and guidelines, the Company ascertains technical and general credit risks for each project. Technical risks are assessed by the Company's equipment monitoring specialists and/or independent appraisers and include the appropriateness of equipment pricing, supplier reputation and capabilities, equipment quality, service life and secondary market liquidity. The Company's underwriting division assesses credit, general project risks and the financial quality of all lessees. The result of this process is the establishment of initial technical and financial quality ratings for each client that are regularly updated following equipment delivery. Following the execution of lease contracts, the Company also establishes and regularly updates a payment discipline rating for each client. The technical, financial and payment discipline ratings are directly linked to the Company's system for calculating allowances for lease losses. Risks related to leased equipment (i.e. damage, theft, etc.) are insured, with the Company acting as the sole beneficiary under all policies. Thus, Management believes that credit risk related to leasing operations is wholly acceptable (refer to Note 26). The Company reviews individual leases, and where a lease has an estimated recoverable value less than the net investment, the lease is written down to its estimated recoverable value. As at 31 December 2009, an allowance for credit losses was recorded in the amount of USD 5,667,275 (31 December 2008: USD 4,675,742). The minimum effective allowance rate required for the Company to comply with financial covenants of its loan agreements is 2.0% (2008: 1.5%). The effective portfolio allowance rate as of 31 December 2009 was 3.85 % of total net investment (2008: 2.50%). Increased provisioning levels result from increased non-performance and a general worsening of the Company's lease portfolio (refer to Note 7). However, it should be noted that portfolio quality has been positively impacted between mid-February 2009 and 4Q 2009 by a global recovery in commodity prices, appreciation and subsequent relative stability of the Ruble, improvements to market liquidity derived from stimulus measures and a general strengthening of the macroeconomic environment. The trajectory of increasing non-performance reduced strongly between February and May, with total non-performing leases (NPL) increasing during those months by 7%, 8%, 3% and 1%, which was sharply down from double-digit non-performance increases during late 3Q and 4Q 2008. Beginning in June, the Company witnessed declining non-performance in aggregate dollar terms and nominal reductions in percentage terms. Since reaching a peak level of USD 17.2M in April and May 2009, non-performance (measured as principal outstanding for transactions with arrears exceeding 30-days and repossessed equipment) fell to circa USD 15M at the end of December. Non-performance for transactions with arrears exceeding 60-days and repossessed equipment fell from peak levels of USD 15.5M to USD 12.8M at the end of December (see also Note 28). The Company notes significant improvements in demand for repossessed equipment, with recovery rates remaining well above 70% on the investment and further supporting a belief that market-wide recovery has been underway and is continuing through 4Q 2009 (refer to Note 7). While these signs are hopeful, Management remains focused on portfolio quality and cannot exclude that future months may bring renewed upward pressure on the allowance rate. 15 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 6. Net Investment in Direct Financing Leases (continued) Future minimum lease payments to be received for the next six years: For the year ended 31 December 2010 2011 2012 2013-2015 Total Total minimum lease payments to be received (including VAT) 127,729,158 61,851,990 25,516,329 14,790,289 229,887,766 Total minimum lease payments to be received (excluding VAT) 108,245,049 52,416,941 21,624,008 12,534,143 194,820,141 Less: amounts representing executory cost 4,847,137 2,479,906 858,993 392,644 8,578,680 Minimum lease payments receivable 103,397,912 49,937,035 20,765,015 12,141,499 186,241,461 Effective annual interest rates for direct financing leases in the portfolio as at 31 December 2009 ranged between the low of 14% in U.S. Dollars and high of 37% in Russian Rubles. From 1 January until 27 October, 2009, the Company did not write new leases in Russian Ruble and offered only Dollar and Euro leases. Effective 30 September 2009, the Company ceased offering Euro leases. Following execution of a cross-currency interest-rate swap (see Note 17), the Company resumed funding Ruble leases. The Company has not capitalized initial direct costs for the period ended 31 December 2009, as they are not considered material. There was no unguaranteed residual value related to lease contracts existing as at 31 December 2009 (2008: no unguaranteed residual value). 7. Portfolio Quality Internally, DeltaLeasing defines non-performance as total principal outstanding for all transactions with arrears exceeding 30-days, including repossessed assets. At 31 December 2009, this measure stood at 8.77%, up from 8.01% at 31 December 2008. While the trajectory for growth of non-performance has flattened since February and the Company is now witnessing aggregate reductions to the USD value of non- performance (refer to Note 6), continued declines to the overall portfolio push relative NPL up when expressed in percentage terms. The Company's credit agreements define non-performing leases as principal at risk for transactions with arrears exceeding 60 days and repossessed equipment. This measure stood at 7.51% on 31 December 2009 (30 September 2009: 7.17%; 30 June 2009: 7.84%, 31 March 2009: 6.98%), up from 3.81% on 31 December 2008. Out of all problem exposures, a total of 200 leases were repossessed as of 31 December 2009 (2008: 99). Aggregate non-performance is stabilizing, while the composition of problem leases is shifting towards 60+ days and repossession. The Company is aggressively working to divest of or release repossessed equipment, generating a reasonable rate of recovery during the acute phase of the financial crisis. The definition of Terminated Leases includes total outstanding Net Investment in Direct Finance Leases upon legal termination of any lease agreements (whether unilaterally, bilaterally, or through court proceedings). By definition, this category includes all repossessed assets and leases where physical repossession may not have yet occurred, but is planned. Termination of a lease agreement is not directly linked to its delinquency category (30+ days, 60+ days, or 90+ days in arrears), but rather represents the Company's actions to protect the assets and recover its investment through disposal (sale, secondary lease, rental etc) of the underlying leased asset as opposed to collection on the original financial asset. The effective allowance rate for the entire portfolio is 3.85% (2008: 2.50%) and 28.1% for terminated leases (2008: 30.8%). Average recovery of investment on sale of terminated assets in 2009 was 81 cents on the invested dollar (2008: 96 cents). Management estimates future average recovery rate to remain in a band of between 70% and 90% and believes that the carrying value of problem leases as of 31 December 2009 accurately reflects the net realizable value of these assets. 16 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 7. Portfolio Quality (continued) 31.12.2009 31.12.2008 Terminated leases (net investment in direct finance leases at 6,387,150 1,050,343 risk) Addition to terminated leases 24,169,627 8,590,058 Proceeds from sale of terminated leases (13,507,254) (3,124,018) Advances collected on sale of repossessed leases (100,666) - Loss on sale / write-off of terminated leases (3,269,593) (129,233) Remaining terminated leases 13,679,264 6,387,150 Allowance for lease losses specific to terminated leases (3,831,384) (1,966,104) Carrying value of terminated leases 9,847,880 4,421,046 8. Direct Costs Related to Managing Portfolio Quality The Company utilizes a variety of methods and procedures in managing its portfolio quality. Apart from the internal Monitoring Division (34 staff) and Security Division (8 staff), DL actively utilizes services of various outside organizations and professionals to assist in monitoring, locating, repossessing, transporting, storing, and reselling of the leased assets. These direct costs paid to outside parties have grown as a result of DL's active approach in portfolio quality management. 31.12.2009 31.12.2008 Direct Costs of Managing Portfolio Quality 538,454 253,738 9. VAT Recoverable VAT recoverable is principally comprised of VAT paid on the acquisition of fixed assets for direct financing leases. VAT is recoverable from the government either via (1) an offset in future time periods against (a) VAT payable on finance lease payments received, and (b) federal portion of taxes due (such as income tax, Unified Social Tax, etc) or (2) by requesting a cash reimbursement. During 2009, the Company received several cash reimbursements of VAT in the amount of USD 1,357,217 (2008 – USD 3,850,791). Additionally, the Company regularly offsets its federal taxes payable with VAT recoverable. 31.12.2009 31.12.2008 Allowance for losses on VAT recovery, beginning balance 75,186 75,186 VAT written off against the allowance (51,303) - Allowance for losses on VAT recovery 23,883 75,186 During 2009, the Company wrote off USD 51,303 (2008: zero) of VAT disputed by the tax authorities. In 3Q 2009, following tax audit of VAT declarations for 3Q 2008, the tax inspection rejected a VAT refund claim in the amount of RUR 5.5M (USD 172K). During pre-Court arguments, the tax inspection reduced its claim to USD 38K, which was related to a transaction, in which the tax inspection claims that the supplier's general director (i.e. signatory on equipment purchase invoices) was a nominal ("bogus") individual who lacked adequate permissions and standing. DL is recovering these losses directly from the supplier. All other quarterly 2008 VAT audits resulted in no claims by the tax inspection. To date, all VAT through 31.12.2008 had been audited and fully resolved. 17 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 10. Other Assets Note 31.12.2009 31.12.2008 Prepayments 2,201,160 2,722,055 Loans to employees – current 24 25,394 37,513 Loans to employees – long-term 24 11,705 40,743 Loan fees capitalized – current 16 1,681,319 1,627,794 Loan fees capitalized – long-term 16 1,229,187 2,628,965 Profit tax receivable 25,430 894,954 Other taxes receivable 1,594 195,837 Other assets 2,424,193 1,019,413 Land under leased assets 22,987 81,435 Total other assets 7,622,969 9,248,709 Prepayments are mainly composed of insurance premiums paid for leased equipment. Insurance prepayments are recognized on a straight-line basis over the term of insurance policy coverage for each individual lease. Other assets are mainly composed of outstanding receivables on sale of repossessed leased assets. Most such sales occur on deferred payment plan, which averages 4 months and never exceeds 12 months; a down payment of 30-50% of contract value is required to qualify for deferred payment plan. On 2 August 2005, the Board of Directors approved an Employee Loan Program for the Company employees. Subject to certain qualification criteria and strict underwriting, employees could apply for secured loans to purchase real estate for up to 60 months with an interest rate slightly below market. Total principal amount of employee loans outstanding may not exceed 2.5% of the Company's equity. The Employee Loan Program is administered by the CEO and CFO of the Company, both of whom could participate in the Program only in the presence of a direct review and vote by the Board of Directors. Each loan is reviewed by the Chairman, who has veto power. The program for new loans was terminated effective 1 January 2008. For more information on loans to senior management, refer to Note 24 "Related Party Transactions". The Company also grants small short-term soft loans to employees for up to 6 months in accordance with the terms of the Human Resources Policy approved by the Board. 31.12.2009 31.12.2008 Current – less than 1 year 25,394 37,513 Non-Current – 1 to 2 years 11,705 28,694 Non-Current – 2 to 3 years - 12,049 Total loans to employees 37,099 78,256 11. Other Payables 31.12.2009 31.12.2008 Interest payable 1,742,842 2,462,931 Payables to leased equipment suppliers 135,059 518,630 Other payables 765,730 687,043 PSP payable 296,301 228,888 Other taxes payable 198,975 568,788 Total other liabilities 3,138,907 4,466,280 18 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 12. Other Income Note 31.12.2009 31.12.2008 Office rental income 13 18,321 11,666 Interest income from loans to employees 10, 24 10,633 12,391 Interest income from short-term bank deposits 5 178,357 67,480 Miscellaneous income 108,996 188,791 Other income for the period 316,307 280,328 Miscellaneous income is derived from various lease-related services (restructuring and other fees, supplier penalties etc), recovery of previously recorded insured losses, etc. 13. Property and Equipment, Net Buildings and Machinery and Assets under Structures Equipment Construction Total Cost 1 January 2008 373,538 755,439 378,073 1,507,050 Additions 346,879 744,093 (378,073) 712,899 Disposals - (88,959) - (88,959) 31 December 2008 720,417 1,410,573 - 2,130,990 Additions - 75,395 - 75,395 Disposals - (41,771) - (41,771) 31 December 2009 720,417 1,444,197 - 2,164,614 Depreciation 1 January 2008 45,936 231,796 - 277,732 Charge for the year 36,037 254,270 - 290,307 Disposals - (46,970) (46,970) 31 December 2008 81,973 439,096 - 521,069 Charge for the period 47,392 312,150 - 359,542 Disposals - (29,775) - (29,775) 31 December 2009 129,365 721,471 - 850,836 Net Book Value 1 January 2009 638,444 971,477 - 1,609,921 31 December 2009 591,052 722,726 - 1,313,778 The Company owns its office premises in Khabarovsk, all other office premises are rented. The Company continues to own an office property in Novosibirsk (vacated in mid-2008 after the Novosibirsk office relocated to a rented facility), which was rented out beginning in May 2009. 14. Advances Paid to Suppliers Advances paid to suppliers represent payments for equipment that will subsequently be transferred to lessees for use. Company policy calls for lessees to make advance payments between 10% and 25% of the value of purchase agreements closed between the Company and its suppliers. For many contracts, the leasing company limits initial payments to equipment suppliers so that they are either equal to or less than the amounts received as advances. 19 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 14. Advances Paid to Suppliers (continued) Further payments to suppliers are made according to suppliers' fulfillment of benchmarks related to the manufacture, shipment and installation of the equipment. In accordance with the Russian Civil Code, the lessor is not liable to the lessee if the supplier fails to fulfill its obligations under purchase agreements. From time to time, clients are permitted to reduce advances, but they have never been lower than 10% of the value of purchase agreements (except for autoleases that permit advances as low as 0% for lease terms of 6 months). Management estimated credit risk related to these advances and concluded that no allowance was necessary for prepayments as at 31 December 2009. 15. Income Taxes Current profit tax charge is calculated at an average rate of 20%, based on profit as computed under Russian accounting regulations and adjusted for fiscal purposes. On 27 November, 2008, a reduction in profit tax rate to 20% was enacted effective for tax periods beginning 1 January, 2009. Deferred tax charge is calculated at a rate of 20% for the future periods when temporary tax difference are expected to be realized. Tax years 2007 through 2009 remain subject to examination (audit) by Russian tax authorities. An amount of USD 2,005 paid in tax penalties was recognized in other expenses in 2009 (2008: USD 573). 31.12.2009 31.12.2008 Tax (benefit) - (95,961) Deferred tax (benefit) / charge (805,320) 2,082,629 Income tax for the period (805,320) 1,986,668 The Company's accounting profit can be reconciled to taxable profit as follows: 31.12.2009 31.12.2008 Accounting loss before tax (428,409) (2,168,754) Adjustments to comply with GAAP (4,882,297) (18,277,015) Accounting loss in accordance with Russian standards (5,310,706) (20,445,769) Adjustments for temporary tax differences under Russian statutory taxation 682,699 1,617,875 Russian tax loss (4,628,007) (18,827,894) Differences between US GAAP and Russian statutory taxation regulations give rise to temporary differences between the carrying value of certain assets and liabilities for financial reporting purposes and for profit tax purposes. 31.12.2009 31.12.2008 Net deferred tax liability/ (asset) at beginning of the year (1,046,176) 1,036,453 Movement attributed to change in income tax rate from 24% to 20% - 209,229 Movement during the period attributed to temporary differences 805,320 (2,291,858) Deferred tax liability at the end of the period (240,856) (1,046,176) 20 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 15. Income Taxes (continued) Temporary differences that gave rise to deferred tax assets and liabilities include the following: 31.12.2009 31.12.2008 Deferred tax Deferred tax Assets Liabilities Assets Liabilities Lease transactions - 756,964 - 1,415,725 Capitalized loan costs - 328,298 - 381,725 Depreciation and amortization 20,223 - 13,876 - Creditors 824,183 - 737,398 - Total deferred taxes 844,406 1,085,262 751,274 1,797,450 including: Current portion 435,089 600,214 268,754 801,694 Non-current portion 409,317 485,048 482,520 995,756 Net deferred tax liability (240,856) (1,046,176) Net deferred tax detail above is as follows: 31.12.2009 31.12.2008 Current deferred tax liability (165,125) (532,940) Non-current deferred tax liability (75,731) (513,236) Total (240,856) (1,046,176) 16. Loans 31.12.2009 31.12.2008 Loans payable 117,048,055 175,772,596 Less current portion (57,897,033) (57,310,517) Loans, net of current portion 59,151,022 118,462,079 Carrying value of loans reflects all applicable hedging arrangements. Nominal principal value of loans without effects of qualified hedges thus differs from the amount reflected in these statements (see Note 17). As at 31 December 2009 the difference between hedged and unhedged values of the loans was USD877,795 (2008: zero). Principal payment requirements on loans payable (by calendar year) are as follows. For maturity analysis, also see Note 26. Note 31.12.2009 31.12.2008 Nominal without Outstanding with Nominal hedging effects hedging effects 2009 - - 57,310,517 2010 17 57,897,033 57,395,436 60,784,446 2011 17 30,459,533 30,083,335 28,108,349 2012 16,640,714 16,640,714 16,640,714 2013 3,785,714 3,785,714 3,785,714 2014 2,285,714 2,285,714 2,285,714 2015 2,285,714 2,285,714 2,285,714 2016 2,285,714 2,285,714 2,285,714 2017 2,285,714 2,285,714 2,285,714 Total loans 117,925,850 117,048,055 175,772,596 21 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 16. Loans (continued) As at 31 December 2009, outstanding loan facilities comprise as follows: Loan principal outstanding Lender Loan date (without hedging effects) Currency In loan currency In USD Issue Maturity USD 1,250,000 1,250,000 EBRD December 2004 August 2010 USD 4,540,000 4,540,000 WBC August 2005 July 2012 USD 3,432,000 3,432,000 DEG March 2006 March 2011 RUR 84,000,000 2,777,392 IFC June 2006 April 2011 USD 7,000,000 7,000,000 EBRD August 2006 September 2011 USD 283,350 283,350 UPS Capital December 2006 February 2012 USD 2,500,000 2,500,000 ARBL December 2006 November 2010 USD 18,285,714 18,285,714 OPIC March 2007 December 2017 USD 10,000,000 10,000,000 FMO June 2007 May 2012 RUR 309,090,909 10,219,840 UniCredit (ZAO) September 2007 September 2010 USD 10,500,000 10,500,000 DEG March 2008 March 2013 USD 8,888,889 8,888,889 ICICI March 2008 March 2011 USD 31,111,110 31,111,110 Standard Bank July 2008 July 2011 RUR 200,869,565 6,641,592 UniCredit (ZAO) September 2008 September 2011 RUR 15,000,000 495,963 Primsotsbank September 2008 June 2010 TOTAL: 117,925,850 The Company's funding base is well-diversified. The share of the largest lender of record does not exceed 30% of the loan portfolio. Lender of record Loan principal Share in total loan portfolio Standard Bank 31,111,110 26% OPIC 18,285,714 16% UniCredit (ZAO) 16,861,432 14% DEG 13,932,000 12% FMO 10,000,000 8% ICICI 8,888,889 8% EBRD 8,250,000 7% WBC 4,540,000 4% IFC 2,777,392 2% ARBL 2,500,000 2% Primsotsbank 495,963 0% UPS Capital 283,350 0% Total 117,925,850 100% The Company utilizes short-term overdraft facilities from Vladivostok-based Primsotsbank with a floating borrowing limit of approximately RUR 15,000,000 (USD 495,963) and London-based Anglo-Romanian Bank with a borrowing limit of USD 15,000,000. Long term loans were provided to finance the leasing transactions of the Company. Interest rates of the USD loans range from 4% to 9%, RUR loans range from 10% to 17%. The repayment terms of these loans range from 3 to 11 years, with certain of them having grace periods of up to 18 months. As at 31 December 2009, undrawn committed borrowing facilities amounted to USD 12,995,963 (2008: USD 15,647,622). 22 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 16. Loans (continued) Loan costs and fees of USD 344,819 (2008: USD 2,998,334) were incurred during the year at the commencement or performance of loan facilities, these costs have been capitalized and are amortized over the remaining term of the respective loans (refer Note 10). The Company utilizes a mix of secured and unsecured financing. Typical security provided to lenders includes a combination of the following: pledge of rights under lease contracts, pledge of leased equipment, conditional assignment of lease contracts and mortgage (for real estate leases). Unsecured facilities are used to finance the security perfection process. Under Russian Law, a leased asset cannot be defined as perfected security (and, therefore, pledged) until such time as it has been delivered, installed and transferred into an official lease arrangement by agreement of the lessee and lessor. The Company experiences an average period between initial investment and perfection of security of approximately 3.5 months. Such unsecured facilities allow the Company to finance asset purchases during the security perfection period. Following perfection, assets are immediately pledged to secured creditors and unsecured facilities are paid down. Loan portfolio composition by security is as follows: 31.12.2009 31.12.2008 Secured Unsecured Secured Unsecured USD-denominated loans 64,291,063 12,500,000 129,901,225 18,500,000 RUR -denominated loans (in USD equivalent) 40,256,992 - 27,371,371 - Total loan type 104,548,055 12,500,000 157,272,596 18,500,000 Total loans 117,048,055 175,772,596 DeltaLeasing's access to new debt was restricted during 2009 as a direct result of the ongoing financial crisis. As a result, no new significant debt facilities were executed in 2009. At the same time, Anglo- Romanian Bank Ltd (ARBL) renewed its USD 15 million unsecured facility by one more year on 16 July 2009. This represents the third consecutive annual renewal since the facility was executed in 2006. 17. Hedging The Company is exposed to certain risks related to its ongoing business operations. The primary risk managed by using derivative instruments is the foreign exchange risk associated with RUR cash receipts generated by the lease portfolio and USD liabilities servicing obligations. The secondary risk is that of changes in interest-rate index bases for the floating-rate USD liabilities. In other words, the Company hedges its open balance sheet position in Russian Rubles. The company currently utilizes cross-currency interest-rate swaps to manage these risks. ASC 815-10 requires that an entity recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position. Cash flow hedges • For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Reclassified gains or losses on the derivative instruments are recorded in the same line items as the offsetting loss or gain on the related hedged transaction. Gains and losses on the derivative instrument representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. 23 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 17. Hedging (continued) Fair value hedges • For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. The Company includes the gain or loss on the hedged items in the same line item as the offsetting loss or gain on the derivative instrument. In accordance with ASC 815-25-38 through 40, the Company designates cross-currency interest-rate swaps as cash flow hedges of forecasted RUR cash revenue receipts required to service USD floating-rate debt. As of December 31, 2009, the following table summarizes the Company's involvement in derivative financial instruments: Hedged cash flow Cross-Currency Interest Rate Swap Start (balance) date October 27, 2009 October 27, 2009 Termination date July 23, 2011 July 19, 2011 USD 21,000,000 (RUR 608,580,000 Notional amount USD 21,000,000 at 28.98 RUR/USD) Variable interest rate 3-month USD LIBOR + 4.25% 3-month USD LIBOR + 4.25% Fixed interest rate Not applicable RUR 15.75% Amortization schedule Quarterly USD 3,000,000 notional Quarterly USD 3,000,000 notional Reset dates Jan 21, Apr 21, Jul 21, Oct 21 Jan 18, Apr 18, Jul 18, Oct 18 Settlement dates and interest payment dates Jan 23, Apr 23, Jul 23, Oct 23 Jan 19, Apr 19, Jul 19, Oct 19 As of December 31, 2009, the following table summarizes financial effects of hedging: USD RUR Swap Rate Comments Notional Amount 21,000,000 608,580,000 28.9800 Interest LIBOR + 4.25% 15.75% fixed Value at 26 October 2009 0 USD Notional Receivable (21,000,000) USD Interest Receivable (174,477) RUR Notional Payable 20,122,205 30.2442 Closing rate RUR Interest Payable 573,069 30.2442 Closing rate Other Comprehensive (Income) (479,203) The effective portion of the gain or loss on a derivative instrument designated as a cash flow hedge is reported in other comprehensive income, and the ineffective portion is reported in earnings under ASC 815- 30-35. The Company measures effectiveness of the hedge instrument on the basis of variability of projected RUR cash flow required to service the hedged portion of USD liabilities. Projected ineffective portion of the hedge was estimated at USD 2,831 at swap inception due to differences in reset dates for the cash flows. This difference in dates is required by the Company for operating purposes (managing settlement cash flows to account for time zone differences and bank wire cutoff times). 24 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 17. Hedging (continued) Under ASC 815-30-35-38, amounts in accumulated other comprehensive income shall be reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Actual accumulated inefficiency of the swap as remeasured on 31 December 2009 was USD 559, this amount is included in Other Expenses in earnings. As of December 31, 2009, the hedging effects are presented in the line items of the statement of comprehensive income as follows: Reconciliation of hedging effects Other Reclassified into Earnings Comprehen- Net foreign Interest Hedge sive Income exchange gain expense ineffectiveness Change in fair value of derivative instrument 218,768 Reduction in foreign exchange loss (877,795) Increase in interest expense 398,592 Increase in other expenses 559 Reclassified Earnings (478,644) (478,644) Total Accumulated Other Comprehensive Loss (259,876) Total increase in Net Income (478,644) Accumulated other comprehensive income represents the fair value (mark-to-market) of the hedge instrument less ineffective portion reclassified into earnings. If the hedge instrument is held to maturity, its terminal value will be zero, and balance in accumulated other comprehensive income will be zero. As of December 31, 2009, the hedging effects are presented in the line items of the balance sheet as follows: Balance sheet presentation of hedged items Before hedging effects: After hedging effects: Denominated in USD Denominated in RUR Interest Payable Loans Payable Interest Payable Loans Payable 0-90 days 174,477 3,000,000 573,069 2,874,601 91-365 days - 9,000,000 - 8,623,802 1 year - 9,000,000 - 8,623,802 Total: 174,477 21,000,000 573,069 20,122,205 18. Loan Covenants The Company is subject to numerous loan covenants, including financial ratios it is obligated to maintain. As of 30 March 2009 and 31 December 2008 the Company was in breach of several covenants, which can be generally categorized in five main groups described after this paragraph. Throughout the waiver negotiation process, no lender called immediate repayment, accelerated loan repayment or substantially changed original loan terms. 25 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 18. Loan Covenants (continued) "NPL Level" (Non-Performing Leases): NPL-driven breaches are tied to five loan agreements (two with EBRD, one with OPIC and one each with Standard Bank and ICICI) that contain non-performance covenants that limit 60+ day arrears to levels lower than actual levels upon breach (6.98% at 31 March 2009). The most stringent NPL covenant (4%) rested with Standard Bank, while EBRD, OPIC and ICICI contained a 5% limitation. The Company proposed a 12-month waiver to all creditors that would allow for an increased level of 12% on 60+ day arrears and repossessed equipment. Two additional agreements with DEG contained covenants that limited total NPL to 10% of equity. "Open Credit Exposure" (Lease portfolio less allowances for losses divided by equity): Open Credit Exposure breaches appeared for two loan agreements with DEG and OPIC, which define limits of 10%. Other creditors also use this covenant, but typically set at 20% of equity. "Foreign Exchange Open Short Position": Open Short Position breaches were tied to four loan agreements. The covenant is related to the currency mismatch (see Note 26, Currency Risk) on the Company's balance sheet. As of 31 December 2008, the Company had long positions in Ruble and Euro and a short position in Dollar, with short positions covenanted to a maximum 20% of equity. While this was factually remedied as of 31 March 2009, it made the waivers a technicality, albeit necessary. "Liquidity" (Excess of assets over liabilities for a specified maturity bucket): Liquidity for a maturity bucket of 1 through 5 years (see Note 26, Liquidity Risk) was breached with DEG. As at 31March 2009, liabilities maturing from 1 to 5 yeas exceeded assets maturing in the same timeframe. This deficiency was, however, offset by excess liquidity in the up to 1 year maturity bucket. Cumulative liquidity was positive for all maturity buckets. "Minimum equity" (Minimum equity under Russian Accounting Standards (RAS): Minimum RAS equity is covenanted by UniCredit at RUR 260 million, whereas at 31 March 2009 the Company's RAS equity stood at RUR 28 million. There are two ways to account for leases in RAS – lessee books the asset or lessor books the asset. If the lessee books the asset, then it is treated as a financial asset and is permitted to currency revaluations (DeltaLeasing does not revalue). If lessor books the asset, then it is considered a fixed asset and is not subject to currency revaluations. For DeltaLeasing, the majority of transactions involve leased assets that it holds on its own book (lessor is the balance sheet holder), which means that they are carried as fixed assets. Under U.S. GAAP, foreign exchange losses on the liability side are compensated by gains on the asset side, both driven by currency revaluation. Under RAS, however, leased assets (even though they are USD denominated leases) classified as fixed assets are not revalued and, therefore, generate no offsetting gain. This means that the Russian statutory accounts actually communicate a substantially larger open currency position, which drove the problem with the covenant in question. This is an industry-wide problem with many Russian leasing companies losing their capital due to this accounting treatment of the USD assets and resulting losses. Given the Ruble's rebound in 2009, the Company's RAS equity increased to RUR 378 million as at 31 December 2009. 26 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 18. Loan Covenants (continued) As of 31 December 2009, the Company had completed all negotiations with its creditors for permanent or temporary waivers to remedy covenant breaches. Non-Compliance Non-Compliance Lender principal Lender as of 31.03.2009 Current Status as of 31.12.2008 Current Status exposure as of measurement date measurement date 31.12.2009 In compliance Foreign Exchange (modified ratio WBC - - USD 4,540,000 Open Short Position definition until 30.06.2010) In compliance In compliance Open Credit (breaches waived, Foreign Exchange (breaches waived, DEG Exposure, Liquidity modified ratio Open Short modified ratio USD 13,932,000 Ratio 1-5 years definition for Position, NPL Level definition for Liquidity ratio) NPLs) In compliance In compliance Foreign Exchange ICICI NPL levels (ratio increased until (ratio increased USD 8,888,889 Open Short Position 01.01.2010) until 01.01.2010) In compliance Foreign Exchange IFC - - (ratio increased USD 2,777,392 Open Short Position until 01.01.2010) In compliance NPL (ratio increased until NPL Level, Open 30.04.10), Open OPIC - - USD 18,285,714 Credit Exposure Credit Exposure (ratio increased until 31.03.10) In compliance (RAS equity ratio Minimum RAS UniCredit reduced to zero, - - USD 16,861,432 equity new GAAP ratio of $25M in equity ) In compliance (breaches waived, EBRD NPL Level modified ratio - - USD 8,250,000 definition for NPL covenant) In compliance Standard NPL Level (ratio increased until - - USD 31,111,110 Bank 31.03.2010) There were no breaches of covenants as of 31 December 2009 measurement date. 19. Advances from Lessees 31.12.2009 31.12.2008 Initial security advance 2,738,260 3,296,425 Lease payment advances 2,634,558 2,861,287 Total advances from lessees 5,372,818 6,157,712 20. Share Capital The Company has authorized share capital of 319,099 ordinary shares (2008: 319,099) of par value RUR 100. There were 846,174 shares (2008: 846,174 shares) issued and fully paid as at 31 December 2009, with a nominal value of RUR 84,617,400 (USD 3,096,549) per the charter documents. Additional paid-in capital represents the amounts paid for shares in excess of nominal share price upon issuance of shares. In previous financials statements of the Company, line items "Common shares" and "Additional paid-in capital" were shown combined under the caption "Share capital". Beginning with these statements, the two items are shown separately as per SEC Regulation S-X, Rule 5-02. 27 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 20. Share Capital (continued) Under Russian law, the term authorized shares means shares that can be issued in addition to the outstanding shares. Issuance of new shares reduces the number of authorized shares upon proper reflection in the Charter documents. Therefore, maximum number of shares that DeltaLeasing can have outstanding according to the current Charter documents equals the sum of (a) 319,099 authorized shares, and (b) 846,174 outstanding shares. 21. Dividends No dividends were declared for the years ended 31 December 2009 or 31 December 2008. 22. Retained Earnings The availability of distributable reserves is determined by the Company's Charter and by Russian legal and fiscal regulations and does not correspond to the figures shown in these financial statements. 23. Reconciliation of Net Loss to Net Cash Received From Operating Activities 31.12.2009 31.12.2008 Net income / (loss) 376,911 (4,155,422) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation 359,542 290,307 Allowance for losses on leases to customers 991,533 2,161,104 Assets disposal adjustments 3,269,852 142,344 Accrued lease revenues 1,085,877 (1,611,409) Allowance for deferred income taxes (805,320) 2,082,629 Amortization of loan costs included in interest expense 1,691,072 1,425,187 Changes in assets and liabilities Changes in operating receivables 5,215,874 7,785,614 Changes in operating payables (1,327,371) 580,243 Net cash received from operating activities 10,857,970 8,700,597 24. Related Party Transactions There were no transactions with the shareholder or directors during the period. With some limitations by position, Company employees participate in a Board-approved Profit Sharing Plan. Apart from this, several senior managers participate in an Employee Share Option Plan. Details of these plans are disclosed in Note 25 and Note 27 below. On 5 August 2006, Board of Directors approved a mortgage loan to the Company's CEO, Mr. Oleg Rakitsky. The loan is granted for 5 years in the principal amount of USD 115,000 (outstanding loan principal at 31 December 2009 was USD 27,736). The loan is secured by (1) pledge of property, (2) right to withhold any proceeds from exercise of the Company's stock options, held by the borrower, and (3) surety from Mr.Rakitsky's father. 28 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 25. Employee Profit-Sharing Plan (PSP) On 17 December 2009, the Board approved a 2009 PSP on the basis of the following principles: • The profit sharing plan ensures alignment of shareholders' and employees' financial interests. • The profit sharing plan recognizes the Company's efforts to protect portfolio quality during financial crisis. • Appropriate internal controls exist to ensure that shareholder interests are protected. Total compensation expense related to the 2009 Employee Profit Sharing Plan was recorded in the 2009 financial accounts as USD 296,301. In 1Q 2010, the Company paid out the balance of the 2009 PSP liability. The Board also approved a 2010 PSP at its December 2009 meeting. 26. Currency, Interest Rate, Liquidity and Credit Risk Currency Risk Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. At the period end the Company had balances in Russian Rubles, Euro, and US dollars. As at 31 December 2009, the balance sheet by currency comprised as follows: RUR USD EUR Total Assets Cash and cash equivalents 4,314,250 41,510 - 4,355,760 Net investments in direct finance leases 21,495,911 114,903,499 5,135,251 141,534,661 Advances paid to suppliers 677,137 1,933,923 - 2,611,060 VAT recoverable 851,933 - - 851,933 Property, plant and equipment - 1,313,778 - 1,313,778 Deferred tax 844,406 - - 844,406 Other assets 1,911,191 5,711,778 - 7,622,969 Total assets 30,094,828 123,904,488 5,135,251 159,134,567 Liabilities Loans 40,256,990 76,791,065 - 117,048,055 Advances received from lessees 334,435 4,946,187 92,196 5,372,818 Other payables 2,286,981 851,927 - 3,138,908 Fair value of hedge instruments - 260,435 - 260,435 Deferred tax 1,085,262 - - 1,085,262 Total liabilities 43,963,668 82,849,614 92,196 126,905,478 Net balance sheet position (13,868,840) 41,054,874 5,043,055 32,229,089 29 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 26. Currency, Interest Rate, Liquidity and Credit Risk (continued) As at 31 December 2008, the balance sheet by currency comprised as follows: RUR USD EUR Total Assets Cash and cash equivalents 6,516,045 994,204 - 7,510,249 Net investments in direct finance leases 45,778,050 132,043,331 4,532,572 182,353,953 Advances paid to suppliers 1,825,629 2,200,171 - 4,025,800 VAT recoverable 14,806,186 - - 14,806,186 Property, plant and equipment - 1,609,921 - 1,609,921 Deferred tax 751,274 - - 751,274 Other assets 2,353,021 6,895,688 - 9,248,709 Total assets 72,030,205 143,743,315 4,532,572 220,306,092 Liabilities Loans 27,371,371 148,401,225 - 175,772,596 Advances received from lessees 1,276,551 4,629,838 251,323 6,157,712 Other payables 2,307,623 1,794,088 364,569 4,466,280 Deferred tax 1,797,450 - - 1,797,450 Total liabilities 32,752,995 154,825,151 615,892 188,194,038 Net balance sheet position 39,277,210 (11,081,836) 3,916,680 32,112,054 Since 1 January 2009 the Russian Ruble has weakened against the U.S. dollar from RUR 29.3804 per U.S. dollar to RUR 30.2442 as of 31 December 2009, representing a depreciation of 2.9% over the twelve-month period. Throughout the first half of 2008, the Company actively tried to raise new RUR debt in order to continue offering RUR leases to the market. However, a number of advanced negotiations regarding RUR debt were delayed and ultimately cancelled by prospective and current lenders in 3Q 2008 once the markets spiraled into the acute credit crunch phase of the crisis. Ruble liquidity collapsed and the CBR, VEB and other government agencies were called to prevent the collapse of the banking system (see Note 1). The Ruble depreciated significantly against the U.S. dollar during 3Q'08 (8%), 4Q'08 (16%) and 1Q'09 (14%) and Ruble liquidity remained unavailable to non-affiliated corporate borrowers, such as the Company. The derivatives market reacted similarly to Ruble's movement against the U.S. dollar, and the Company's efforts to identify a viable hedging strategy failed in light of the banks' unwillingness to engage new borrowers and extremely high costs of hedging in a highly speculative environment of the market's uncertainty regarding the future course of the Ruble. The result of this situation was the Company's inability to close its open Ruble position, and the corresponding foreign exchange loss for the financial year 2008 and first half of 2009. Interest Rate Risk The Company receives all of its funding at commercial interest rates. At this time, approximately 52% of financing is provided at fixed rates (2008: 22%). Total exposure to floating rate obligations is USD 55.6 million. 30 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 26. Currency, Interest Rate, Liquidity and Credit Risk (continued) Loan portfolio composition by interest rate type is as follows: 31.12.2009 31.12.2008 Fixed Floating Fixed Floating USD - denominated loans 38,007,713 38,783,350 34,576,000 113,825,225 RUR - denominated loans (in USD equivalent) 23,395,560 16,861,432 4,765,081 22,606,290 Total loan type 61,403,273 55,644,782 39,341,081 136,431,515 Total loans 117,048,055 175,772,596 Fluctuations in the financial markets rate may increase the future cost of new financing attracted by the Company. Leases sold by the Company carry fixed rates as Russian tax law presents major risks related to floating rate leases. The Company is also subject to repricing risk. Most Ruble funding is tied to the 3-month Mosprime indicator, while U.S. dollar funding is tied to a relevant LIBOR benchmark. Three-month Mosprime began 2008 at 5.72% and rose sharply to reach a maximum of 22.5% by the year end - volatility of the indicator was extreme. As at 31 December 2009, three-month Mosprime was stabilizing alongside of the general markets and, while still historically high, stood at 7.05% (30 September 2009: 10.54%, 30 June 2009: 11.82%, 31 December 2008: 21.8%). Many of the Company's commercial lenders in the second half of 2008 invoked applicable "market disruption" provisions of their debt facilities, which generally speaking, set alternative (to Mosprime or LIBOR) interest rate bases to reflect the actual costs of borrowing in the marketplace. At the time of these financial statements, only ICICI bank continues to operate under market disruption clause. Credit Risk The Company takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. The Company manages its credit risk by limiting exposure to single borrowers, economic groups, industry segments and equipment types. Limits for these risks are established not only in the Company's internal policies and procedures, but are also present in loan agreements with Company creditors. Such risks are monitored on a continuous basis, are subject to an ongoing review and the Company is wholly in compliance with the risk factors measured by its creditors. Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations, and by changing these lending limits where appropriate. Apart from the fact that the Company holds title to all leased assets prior to completion of each lease and collects a security advance (prepayment) on each transaction, it manages credit risk by obtaining, when prudent and possible and in accordance with internal procedures and guidelines, corporate and personal guarantees, supplier buyback and remarketing agreements tied to leased assets and direct debit agreements to lessee and guarantor bank accounts. The Company's maximum exposure to credit risk is generally reflected in the carrying amounts of financial assets on the balance sheet. The impact of possible netting of assets and liabilities to reduce potential credit exposure is not significant. 31 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 26. Currency, Interest Rate, Liquidity and Credit Risk (continued) Liquidity Risk Liquidity risk is defined as the risk that maturities of assets and liabilities do not match. Liquidity risk is managed by Company management. The table below shows assets and liabilities as at 31 December 2009 by their remaining contractual maturity. Demand and less than 90 91 - 365 4 years No stated days days 2 years 3 years and more maturity Total Assets Cash and cash equivalents 4,355,760 - - - - - 4,355,760 Net investments in direct finance leases 19,192,956 57,573,234 38,875,123 16,306,852 9,586,496 - 141,534,661 Advances paid to suppliers 2,611,060 - - - - - 2,611,060 VAT recoverable - 851,933 - - - - 851,933 Property, plant and equipment - - - - - 1,313,778 1,313,778 Deferred tax - 435,089 409,317 - - - 844,406 Other assets 5,092,807 1,289,270 699,991 244,163 296,738 - 7,622,969 Total assets 31,252,583 60,149,526 39,984,431 16,551,015 9,883,234 1,313,778 159,134,567 Liabilities Loans 14,587,954 43,183,680 30,083,335 16,264,516 12,928,570 - 117,048,055 Advances received from lessees 5,372,818 - - - - - 5,372,818 Deferred tax liability 600,214 485,048 - - - 1,085,262 Other payables 3,138,908 - - - - - 3,138,908 Fair value of hedge instruments - 74,410 186,025 - - - 260,435 Total liabilities 23,099,680 43,858,304 30,754,408 16,264,516 12,928,570 - 126,905,478 Net liquidity position 8,152,903 16,291,222 9,230,023 286,499 (3,045,336) 1,313,778 32,229,089 Cumulative liquidity position 8,152,903 24,444,125 33,674,148 33,960,647 30,915,311 32,229,089 32 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 26. Currency, Interest Rate, Liquidity and Credit Risk (continued) The matching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Company. It is unusual for leasing companies ever to be completely matched since business transacted is often of an uncertain term and of different types. An unmatched position potentially enhances profitability, but can also increase the risk of losses. 27. Employee Share Option Plan The Employee Share Option Plan (ESOP) was established on 17 May 2005 by Board of Directors of DL Holdings Ltd. The purpose of the ESOP is to attract and retain the best available personnel, to provide additional incentives to persons who provide services to the Company or its affiliates and to promote the success of the Company's business. The options are written on shares in DL Holdings Ltd., a Cypriot company that owns 100% of the shares of DeltaLeasing. The aggregate number of shares that may be issued under the plan (upon exercise of options) may not exceed 15% of the issued and outstanding shares, inclusive of such shares issued under the ESOP. ASC 718 stipulates that share-based payments awarded to an employee of the reporting entity by a related party or other holder of an economic interest in the entity as compensation for services provided to the entity are to be accounted for by the reporting entity. The substance of such a transaction is that the economic interest holder makes a capital contribution to the reporting entity, and that entity makes a share-based payment to its employee in exchange for services rendered. This constitutes the basis for DeltaLeasing reporting share-based compensation in its financial statements. ASC 718 requires all public companies to apply fair value measurement approach to share-based compensation. However, for an equity instrument issued by a non-public company (such as DeltaLeasing) for which it is not possible to reasonably estimate fair value at the grant date, the instrument shall be accounted for based on its intrinsic value, remeasured at each reporting date through the date of exercise or other settlement (ASC 718-20-35-1). Compensation cost for each period until settlement shall be based on the change (or a portion of change, depending on the percentage of the requisite service that has been rendered at the reporting date) in the intrinsic value of the instrument in each reporting period. The entity shall continue to use the intrinsic value method for those instruments even if it subsequently concludes that it is possible to reasonably estimate their fair value. In applying methodology consistent with Board's intent and provisions of ASC 718, DeltaLeasing for financial reporting purposes adopts a "book value times an adjustment factor" approach. The "factor" shall mean management's estimate of the potential market value of the Company, defined as the excess of the share sale price over share book value at such future time when The U.S. Russia Investment Fund may exit the Company. For 2009, the Company believes that a factor of 1.00 to book value (2008: 0.50) represents an appropriate valuation of current exit price. The factor increased compared to 2008 due to a general improvement of market conditions for financial institutions during 2009. This factor takes into account the impact of the ongoing financial crisis on the Company and uncertainties that it creates, its current level of development, an absence of existing offers that would assist in better defining this value and its unique presence in markets currently defined by low penetration and little competition. To the Company's knowledge, no arms-length sales of analogous regionally-based leasing companies have occurred that would allow for more accurate benchmarking. This value shall be used for financial reporting purposes until such time as reliable evidence appears which may indicate a change in the fair market value. Such evidence may be in the form of firm negotiations of the sale of all or a portion of shares owned by The U.S. Russia Investment Fund in DL Holdings Ltd or DeltaLeasing, as the case may be. General M&A data for Russian, Eastern and Central European financial institutions in 2008-2009 confirms appropriateness of the valuation factor. 33 ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 27. Employee Share Option Plan (continued) Two series of options are outstanding: Option type Number of options Exercise price per Service period outstanding option 4 years from 1 January 2005 through 1 January Series 1 82,107 USD 26.3943 2009 4 years from 9 September 2008 through Series 2 15,966 USD 63.3098 9 September 2012* 98,073 *Vesting becomes immediate upon change of ownership / control of the Company. Compensation expense is recognized for the number of share options that are cumulatively vested as of the reporting date, in other words, over the periods of requisite service during which each tranche of the share options is earned for services rendered. There are no allowable deductions in the Russian Federation for share-based payments to employees. The ESOP is subject to corporate taxation in Republic of Cyprus. The number of share options fully vested at 31 December 2009 was 87,096 (2008: 76,789). Options have been granted to a total of 13 individuals since plan inception on 1 January 2005. Participants include the Chairman, CEO, CFO, COO, 8 senior managers and one former senior manager who has departed the company. The vesting schedule for all share options granted and outstanding is as follows: 31.12.2009 31.12.2008 2005 13,288 13,288 2006 24,963 24,963 2007 18,652 18,652 2008 19,886 19,886 2009 10,309 10,309 2010 3,992 3,992 2011 3,992 3,992 2012 2,991 2,991 Total share options 98,073 98,073 The total compensation expense related to share-based payments to employees for the year ended 31 December 2009 was zero (2008: zero) as the intrinsic value of the options at 31 December 2009 was also zero (2008: zero). 28. Post Balance Sheet Events: General • Non-performance between January 2010 and end of May 2010 continues to exhibit relative stability with aggregate USD non-performance values of USD 14M and USD 11.7M (principal outstanding, non-GAAP) for '30+ and repo' and '60+ and repo' measures. • General market improvements are reviving demand and expanding DL's approval and disbursal activity. During 1Q 2010, this resulted in adequately high disbursal activity to avoid month-on-month portfolio atrophy, with principal outstanding stable at USD 169M (principal outstanding, non-GAAP measure). 34 • On March 30, 2010, the Company's beneficial owner, The U.S. Russia Investment Fund, extended a six-month unsecured revolving loan facility of USD 15M to assist the Company in managing short- term liquidity in light of strongly growing business volumes. ZAO DeltaLeasing Notes to the Financial Statements for the Years Ended 31 December 2009 and 31 December 2008 (expressed in United States dollars) 28. Post Balance Sheet Events: General (continued) • On March 31, 2010, Overseas Private Investment Corporation approved a 7-year USD 90M loan facility. Closing is expected in 2Q 2010. • On April 13, 2010, European Bank for Reconstruction and Development approved a 5-year RUR 480M (circa USD 16M) loan facility. Loan Agreement was signed on May 25, 2010. • In April, the Company launched its new full-service Samara office, which will cover operations in the Volga Federal District. 29. Post Balance Sheet Events: Loan Covenants Certain temporary waivers of loan covenants (see Note 18) granted to the Company began expiring in 2010. As of 17 June 2010, the Company's status with regard to expired waivers was as follows: Resolution Lender principal Lender Waived covenant Status Waiver expired on exposure as of 30.05.2010 Standard • NPL levels Resolved • 1 April 2010 USD 22,222,222 Bank • NPL levels • 30 April 2010 OPIC In-progress USD 17,714,286 • Open Credit Exposure • 31 March 2010 • NPL levels • 1 April 2010 DEG Resolved USD 11,290,000 • Open Credit Exposure • 1 April 2010 ICICI • NPL Level In-progress • 1 January 2010 USD 8,888,889 All four lenders had been approached by the Company with a proposal of permanently amending loan covenants with the following (as applicable): "Open Credit Exposure Ratio means the result obtained by dividing: (i) the amounts outstanding under Non-Performing Leases less the total Loan Loss Provisions; by (ii) Borrower's Equity." "Open Credit Exposure Ratio to Borrower's Equity shall not exceed the following: 2010 – not more than 20%, 2011 – fifteen percent and 2012 and thereafter 10%." "Non-Performing Leases: The Borrower shall at all times maintain a ratio of Leases in arrears for more than 60 days to total Leases as follows: 2010 – not more than 11%, 2011 – not more than 8%, 2012 and thereafter – not more than 5%." OPIC's new facility (see Note 28) was approved with covenants as per above. On May 26, 2010, Standard Bank executed a waiver of the covenant breach and amended the covenants prospectively replacing the NPL level covenant with an OCE covenant as per above. On June 6, 2010, DEG executed a waiver of the covenant breach and amended both the NPL and OCE covenants prospectively as per above. The Company anticipates positive resolution of all waiver issues within a reasonable timeframe in 2010. 35
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'I wouldn't say Jezebel has gotten "less" snarky'
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About this item
This 80-page companion book to the highly anticipated Disney Infinity video game will introduce players to the beloved Disney and Pixar characters and worlds featured in the game. Players will learn all about their favorite characters, including Captain Jack Sparrow, Sulley, Lightning McQueen, and The Incredibles.
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I plan on designing a quantitative assay to profile various wild ales (lambic, gueuze, flander's red and brown). I plan on testing ethyl acetate, acetic acid, and total volatile acids. I am also looking into additional compounds to add to the assay (depending on the ease/cost of creating a quantitative test for them). What are some characteristic compounds that you would like to see added? So far I have only looked into Isoamylacetate and a few phenols, but no sure-fire test methods yet...
Fortune Favors the Bold
Gas chromatography (or GC/MS if it is available) seem the obvious ways to go and you will find tons of literature that uses these techniques for investigating beer flavor and aroma.
I'd use preliminary research to answer the question i.e. run a bunch of chromatograms or look at the literature and see what you find in the beers of interest and how they vary. If you find (and you probably will) ethyl hexanoate, for example and find that it gives a hefty peak in some beers but not so much in others I'd add ethyl hex to the list.
I would use preliminary results from actually drinking some.
I will be using GC/MS to do QA/QC tests, but it has to be an easily reproduced assay unfortunately (school/research project restrictions). Will most likely be doing a fixed enzyme type assay with different enzyme concentrations and a ladder column. I realize this is pretty limiting but I'm hoping I can come up with a 4-5 compounds that are easy to test but still useful in a profile. I will start looking into ethyl hex. Thanks for the suggestion!