Grupa LOTOS S.A. - Annual Report 2010

As at December 31st 2010, the LOTOS Group comprised Grupa LOTOS S.A. (the Parent Undertaking) and 25 production and service companies, including:

• 16 subsidiaries of Grupa LOTOS S.A.
• 9 indirect subsidiaries of Grupa LOTOS S.A.

In addition, as at December 31st 2010 and as at December 31st 2009, the Group held an indirect equity interest of 40.31% in associated undertaking AB Geonafta (see Note 21)

The following table presents the subsidiary undertakings of the LOTOS Group, their business profiles, consolidation method, and the Group's stakes in their share capitals.

Name	Registered office	Business Profile	Method of consolidation/ valuation of shares	Percentage of share capital held by the Group
				Dec 31 2010	Dec 31 2009
Parent Undertaking
Grupa LOTOS S.A.	Gdańsk	Production and processing of refined petroleum products (mainly fuels) and their wholesale	Not applicable	Not applicable	Not applicable
Direct Subsidiary Undertakings
LOTOS Paliwa Sp. z o.o.	Gdańsk	Wholesale and retail sale of fuels and light fuel oil, management of the LOTOS service station network	full	100.00%	100.00%
LOTOS Gaz S.A.(1)	Mława	The company is not conducting operations	full	100.00%	100.00%
LOTOS Oil S.A.	Gdańsk	Production and sale of lubricating oils and lubricants, and domestic sale of base oils	full	100.00%	100.00%
LOTOS Asfalt Sp. z o.o.	Gdańsk	Production and sale of bitumens	full	100.00%	100.00%
LOTOS Ekoenergia S.A.(2)	Gdańsk	The company has not commenced operations	full	100.00%	100.00%
LOTOS Kolej Sp. z o.o.	Gdańsk	Railway transport	full	100.00%	100.00%
LOTOS Serwis Sp. z o.o.	Gdańsk	Maintenance of mechanical and electric operations and controlling devices, repairs	full	100.00%	100.00%
LOTOS Lab  Sp. z o.o.	Gdańsk	Laboratory analyses	full	100.00%	100.00%
LOTOS Straż Sp. z o.o.	Gdańsk	Fire safety	full	100.00%	100.00%
LOTOS Ochrona Sp. z o.o.	Gdańsk	Personal and property protection	full	100.00%	100.00%
LOTOS Parafiny Sp. z o.o.	Jasło	Production and sale of paraffin	full	100.00%	100.00%
LOTOS Tank Sp. z o.o.	Gdańsk (3)	Trading in aviation fuel	full	100.00%	100.00%
LOTOS Czechowice S.A. (parent undertaking of another group)	Czechowice-Dziedzice	Storage and distribution of fuels	full	97.55% (5)	85.04% (4)
LOTOS Jasło S.A. (parent undertaking of another group)	Jasło	Services related to distribution of petroleum products, storage of fuels, building and maintenance of fuel stocks; production and processing of refined petroleum products and their wholesale and retail sale	full	98.12% (5)	85.01% (4)
LOTOS Petrobaltic S.A. (6) (parent undertaking of another group)	Gdańsk	Acquisition of crude oil and natural gas reserves and their exploitation	full	99.32%	99.32%(4)
LOTOS Park Technologiczny Sp. z o.o.	Jasło	The company is not conducting operations	full	100.00% (7)	0.29% (7)
Indirect subsidiaries
RCEkoenergia Sp. z o.o.	Czechowice-Dziedzice	Production and distribution of electricity, heat and gas	full	97.55% (9, 10)	85.04% (8)
LOTOS Biopaliwa Sp. z o.o.	Czechowice-Dziedzice	Production of fatty acid methyl esters (FAME) (11)	full	97.55% (9, 10)	85.04% (8)
PLASTEKOL Organizacja Odzysku S.A.	Jasło	Provision of services	full	93.70% (9)	81.18% (8, 12)
KRAK-GAZ  Sp. z o.o. w upadłości likwidacyjnej (in bankruptcy by liquidation)	Kraków	- (1)
Miliana Shipping Company Ltd.	Cypr	Services consisting in the storage and transport of crude oil	full	99.32 %	99,32 % (8)
LOTOS Exploration and Production Norge AS	Stavanger Norway	Oil exploration and production on the Norwegian continental shelf, provision of services related to oil exploration and production	full	99.32% (13)	99.32 % (8)
Aphrodite Offshore Services N.V.	Netherlands Antilles	Sea transport services	full	99.32%	99.32 % (8)
Energobaltic Sp. z o.o.	Władysławowo (15)	Production of electricity, heat, LPG and natural gas condensate	full (14)	99.32%	99.32 % (14)
UAB LOTOS Baltija	Vilnius, Lithuania	Business and legal advisory services	full	99.32 % (16)	100.00%

  

As at December 31st 2009, the Group’s shares in the total vote at the general shareholders meetings of its subsidiary undertakings were equal to its shares in their share capitals, As at December 31st 2009, the Group’s shares in the total vote at the general shareholders meetings of its subsidiary undertakings were equal to its shares in their share capitals, except in the case of LOTOS Park Technologiczny Sp. z o.o.

Loss of Control over KRAK-GAZ Sp. z o.o. (Subsidiary of LOTOS Gaz S.A.)

On April 30th 2009, KRAK-GAZ Sp. z o.o. filed a bankruptcy petition with the District Court for Kraków Śródmieście, VIII Commercial Division for Bankruptcy and Recovery.

On July 1st 2009, a provisional court supervisor was appointed. On July 13th 2009, the supervisor submitted a report containing an analysis of the debtor’s documentation and condition of its business.
On July 23rd 2009, the District Court for Kraków Śródmieście, VIII Commercial Division for Bankruptcy and Recovery, resolved to declare KRAK-GAZ Sp. z o.o.’s bankruptcy by liquidation of the company’s assets (KRAK-GAZ Sp. z o.o w upadłości likwidacyjnej (in bankruptcy by liquidation)).

On July 1st 2009, as a result of the provisional appointment of a court supervisor, LOTOS Gaz S.A. lost control over its subsidiary KRAK-GAZ Sp. z o.o. within the meaning of the revised IAS 27 Consolidated and Separate Financial Statements. Consequently, KRAK-GAZ Sp. z o.o. has not been consolidated in these consolidated financial statements of the LOTOS Group for the year ended December 31st 2009 and as at December 31st 2009.

Accounting for the Loss of Control over KRAK-GAZ Sp. z o.o.

(PLN '000)	Dec 31 2009
Net assets of KRAK-GAZ Sp. z o.o. as at the date of control takeover (1)	4,684
Change in net assets of KRAK-GAZ Sp. z o.o. from the date of control takeover to the date of loss of control	(35,239)
Net assets of KRAK-GAZ Sp. z o.o. as at the date of loss of control	(30,555)
Fair value of KRAK-GAZ Sp. z o.o. shares	0
Impact of the loss of control over KRAK-GAZ Sp. z o.o. on the consolidated financial result of the LOTOS Group	30,555

  

By December 31st 2009, LOTOS Gaz S.A. recognised an impairment loss on the full value of KRAK-GAZ Sp. z o.o. shares (PLN 17,329 thousand). Moreover, in 2008 an impairment loss was recognised on the goodwill of PLN 12,645 thousand which had arisen on the acquisition of control of KRAK-GAZ Sp. z o.o. on July 7th 2007. Until the date of loss of control, other operating expenses of the LOTOS Gaz Group included an impairment loss on receivables from KRAK-GAZ Sp. z o.o., in the amount of PLN 21,243 thousand (previously, the impairment loss had been subject to intra-Group eliminations).

The net profit of KRAK-GAZ Sp. z o.o. by the date of the loss of control, accounted for in the consolidated statement of comprehensive income for 2009, amounts to PLN (16,423) thousand.

Reduction of the Share Capital of UAB LOTOS Baltija

On September 21st 2009, the reduction of the share capital of UAB LOTOS Baltija from LTL 720.2 thousand to LTL 381.9 thousand was registered. Following the reduction, the Company’s share capital is divided into 5,876 ordinary registered shares with a par value of LTL 65 per share.

Registration of Reduction in the Share Capital of LOTOS Park Technologiczny Sp. z o.o.

On November 20th 2009, the then-shareholders of LOTOS Park Technologiczny Sp. z o.o. sold their shares to LOTOS Park Technologiczny:

• Grupa LOTOS S.A. – 9,400 shares out of the total of 9,500 shares held,
• LOTOS Czechowice S.A. – the entire stake of 12,314 shares,
• LOTOS Jasło S.A. – the entire stake of 9,866 shares,
• LOTOS Serwis Sp. z o.o. – the entire stake of 2,834 shares,
• Partner Holding Management Sp. z o.o. – the entire stake of 100 shares.

LOTOS Park Technologiczny Sp. z o.o. acquired its own shares with a view to their voluntary retirement by way of reduction of the share capital.

Following the transaction, the shareholder structure of LOTOS Park Technologiczny Sp. z o.o. was as follows:
LOTOS Park Technologiczny Sp. z o.o. – 99.71%,
Grupa LOTOS S.A. – 0.29%.
Grupa LOTOS S.A. retained control over LOTOS Park Technologiczny Sp. z o.o. given the GM powers vested in Grupa LOTOS S.A. as the only shareholder.

On March 31st 2010, reduction in the share capital of LOTOS Park Technologiczny Sp. z o.o. to PLN 50 thousand was registered. The share capital of LOTOS Park Technologiczny Sp. z o.o. is divided into 100 shares. Following registration of the changes in the National Court Register, Grupa LOTOS S.A. holds a 100% stake in LOTOS Park Technologiczny Sp. z o.o.

Acquisition of LOTOS Jasło S.A. Shares

On February 4th 2010, Grupa LOTOS S.A. made an offer to purchase LOTOS Jasło S.A. shares. The offer was addressed only to the following persons: employees and former employees of LOTOS Jasło S.A. who acquired the shares free of charge under the Act on Commercialisation and Privatisation of State-Owned Enterprises, dated August 30th 1996, as well as their heirs and members of their immediate family who acquired the shares through donation directly from such persons. The offer was valid until March 22nd 2010. The purchase price offered for the shares was PLN 4.90 per share in the period from February 8th 2010 to March 8th 2010, and PLN 4.23 per share in the period from March 9th 2010 to March 22nd 2010. On May 20th 2010, Grupa LOTOS S.A. made another offer to purchase shares in LOTOS Jasło S.A. at a price of PLN 4.45 per share. The offer was addressed to all remaining shareholders and was valid until June 11th 2010. The share purchase process was completed at the end of 2010. With respect to the remaining shares held by minority shareholders, on November 30th 2010 the General Shareholders Meeting of LOTOS Jasło S.A. adopted a resolution regarding minority squeeze-out.

Acquisition of LOTOS Czechowice S.A. Shares

On February 4th 2010, Grupa LOTOS S.A. made an offer to purchase LOTOS Czechowice S.A. shares. The offer was addressed only to the following persons: employees and former employees of LOTOS Czechowice S.A. who acquired the shares free of charge under the Act on Commercialisation and Privatisation of State-Owned Enterprises, dated August 30th 1996, as well as their heirs and members of their immediate family who acquired the shares through donation directly from such persons. The offer was valid until March 22nd 2010. The purchase price offered for the shares was PLN 7.98 per share in the period from February 8th 2010 to March 8th 2010, and PLN 6.89 per share in the period from March 9th 2010 to March 22nd 2010. On May 20th 2010, Grupa LOTOS S.A. made another offer to purchase shares in LOTOS Czechowice S.A. at a price of PLN 7.25 per share. The offer was addressed to all remaining shareholders and was valid until June 11th 2010. The share purchase process was completed at the end of 2010. With respect to the remaining shares held by minority shareholders, on December 1st 2010 the General Shareholders Meeting of LOTOS Czechowice S.A. adopted a resolution regarding minority squeeze-out (see Note 46).

Accounting for the Acquisition of Shares in LOTOS Jasło S.A. and LOTOS Czechowice S.A. from Non-Controlling Interests

By December 31st 2010 Grupa LOTOS S.A. acquired 938,701 shares in LOTOS Czechowice S.A. with the total value of PLN 7,574 thousand, representing 12.51% of the company’s share capital, and 786,924 shares in LOTOS Jasło S.A. with the total value of PLN 3,980 thousand, representing 13.11% of the company’s share capital.

As at December 31st 2010, following completion of the share purchase transactions, Grupa LOTOS S.A. held 97.55% of the share capital of LOTOS Czechowice S.A. and 98.12% of the share capital of LOTOS Jasło S.A.

In line with the revised IAS 27 Consolidated and Separate Financial Statements, the transaction described above was accounted for as an equity transaction, as a result of which an amount of PLN 12,976 thousand was recognised under retained earnings attributable to the Parent.

Accounting for the acquisition of LOTOS Jasło S.A. and LOTOS Czechowice S.A. shares from non-controlling interests,as at December 31st 2010:

(PLN '000)
Value of non-controlling interests as at Dec 31 2010 (A)	24,253
Value of (price paid for) the acquired 12.51% of shares in LOTOS Czechowice S.A. and 13.11% of shares in LOTOS Jasło S.A. (B)	11,554
Costs related to the acquisition (C)	(277)
Excess of the value of non-controlling interests over the value of the acquired shares (A-B-C)	12,976

Share Capital Increase at LOTOS Gaz S.A.

On December 14th 2009, an Extraordinary General Shareholders Meeting of LOTOS Gaz S.A. was held, during which the share capital of LOTOS Gaz S.A. was increased from PLN 3,680 thousand to PLN 10,080 thousand, i.e. by PLN 6,400 thousand, by way of raising the par value of the existing 160,000 shares from PLN 23 to PLN 63 per share. The share capital increase at LOTOS Gaz S.A.’s was not registered, and the payment in the amount of PLN 6,400 thousand made by the Company in connection with the increase was returned. In connection with the foregoing, Grupa LOTOS S.A. reversed PLN 6,400 thousand of previously recognised impairment losses on financial assets.

Change in the Legal Form of LOTOS Ekoenergia Sp. z o.o.

On May 6th 2010, a change in the company’s legal form from a joint stock company to a limited liability company was registered. Currently the company operates under the name LOTOS Ekoenergia Sp. z o.o.

Acquisition of Shares in LOTOS Biopaliwa Sp. z o.o. and RCEkoenergia Sp. z o.o.

On November 5th 2010, Grupa LOTOS S.A. acquired from LOTOS Czechowice S.A. one share in LOTOS Biopaliwa Sp. z o.o. for the price of PLN 3 thousand and one share in RCEkoenergia Sp. z o.o for the price of PLN 1 thousand.

Following the transaction, the shareholder structure of LOTOS Biopaliwa Sp. z o.o. is as follows:
LOTOS Czechowice S.A. – 99.995%,
Grupa LOTOS S.A. – 0.005%.

Following the transaction, the shareholder structure of RCEkoenergia Sp. z o.o. is as follows:
LOTOS Czechowice S.A. – 99.995%,
Grupa LOTOS S.A. – 0.005%.

Acquisition of New Issue Shares in LOTOS Exploration and Production Norge AS

On November 15th 2010, the share capital of LOTOS Exploration and Production Norge AS was raised by NOK 1, to NOK 430,000,001 (the equivalent of PLN 207,346,000, translated at the mid-exchange rate for NOK quoted by the National Bank of Poland for November 15th 2010). One new share with a par value of NOK 1 (the equivalent of PLN 0.4822, translated at the mid-exchange rate for NOK quoted by the National Bank of Poland for November 15th 2010) was acquired by Grupa LOTOS S.A.

Following the transaction, the shareholder structure of LOTOS Exploration and Production Norge AS is as follows:
LOTOS Petrobaltic S.A. – 99.9999998%,
Grupa LOTOS S.A. – 0.0000002%.

The share capital increase at LOTOS Exploration and Production Norge AS was registered by the Norwegian companies registrar Brønnøysundregistrene on December 2nd 2010.

Disposal of UAB LOTOS Baltija Shares

On December 9th 2010, Grupa LOTOS S.A. and LOTOS Petrobaltic S.A. executed an agreement for the sale of 5,876 shares in UAB LOTOS Baltija, representing 100% of the company's share capital, for a total price of PLN 485 thousand.

Offer to Purchase LOTOS Petrobaltic S.A. Shares

On December 17th 2010, Grupa LOTOS S.A. made an offer to purchase LOTOS Petrobaltic S.A. shares. The offer was addressed only to the following persons: employees and former employees of LOTOS Petrobaltic S.A. who acquired the shares free of charge under the Act on Commercialisation and Privatisation of State-Owned Enterprises, dated August 30th 1996, as well as their heirs and members of their immediate family who acquired the shares through donation directly from such persons. The offer was valid until January 30th 2011. The purchase price was PLN 126 per share. As at the date of approval of these consolidated financial statements, the share purchase process has not been completed.
By April 7th 2011, Grupa LOTOS S.A. has purchased from minority shareholders 56,486 LOTOS Petrobaltic S.A. shares, representing 0.61% of the company’s share capital. As a result of the executed transactions, Grupa LOTOS S.A. currently holds 99.93% of the share capital of LOTOS Petrobaltic S.A.